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[House Report 107-539]
[From the U.S. Government Publishing Office]

107th Congress                                            Rept. 107-539
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1
_______________________________________________________________________

                                     

       MEDICARE MODERNIZATION AND PRESCRIPTION DRUG ACT OF 2002

                               __________

                              R E P O R T

                                 of the

                      COMMITTEE ON WAYS AND MEANS

                        HOUSE OF REPRESENTATIVES

                              to accompany

                               H.R. 4954

A BILL TO AMEND TITLE XVIII OF THE SOCIAL SECURITY ACT TO PROVIDE FOR A 
  VOLUNTARY PROGRAM FOR PRESCRIPTION DRUG COVERAGE UNDER THE MEDICARE 
  PROGRAM

                             together with

                    DISSENTING AND ADDITIONAL VIEWS

                 June 26, 2002.--Ordered to be printed
                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
80-346                    WASHINGTON : 2002

107th Congress                                            Rept. 107-539
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 1

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

 
        MEDICARE MODERNIZATION AND PRESCRIPTION DRUG ACT OF 2002

                                _______
                                

                 June 26, 2002.--Ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                    DISSENTING AND ADDITIONAL VIEWS

                        [To accompany H.R. 4954]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 4954) to amend title XVIII of the Social Security 
Act to provide for a voluntary program for prescription drug 
coverage under the Medicare Program, to modernize and reform 
payments and the regulatory structure of the Medicare Program, 
and for other purposes, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background.........................................109
          A. Purpose and Summary.................................   109
          B. Background and Need for Legislation.................   109
          C. Legislative History.................................   111
 II. Explanation of the Bill........................................112
          A. Medicare Prescription Drug Benefit..................   112
          B. Medicare+Choice Revitalization and Competition 
              Program............................................   129
          C. Rural Health Care Improvements......................   137
          D. Provisions Relating to Part A.......................   144
          E. Provisions Relating to Part B.......................   151
          F. Provisions Relating to Parts A and B................   164
          G. Medicare Benefits Administrator.....................   172
          H. Regulatory Reduction and Contracting Reform.........   176
          I. Medicaid and Public Health..........................   221
III. Votes of the Committee.........................................224
 IV. Budget Effects of the Bill.....................................230
          A. Committee Estimate of Budgetary Effects.............   230
          B. Statement Regarding New Budgetary Authority and Tax 
              Expenditures.......................................   231
          C. Cost Estimate Prepared by the Congressional Budget 
              Office.............................................   231
  V. Other Matters To Be Discussed Under the Rules of the House.....242
 VI. Changes in Existing Law Made by the Bill, as Reported..........243
VII. Dissenting and Additional Views................................406

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

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

  (a) Short Title.--This Act may be cited as the ``Medicare 
Modernization and Prescription Drug Act of 2002''.
  (b) Amendments to Social Security Act.--Except as otherwise 
specifically provided, whenever in this Act an amendment is expressed 
in terms of an amendment to or repeal of a section or other provision, 
the reference shall be considered to be made to that section or other 
provision of the Social Security Act.
  (c) BIPA; Secretary.--In this Act:
          (1) BIPA.--The term ``BIPA'' means the Medicare, Medicaid, 
        and SCHIP Benefits Improvement and Protection Act of 2000, as 
        enacted into law by section 1(a)(6) of Public Law 106-554.
          (2) Secretary.--The term ``Secretary'' means the Secretary of 
        Health and Human Services.
  (d) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; amendments to Social Security Act; references to 
BIPA and Secretary; table of contents.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Sec. 101. Establishment of a medicare prescription drug benefit.

         ``Part D--Voluntary Prescription Drug Benefit Program

        ``Sec. 1860A. Benefits; eligibility; enrollment; and coverage 
                        period.
        ``Sec. 1860B. Requirements for qualified prescription drug 
                        coverage.
        ``Sec. 1860C. Beneficiary protections for qualified 
                        prescription drug coverage.
        ``Sec. 1860D. Requirements for prescription drug plan (PDP) 
                        sponsors; contracts; establishment of 
                        standards.
        ``Sec. 1860E. Process for beneficiaries to select qualified 
                        prescription drug coverage.
        ``Sec. 1860F. Submission of bids.
        ``Sec. 1860G. Premium and cost-sharing subsidies for low-income 
                        individuals.
        ``Sec. 1860H. Subsidies for all medicare beneficiaries for 
                        qualified prescription drug coverage.
        ``Sec. 1860I. Medicare Prescription Drug Trust Fund.
        ``Sec. 1860J. Definitions; treatment of references to 
                        provisions in part C.
Sec. 102. Offering of qualified prescription drug coverage under the 
Medicare+Choice program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition.
Sec. 105. Medicare prescription drug discount card endorsement program.

     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

               Subtitle A--Medicare+Choice Revitalization

Sec. 201. Medicare+Choice improvements.
Sec. 202. Making permanent change in Medicare+Choice reporting 
deadlines and annual, coordinated election period.
Sec. 203. Avoiding duplicative State regulation.
Sec. 204. Specialized Medicare+Choice plans for special needs 
beneficiaries.
Sec. 205. Medicare MSAs.
Sec. 206. Extension of reasonable cost and SHMO contracts.
Sec. 207. Extension of municipal health service demonstration 
projects.z

            Subtitle B--Medicare+Choice Competition Program

Sec. 211. Medicare+Choice competition program.
Sec. 212. Demonstration program for competitive-demonstration areas.
Sec. 213. Conforming amendments.

               TITLE III--RURAL HEALTH CARE IMPROVEMENTS

Sec. 301. Reference to full market basket increase for sole community 
hospitals.
Sec. 302. Enhanced disproportionate share hospital (DSH) treatment for 
rural hospitals and urban hospitals with fewer than 100 beds.
Sec. 303. 2-year phased-in increase in the standardized amount in rural 
and small urban areas to achieve a single, uniform standardized amount.
Sec. 304. More frequent update in weights used in hospital market 
basket.
Sec. 305. Improvements to critical access hospital program.
Sec. 306. Extension of temporary increase for home health services 
furnished in a rural area.
Sec. 307. Reference to 10 percent increase in payment for hospice care 
furnished in a frontier area and rural hospice demonstration project.
Sec. 308. Reference to priority for hospitals located in rural or small 
urban areas in redistribution of unused graduate medical education 
residencies.
Sec. 309. GAO study of geographic differences in payments for 
physicians' services.
Sec. 310. Providing safe harbor for certain collaborative efforts that 
benefit medically underserved populations.
Sec. 311. Relief for certain non-teaching hospitals.

                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

Sec. 401. Revision of acute care hospital payment updates.
Sec. 402. 2-year increase in level of adjustment for indirect costs of 
medical education (IME).
Sec. 403. Recognition of new medical technologies under inpatient 
hospital PPS.
Sec. 404. Phase-in of Federal rate for hospitals in Puerto Rico.
Sec. 405. Reference to provision relating to enhanced disproportionate 
share hospital (DSH) payments for rural hospitals and urban hospitals 
with fewer than 100 beds.
Sec. 406. Reference to provision relating to 2-year phased-in increase 
in the standardized amount in rural and small urban areas to achieve a 
single, uniform standardized amount.
Sec. 407. Reference to provision for more frequent updates in the 
weights used in hospital market basket.
Sec. 408. Reference to provision making improvements to critical access 
hospital program.

             Subtitle B--Skilled Nursing Facility Services

Sec. 411. Payment for covered skilled nursing facility services.

                          Subtitle C--Hospice

Sec. 421. Coverage of hospice consultation services.
Sec. 422. 10 percent increase in payment for hospice care furnished in 
a frontier area.
Sec. 423. Rural hospice demonstration project.

                      Subtitle D--Other Provisions

Sec. 431. Demonstration project for use of recovery audit contractors 
for part A services.

                 TITLE V--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

Sec. 501. Revision of updates for physicians' services.
Sec. 502. Studies on access to physicians' services.
Sec. 503. MedPAC report on payment for physicians' services.
Sec. 504. 1-year extension of treatment of certain physician pathology 
services under medicare.

                       Subtitle B--Other Services

Sec. 511. Competitive acquisition of certain items and services.
Sec. 512. Payment for ambulance services.
Sec. 513. 2-year extension of moratorium on therapy caps; provisions 
relating to reports.
Sec. 514. Accelerated implementation of 20 percent coinsurance for 
hospital outpatient department (OPD) services; other OPD provisions.
Sec. 515. Coverage of an initial preventive physical examination.
Sec. 516. Renal dialysis services.
Sec. 517. Improved payment for certain mammography services.
Sec. 518. Waiver of part B late enrollment penalty for certain military 
retirees; special enrollment period.
Sec. 519. Coverage of cholesterol and blood lipid screening.

             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 601. Elimination of 15 percent reduction in payment rates under 
the prospective payment system.
Sec. 602. Establishment of reduced copayment for a home health service 
episode of care for certain beneficiaries.
Sec. 603. Update in home health services.
Sec. 604. OASIS Task Force; suspension of certain OASIS data collection 
requirements pending Task Force submittal of report.
Sec. 605. MedPAC study on medicare margins of home health agencies.

             Subtitle B--Direct Graduate Medical Education

Sec. 611. Extension of update limitation on high cost programs.
Sec. 612. Redistribution of unused resident positions.

                      Subtitle C--Other Provisions

Sec. 621. Modifications to Medicare Payment Advisory Commission 
(MedPAC).
Sec. 622. Demonstration project for disease management for certain 
medicare beneficiaries with diabetes.
Sec. 623. Demonstration project for medical adult day care services.

              TITLE VII--MEDICARE BENEFITS ADMINISTRATION

Sec. 701. Establishment of Medicare Benefits Administration.

        TITLE VIII--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

Sec. 801. Construction; definition of supplier.
Sec. 802. Issuance of regulations.
Sec. 803. Compliance with changes in regulations and policies.
Sec. 804. Reports and studies relating to regulatory reform.

                     Subtitle B--Contracting Reform

Sec. 811. Increased flexibility in medicare administration.
Sec. 812. Requirements for information security for medicare 
administrative contractors.

                   Subtitle C--Education and Outreach

Sec. 821. Provider education and technical assistance.
Sec. 822. Small provider technical assistance demonstration program.
Sec. 823. Medicare provider ombudsman; medicare beneficiary ombudsman.
Sec. 824. Beneficiary outreach demonstration program.

                    Subtitle D--Appeals and Recovery

Sec. 831. Transfer of responsibility for medicare appeals.
Sec. 832. Process for expedited access to review.
Sec. 833. Revisions to medicare appeals process.
Sec. 834. Prepayment review.
Sec. 835. Recovery of overpayments.
Sec. 836. Provider enrollment process; right of appeal.
Sec. 837. Process for correction of minor errors and omissions on 
claims without pursuing appeals process.
Sec. 838. Prior determination process for certain items and services; 
advance beneficiary notices.

                  Subtitle E--Miscellaneous Provisions

Sec. 841. Policy development regarding evaluation and management (E & 
M) documentation guidelines.
Sec. 842. Improvement in oversight of technology and coverage.
Sec. 843. Treatment of hospitals for certain services under medicare 
secondary payor (MSP) provisions.
Sec. 844. EMTALA improvements.
Sec. 845. Emergency Medical Treatment and Labor Act (EMTALA) Technical 
Advisory Group.
Sec. 846. Authorizing use of arrangements with other hospice programs 
to provide core hospice services in certain circumstances.
Sec. 847. Application of OSHA bloodborne pathogens standard to certain 
hospitals.
Sec. 848. BIPA-related technical amendments and corrections.
Sec. 849. Conforming authority to waive a program exclusion.
Sec. 850. Treatment of certain dental claims.
Sec. 851. Annual publication of list of national coverage 
determinations.

     TITLE IX--MEDICAID, PUBLIC HEALTH, AND OTHER HEALTH PROVISIONS

                    Subtitle A--Medicaid Provisions

Sec. 901. National Bipartisan Commission on the Future of Medicaid.
Sec. 902. GAO study on medicaid drug payment system.

                    Subtitle B--Internet Pharmacies

Sec. 911. Findings.
Sec. 912. Amendment to Federal Food, Drug, and Cosmetic Act.
Sec. 913. Public education.
Sec. 914. Study regarding coordination of regulatory activities.
Sec. 915. Effective date.

            Subtitle C--Promotion of Electronic Prescription

Sec. 921. Program of grants to health care providers to implement 
electronic prescription drug programs.

                 Subtitle D--Treatment of Rare Diseases

Sec. 931. NIH Office of Rare Diseases at National Institutes of Health.
Sec. 932. Rare disease regional centers of excellence.

             Subtitle E--Other Provisions Relating to Drugs

Sec. 941. GAO study regarding direct-to-consumer advertising of 
prescription drugs.
Sec. 942. Certain health professions programs regarding practice of 
pharmacy.

               ``Subpart 3--Pharmacist Workforce Programs

        ``Sec. 771. Public service announcements.
        ``Sec. 772. Demonstration project.
        ``Sec. 773. Information technology.
        ``Sec. 774. Authorization of appropriations.

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION DRUG BENEFIT.

  (a) In General.--Title XVIII is amended--
          (1) by redesignating part D as part E; and
          (2) by inserting after part C the following new part:

         ``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--
                  ``(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 $3,800; 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, under section 1860G, or under title 
                        XIX and the individual is not reimbursed 
                        (through insurance or otherwise) by another 
                        person 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) that the following requirements are met and the plan 
applies for, and receives, the approval of the Administrator for such 
benefit design:
          ``(1) Assuring at least actuarially equivalent 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-Rated 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 January 1, 2005.
                  ``(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 at beneficiary's option of withholding from social 
        security payment and use of electronic funds transfer 
        mechanism.--In accordance with regulations, a PDP sponsor shall 
        permit each enrollee, at the enrollee's option, to make payment 
        of premiums through withholding from benefit payments in the 
        manner provided under section 1840 with respect to monthly 
        premiums under section 1839. In the case in which an enrollee 
        does not elect such option, a PDP sponsor may, in accordance 
        with regulations, encourage enrollees to 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. 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 175 
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) or by the Social 
                Security Administration. 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. There are 
                authorized to be appropriated to the Social Security 
                Administration such sums as may be necessary for the 
                determination of eligibility under this subparagraph.
                  ``(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 65 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 35 percent of 
        the total payments made by a qualifying entity for standard 
        coverage 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; 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)(1)(B) 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).
          ``(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.''.
  (b) Additional Conforming Changes.--
          (1) Conforming references to previous part d.--Any reference 
        in law (in effect before the date of the enactment of this Act) 
        to part D of title XVIII of the Social Security Act is deemed a 
        reference to part E of such title (as in effect after such 
        date).
          (2) Conforming amendment permitting waiver of cost-sharing.--
        Section 1128B(b)(3) (42 U.S.C. 1320a-7b(b)(3)) is amended--
                  (A) by striking ``and'' at the end of subparagraph 
                (E);
                  (B) by striking the period at the end of subparagraph 
                (F) and inserting ``; and''; and
                  (C) by adding at the end the following new 
                subparagraph:
          ``(G) the waiver or reduction of any cost-sharing imposed 
        under part D of title XVIII.''.
          (3) Submission of legislative proposal.--Not later than 6 
        months after the date of the enactment of this Act, the 
        Secretary of Health and Human Services shall submit to the 
        appropriate committees of Congress a legislative proposal 
        providing for such technical and conforming amendments in the 
        law as are required by the provisions of this subtitle.
  (c) Study on Transitioning Part B Prescription Drug Coverage.--Not 
later than January 1, 2004, the Medicare Benefits Administrator shall 
submit a report to Congress that makes recommendations regarding 
methods for providing benefits under part D of title XVIII of the 
Social Security Act for outpatient prescription drugs for which 
benefits are provided under part B of such title.

SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG COVERAGE UNDER THE 
                    MEDICARE+CHOICE PROGRAM.

  (a) In General.--Section 1851 (42 U.S.C. 1395w-21) is amended by 
adding at the end the following new subsection:
  ``(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.''.
  (b) Conforming Amendments.--Section 1851 (42 U.S.C. 1395w-21) is 
amended--
          (1) in subsection (a)(1)--
                  (A) by inserting ``(other than qualified prescription 
                drug benefits)'' after ``benefits'';
                  (B) by striking the period at the end of subparagraph 
                (B) and inserting a comma; and
                  (C) by adding after and below subparagraph (B) the 
                following:
        ``and may elect qualified prescription drug coverage in 
        accordance with section 1860A.''; and
          (2) in subsection (g)(1), by inserting ``and section 
        1860A(c)(2)(B)'' after ``in this subsection''.
  (c) Effective Date.--The amendments made by this section apply to 
coverage provided on or after January 1, 2005.

SEC. 103. MEDICAID AMENDMENTS.

  (a) Determinations of Eligibility for Low-Income Subsidies.--
          (1) Requirement.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
        amended--
                  (A) by striking ``and'' at the end of paragraph (64);
                  (B) by striking the period at the end of paragraph 
                (65) and inserting ``; and''; and
                  (C) by inserting after paragraph (65) the following 
                new paragraph:
          ``(66) provide for making eligibility determinations under 
        section 1935(a).''.
          (2) New section.--Title XIX is further amended--
                  (A) by redesignating section 1935 as section 1936; 
                and
                  (B) by inserting after section 1934 the following new 
                section:
  ``special provisions relating to medicare prescription drug benefit
  ``Sec. 1935. (a) Requirement for Making Eligibility Determinations 
for Low-Income Subsidies.--As a condition of its State plan under this 
title under section 1902(a)(66) and receipt of any Federal financial 
assistance under section 1903(a), a State shall--
          ``(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.''.
  (b) Phased-In Federal Assumption of Medicaid Responsibility for 
Premium and Cost-Sharing Subsidies for Dually Eligible Individuals.--
          (1) In general.--Section 1903(a)(1) (42 U.S.C. 1396b(a)(1)) 
        is amended by inserting before the semicolon the following: ``, 
        reduced by the amount computed under section 1935(c)(1) for the 
        State and the quarter''.
          (2) Amount described.--Section 1935, as inserted by 
        subsection (a)(2), is amended by adding at the end the 
        following new subsection:
  ``(c) Federal Assumption of Medicaid Prescription Drug Costs for 
Dually-Eligible Beneficiaries.--
          ``(1) In general.--For purposes of section 1903(a)(1), 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.''.
  (c) Medicaid Providing Wrap-Around Benefits.--Section 1935, as so 
inserted and amended, is further amended by adding at the end the 
following new subsection:
  ``(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.''.
  (d) Treatment of Territories.--
          (1) In general.--Section 1935, as so inserted and amended, is 
        further amended--
                  (A) in subsection (a) in the matter preceding 
                paragraph (1), by inserting ``subject to subsection 
                (e)'' after ``section 1903(a)'';
                  (B) in subsection (c)(1), by inserting ``subject to 
                subsection (e)'' after ``1903(a)(1)''; and
                  (C) by adding at the end the following new 
                subsection:
  ``(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.''.
          (2) Conforming amendment.--Section 1108(f) (42 U.S.C. 
        1308(f)) is amended by inserting ``and section 1935(e)(1)(B)'' 
        after ``Subject to subsection (g)''.

SEC. 104. MEDIGAP TRANSITION.

  (a) In General.--Section 1882 (42 U.S.C. 1395ss) is amended by adding 
at the end the following new subsection:
  ``(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 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.''.

SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD ENDORSEMENT PROGRAM.

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

     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

               Subtitle A--Medicare+Choice Revitalization

SEC. 201. MEDICARE+CHOICE IMPROVEMENTS.

  (a) Equalizing Payments Between Fee-For-Service and 
Medicare+Choice.--
          (1) In general.--Section 1853(c)(1) (42 U.S.C. 1395w-
        23(c)(1)) is amended by adding at the end the following:
                  ``(D) Based on 100 percent of fee-for-service 
                costs.--
                          ``(i) In general.--For 2003 and 2004, the 
                        adjusted average per capita cost for the year 
                        involved, determined under section 1876(a)(4) 
                        for the Medicare+Choice payment area for 
                        services covered under parts A and B for 
                        individuals entitled to benefits under part A 
                        and enrolled under part B who are not enrolled 
                        in a Medicare+Choice plan under this part for 
                        the year, but adjusted to exclude costs 
                        attributable to payments under section 1886(h).
                          ``(ii) Inclusion of costs of va and dod 
                        military facility services to medicare-eligible 
                        beneficiaries.--In determining the adjusted 
                        average per capita cost under clause (i) for a 
                        year, such cost shall be adjusted to include 
                        the Secretary's estimate, on a per capita 
                        basis, of the amount of additional payments 
                        that would have been made in the area involved 
                        under this title if individuals entitled to 
                        benefits under this title had not received 
                        services from facilities of the Department of 
                        Veterans Affairs or the Department of 
                        Defense.''.
          (2) Conforming amendment.--Such section is further amended, 
        in the matter before subparagraph (A), by striking ``or (C)'' 
        and inserting ``(C), or (D)''.
  (b) Revision of Blend.--
          (1) Revision of national average used in calculation of 
        blend.--Section 1853(c)(4)(B)(i)(II) (42 U.S.C. 1395w-
        23(c)(4)(B)(i)(II)) is amended by inserting ``who (with respect 
        to determinations for 2003 and for 2004) are enrolled in a 
        Medicare+Choice plan'' after ``the average number of medicare 
        beneficiaries''.
          (2) Change in budget neutrality.--Section 1853(c) (42 U.S.C. 
        1395w-23(c)) is amended--
                  (A) in paragraph (1)(A), by inserting ``(for a year 
                before 2003)'' after ``multiplied''; and
                  (B) in paragraph (5), by inserting ``(before 2003)'' 
                after ``for each year''.
  (c) Revision in Minimum Percentage Increase for 2003 and 2004.--
Section 1853(c)(1)(C) (42 U.S.C. 1395w-23(c)(1)(C)) is amended by 
striking clause (iv) and inserting the following:
                          ``(iv) For 2002, 102 percent of the annual 
                        Medicare+Choice capitation rate under this 
                        paragraph for the area for 2001.
                          ``(v) For 2003 and 2004, 103 percent of the 
                        annual Medicare+Choice capitation rate under 
                        this paragraph for the area for the previous 
                        year.
                          ``(vi) For 2005 and each succeeding year, 102 
                        percent of the annual Medicare+Choice 
                        capitation rate under this paragraph for the 
                        area for the previous year.''.
  (d) Inclusion of Costs of DOD and VA Military Facility Services to 
Medicare-eligible Beneficiaries in Calculation of Medicare+Choice 
Payment Rates.--Section 1853(c)(3) (42 U.S.C. 1395w-23(c)(3)) is 
amended--
          (1) in subparagraph (A), by striking ``subparagraph (B)'' and 
        inserting ``subparagraphs (B) and (E)'', and
          (2) by adding at the end the following new subparagraph:
                  ``(E) Inclusion of costs of dod and va military 
                facility services to medicare-eligible beneficiaries.--
                In determining the area-specific Medicare+Choice 
                capitation rate under subparagraph (A) for a year 
                (beginning with 2003), the annual per capita rate of 
                payment for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of the 
                amount of additional payments that would have been made 
                in the area involved under this title if individuals 
                entitled to benefits under this title had not received 
                services from facilities of the Department of Defense 
                or the Department of Veterans Affairs.''.
  (e) Announcement of Revised Medicare+Choice Payment Rates.--Within 2 
weeks after the date of the enactment of this Act, the Secretary shall 
determine, and shall announce (in a manner intended to provide notice 
to interested parties) Medicare+Choice capitation rates under section 
1853 of the Social Security Act (42 U.S.C. 1395w-23) for 2003, revised 
in accordance with the provisions of this section.
  (f) MedPAC Study of AAPCC.--
          (1) Study.--The Medicare Payment Advisory Commission shall 
        conduct a study that assesses the method used for determining 
        the adjusted average per capita cost (AAPCC) under section 
        1876(a)(4) of the Social Security Act (42 U.S.C. 1395mm(a)(4)). 
        Such study shall examine--
                  (A) the bases for variation in such costs between 
                different areas, including differences in input prices, 
                utilization, and practice patterns;
                  (B) the appropriate geographic area for payment under 
                the Medicare+Choice program under part C of title XVIII 
                of such Act; and
                  (C) the accuracy of risk adjustment methods in 
                reflecting differences in costs of providing care to 
                different groups of beneficiaries served under such 
                program.
          (2) Report.--Not later than 9 months after the date of the 
        enactment of this Act, the Commission shall submit to Congress 
        a report on the study conducted under paragraph (1). Such 
        report shall include recommendations regarding changes in the 
        methods for computing the adjusted average per capita cost 
        among different areas.
  (g) Report on Impact of Increased Financial Assistance to 
Medicare+Choice Plans.--Not later than July 1, 2003, the Secretary of 
Health and Human Services shall submit to Congress a report that 
describes the impact of additional financing provided under this Act 
and other Acts (including the Medicare, Medicaid, and SCHIP Balanced 
Budget Refinement Act of 1999 and BIPA) on the availability of 
Medicare+Choice plans in different areas and its impact on lowering 
premiums and increasing benefits under such plans.

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

  (a) Change in Reporting Deadline.--Section 1854(a)(1) (42 U.S.C. 
1395w-24(a)(1)), as amended by section 532(b)(1) of the Public Health 
Security and Bioterrorism Preparedness and Response Act of 2002, is 
amended by striking ``2002, 2003, and 2004 (or July 1 of each other 
year)'' and inserting ``2002 and each subsequent year (or July 1 of 
each year before 2002)''.
  (b) Delay in Annual, Coordinated Election Period.--Section 
1851(e)(3)(B) (42 U.S.C. 1395w-21(e)(3)(B)), as amended by section 
532(c)(1)(A) of the Public Health Security and Bioterrorism 
Preparedness and Response Act of 2002, is amended by striking ``and 
after 2005, the month of November before such year and with respect to 
2003, 2004, and 2005'' and inserting ``, the month of November before 
such year and with respect to 2003 and any subsequent year''.
  (c) Annual Announcement of Payment Rates.--Section 1853(b)(1) (42 
U.S.C. 1395w-23(b)(1)), as amended by section 532(d)(1) of the Public 
Health Security and Bioterrorism Preparedness and Response Act of 2002, 
is amended by striking ``and after 2005 not later than March 1 before 
the calendar year concerned and for 2004 and 2005'' and inserting ``not 
later than March 1 before the calendar year concerned and for 2004 and 
each subsequent year''.
  (d) Requiring Provision of Available Information Comparing Plan 
Options.--The first sentence of section 1851(d)(2)(A)(ii) (42 U.S.C. 
1395w-21(d)(2)(A)(ii)) is amended by inserting before the period the 
following: ``to the extent such information is available at the time of 
preparation of materials for the mailing''.

SEC. 203. AVOIDING DUPLICATIVE STATE REGULATION.

  (a) In General.--Section 1856(b)(3) (42 U.S.C. 1395w-26(b)(3)) is 
amended to read as follows:
          ``(3) Relation to state laws.--The standards established 
        under this subsection shall supersede any State law or 
        regulation (other than State licensing laws or State laws 
        relating to plan solvency) with respect to Medicare+Choice 
        plans which are offered by Medicare+Choice organizations under 
        this part.''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect on the date of the enactment of this Act.

SEC. 204. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS 
                    BENEFICIARIES.

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

SEC. 205. MEDICARE MSAS.

  (a) Exemption from Reporting Enrollee Encounter Data.--
          (1) In general.--Section 1852(e)(1) (42 U.S.C. 1395w-
        22(e)(1)) is amended by inserting ``(other than MSA plans)'' 
        after ``Medicare+Choice plans''.
          (2) Conforming amendments.--Section 1852 (42 U.S.C. 1395w-22) 
        is amended--
                  (A) in subsection (c)(1)(I), by inserting before the 
                period at the end the following: ``if required under 
                such section''; and
                  (B) in subparagraphs (A) and (B) of subsection 
                (e)(2), by striking ``, a non-network MSA plan,'' and 
                ``, non-network msa plans,'' each place it appears.
  (b) Making Program Permanent and Eliminating Cap.--Section 1851(b)(4) 
(42 U.S.C. 1395w-21(b)(4)) is amended--
          (1) in the heading, by striking ``on a demonstration basis'';
          (2) by striking the first sentence of subparagraph (A); and
          (3) by striking the second sentence of subparagraph (C).
  (c) Applying Limitations on Balance Billing.--Section 1852(k)(1) (42 
U.S.C. 1395w-22(k)(1)) is amended by inserting ``or with an 
organization offering a MSA plan'' after ``section 1851(a)(2)(A)''.
  (d) Additional Amendment.--Section 1851(e)(5)(A) (42 U.S.C. 1395w-
21(e)(5)(A)) is amended--
          (1) by adding ``or'' at the end of clause (i);
          (2) by striking ``, or'' at the end of clause (ii) and 
        inserting a semicolon; and
          (3) by striking clause (iii).

SEC. 206. EXTENSION OF REASONABLE COST AND SHMO CONTRACTS.

  (a) Reasonable Cost Contracts.--
          (1) In general.--Section 1876(h)(5)(C) (42 U.S.C. 
        1395mm(h)(5)(C)) is amended--
                  (A) by inserting ``(i)'' after ``(C)'';
                  (B) by inserting before the period the following: ``, 
                except (subject to clause (ii)) in the case of a 
                contract for an area which is not covered in the 
                service area of 1 or more coordinated care 
                Medicare+Choice plans under part C''; and
                  (C) by adding at the end the following new clause:
  ``(ii) In the case in which--
          ``(I) a reasonable cost reimbursement contract includes an 
        area in its service area as of a date that is after December 
        31, 2003;
          ``(II) such area is no longer included in such service area 
        after such date by reason of the operation of clause (i) 
        because of the inclusion of such area within the service area 
        of a Medicare+Choice plan; and
          ``(III) all Medicare+Choice plans subsequently terminate 
        coverage in such area;
such reasonable cost reimbursement contract may be extended and renewed 
to cover such area (so long as it is not included in the service area 
of any Medicare+Choice plan).''.
          (2) Study.--The Medicare Benefits Administrator shall conduct 
        a study of an appropriate transition for plans offered under 
        reasonable cost contracts under section 1876 of the Social 
        Security Act on and after January 1, 2005. Such a transition 
        may take into account whether there are one or more coordinated 
        care Medicare+Choice plans being offered in the areas involved. 
        Not later than February 1, 2004, the Administrator shall submit 
        to Congress a report on such study and shall include 
        recommendations regarding any changes in the amendment made by 
        paragraph (1) as the Administrator determines to be 
        appropriate.
  (b) Extension of Social Health Maintenance Organization (SHMO) 
Demonstration Project.--
          (1) In general.--Section 4018(b)(1) of the Omnibus Budget 
        Reconciliation Act of 1987 is amended by striking ``the date 
        that is 30 months after the date that the Secretary submits to 
        Congress the report described in section 4014(c) of the 
        Balanced Budget Act of 1997'' and inserting ``December 31, 
        2004''.
          (2) SHMOs offering medicare+choice plans.--Nothing in such 
        section 4018 shall be construed as preventing a social health 
        maintenance organization from offering a Medicare+Choice plan 
        under part C of title XVIII of the Social Security Act.

SEC. 207. EXTENSION OF MUNICIPAL HEALTH SERVICE DEMONSTRATION PROJECTS.

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

            Subtitle B--Medicare+Choice Competition Program

SEC. 211. MEDICARE+CHOICE COMPETITION PROGRAM.

  (a) Submission of Bid Amounts.--Section 1854 (42 U.S.C. 1395w-24) is 
amended--
          (1) in the heading by inserting ``and bid amounts'' after 
        ``premiums'';
          (2) in subsection (a)(1)(A)--
                  (A) by striking ``(A)'' and inserting ``(A)(i) if the 
                following year is before 2005,''; and
                  (B) by inserting before the semicolon at the end the 
                following: ``or (ii) if the following year is 2005 or 
                later, the information described in paragraph (6)(A)''; 
                and
          (3) by adding at the end of subsection (a) the following:
          ``(6) Submission of bid amounts by medicare+choice 
        organizations.--
                  ``(A) Information to be submitted.--The information 
                described in this subparagraph is as follows:
                          ``(i) The monthly aggregate bid amount for 
                        provision of all items and services under this 
                        part and the actuarial basis for determining 
                        such amount.
                          ``(ii) The proportions of such bid amount 
                        that are attributable to--
                                  ``(I) the provision of statutory non-
                                drug benefits (such portion referred to 
                                in this part as the `unadjusted non-
                                drug monthly bid amount');
                                  ``(II) the provision of statutory 
                                prescription drug benefits; and
                                  ``(III) the provision of non-
                                statutory benefits;
                        and the actuarial basis for determining such 
                        proportions.
                          ``(iii) Such additional information as the 
                        Administrator may require to verify the 
                        actuarial bases described in clauses (i) and 
                        (ii).
                  ``(B) Statutory benefits defined.--For purposes of 
                this part:
                          ``(i) The term `statutory non-drug benefits' 
                        means benefits under parts A and B.
                          ``(ii) The term `statutory prescription drug 
                        benefits' means benefits under part D.
                          ``(iii) The term `statutory benefits' means 
                        statutory prescription drug benefits and 
                        statutory non-drug benefits.
                  ``(C) Acceptance and negotiation of bid amounts.--The 
                Administrator has the authority to negotiate regarding 
                monthly bid amounts submitted under subparagraph (A) 
                (and the proportion described in subparagraph (A)(ii)). 
                The Administrator may reject such a bid amount or 
                proportion if the Administrator determines that such 
                amount or proportion is not supported by the actuarial 
                bases provided under subparagraph (A).''.
  (b) Providing for Beneficiary Savings for Certain Plans.--
          (1) In general.--Section 1854(b) (42 U.S.C. 1395w-24(b)) is 
        amended--
                  (A) by adding at the end of paragraph (1) the 
                following new subparagraph:
                  ``(C) Beneficiary rebate rule.--
                          ``(i) Requirement.--The Medicare+Choice plan 
                        shall provide to the enrollee a monthly rebate 
                        equal to 75 percent of the average per capita 
                        savings (if any) described in paragraph (3) 
                        applicable to the plan and year involved.
                          ``(iii) Form of rebate.--A rebate required 
                        under this subparagraph shall be provided--
                                  ``(I) through the crediting of the 
                                amount of the rebate towards the 
                                Medicare+Choice monthly supplementary 
                                beneficiary premium or the premium 
                                imposed for prescription drug coverage 
                                under part D;
                                  ``(II) through a direct monthly 
                                payment (through electronic funds 
                                transfer or otherwise); or
                                  ``(III) through other means approved 
                                by the Medicare Benefits Administrator,
                        or any combination thereof.''; and
                  (B) by adding at the end the following new paragraph:
          ``(3) Computation of average per capita monthly savings.--For 
        purposes of paragraph (1)(C)(i), the average per capita monthly 
        savings referred to in such paragraph for a Medicare+Choice 
        plan and year is computed as follows:
                  ``(A) Determination of state-wide average risk 
                adjustment.--
                          ``(i) In general.--The Medicare Benefits 
                        Administrator shall determine, at the same time 
                        rates are promulgated under section 1853(b)(1) 
                        (beginning with 2005), for each State the 
                        average of the risk adjustment factors to be 
                        applied to enrollees under section 
                        1853(a)(1)(A) in that State. In the case of a 
                        State in which a Medicare+Choice plan was 
                        offered in the previous year, the Administrator 
                        may compute such average based upon risk 
                        adjustment factors applied in that State in a 
                        previous year.
                          ``(ii) Treatment of new states.--In the case 
                        of a State in which no Medicare+Choice plan was 
                        offered in the previous year, the Administrator 
                        shall estimate such average. In making such 
                        estimate, the Administrator may use average 
                        risk adjustment factors applied to comparable 
                        States or applied on a national basis.
                  ``(B) Determination of risk adjusted benchmark and 
                risk-adjusted bid.--For each Medicare+Choice plan 
                offered in a State, the Administrator shall--
                          ``(i) adjust the fee-for-service area-
                        specific non-drug benchmark amount by the 
                        applicable average risk adjustment factor 
                        computed under subparagraph (A); and
                          ``(ii) adjust the unadjusted non-drug monthly 
                        bid amount by such applicable average risk 
                        adjustment factor.
                  ``(C) Determination of average per capita monthly 
                savings.--The average per capita monthly savings 
                described in this subparagraph is equal to the amount 
                (if any) by which--
                          ``(i) the risk-adjusted benchmark amount 
                        computed under subparagraph (B)(i), exceeds
                          ``(ii) the risk-adjusted bid computed under 
                        subparagraph (B)(ii).
                  ``(D) Authority to determine risk adjustment for 
                areas other than states.--The Administrator may provide 
                for the determination and application of risk 
                adjustment factors under this paragraph on the basis of 
                areas other than States.''.
          (2) Computation of fee-for-service area-specific non-drug 
        benchmark.--Section 1853 (42 U.S.C. 1395w-23) is amended by 
        adding at the end the following new subsection:
  ``(j) Computation of Fee-for-Service Area-Specific Non-Drug Benchmark 
Amount.--For purposes of this part, the term `fee-for-service area-
specific non-drug benchmark amount' means, with respect to a 
Medicare+Choice payment area for a month in a year, an amount equal to 
the greater of the following (but in no case less than \1/12\ of the 
rate computed under subsection (c)(1), without regard to subparagraph 
(A), for the year):
          ``(1) Based on 100 percent of fee-for-service costs in the 
        area.--An amount equal to \1/12\ of 100 percent (for 2005 
        through 2007, or 95 percent for 2008 and years thereafter) of 
        the adjusted average per capita cost for the year involved, 
        determined under section 1876(a)(4) for the Medicare+Choice 
        payment area, for the area and the year involved, for services 
        covered under parts A and B for individuals entitled to 
        benefits under part A and enrolled under part B who are not 
        enrolled in a Medicare+Choice plan under this part for the 
        year, and adjusted to exclude from such cost the amount the 
        Medicare Benefits Administrator estimates is payable for costs 
        described in subclauses (I) and (II) of subsection (c)(3)(C)(i) 
        for the year involved and also adjusted in the manner described 
        in subsection (c)(1)(D)(ii) (relating to inclusion of costs of 
        VA and DOD military facility services to medicare-eligible 
        beneficiaries).
          ``(2) Minimum monthly amount.--The minimum amount specified 
        in this paragraph is the amount specified in subsection 
        (c)(1)(B)(iv) for the year involved.''.
  (c) Payment of Plans Based on Bid Amounts.--
          (1) In general.--Section 1853(a)(1)(A) (42 U.S.C. 1395w-23) 
        is amended by striking ``in an amount'' and all that follows 
        and inserting the following: ``in an amount determined as 
        follows:
                          ``(i) Payment before 2005.--For years before 
                        2005, the payment amount shall be equal to \1/
                        12\ of the annual Medicare+Choice capitation 
                        rate (as calculated under subsection (c)) with 
                        respect to that individual for that area, 
                        reduced by the amount of any reduction elected 
                        under section 1854(f )(1)(E) and adjusted under 
                        clause (iii).
                          ``(ii) Payment for statutory non-drug 
                        benefits beginning with 2005.--For years 
                        beginning with 2005--
                                  ``(I) Plans with bids below 
                                benchmark.--In the case of a plan for 
                                which there are average per capita 
                                monthly savings described in section 
                                1854(b)(3)(C), the payment under this 
                                subsection is equal to the unadjusted 
                                non-drug monthly bid amount, adjusted 
                                under clause (iii), plus the amount of 
                                the monthly rebate computed under 
                                section 1854(b)(1)(C)(i) for that plan 
                                and year.
                                  ``(II) Plans with bids at or above 
                                benchmark.--In the case of a plan for 
                                which there are no average per capita 
                                monthly savings described in section 
                                1854(b)(3)(C), the payment amount under 
                                this subsection is equal to the fee-
                                for-service area-specific non-drug 
                                benchmark amount, adjusted under clause 
                                (iii).
                          ``(iii) Demographic adjustment, including 
                        adjustment for health status.--The 
                        Administrator shall adjust the payment amount 
                        under clause (i), the unadjusted non-drug 
                        monthly bid amount under clause (ii)(I), and 
                        the fee-for-service area-specific non-drug 
                        benchmark amount under clause (ii)(II) for such 
                        risk factors as age, disability status, gender, 
                        institutional status, and such other factors as 
                        the Administrator determines to be appropriate, 
                        including adjustment for health status under 
                        paragraph (3), so as to ensure actuarial 
                        equivalence. The Administrator may add to, 
                        modify, or substitute for such adjustment 
                        factors if such changes will improve the 
                        determination of actuarial equivalence.
                          ``(iv) Reference to subsidy payment for 
                        statutory drug benefits.--In the case in which 
                        an enrollee is enrolled under part D, the 
                        Medicare+Choice organization also is entitled 
                        to a subsidy payment amount under section 
                        1860H.''.
  (d) Conforming Amendments.--
          (1) Protection against beneficiary selection.--Section 
        1852(b)(1)(A) (42 U.S.C. 1395w-22(b)(1)(A)) is amended by 
        adding at the end the following: ``The Administrator shall not 
        approve a plan of an organization if the Administrator 
        determines that the benefits are designed to substantially 
        discourage enrollment by certain Medicare+Choice eligible 
        individuals with the organization.''.
          (2) Conforming amendment to premium terminology.--
        Subparagraphs (A) and (B) of section 1854(b)(2) (42 U.S.C. 
        1395w-24(b)(2)) are amended to read as follows:
                  ``(A) Medicare+Choice monthly basic beneficiary 
                premium.--The term `Medicare+Choice monthly basic 
                beneficiary premium' means, with respect to a 
                Medicare+Choice plan--
                          ``(i) described in section 
                        1853(a)(1)(A)(ii)(I) (relating to plans 
                        providing rebates), zero; or
                          ``(ii) described in section 
                        1853(a)(1)(A)(ii)(II), the amount (if any) by 
                        which the unadjusted non-drug monthly bid 
                        amount exceeds the fee-for-service area-
                        specific non-drug benchmark amount.
                  ``(B) Medicare+Choice monthly supplemental 
                beneficiary premium.--The term `Medicare+Choice monthly 
                supplemental beneficiary premium' means, with respect 
                to a Medicare+Choice plan, the portion of the aggregate 
                monthly bid amount submitted under clause (i) of 
                subsection (a)(6)(A) for the year that is attributable 
                under such section to the provision of nonstatutory 
                benefits.''.
          (3) Requirement for uniform bid amounts.--Section 1854(c) (42 
        U.S.C. 1395w-24(c)) is amended to read as follows:
  ``(c) Uniform Bid Amounts.--The Medicare+Choice monthly bid amount 
submitted under subsection (a)(6) of a Medicare+Choice organization 
under this part may not vary among individuals enrolled in the plan.''.
          (4) Permitting beneficiary rebates.--
                  (A) Section 1851(h)(4)(A) (42 U.S.C. 1395w-
                21(h)(4)(A)) is amended by inserting ``except as 
                provided under section 1854(b)(1)(C)'' after ``or 
                otherwise''.
                  (B) Section 1854(d) (42 U.S.C. 1395w-24(d)) is 
                amended by inserting ``, except as provided under 
                subsection (b)(1)(C),'' after ``and may not provide''.
  (e) Effective Date.--The amendments made by this section shall apply 
to payments and premiums for months beginning with January 2005.

SEC. 212. DEMONSTRATION PROGRAM FOR COMPETITIVE-DEMONSTRATION AREAS.

  (a) Identification of Competitive-Demonstration Areas for 
Demonstration Program; Computation of Choice Non-Drug Benchmarks.--
Section 1853, as amended by section 211(b)(2), is amended by adding at 
the end the following new subsection:
  ``(k) Establishment of Competitive Demonstration Program.--
          ``(1) Designation of competitive-demonstration areas as part 
        of program.--
                  ``(A) In general.--For purposes of this part, the 
                Administrator shall establish a demonstration program 
                under which the Administrator designates 
                Medicare+Choice areas as competitive-demonstration 
                areas consistent with the following limitations:
                          ``(i) Limitation on number of areas that may 
                        be designated.--The Administrator may not 
                        designate more than 4 areas as competitive-
                        demonstration areas.
                          ``(ii) Limitation on period of designation of 
                        any area.--The Administrator may not designate 
                        any area as a competitive-demonstration area 
                        for a period of more than 2 years.
                The Administrator has the discretion to decide whether 
                or not to designate as a competitive-demonstration area 
                an area that qualifies for such designation.
                  ``(B) Qualifications for designation.--For purposes 
                of this title, a Medicare+Choice area (which is a 
                metropolitan statistical area or other area with a 
                substantial number of Medicare+Choice enrollees) may 
                not be designated as a `competitive-demonstration area' 
                for a 2-year period beginning with a year unless the 
                Administrator determines, by such date before the 
                beginning of the year as the Administrator determines 
                appropriate, that--
                          ``(i) there will be offered during the open 
                        enrollment period under this part before the 
                        beginning of the year at least 2 
                        Medicare+Choice plans (in addition to the fee-
                        for-service program under parts A and B), each 
                        offered by a different Medicare+Choice 
                        organization; and
                          ``(ii) during March of the previous year at 
                        least 50 percent of the number of 
                        Medicare+Choice eligible individuals who reside 
                        in the area were enrolled in a Medicare+Choice 
                        plan.
          ``(2) Choice non-drug benchmark amount.--For purposes of this 
        part, the term `choice non-drug benchmark amount' means, with 
        respect to a Medicare+Choice payment area for a month in a 
        year, the sum of the 2 components described in paragraph (3) 
        for the area and year. The Administrator shall compute such 
        benchmark amount for each competitive-demonstration area before 
        the beginning of each annual, coordinated election period under 
        section 1851(e)(3)(B) for each year (beginning with 2005) in 
        which it is designated as such an area.
          ``(3) 2 components.--For purposes of paragraph (2), the 2 
        components described in this paragraph for an area and a year 
        are the following:
                  ``(A) Fee-for-service component weighted by national 
                fee-for-service market share.--The product of the 
                following:
                          ``(i) National fee-for-service market 
                        share.--The national fee-for-service market 
                        share percentage (determined under paragraph 
                        (5)) for the year.
                          ``(ii) Fee-for-service area-specific non-drug 
                        bid.--The fee-for-service area-specific non-
                        drug bid (as defined in paragraph (6)) for the 
                        area and year.
                  ``(B) M+C component weighted by national 
                medicare+choice market share.--The product of the 
                following:
                          ``(i) National medicare+choice market 
                        share.--1 minus the national fee-for-service 
                        market share percentage for the year.
                          ``(ii) Weighted average of plan bids in 
                        area.--The weighted average of the plan bids 
                        for the area and year (as determined under 
                        paragraph (4)(A)).
          ``(4) Determination of weighted average bids for an area.--
                  ``(A) In general.--For purposes of paragraph 
                (3)(B)(ii), the weighted average of plan bids for an 
                area and a year is the sum of the following products 
                for Medicare+Choice plans described in subparagraph (C) 
                in the area and year:
                          ``(i) Proportion of each plan's enrollees in 
                        the area.--The number of individuals described 
                        in subparagraph (B), divided by the total 
                        number of such individuals for all 
                        Medicare+Choice plans described in subparagraph 
                        (C) for that area and year.
                          ``(ii) Monthly non-drug bid amount.--The 
                        unadjusted non-drug monthly bid amount.
                  ``(B) Counting of individuals.--The Administrator 
                shall count, for each Medicare+Choice plan described in 
                subparagraph (C) for an area and year, the number of 
                individuals who reside in the area and who were 
                enrolled under such plan under this part during March 
                of the previous year.
                  ``(C) Exclusion of plans not offered in previous 
                year.--For an area and year, the Medicare+Choice plans 
                described in this subparagraph are plans that are 
                offered in the area and year and were offered in the 
                area in March of the previous year.
          ``(5) Computation of national fee-for-service market share 
        percentage.--The Administrator shall determine, for a year, the 
        proportion (in this subsection referred to as the `national 
        fee-for-service market share percentage') of Medicare+Choice 
        eligible individuals who during March of the previous year were 
        not enrolled in a Medicare+Choice plan.
          ``(6) Fee-for-service area-specific non-drug bid.--For 
        purposes of this part, the term `fee-for-service area-specific 
        non-drug bid' means, for an area and year, the amount described 
        in section 1853(j)(1) for the area and year, except that any 
        reference to a percent of less than 100 percent shall be deemed 
        a reference to 100 percent.''.
  (b) Application of Choice Non-Drug Benchmark in Competitive-
Demonstration Areas.--
          (1) In general.--Section 1854 is amended--
                  (A) in subsection (b)(1)(C)(i), as added by section 
                211(b)(1)(A), by striking ``(i) Requirement.--The'' and 
                inserting ``(i) Requirement for non-competitive-
                demonstration areas.--In the case of a Medicare+Choice 
                payment area that is not a competitive-demonstration 
                area designated under section 1853(k)(1), the'';
                  (B) in subsection (b)(1)(C), as so added, by 
                inserting after clause (i) the following new clause:
                          ``(ii) Requirement for competitive-
                        demonstration areas.--In the case of a 
                        Medicare+Choice payment area that is designated 
                        as a competitive-demonstration area under 
                        section 1853(k)(1), if there are average per 
                        capita monthly savings described in paragraph 
                        (4) for a Medicare+Choice plan and year, the 
                        Medicare+Choice plan shall provide to the 
                        enrollee a monthly rebate equal to 75 percent 
                        of such savings.'';
                  (C) by adding at the end of subsection (b), as 
                amended by section 211(b)(1), the following new 
                paragraph:
          ``(4) Computation of average per capita monthly savings for 
        competitive-demonstration areas.--For purposes of paragraph 
        (1)(C)(ii), the average per capita monthly savings referred to 
        in such paragraph for a Medicare+Choice plan and year shall be 
        computed in the same manner as the average per capita monthly 
        savings is computed under paragraph (3) except that the 
        reference to the fee-for-service area-specific non-drug 
        benchmark amount in paragraph (3)(B)(i) (or to the benchmark 
        amount as adjusted under paragraph (3)(C)(i)) is deemed to be a 
        reference to the choice non-drug benchmark amount (or such 
        amount as adjusted in the manner described in paragraph 
        (3)(B)(i)).''; and
                  (D) in subsection (d), as amended by section 
                211(d)(4), by inserting ``and subsection (b)(1)(D)'' 
                after ``subsection (b)(1)(C)''.
          (2) Conforming amendments.--
                  (A) Payment of plans.--Section 1853(a)(1)(A)(ii), as 
                amended by section 211(c)(1), is amended--
                          (i) in subclause (I), by inserting ``(or, in 
                        the case of a competitive-demonstration area, 
                        the choice non-drug benchmark amount)'' after 
                        ``unadjusted non-drug monthly bid amount''; and
                          (ii) in subclauses (I) and (II), by inserting 
                        ``(or, in the case of a competitive-
                        demonstration area, described in section 
                        1854(b)(4))'' after ``section 1854(b)(3)(C)''.
                  (B) Definition of monthly basic premium.--Section 
                1854(b)(2)(A)(ii), as amended by section 211(d)(2), is 
                amended by inserting ``(or, in the case of a 
                competitive-demonstration area, the choice non-drug 
                benchmark amount)'' after ``benchmark amount''.
  (c) Premium Adjustment.--Section 1839 (42 U.S.C. 1395r) is amended by 
adding at the end the following new subsection:
  ``(h)(1) In the case of an individual who resides in a competitive-
demonstration area designated under section 1851(k)(1) and who is not 
enrolled in a Medicare+Choice plan under part C, the monthly premium 
otherwise applied under this part (determined without regard to 
subsections (b) and (f) or any adjustment under this subsection) shall 
be adjusted as follows: If the fee-for-service area-specific non-drug 
bid (as defined in section 1853(k)(6)) for the Medicare+Choice area in 
which the individual resides for a month--
          ``(A) does not exceed the choice non-drug benchmark (as 
        determined under section 1853(k)(2)) for such area, the amount 
        of the premium for the individual for the month shall be 
        reduced by an amount equal to 75 percent of the amount by which 
        such benchmark exceeds such fee-for-service bid; or
          ``(B) exceeds such choice non-drug benchmark, the amount of 
        the premium for the individual for the month shall be adjusted 
        to ensure that--
                  ``(i) the sum of the amount of the adjusted premium 
                and the choice non-drug benchmark for the area, is 
                equal to
                  ``(ii) the sum of the unadjusted premium plus amount 
                of the fee-for-service area-specific non-drug bid for 
                the area.
  ``(2) Nothing in this subsection shall be construed as preventing a 
reduction under paragraph (1)(A) in the premium otherwise applicable 
under this part to zero or from requiring the provision of a rebate to 
the extent such premium would otherwise be required to be less than 
zero.
  ``(3) The adjustment in the premium under this subsection shall be 
effected in such manner as the Medicare Benefits Administrator 
determines appropriate.
  ``(4) In order to carry out this subsection (insofar as it is 
effected through the manner of collection of premiums under 1840(a)), 
the Medicare Benefits Administrator shall transmit to the Commissioner 
of Social Security--
          ``(A) at the beginning of each year, the name, social 
        security account number, and the amount of the adjustment (if 
        any) under this subsection for each individual enrolled under 
        this part for each month during the year; and
          ``(B) periodically throughout the year, information to update 
        the information previously transmitted under this paragraph for 
        the year.''.
  (d) Conforming Amendment.--Section 1844(c) (42 U.S.C. 1395w(c)) is 
amended by inserting ``and without regard to any premium adjustment 
effected under section 1839(h)'' before the period at the end.
  (e) Report on Demonstration Program.--Not later than 6 months after 
the date on which the designation of the 4th competitive-demonstration 
area under section 1851(k)(1) of the Social Security Act ends, the 
Medicare Payment Advisory Commission shall submit to Congress a report 
on the impact of the demonstration program under the amendments made by 
this section, including such impact on premiums of medicare 
beneficiaries, savings to the medicare program, and on adverse 
selection.
  (f) Effective Date.--The amendments made by this section shall apply 
to payments and premiums for periods beginning on or after January 1, 
2005.

SEC. 213. CONFORMING AMENDMENTS.

  (a) Conforming Amendments Relating to Bids.--
          (1) Section 1854 (42 U.S.C. 1395w-24) is amended--
                  (A) in the heading of subsection (a), by inserting 
                ``and Bid Amounts'' after ``Premiums''; and
                  (B) in subsection (a)(5)(A), by inserting 
                ``paragraphs (2), (3), and (4) of'' after ``filed 
                under''.
  (b) Additional Conforming Amendments.--
          (1) Annual determination and announcement of certain 
        factors.--Section 1853(b) (42 U.S.C. 1395w-23(b)) is amended--
                  (A) in paragraph (1), by striking ``the respective 
                calendar year'' and all that follows and inserting the 
                following: ``the calendar year concerned with respect 
                to each Medicare+Choice payment area, the following:
                  ``(A) Pre-competition information.--For years before 
                2005, the following:
                          ``(i) Medicare+choice capitation rates.--The 
                        annual Medicare+Choice capitation rate for each 
                        Medicare+Choice payment area for the year.
                          ``(ii) Adjustment factors.--The risk and 
                        other factors to be used in adjusting such 
                        rates under subsection (a)(1)(A) for payments 
                        for months in that year.
                  ``(B) Competition information.--For years beginning 
                with 2005, the following:
                          ``(i) Benchmarks.--The fee-for-service area-
                        specific non-drug benchmark under section 
                        1853(j) and, if applicable, the choice non-drug 
                        benchmark under section 1853(k)(2), for the 
                        year involved and, if applicable, the national 
                        fee-for-service market share percentage.
                          ``(ii) Adjustment factors.--The adjustment 
                        factors applied under section 
                        1853(a)(1)(A)(iii) (relating to demographic 
                        adjustment), section 1853(a)(1)(B) (relating to 
                        adjustment for end-stage renal disease), and 
                        section 1853(a)(3) (relating to health status 
                        adjustment).
                          ``(iii) Projected fee-for-service bid.--In 
                        the case of a competitive area, the projected 
                        fee-for-service area-specific non-drug bid (as 
                        determined under subsection (k)(6)) for the 
                        area.
                          ``(iv) Individuals.--The number of 
                        individuals counted under subsection (k)(4)(B) 
                        and enrolled in each Medicare+Choice plan in 
                        the area.''; and
                  (B) in paragraph (3), by striking ``in sufficient 
                detail'' and all that follows up to the period at the 
                end.
          (2) Repeal of provisions relating to adjusted community rate 
        (acr).--
                  (A) In general.--Subsections (e) and (f) of section 
                1854 (42 U.S.C. 1395w-24) are repealed.
                  (B) Conforming amendment.--Section 1839(a)(2) (42 
                U.S.C. 1395r(a)(2)) is amended by striking ``, and to 
                reflect'' and all that follows and inserting a period.
          (3) Prospective implementation of national coverage 
        determinations.--Section 1852(a)(5) (42 U.S.C. 1395w-22(a)(5)) 
        is amended to read as follows:
          ``(5) Prospective implementation of national coverage 
        determinations.--The Secretary shall only implement a national 
        coverage determination that will result in a significant change 
        in the costs to a Medicare+Choice organization in a prospective 
        manner that applies to announcements made under section 1853(b) 
        after the date of the implementation of the determination.''.
          (4) Permitting geographic adjustment to consolidate multiple 
        medicare+choice payment areas in a state into a single 
        statewide medicare+choice payment area.--Section 1853(d)(3) (42 
        U.S.C. 1395w-23(e)(3)) is amended--
                  (A) by amending clause (i) of subparagraph (A) to 
                read as follows:
                          ``(i) to a single statewide Medicare+Choice 
                        payment area,''; and
                  (B) by amending subparagraph (B) to read as follows:
                  ``(B) Budget neutrality adjustment.--In the case of a 
                State requesting an adjustment under this paragraph, 
                the Medicare Benefits Administrator shall initially 
                (and annually thereafter) adjust the payment rates 
                otherwise established under this section for 
                Medicare+Choice payment areas in the State in a manner 
                so that the aggregate of the payments under this 
                section in the State shall not exceed the aggregate 
                payments that would have been made under this section 
                for Medicare+Choice payment areas in the State in the 
                absence of the adjustment under this paragraph.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to payments and premiums for periods beginning on or after January 1, 
2005.

               TITLE III--RURAL HEALTH CARE IMPROVEMENTS

SEC. 301. REFERENCE TO FULL MARKET BASKET INCREASE FOR SOLE COMMUNITY 
                    HOSPITALS.

  For provision eliminating any reduction from full market basket in 
the update for inpatient hospital services for sole community 
hospitals, see section 401.

SEC. 302. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH) TREATMENT FOR 
                    RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 
                    100 BEDS.

  (a) Blending of Payment Amounts.--
          (1) In general.--Section 1886(d)(5)(F) (42 U.S.C. 
        1395ww(d)(5)(F)) is amended by adding at the end the following 
        new clause:
  ``(xiv)(I) In the case of discharges in a fiscal year beginning on or 
after October 1, 2002, subject to subclause (II), there shall be 
substituted for the disproportionate share adjustment percentage 
otherwise determined under clause (iv) (other than subclause (I)) or 
under clause (viii), (x), (xi), (xii), or (xiii), the old blend 
proportion (specified under subclause (III)) of the disproportionate 
share adjustment percentage otherwise determined under the respective 
clause and 100 percent minus such old blend proportion of the 
disproportionate share adjustment percentage determined under clause 
(vii) (relating to large, urban hospitals).
  ``(II) Under subclause (I), the disproportionate share adjustment 
percentage shall not exceed 10 percent for a hospital that is not 
classified as a rural referral center under subparagraph (C).
  ``(III) For purposes of subclause (I), the old blend proportion for 
fiscal year 2003 is 80 percent, for each subsequent year (through 2006) 
is the old blend proportion under this subclause for the previous year 
minus 20 percentage points, and for each year beginning with 2007 is 0 
percent.''.
          (2) Conforming amendments.--Section 1886(d)(5)(F) (42 U.S.C. 
        1395ww(d)(5)(F)) is amended--
                  (A) in each of subclauses (II), (III), (IV), (V), and 
                (VI) of clause (iv), by inserting ``subject to clause 
                (xiv) and'' before ``for discharges occurring'';
                  (B) in clause (viii), by striking ``The formula'' and 
                inserting ``Subject to clause (xiv), the formula''; and
                  (C) in each of clauses (x), (xi), (xii), and (xiii), 
                by striking ``For purposes'' and inserting ``Subject to 
                clause (xiv), for purposes''.
  (b) Effective Date.--The amendments made by this section shall apply 
with respect to discharges occurring on or after October 1, 2002.

SEC. 303. 2-YEAR PHASED-IN INCREASE IN THE STANDARDIZED AMOUNT IN RURAL 
                    AND SMALL URBAN AREAS TO ACHIEVE A SINGLE, UNIFORM 
                    STANDARDIZED AMOUNT.

  Section 1886(d)(3)(A)(iv) (42 U.S.C. 1395ww(d)(3)(A)(iv)) is 
amended--
          (1) by striking ``(iv) For discharges'' and inserting 
        ``(iv)(I) Subject to the succeeding provisions of this clause, 
        for discharges''; and
          (2) by adding at the end the following new subclauses:
          ``(II) For discharges occurring during fiscal year 2003, the 
        average standardized amount for hospitals located other than in 
        a large urban area shall be increased by \1/2\ of the 
        difference between the average standardized amount determined 
        under subclause (I) for hospitals located in large urban areas 
        for such fiscal year and such amount determined (without regard 
        to this subclause) for other hospitals for such fiscal year.
          ``(III) For discharges occurring in a fiscal year beginning 
        with fiscal year 2004, the Secretary shall compute an average 
        standardized amount for hospitals located in any area within 
        the United States and within each region equal to the average 
        standardized amount computed for the previous fiscal year under 
        this subparagraph for hospitals located in a large urban area 
        (or, beginning with fiscal year 2005, for hospitals located in 
        any area) increased by the applicable percentage increase under 
        subsection (b)(3)(B)(i).''.

SEC. 304. MORE FREQUENT UPDATE IN WEIGHTS USED IN HOSPITAL MARKET 
                    BASKET.

  (a) More Frequent Updates in Weights.--After revising the weights 
used in the hospital market basket under section 1886(b)(3)(B)(iii) of 
the Social Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii)) to reflect the 
most current data available, the Secretary shall establish a frequency 
for revising such weights in such market basket to reflect the most 
current data available more frequently than once every 5 years.
  (b) Report.--Not later than October 1, 2003, the Secretary shall 
submit a report to Congress on the frequency established under 
subsection (a), including an explanation of the reasons for, and 
options considered, in determining such frequency.

SEC. 305. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

  (a) Reinstatement of Periodic Interim Payment (PIP).--Section 
1815(e)(2) (42 U.S.C. 1395g(e)(2)) is amended--
          (1) by striking ``and'' at the end of subparagraph (C);
          (2) by adding ``and'' at the end of subparagraph (D); and
          (3) by inserting after subparagraph (D) the following new 
        subparagraph:
          ``(E) inpatient critical access hospital services;''.
  (b) Condition for Application of Special Physician Payment 
Adjustment.--Section 1834(g)(2) (42 U.S.C. 1395m(g)(2)) is amended by 
adding after and below subparagraph (B) the following:
        ``The Secretary may not require, as a condition for applying 
        subparagraph (B) with respect to a critical access hospital, 
        that each physician providing professional services in the 
        hospital must assign billing rights with respect to such 
        services, except that such subparagraph shall not apply to 
        those physicians who have not assigned such billing rights.''.
  (c) Flexibility in Bed Limitation for Hospitals with Strong Seasonal 
Census Fluctuations.--Section 1820 (42 U.S.C. 1395i-4) is amended--
          (1) in subsection (c)(2)(B)(iii), by inserting ``subject to 
        paragraph (3)'' after ``(iii) provides'';
          (2) by adding at the end of subsection (c) the following new 
        paragraph:
          ``(3) Increase in maximum number of beds for hospitals with 
        strong seasonal census fluctuations.--
                  ``(A) In general.--In the case of a hospital that 
                demonstrates that it meets the standards established 
                under subparagraph (B), the bed limitations otherwise 
                applicable under paragraph (2)(B)(iii) and subsection 
                (f) shall be increased by 5 beds.
                  ``(B) Standards.--The Secretary shall specify 
                standards for determining whether a critical access 
                hospital has sufficiently strong seasonal variations in 
                patient admissions to justify the increase in bed 
                limitation provided under subparagraph (A).''; and
          (3) in subsection (f), by adding at the end the following new 
        sentence: ``The limitations in numbers of beds under the first 
        sentence are subject to adjustment under subsection (c)(3).''.
  (d) 5-Year Extension of the Authorization for Appropriations for 
Grant Program.--Section 1820(j) (42 U.S.C. 1395i-4(j)) is amended by 
striking ``through 2002'' and inserting ``through 2007''.
  (e) Prohibition of Retroactive Recoupment.--The Secretary shall not 
recoup (or otherwise seek to recover) overpayments made for outpatient 
critical access hospital services under part B of title XVIII of the 
Social Security Act, for services furnished in cost reporting periods 
that began before October 1, 2002, insofar as such overpayments are 
attributable to payment being based on 80 percent of reasonable costs 
(instead of 100 percent of reasonable costs minus 20 percent of 
charges).
  (f) Effective Dates.--
          (1) Reinstatement of pip.--The amendments made by subsection 
        (a) shall apply to payments made on or after January 1, 2003.
          (2) Physician payment adjustment condition.--The amendment 
        made by subsection (b) shall be effective as if included in the 
        enactment of section 403(d) of the Medicare, Medicaid, and 
        SCHIP Balanced Budget Refinement Act of 1999 (113 Stat. 1501A-
        371).
          (3) Flexibility in bed limitation.--The amendments made by 
        subsection (c) shall apply to designations made on or after 
        January 1, 2003, but shall not apply to critical access 
        hospitals that were designated as of such date.

SEC. 306. EXTENSION OF TEMPORARY INCREASE FOR HOME HEALTH SERVICES 
                    FURNISHED IN A RURAL AREA.

  (a) In General.--Section 508(a) BIPA (114 Stat. 2763A-533) is 
amended--
          (1) by striking ``24-Month Increase Beginning April 1, 2001'' 
        and inserting ``In General''; and
          (2) by striking ``April 1, 2003'' and inserting ``January 1, 
        2005''.
  (b) Conforming Amendment.--Section 547(c)(2) of BIPA (114 Stat. 
2763A-553) is amended by striking ``the period beginning on April 1, 
2001, and ending on September 30, 2002,'' and inserting ``a period 
under such section''.

SEC. 307. REFERENCE TO 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE 
                    FURNISHED IN A FRONTIER AREA AND RURAL HOSPICE 
                    DEMONSTRATION PROJECT.

  For--
          (1) provision of 10 percent increase in payment for hospice 
        care furnished in a frontier area, see section 422; and
          (2) provision of a rural hospice demonstration project, see 
        section 423.

SEC. 308. REFERENCE TO PRIORITY FOR HOSPITALS LOCATED IN RURAL OR SMALL 
                    URBAN AREAS IN REDISTRIBUTION OF UNUSED GRADUATE 
                    MEDICAL EDUCATION RESIDENCIES.

  For provision providing priority for hospitals located in rural or 
small urban areas in redistribution of unused graduate medical 
education residencies, see section 612.

SEC. 309. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS FOR 
                    PHYSICIANS' SERVICES.

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

SEC. 310. PROVIDING SAFE HARBOR FOR CERTAIN COLLABORATIVE EFFORTS THAT 
                    BENEFIT MEDICALLY UNDERSERVED POPULATIONS.

  (a) In General.--Section 1128B(b)(3) (42 U.S.C. 1320a-7(b)(3)), as 
amended by section 101(b)(2), is amended--
          (1) in subparagraph (F), by striking ``and'' after the 
        semicolon at the end;
          (2) in subparagraph (G), by striking the period at the end 
        and inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
                  ``(H) any remuneration between a public or nonprofit 
                private health center entity described under clause (i) 
                or (ii) of section 1905(l)(2)(B) and any individual or 
                entity providing goods, items, services, donations or 
                loans, or a combination thereof, to such health center 
                entity pursuant to a contract, lease, grant, loan, or 
                other agreement, if such agreement contributes to the 
                ability of the health center entity to maintain or 
                increase the availability, or enhance the quality, of 
                services provided to a medically underserved population 
                served by the health center entity.''.
  (b) Rulemaking for Exception for Health Center Entity Arrangements.--
          (1) Establishment.--
                  (A) In general.--The Secretary of Health and Human 
                Services (in this subsection referred to as the 
                ``Secretary'') shall establish, on an expedited basis, 
                standards relating to the exception described in 
                section 1128B(b)(3)(H) of the Social Security Act, as 
                added by subsection (a), for health center entity 
                arrangements to the antikickback penalties.
                  (B) Factors to consider.--The Secretary shall 
                consider the following factors, among others, in 
                establishing standards relating to the exception for 
                health center entity arrangements under subparagraph 
                (A):
                          (i) Whether the arrangement between the 
                        health center entity and the other party 
                        results in savings of Federal grant funds or 
                        increased revenues to the health center entity.
                          (ii) Whether the arrangement between the 
                        health center entity and the other party 
                        restricts or limits a patient's freedom of 
                        choice.
                          (iii) Whether the arrangement between the 
                        health center entity and the other party 
                        protects a health care professional's 
                        independent medical judgment regarding 
                        medically appropriate treatment.
                The Secretary may also include other standards and 
                criteria that are consistent with the intent of 
                Congress in enacting the exception established under 
                this section.
          (2) Interim final effect.--No later than 180 days after the 
        date of enactment of this Act, the Secretary shall publish a 
        rule in the Federal Register consistent with the factors under 
        paragraph (1)(B). Such rule shall be effective and final 
        immediately on an interim basis, subject to such change and 
        revision, after public notice and opportunity (for a period of 
        not more than 60 days) for public comment, as is consistent 
        with this subsection.

SEC. 311. RELIEF FOR CERTAIN NON-TEACHING HOSPITALS.

  (a) In General.--In the case of a non-teaching hospital that meets 
the condition of subsection (b), for its cost reporting period 
beginning in each of fiscal years 2003, 2004, and 2005 the amount of 
payment made to the hospital under section 1886(d) of the Social 
Security Act for discharges occurring during such fiscal year only 
shall be increased as though the applicable percentage increase 
(otherwise applicable to discharges occurring during such fiscal year 
under section 1886(b)(3)(B)(i) of the Social Security Act (42 U.S.C. 
1395ww(b)(3)(B)(i)) had been increased by 5 percentage points. The 
previous sentence shall be applied for each such fiscal year separately 
without regard to its application in a previous fiscal year and shall 
not affect payment for discharges for any hospital occurring during a 
fiscal year after fiscal year 2005.
  (b) Condition.--A non-teaching hospital meets the condition of this 
paragraph if--
          (1) it is located in a rural area and the amount of the 
        aggregate payments under subsection (d) of such section for 
        hospitals located in rural areas in the State for their cost 
        reporting periods beginning during fiscal year 1999 is less 
        than the aggregate allowable operating costs of inpatient 
        hospital services (as defined in section 1886(a)(4) of such 
        Act) for all subsection (d) hospitals in such areas in such 
        State with respect to such cost reporting periods; or
          (2) it is located in an urban area and the amount of the 
        aggregate payments under subsection (d) of such section for 
        hospitals located in urban areas in the State for their cost 
        reporting periods beginning during fiscal year 1999 is less 
        than 103 percent of the aggregate allowable operating costs of 
        inpatient hospital services (as defined in section 1886(a)(4) 
        of such Act) for all subsection (d) hospitals in such areas in 
        such State with respect to such cost reporting periods.
The amounts under paragraphs (1) and (2) shall be determined by the 
Secretary of Health and Human Services based on data of the Medicare 
Payment Advisory Commission.
  (c) Definitions.--For purposes of this section:
          (1) Non-teaching hospital.--The term ``non-teaching 
        hospital'' means, for a cost reporting period, a subsection (d) 
        hospital (as defined in section 1886(d)(1)(B) of the Social 
        Security Act, 42 U.S.C. 1395ww(d)(1)(B))) that is not receiving 
        any additional payment under section 1886(d)(5)(B) of such Act 
        (42 U.S.C. 1395ww(d)(5)(B)) or a payment under section 1886(h) 
        of such Act (42 U.S.C. 1395ww(h)) for discharges occurring 
        during the period.
          (2) Rural; urban.--The terms ``rural'' and ``urban'' have the 
        meanings given such terms for purposes of section 1886(d) of 
        the Social Security Act (42 U.S.C. 1395ww(d)).

                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

SEC. 401. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

  Subclause (XVIII) of section 1886(b)(3)(B)(i) (42 U.S.C. 
1395ww(b)(3)(B)(i)) is amended to read as follows:
          ``(XVIII) for fiscal year 2003, the market basket percentage 
        increase for sole community hospitals and such increase minus 
        0.25 percentage points for other hospitals, and''.

SEC. 402. 2-YEAR INCREASE IN LEVEL OF ADJUSTMENT FOR INDIRECT COSTS OF 
                    MEDICAL EDUCATION (IME).

  Section 1886(d)(5)(B)(ii) (42 U.S.C. 1395ww(d)(5)(B)(ii)) is 
amended--
          (1) in subclause (VI) by striking ``and'' at the end;
          (2) by redesignating subclause (VII) as subclause (IX);
          (3) in subclause (IX) as so redesignated, by striking 
        ``2002'' and inserting ``2004''; and
          (4) by inserting after subclause (VI) the following new 
        subclause:
                  ``(VII) during fiscal year 2003, `c' is equal to 
                1.47;
                  ``(VIII) during fiscal year 2004, `c' is equal to 
                1.45; and''.

SEC. 403. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER INPATIENT 
                    HOSPITAL PPS.

  (a) Improving Timeliness of Data Collection.--Section 1886(d)(5)(K) 
(42 U.S.C. 1395ww(d)(5)(K)) is amended by adding at the end the 
following new clause:
  ``(vii) Under the mechanism under this subparagraph, the Secretary 
shall provide for the addition of new diagnosis and procedure codes in 
April 1 of each year, but the addition of such codes shall not require 
the Secretary to adjust the payment (or diagnosis-related group 
classification) under this subsection until the fiscal year that begins 
after such date.''.
  (b) Eligibility Standard.--
          (1) Minimum period for recognition of new technologies.--
        Section 1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)) is 
        amended--
                  (A) by inserting ``(I)'' after ``(vi)''; and
                  (B) by adding at the end the following new subclause:
  ``(II) Under such criteria, a service or technology shall not be 
denied treatment as a new service or technology on the basis of the 
period of time in which the service or technology has been in use if 
such period ends before the end of the 2-to-3-year period that begins 
on the effective date of implementation of a code under ICD-9-CM (or a 
successor coding methodology) that enables the identification of a 
significant sample of specific discharges in which the service or 
technology has been used.''.
          (2) Adjustment of threshold.--Section 1886(d)(5)(K)(ii)(I) 
        (42 U.S.C. 1395ww(d)(5)(K)(ii)(I)) is amended by inserting 
        ``(applying a threshold specified by the Secretary that is the 
        lesser of 50 percent of the national average standardized 
        amount for operating costs of inpatient hospital services for 
        all hospitals and all diagnosis-related groups or one standard 
        deviation for the diagnosis-related group involved)'' after 
        ``is inadequate''.
          (3) Criterion for substantial improvement.--Section 
        1886(d)(5)(K)(vi) (42 U.S.C. 1395ww(d)(5)(K)(vi)), as amended 
        by paragraph (1), is further amended by adding at the end the 
        following subclause:
  ``(III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a new 
service or technology represents an advance in medical technology that 
substantially improves the diagnosis or treatment of beneficiaries. 
Under such criteria, in determining whether a new service or technology 
represents an advance in medical technology that substantially improves 
the diagnosis or treatment of beneficiaries, the Secretary shall deem a 
service or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under section 506 
or 526 of the Federal Food, Drug, and Cosmetic Act, approved under 
section 314.510 or 601.41 of title 21, Code of Federal Regulations, or 
designated for priority review when the marketing application for such 
drug or biological was filed or is a medical device for which an 
exemption has been granted under section 520(m) of such Act, or for 
which priority review has been provided under section 515(d)(5) of such 
Act.''.
          (4) Process for public input.--Section 1886(d)(5)(K) (42 
        U.S.C. 1395ww(d)(5)(K)), as amended by paragraph (1), is 
        amended--
                  (A) in clause (i), by adding at the end the 
                following: ``Such mechanism shall be modified to meet 
                the requirements of clause (viii).''; and
                  (B) by adding at the end the following new clause:
  ``(viii) The mechanism established pursuant to clause (i) shall be 
adjusted to provide, before publication of a proposed rule, for public 
input regarding whether a new service or technology not described in 
the second sentence of clause (vi)(III) represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries as follows:
          ``(I) The Secretary shall make public and periodically update 
        a list of all the services and technologies for which an 
        application for additional payment under this subparagraph is 
        pending.
          ``(II) The Secretary shall accept comments, recommendations, 
        and data from the public regarding whether the service or 
        technology represents a substantial improvement.
          ``(III) The Secretary shall provide for a meeting at which 
        organizations representing hospitals, physicians, medicare 
        beneficiaries, manufacturers, and any other interested party 
        may present comments, recommendations, and data to the clinical 
        staff of the Centers for Medicare & Medicaid Services before 
        publication of a notice of proposed rulemaking regarding 
        whether service or technology represents a substantial 
        improvement.''.
  (c) Preference for Use of DRG Adjustment.--Section 1886(d)(5)(K) (42 
U.S.C. 1395ww(d)(5)(K)) is further amended by adding at the end the 
following new clause:
  ``(ix) Before establishing any add-on payment under this subparagraph 
with respect to a new technology, the Secretary shall seek to identify 
one or more diagnosis-related groups associated with such technology, 
based on similar clinical or anatomical characteristics and the cost of 
the technology. Within such groups the Secretary shall assign an 
eligible new technology into a diagnosis-related group where the 
average costs of care most closely approximate the costs of care of 
using the new technology. In such case, no add-on payment under this 
subparagraph shall be made with respect to such new technology and this 
clause shall not affect the application of paragraph (4)(C)(iii).''.
  (d) Improvement in Payment for New Technology.--Section 
1886(d)(5)(K)(ii)(III) (42 U.S.C. 1395ww(d)(5)(K)(ii)(III)) is amended 
by inserting after ``the estimated average cost of such service or 
technology'' the following: ``(based on the marginal rate applied to 
costs under subparagraph (A))''.
  (e) Effective Date.--
          (1) In general.--The Secretary shall implement the amendments 
        made by this section so that they apply to classification for 
        fiscal years beginning with fiscal year 2004.
          (2) Reconsiderations of applications for fiscal year 2003 
        that are denied.--In the case of an application for a 
        classification of a medical service or technology as a new 
        medical service or technology under section 1886(d)(5)(K) of 
        the Social Security Act (42 U.S.C. 1395ww(d)(5)(K)) that was 
        filed for fiscal year 2003 and that is denied--
                  (A) the Secretary shall automatically reconsider the 
                application as an application for fiscal year 2004 
                under the amendments made by this section; and
                  (B) the maximum time period otherwise permitted for 
                such classification of the service or technology shall 
                be extended by 12 months.

SEC. 404. PHASE-IN OF FEDERAL RATE FOR HOSPITALS IN PUERTO RICO.

  Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is amended--
          (1) in subparagraph (A)--
                  (A) in clause (i), by striking ``for discharges 
                beginning on or after October 1, 1997, 50 percent (and 
                for discharges between October 1, 1987, and September 
                30, 1997, 75 percent)'' and inserting ``the applicable 
                Puerto Rico percentage (specified in subparagraph 
                (E))''; and
                  (B) in clause (ii), by striking ``for discharges 
                beginning in a fiscal year beginning on or after 
                October 1, 1997, 50 percent (and for discharges between 
                October 1, 1987, and September 30, 1997, 25 percent)'' 
                and inserting ``the applicable Federal percentage 
                (specified in subparagraph (E))''; and
          (2) by adding at the end the following new subparagraph:
  ``(E) For purposes of subparagraph (A), for discharges occurring--
          ``(i) between October 1, 1987, and September 30, 1997, the 
        applicable Puerto Rico percentage is 75 percent and the 
        applicable Federal percentage is 25 percent;
          ``(ii) on or after October 1, 1997, and before October 1, 
        2003, the applicable Puerto Rico percentage is 50 percent and 
        the applicable Federal percentage is 50 percent;
          ``(iii) during fiscal year 2004, the applicable Puerto Rico 
        percentage is 45 percent and the applicable Federal percentage 
        is 55 percent;
          ``(iv) during fiscal year 2005, the applicable Puerto Rico 
        percentage is 40 percent and the applicable Federal percentage 
        is 60 percent;
          ``(v) during fiscal year 2006, the applicable Puerto Rico 
        percentage is 35 percent and the applicable Federal percentage 
        is 65 percent;
          ``(vi) during fiscal year 2007, the applicable Puerto Rico 
        percentage is 30 percent and the applicable Federal percentage 
        is 70 percent; and
          ``(vii) on or after October 1, 2007, the applicable Puerto 
        Rico percentage is 25 percent and the applicable Federal 
        percentage is 75 percent.''.

SEC. 405. REFERENCE TO PROVISION RELATING TO ENHANCED DISPROPORTIONATE 
                    SHARE HOSPITAL (DSH) PAYMENTS FOR RURAL HOSPITALS 
                    AND URBAN HOSPITALS WITH FEWER THAN 100 BEDS.

  For provision enhancing disproportionate share hospital (DSH) 
treatment for rural hospitals and urban hospitals with fewer than 100 
beds, see section 302.

SEC. 406. REFERENCE TO PROVISION RELATING TO 2-YEAR PHASED-IN INCREASE 
                    IN THE STANDARDIZED AMOUNT IN RURAL AND SMALL URBAN 
                    AREAS TO ACHIEVE A SINGLE, UNIFORM STANDARDIZED 
                    AMOUNT.

  For provision phasing in over a 2-year period an increase in the 
standardized amount for rural and small urban areas to achieve a 
single, uniform, standardized amount, see section 303.

SEC. 407. REFERENCE TO PROVISION FOR MORE FREQUENT UPDATES IN THE 
                    WEIGHTS USED IN HOSPITAL MARKET BASKET.

  For provision providing for more frequent updates in the weights used 
in hospital market basket, see section 304.

SEC. 408. REFERENCE TO PROVISION MAKING IMPROVEMENTS TO CRITICAL ACCESS 
                    HOSPITAL PROGRAM.

  For provision providing making improvements to critical access 
hospital program, see section 305.

             Subtitle B--Skilled Nursing Facility Services

SEC. 411. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

  (a) Temporary Increase in Nursing Component of PPS Federal Rate.--
Section 312(a) of BIPA is amended by adding at the end the following 
new sentence: ``The Secretary of Health and Human Services shall 
increase by 12, 10, and 8 percent the nursing component of the case-mix 
adjusted Federal prospective payment rate specified in Tables 3 and 4 
of the final rule published in the Federal Register by the Health Care 
Financing Administration on July 31, 2000 (65 Fed. Reg. 46770) and as 
subsequently updated under section 1888(e)(4)(E)(ii) of the Social 
Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)), effective for services 
furnished during fiscal years 2003, 2004, and 2005, respectively.''.
  (b) Adjustment to RUGs for AIDS Residents.--
          (1) In general.--Paragraph (12) of section 1888(e) (42 U.S.C. 
        1395yy(e)) is amended to read as follows:
          ``(12) Adjustment for residents with aids.--
                  ``(A) In general.--Subject to subparagraph (B), in 
                the case of a resident of a skilled nursing facility 
                who is afflicted with acquired immune deficiency 
                syndrome (AIDS), the per diem amount of payment 
                otherwise applicable shall be increased by 128 percent 
                to reflect increased costs associated with such 
                residents.
                  ``(B) Sunset.--Subparagraph (A) shall not apply on 
                and after such date as the Secretary certifies that 
                there is an appropriate adjustment in the case mix 
                under paragraph (4)(G)(i) to compensate for the 
                increased costs associated with residents described in 
                such subparagraph.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to services furnished on or after October 1, 2003.

                          Subtitle C--Hospice

SEC. 421. COVERAGE OF HOSPICE CONSULTATION SERVICES.

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

SEC. 422. 10 PERCENT INCREASE IN PAYMENT FOR HOSPICE CARE FURNISHED IN 
                    A FRONTIER AREA.

  (a) In General.--Section 1814(i)(1) (42 U.S.C. 1395f(i)(1)) is 
amended by adding at the end the following new subparagraph:
  ``(D) With respect to hospice care furnished in a frontier area on or 
after January 1, 2003, and before January 1, 2008, the payment rates 
otherwise established for such care shall be increased by 10 percent. 
For purposes of this subparagraph, the term `frontier area' means a 
county in which the population density is less than 7 persons per 
square mile.''.
  (b) Report on Costs.--Not later than January 1, 2007, the Comptroller 
General of the United States shall submit to Congress a report on the 
costs of furnishing hospice care in frontier areas. Such report shall 
include recommendations regarding the appropriateness of extending, and 
modifying, the payment increase provided under the amendment made by 
subsection (a).

SEC. 423. RURAL HOSPICE DEMONSTRATION PROJECT.

  (a) In General.--The Secretary shall conduct a demonstration project 
for the delivery of hospice care to medicare beneficiaries in rural 
areas. Under the project medicare beneficiaries who are unable to 
receive hospice care in the home for lack of an appropriate caregiver 
are provided such care in a facility of 20 or fewer beds which offers, 
within its walls, the full range of services provided by hospice 
programs under section 1861(dd) of the Social Security Act (42 U.S.C. 
1395x(dd)).
  (b) Scope of Project.--The Secretary shall conduct the project under 
this section with respect to no more than 3 hospice programs over a 
period of not longer than 5 years each.
  (c) Compliance with Conditions.--Under the demonstration project--
          (1) the hospice program shall comply with otherwise 
        applicable requirements, except that it shall not be required 
        to offer services outside of the home or to meet the 
        requirements of section 1861(dd)(2)(A)(iii) of the Social 
        Security Act; and
          (2) payments for hospice care shall be made at the rates 
        otherwise applicable to such care under title XVIII of such 
        Act.
The Secretary may require the program to comply with such additional 
quality assurance standards for its provision of services in its 
facility as the Secretary deems appropriate.
  (d) Report.--Upon completion of the project, the Secretary shall 
submit a report to Congress on the project and shall include in the 
report recommendations regarding extension of such project to hospice 
programs serving rural areas.

                      Subtitle D--Other Provisions

SEC. 431. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT CONTRACTORS.

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

                 TITLE V--PROVISIONS RELATING TO PART B

                    Subtitle A--Physicians' Services

SEC. 501. REVISION OF UPDATES FOR PHYSICIANS' SERVICES.

  (a) Update for 2003 through 2005.--
          (1) In general.--Section 1848(d) (42 U.S.C. 1395w-4(d)) is 
        amended by adding at the end the following new paragraphs:
          ``(5) Update for 2003.--The update to the single conversion 
        factor established in paragraph (1)(C) for 2003 is 2 percent.
          ``(6) Special rules for update for 2004 and 2005.--The 
        following rules apply in determining the update adjustment 
        factors under paragraph (4)(B) for 2004 and 2005:
                  ``(A) Use of 2002 data in determining allowable 
                costs.--
                          ``(i) The reference in clause (ii)(I) of such 
                        paragraph to April 1, 1996, is deemed to be a 
                        reference to January 1, 2002.
                          ``(ii) The allowed expenditures for 2002 is 
                        deemed to be equal to the actual expenditures 
                        for physicians' services furnished during 2002, 
                        as estimated by the Secretary.
                  ``(B) 1 percentage point increase in gdp under sgr.--
                The annual average percentage growth in real gross 
                domestic product per capita under subsection (f)(2)(C) 
                for each of 2003, 2004, and 2005 is deemed to be 
                increased by 1 percentage point.''.
          (2) Conforming amendment.--Paragraph (4)(B) of such section 
        is amended, in the matter before clause (i), by inserting ``and 
        paragraph (6)'' after ``subparagraph (D)''.
          (3) Not treated as change in law and regulation in 
        sustainable growth rate determination.--The amendments made by 
        this subsection shall not be treated as a change in law for 
        purposes of applying section 1848(f)(2)(D) of the Social 
        Security Act (42 U.S.C. 1395w-4(f)(2)(D)).
  (b) Use of 10-Year Rolling Average in Computing Gross Domestic 
Product.--
          (1) In general.--Section 1848(f)(2)(C) (42 U.S.C. 1395w-
        4(f)(2)(C)) is amended--
                  (A) by striking ``projected'' and inserting ``annual 
                average''; and
                  (B) by striking ``from the previous applicable period 
                to the applicable period involved'' and inserting 
                ``during the 10-year period ending with the applicable 
                period involved''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to computations of the sustainable growth rate for 
        years beginning with 2002.
  (c) Elimination of Transitional Adjustment.--Section 1848(d)(4)(F) 
(42 U.S.C. 1395w-4(d)(4)(F)) is amended by striking ``subparagraph 
(A)'' and all that follows and inserting ``subparagraph (A), for each 
of 2001 and 2002, of -0.2 percent.''

SEC. 502. STUDIES ON ACCESS TO PHYSICIANS' SERVICES.

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

SEC. 503. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS' SERVICES.

  Not later than 1 year after the date of the enactment of this Act, 
the Medicare Payment Advisory Commission shall submit to Congress a 
report on the effect of refinements to the practice expense component 
of payments for physicians' services in the case of services for which 
there are no physician work relative value units, after the transition 
to a full resource-based payment system in 2002, under section 1848 of 
the Social Security Act (42 U.S.C. 1395w-4). Such report shall examine 
the following matters by physician specialty:
          (1) The effect of such refinements on payment for physicians' 
        services.
          (2) The interaction of the practice expense component with 
        other components of and adjustments to payment for physicians' 
        services under such section.
          (3) The appropriateness of the amount of compensation by 
        reason of such refinements.
          (4) The effect of such refinements on access to care by 
        medicare beneficiaries to physicians' services.
          (5) The effect of such refinements on physician participation 
        under the medicare program.

SEC. 504. 1-YEAR EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY 
                    SERVICES UNDER MEDICARE.

  Section 542(c) of BIPA is amended by striking ``2-year period'' and 
inserting ``3-year period''.

                       Subtitle B--Other Services

SEC. 511. COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.

  (a) In General.--Section 1847 (42 U.S.C. 1395w-3) is amended to read 
as follows:
        ``competitive acquisition of certain items and services
  ``Sec. 1847. (a) Establishment of Competitive Acquisition Programs.--
          ``(1) Implementation of programs.--
                  ``(A) In general.--The Secretary shall establish and 
                implement programs under which competitive acquisition 
                areas are established throughout the United States for 
                contract award purposes for the furnishing under this 
                part of competitively priced items and services 
                (described in paragraph (2)) for which payment is made 
                under this part. Such areas may differ for different 
                items and services.
                  ``(B) Phased-in implementation.--The programs shall 
                be phased-in among competitive acquisition areas over a 
                period of not longer than 3 years in a manner so that 
                the competition under the programs occurs in--
                          ``(i) at least \1/3\ of such areas in 2004; 
                        and
                          ``(ii) at least \2/3\ of such areas in 2005.
                  ``(C) Waiver of certain provisions.--In carrying out 
                the programs, the Secretary may waive such provisions 
                of the Federal Acquisition Regulation as are necessary 
                for the efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the Secretary 
                determines appropriate.
          ``(2) Items and services described.--The items and services 
        referred to in paragraph (1) are the following:
                  ``(A) Durable medical equipment and inhalation drugs 
                used in connection with durable medical equipment.--
                Covered items (as defined in section 1834(a)(13)) for 
                which payment is otherwise made under section 1834(a), 
                other than items used in infusion, and inhalation drugs 
                used in conjunction with durable medical equipment.
                  ``(B) Off-the-shelf orthotics.--Orthotics (described 
                in section 1861(s)(9)) for which payment is otherwise 
                made under section 1834(h) which require minimal self-
                adjustment for appropriate use and does not require 
                expertise in trimming, bending, molding, assembling, or 
                customizing to fit to the patient.
          ``(3) Exemption authority.--In carrying out the programs 
        under this section, the Secretary may exempt--
                  ``(A) areas that are not competitive due to low 
                population density; and
                  ``(B) items and services for which the application of 
                competitive acquisition is not likely to result in 
                significant savings.
  ``(b) Program Requirements.--
          ``(1) In general.--The Secretary shall conduct a competition 
        among entities supplying items and services described in 
        subsection (a)(2) for each competitive acquisition area in 
        which the program is implemented under subsection (a) with 
        respect to such items and services.
          ``(2) Conditions for awarding contract.--
                  ``(A) In general.--The Secretary may not award a 
                contract to any entity under the competition conducted 
                in an competitive acquisition area pursuant to 
                paragraph (1) to furnish such items or services unless 
                the Secretary finds all of the following:
                          ``(i) The entity meets quality and financial 
                        standards specified by the Secretary or 
                        developed by accreditation entities or 
                        organizations recognized by the Secretary.
                          ``(ii) The total amounts to be paid under the 
                        contract (including costs associated with the 
                        administration of the contract) are expected to 
                        be less than the total amounts that would 
                        otherwise be paid.
                          ``(iii) Beneficiary access to a choice of 
                        multiple suppliers in the area is maintained.
                          ``(iv) Beneficiary liability is limited to 
                        the applicable percentage of contract award 
                        price.
                  ``(B) Quality standards.--The quality standards 
                specified under subparagraph (A)(i) shall not be less 
                than the quality standards that would otherwise apply 
                if this section did not apply and shall include 
                consumer services standards. The Secretary shall 
                consult with an expert outside advisory panel composed 
                of an appropriate selection of representatives of 
                physicians, practitioners, and suppliers to review (and 
                advise the Secretary concerning) such quality 
                standards.
          ``(3) Contents of contract.--
                  ``(A) In general.--A contract entered into with an 
                entity under the competition conducted pursuant to 
                paragraph (1) is subject to terms and conditions that 
                the Secretary may specify.
                  ``(B) Term of contracts.--The Secretary shall rebid 
                contracts under this section not less often than once 
                every 3 years.
          ``(4) Limit on number of contractors.--
                  ``(A) In general.--The Secretary may limit the number 
                of contractors in a competitive acquisition area to the 
                number needed to meet projected demand for items and 
                services covered under the contracts. In awarding 
                contracts, the Secretary shall take into account the 
                ability of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of beneficiaries for such items or 
                services in the geographic area covered under the 
                contract on a timely basis.
                  ``(B) Multiple winners.--The Secretary shall award 
                contracts to more than one entity submitting a bid in 
                each area for an item or service.
          ``(5) Participating contractors.--Payment shall not be made 
        for items and services described in subsection (a)(2) furnished 
        by a contractor and for which competition is conducted under 
        this section unless--
                  ``(A) the contractor has submitted a bid for such 
                items and services under this section; and
                  ``(B) the Secretary has awarded a contract to the 
                contractor for such items and services under this 
                section.
          ``(6) Authority to contract for education, outreach and 
        complaint services.--The Secretary may enter into a contract 
        with an appropriate entity to address complaints from 
        beneficiaries who receive items and services from an entity 
        with a contract under this section and to conduct appropriate 
        education of and outreach to such beneficiaries with respect to 
        the program.
  ``(c) Annual Reports.--The Secretary shall submit to Congress an 
annual management report on the programs under this section. Each such 
report shall include information on savings, reductions in cost-
sharing, access to items and services, and beneficiary satisfaction.
  ``(d) Demonstration Project for Clinical Laboratory Services.--
          ``(1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                  ``(A) for which payment is otherwise made under 
                section 1833(h) or 1834(d)(1) (relating to colorectal 
                cancer screening tests); and
                  ``(B) which are furnished without a face-to-face 
                encounter between the individual and the hospital or 
                physician ordering the tests.
          ``(2) Terms and conditions.--Such project shall be under the 
        same conditions as are applicable to items and services 
        described in subsection (a)(2).
          ``(3) Report.--The Secretary shall submit to Congress--
                  ``(A) an initial report on the project not later than 
                December 31, 2004; and
                  ``(B) such progress and final reports on the project 
                after such date as the Secretary determines 
                appropriate.''.
  (b) Continuation of Certain Demonstration Projects.--Notwithstanding 
the amendment made by subsection (a), with respect to demonstration 
projects implemented by the Secretary under section 1847 of the Social 
Security Act (42 U.S.C. 1395w-3) (relating to the establishment of 
competitive acquisition areas) that was in effect on the day before the 
date of the enactment of this Act, each such demonstration project may 
continue under the same terms and conditions applicable under that 
section as in effect on that date.
  (c) Report on Differences in Payment for Laboratory Services.--Not 
later than 18 months after the date of the enactment of this Act, the 
Comptroller General of the United States shall submit to Congress a 
report that analyzes differences in reimbursement between public and 
private payors for clinical diagnostic laboratory services.

SEC. 512. PAYMENT FOR AMBULANCE SERVICES.

  (a) Phase-In Providing Floor Using Blend of Fee Schedule and Regional 
Fee Schedules.--Section 1834(l) (42 U.S.C. 1395m(l)) is amended--
          (1) in paragraph (2)(E), by inserting ``consistent with 
        paragraph (10)'' after ``in an efficient and fair manner'';
          (2) by redesignating the paragraph (8) added by section 
        221(a) of BIPA as paragraph (9); and
          (3) by adding at the end the following new paragraph:
          ``(10) Phase-in providing floor using blend of fee schedule 
        and regional fee schedules.--In carrying out the phase-in under 
        paragraph (2)(E) for each level of service furnished in a year 
        before January 1, 2007, the portion of the payment amount that 
        is based on the fee schedule shall not be less than the 
        following blended rate of the fee schedule under paragraph (1) 
        and of a regional fee schedule for the region involved:
                  ``(A) For 2003, the blended rate shall be based 20 
                percent on the fee schedule under paragraph (1) and 80 
                percent on the regional fee schedule.
                  ``(B) For 2004, the blended rate shall be based 40 
                percent on the fee schedule under paragraph (1) and 60 
                percent on the regional fee schedule.
                  ``(C) For 2005, the blended rate shall be based 60 
                percent on the fee schedule under paragraph (1) and 40 
                percent on the regional fee schedule.
                  ``(D) For 2006, the blended rate shall be based 80 
                percent on the fee schedule under paragraph (1) and 20 
                percent on the regional fee schedule.
        For purposes of this paragraph, the Secretary shall establish a 
        regional fee schedule for each of the 9 Census divisions using 
        the methodology (used in establishing the fee schedule under 
        paragraph (1)) to calculate a regional conversion factor and a 
        regional mileage payment rate and using the same payment 
        adjustments and the same relative value units as used in the 
        fee schedule under such paragraph.''.
  (b) Adjustment in Payment for Certain Long Trips.--Section 1834(l), 
as amended by subsection (a), is further amended by adding at the end 
the following new paragraph:
          ``(11) Adjustment in payment for certain long trips.--In the 
        case of ground ambulance services furnished on or after January 
        1, 2003, and before January 1, 2008, regardless of where the 
        transportation originates, the fee schedule established under 
        this subsection shall provide that, with respect to the payment 
        rate for mileage for a trip above 50 miles the per mile rate 
        otherwise established shall be increased by \1/4\ of the 
        payment per mile otherwise applicable to such miles.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to ambulance services furnished on or after January 1, 2003.

SEC. 513. 2-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS; PROVISIONS 
                    RELATING TO REPORTS.

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

SEC. 514. ACCELERATED IMPLEMENTATION OF 20 PERCENT COINSURANCE FOR 
                    HOSPITAL OUTPATIENT DEPARTMENT (OPD) SERVICES; 
                    OTHER OPD PROVISIONS.

  (a) Accelerated Implementation of Coinsurance Reductions.--Section 
1833(t)(8)(C)(ii) (42 U.S.C. 1395l(t)(8)(C)(ii)) is amended by striking 
subclauses (III) through (V) and inserting the following:
                                  ``(III) For procedures performed in 
                                2004, 45 percent.
                                  ``(IV) For procedures performed in 
                                2005, 40 percent.
                                  ``(V) For procedures performed in 
                                2006, 2007, 2008 and 2009, 35 percent.
                                  ``(VI) For procedures performed in 
                                2010, 30 percent.
                                  ``(VII) For procedures performed in 
                                2011, 25 percent.
                                  ``(VIII) For procedures performed in 
                                2012 and thereafter, 20 percent.''.
  (b) Treatment of Temperature Monitored Cryoablation.--
          (1) In general.--Section 1833(t)(6)(A)(ii) (42 U.S.C. 
        1395l(t)(6)(A)(ii)) is amended by striking ``or temperature 
        monitored cryoablation''.
          (2) Effective date.--The amendment made by paragraph (1) 
        applies to payment for services furnished on or after January 
        1, 2003.

SEC. 515. COVERAGE OF AN INITIAL PREVENTIVE PHYSICAL EXAMINATION.

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

               ``Initial Preventive Physical Examination

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

SEC. 516. RENAL DIALYSIS SERVICES.

  (a) Report on Differences in Costs in Different Settings.--Not later 
than 1 year after the date of the enactment of this Act, the 
Comptroller General of the United States shall submit to Congress a 
report containing--
          (1) an analysis of the differences in costs of providing 
        renal dialysis services under the medicare program in home 
        settings and in facility settings;
          (2) an assessment of the percentage of overhead costs in home 
        settings and in facility settings; and
          (3) an evaluation of whether the charges for home dialysis 
        supplies and equipment are reasonable and necessary.
  (b) Restoring Composite Rate Exceptions for Pediatric Facilities.--
          (1) In general.--Section 422(a)(2) of BIPA is amended--
                  (A) in subparagraph (A), by striking ``and (C)'' and 
                inserting ``, (C), and (D)'';
                  (B) in subparagraph (B), by striking ``In the case'' 
                and inserting ``Subject to subparagraph (D), in the 
                case''; and
                  (C) by adding at the end the following new 
                subparagraph:
                  ``(D) Inapplicability to pediatric facilities.--
                Subparagraphs (A) and (B) shall not apply, as of 
                October 1, 2002, to pediatric facilities that do not 
                have an exception rate described in subparagraph (C) in 
                effect on such date. For purposes of this subparagraph, 
                the term `pediatric facility' means a renal facility at 
                least 50 percent of whose patients are individuals 
                under 18 years of age.''.
          (2) Conforming amendment.--The fourth sentence of section 
        1881(b)(7) (42 U.S.C. 1395rr(b)(7)) is amended by striking 
        ``The Secretary'' and inserting ``Subject to section 422(a)(2) 
        of the Medicare, Medicaid, and SCHIP Benefits Improvement and 
        Protection Act of 2000, the Secretary''.
  (c) Increase in Renal Dialysis Composite Rate for Services Furnished 
in 2004.--Notwithstanding any other provision of law, with respect to 
payment under part B of title XVIII of the Social Security Act for 
renal dialysis services furnished in 2004, the composite payment rate 
otherwise established under section 1881(b)(7) of such Act (42 U.S.C. 
1395rr(b)(7)) shall be increased by 1.2 percent.

SEC. 517. IMPROVED PAYMENT FOR CERTAIN MAMMOGRAPHY SERVICES.

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

SEC. 518. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY 
                    RETIREES; SPECIAL ENROLLMENT PERIOD.

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

SEC. 519. COVERAGE OF CHOLESTEROL AND BLOOD LIPID SCREENING.

  (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as amended 
by section 515(a), is amended--
          (1) in subparagraph (V), by striking ``and'' at the end;
          (2) in subparagraph (W), by inserting ``and'' at the end; and
          (3) by adding at the end the following new subparagraph:
                  ``(X) cholesterol and other blood lipid screening 
                tests (as defined in subsection (XX));''.
  (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as amended 
by section 515(b), is amended by adding at the end the following new 
subsection:

           ``Cholesterol and Other Blood Lipid Screening Test

  ``(xx)(1) The term `cholesterol and other blood lipid screening test' 
means diagnostic testing of cholesterol and other lipid levels of the 
blood for the purpose of early detection of abnormal cholesterol and 
other lipid levels.
  ``(2) The Secretary shall establish standards, in consultation with 
appropriate organizations, regarding the frequency and type of 
cholesterol and other blood lipid screening tests, except that such 
frequency may not be more often than once every 2 years.''.
  (c) Frequency.--Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as 
amended by section 515(e), is amended
          (1) by striking ``and'' at the end of subparagraph (I);
          (2) by striking the semicolon at the end of subparagraph (J) 
        and inserting ``; and''; and
          (3) by adding at the end the following new subparagraph:
          ``(K) in the case of a cholesterol and other blood lipid 
        screening test (as defined in section 1861(xx)(1)), which is 
        performed more frequently than is covered under section 
        1861(xx)(2).''.
  (d) Effective Date.--The amendments made by this section shall apply 
to tests furnished on or after January 1, 2004.

             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

SEC. 601. ELIMINATION OF 15 PERCENT REDUCTION IN PAYMENT RATES UNDER 
                    THE PROSPECTIVE PAYMENT SYSTEM.

  (a) In General.--Section 1895(b)(3)(A) (42 U.S.C. 1395fff(b)(3)(A)) 
is amended to read as follows:
                  ``(A) Initial basis.--Under such system the Secretary 
                shall provide for computation of a standard prospective 
                payment amount (or amounts) as follows:
                          ``(i) Such amount (or amounts) shall 
                        initially be based on the most current audited 
                        cost report data available to the Secretary and 
                        shall be computed in a manner so that the total 
                        amounts payable under the system for fiscal 
                        year 2001 shall be equal to the total amount 
                        that would have been made if the system had not 
                        been in effect and if section 1861(v)(1)(L)(ix) 
                        had not been enacted.
                          ``(ii) For fiscal year 2002 and for the first 
                        quarter of fiscal year 2003, such amount (or 
                        amounts) shall be equal to the amount (or 
                        amounts) determined under this paragraph for 
                        the previous fiscal year, updated under 
                        subparagraph (B).
                          ``(iii) For 2003, such amount (or amounts) 
                        shall be equal to the amount (or amounts) 
                        determined under this paragraph for fiscal year 
                        2002, updated under subparagraph (B) for 2003.
                          ``(iv) For 2004 and each subsequent year, 
                        such amount (or amounts) shall be equal to the 
                        amount (or amounts) determined under this 
                        paragraph for the previous year, updated under 
                        subparagraph (B).
                Each such amount shall be standardized in a manner that 
                eliminates the effect of variations in relative case 
                mix and area wage adjustments among different home 
                health agencies in a budget neutral manner consistent 
                with the case mix and wage level adjustments provided 
                under paragraph (4)(A). Under the system, the Secretary 
                may recognize regional differences or differences based 
                upon whether or not the services or agency are in an 
                urbanized area.''.
  (b) Effective Date.--The amendment made by subsection (a) shall take 
effect as if included in the amendments made by section 501 of the 
Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000 (as enacted into law by section 1(a)(6) of Public Law 106-554).

SEC. 602. ESTABLISHMENT OF REDUCED COPAYMENT FOR A HOME HEALTH SERVICE 
                    EPISODE OF CARE FOR CERTAIN BENEFICIARIES.

  (a) Part A.--
          (1) In general.--Section 1813(a) (42 U.S.C. 1395e(a)) is 
        amended by adding at the end the following new paragraph:
  ``(5)(A)(i) Subject to clause (ii), the amount payable for home 
health services furnished to the individual under this title for each 
episode of care beginning in a year (beginning with 2003) shall be 
reduced by a copayment equal to the copayment amount specified in 
subparagraph (B)(ii) such year.
  ``(ii) The copayment under clause (i) shall not apply--
          ``(I) in the case of an individual who has been determined to 
        be a qualified medicare beneficiary (as defined in section 
        1905(p)(1)) or otherwise to be entitled to medical assistance 
        under section 1902(a)(10)(A) or 1902(a)(10)(C); and
          ``(II) in the case of an episode of care which consists of 4 
        or fewer visits.
  ``(B)(i) The Secretary shall estimate, before the beginning of each 
year (beginning with 2003), the national average payment under this 
title per episode for home health services projected for the year 
involved.
  ``(ii) For each year the copayment amount under this clause is equal 
to 1.5 percent of the national average payment estimated for the year 
involved under clause (i). Any amount determined under the preceding 
sentence which is not a multiple of $5 shall be rounded to the nearest 
multiple of $5.
  ``(iii) There shall be no administrative or judicial review under 
section 1869, 1878, or otherwise of the estimation of average payment 
under clause (i).''.
          (2) Timely implementation.--Unless the Secretary of Health 
        and Human Services otherwise provides on a timely basis, the 
        copayment amount specified under section 1813(a)(5)(B)(ii) of 
        the Social Security Act (as added by paragraph (1)) for 2003 
        shall be deemed to be $40.
  (b) Conforming Provisions.--
          (1) Section 1833(a)(2)(A) (42 U.S.C. 1395l(a)(2)(A)) is 
        amended by inserting ``less the copayment amount applicable 
        under section 1813(a)(5)'' after ``1895''.
          (2) Section 1866(a)(2)(A)(i) (42 U.S.C. 1395cc(a)(2)(A)(i)) 
        is amended--
                  (A) by striking ``or coinsurance'' and inserting ``, 
                coinsurance, or copayment''; and
                  (B) by striking ``or (a)(4)'' and inserting ``(a)(4), 
                or (a)(5)''.

SEC. 603. UPDATE IN HOME HEALTH SERVICES.

  (a) Change to Calendar Year Update.--
          (1) In general.--Section 1895(b) (42 U.S.C. 1395fff(b)(3)) is 
        amended--
                  (A) in paragraph (3)(B)(i)--
                          (i) by striking ``each fiscal year (beginning 
                        with fiscal year 2002)'' and inserting ``fiscal 
                        year 2002 and for each subsequent year 
                        (beginning with 2003)''; and
                          (ii) by inserting ``or year'' after ``the 
                        fiscal year'';
                  (B) in paragraph (3)(B)(ii)--
                          (i) in subclause (II), by striking ``fiscal 
                        year'' and inserting ``year'' and by 
                        redesignating such subclause as subclause 
                        (III); and
                          (ii) in subclause (I), by striking ``each of 
                        fiscal years 2002 and 2003'' and inserting the 
                        following: ``fiscal year 2002, the home health 
                        market basket percentage increase (as defined 
                        in clause (iii)) minus 1.1 percentage points;
                                  ``(II) 2003'';
                  (C) in paragraph (3)(B)(iii), by inserting ``or 
                year'' after ``fiscal year'' each place it appears;
                  (D) in paragraph (3)(B)(iv)--
                          (i) by inserting ``or year'' after ``fiscal 
                        year'' each place it appears; and
                          (ii) by inserting ``or years'' after ``fiscal 
                        years''; and
                  (E) in paragraph (5), by inserting ``or year'' after 
                ``fiscal year''.
          (2) Transition rule.--The standard prospective payment amount 
        (or amounts) under section 1895(b)(3) of the Social Security 
        Act for the calendar quarter beginning on October 1, 2002, 
        shall be such amount (or amounts) for the previous calendar 
        quarter.
  (b) Changes in Updates for 2003, 2004, and 2005.--Section 
1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended by 
subsection (a)(1)(B), is amended--
          (1) in subclause (II), by striking ``the home health market 
        basket percentage increase (as defined in clause (iii)) minus 
        1.1 percentage points'' and inserting ``2.0 percentage 
        points'';
          (2) by striking ``or'' at the end of subclause (II);
          (3) by redesignating subclause (III) as subclause (V); and
          (4) by inserting after subclause (II) the following new 
        subclause:
                                  ``(III) 2004, 1.1 percentage points;
                                  ``(IV) 2005, 2.7 percentage points; 
                                or''.
  (c) Payment Adjustment.--
          (1) In general.--Section 1895(b)(5) (42 U.S.C. 1395fff(b)(5)) 
        is amended by striking ``5 percent'' and inserting ``3 
        percent''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to years beginning with 2003.

SEC. 604. OASIS TASK FORCE; SUSPENSION OF CERTAIN OASIS DATA COLLECTION 
                    REQUIREMENTS PENDING TASK FORCE SUBMITTAL OF 
                    REPORT.

  (a) Establishment.--The Secretary of Health and Human Services shall 
establish and appoint a task force (to be known as the ``OASIS Task 
Force'') to examine the data collection and reporting requirements 
under OASIS. For purposes of this section, the term ``OASIS'' means the 
Outcome and Assessment Information Set required by reason of section 
4602(e) of Balanced Budget Act of 1997 (42 U.S.C. 1395fff note).
  (b) Composition.--The OASIS Task Force shall be composed of the 
following:
          (1) Staff of the Centers for Medicare & Medicaid Services 
        with expertise in post-acute care.
          (2) Representatives of home health agencies.
          (3) Health care professionals and research and health care 
        quality experts outside the Federal Government with expertise 
        in post-acute care.
          (4) Advocates for individuals requiring home health services.
  (c) Duties.--
          (1) Review and recommendations.--The OASIS Task Force shall 
        review and make recommendations to the Secretary regarding 
        changes in OASIS to improve and simplify data collection for 
        purposes of--
                  (A) assessing the quality of home health services; 
                and
                  (B) providing consistency in classification of 
                patients into home health resource groups (HHRGs) for 
                payment under section 1895 of the Social Security Act 
                (42 U.S.C. 1395fff).
          (2) Specific items.--In conducting the review under paragraph 
        (1), the OASIS Task Force shall specifically examine--
                  (A) the 41 outcome measures currently in use;
                  (B) the timing and frequency of data collection; and
                  (C) the collection of information on comorbidities 
                and clinical indicators.
          (3) Report.--The OASIS Task Force shall submit a report to 
        the Secretary containing its findings and recommendations for 
        changes in OASIS by not later than 18 months after the date of 
        the enactment of this Act.
  (d) Sunset.--The OASIS Task Force shall terminate 60 days after the 
date on which the report is submitted under subsection (c)(2).
  (e) Nonapplication of FACA.--The provisions of the Federal Advisory 
Committee Act shall not apply to the OASIS Task Force.
  (f) Suspension of OASIS Requirement for Collection of Data on Non-
Medicare and Non-Medicaid Patients Pending Task Force Report.--
          (1) In general.--During the period described in paragraph 
        (2), the Secretary of Health and Human Services may not 
        require, under section 4602(e) of the Balanced Budget Act of 
        1997 or otherwise under OASIS, a home health agency to gather 
        or submit information that relates to an individual who is not 
        eligible for benefits under either title XVIII or title XIX of 
        the Social Security Act.
          (2) Period of suspension.--The period described in this 
        paragraph--
                  (A) begins on January 1, 2003, and
                  (B) ends on the last day of the 2nd month beginning 
                after the date the report is submitted under subsection 
                (c)(2).

SEC. 605. MEDPAC STUDY ON MEDICARE MARGINS OF HOME HEALTH AGENCIES.

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

             Subtitle B--Direct Graduate Medical Education

SEC. 611. EXTENSION OF UPDATE LIMITATION ON HIGH COST PROGRAMS.

  Section 1886(h)(2)(D)(iv) (42 U.S.C. 1395ww(h)(2)(D)(iv)) is 
amended--
          (1) in subclause (I)--
                  (A) by striking ``and 2002'' and inserting ``through 
                2012'';
                  (B) by striking ``during fiscal year 2001 or fiscal 
                year 2002'' and inserting ``during the period beginning 
                with fiscal year 2001 and ending with fiscal year 
                2012''; and
                  (C) by striking ``subject to subclause (III),'';
          (2) by striking subclause (II); and
          (3) in subclause (III)--
                  (A) by redesignating such subclause as subclause 
                (II); and
                  (B) by striking ``or (II)''.

SEC. 612. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

  (a) In General.--Section 1886(h)(4) (42 U.S.C. 1395ww(h)(4)) is 
amended--
          (1) in subparagraph (F)(i), by inserting ``subject to 
        subparagraph (I),'' after ``October 1, 1997,'';
          (2) in subparagraph (H)(i), by inserting ``subject to 
        subparagraph (I),'' after ``subparagraphs (F) and (G),''; and
          (3) by adding at the end the following new subparagraph:
                  ``(I) Redistribution of unused resident positions.--
                          ``(i) Reduction in limit based on unused 
                        positions.--
                                  ``(I) In general.--If a hospital's 
                                resident level (as defined in clause 
                                (iii)(I)) is less than the otherwise 
                                applicable resident limit (as defined 
                                in clause (iii)(II)) for each of the 
                                reference periods (as defined in 
                                subclause (II)), effective for cost 
                                reporting periods beginning on or after 
                                January 1, 2003, the otherwise 
                                applicable resident limit shall be 
                                reduced by 75 percent of the difference 
                                between such limit and the reference 
                                resident level specified in subclause 
                                (III) (or subclause (IV) if 
                                applicable).
                                  ``(II) Reference periods defined.--In 
                                this clause, the term `reference 
                                periods' means, for a hospital, the 3 
                                most recent consecutive cost reporting 
                                periods of the hospital for which cost 
                                reports have been settled (or, if not, 
                                submitted) on or before September 30, 
                                2001.
                                  ``(III) Reference resident level.--
                                Subject to subclause (IV), the 
                                reference resident level specified in 
                                this subclause for a hospital is the 
                                highest resident level for the hospital 
                                during any of the reference periods.
                                  ``(IV) Adjustment process.--Upon the 
                                timely request of a hospital, the 
                                Secretary may adjust the reference 
                                resident level for a hospital to be the 
                                resident level for the hospital for the 
                                cost reporting period that includes 
                                July 1, 2002.
                          ``(ii) Redistribution.--
                                  ``(I) In general.--The Secretary is 
                                authorized to increase the otherwise 
                                applicable resident limits for 
                                hospitals by an aggregate number 
                                estimated by the Secretary that does 
                                not exceed the aggregate reduction in 
                                such limits attributable to clause (i) 
                                (without taking into account any 
                                adjustment under subclause (IV) of such 
                                clause).
                                  ``(II) Effective date.--No increase 
                                under subclause (I) shall be permitted 
                                or taken into account for a hospital 
                                for any portion of a cost reporting 
                                period that occurs before July 1, 2003, 
                                or before the date of the hospital's 
                                application for an increase under this 
                                clause. No such increase shall be 
                                permitted for a hospital unless the 
                                hospital has applied to the Secretary 
                                for such increase by December 31, 2004.
                                  ``(III) Considerations in 
                                redistribution.--In determining for 
                                which hospitals the increase in the 
                                otherwise applicable resident limit is 
                                provided under subclause (I), the 
                                Secretary shall take into account the 
                                need for such an increase by specialty 
                                and location involved, consistent with 
                                subclause (IV).
                                  ``(IV) Priority for rural and small 
                                urban areas.--In determining for which 
                                hospitals and residency training 
                                programs an increase in the otherwise 
                                applicable resident limit is provided 
                                under subclause (I), the Secretary 
                                shall first distribute the increase to 
                                programs of hospitals located in rural 
                                areas or in urban areas that are not 
                                large urban areas (as defined for 
                                purposes of subsection (d)) on a first-
                                come-first-served basis (as determined 
                                by the Secretary) based on a 
                                demonstration that the hospital will 
                                fill the positions made available under 
                                this clause and not to exceed an 
                                increase of 25 full-time equivalent 
                                positions with respect to any hospital.
                                  ``(V) Application of locality 
                                adjusted national average per resident 
                                amount.--With respect to additional 
                                residency positions in a hospital 
                                attributable to the increase provided 
                                under this clause, notwithstanding any 
                                other provision of this subsection, the 
                                approved FTE resident amount is deemed 
                                to be equal to the locality adjusted 
                                national average per resident amount 
                                computed under subparagraph (E) for 
                                that hospital.
                                  ``(VI) Construction.--Nothing in this 
                                clause shall be construed as permitting 
                                the redistribution of reductions in 
                                residency positions attributable to 
                                voluntary reduction programs under 
                                paragraph (6) or as affecting the 
                                ability of a hospital to establish new 
                                medical residency training programs 
                                under subparagraph (H).
                          ``(iii) Resident level and limit defined.--In 
                        this subparagraph:
                                  ``(I) Resident level.--The term 
                                `resident level' means, with respect to 
                                a hospital, the total number of full-
                                time equivalent residents, before the 
                                application of weighting factors (as 
                                determined under this paragraph), in 
                                the fields of allopathic and 
                                osteopathic medicine for the hospital.
                                  ``(II) Otherwise applicable resident 
                                limit.--The term `otherwise applicable 
                                resident limit' means, with respect to 
                                a hospital, the limit otherwise 
                                applicable under subparagraphs (F)(i) 
                                and (H) on the resident level for the 
                                hospital determined without regard to 
                                this subparagraph.''.
  (b) No Application of Increase to IME.--Section 1886(d)(5)(B)(v) (42 
U.S.C. 1395ww(d)(5)(B)(v)) is amended by adding at the end the 
following: ``The provisions of clause (i) of subparagraph (I) of 
subsection (h)(4) shall apply with respect to the first sentence of 
this clause in the same manner as it applies with respect to 
subparagraph (F) of such subsection, but the provisions of clause (ii) 
of such subparagraph shall not apply.''.
  (c) Report on Extension of Applications Under Redistribution 
Program.--Not later than July 1, 2004, the Secretary shall submit to 
Congress a report containing recommendations regarding whether to 
extend the deadline for applications for an increase in resident limits 
under section 1886(h)(4)(I)(ii)(II) of the Social Security Act (as 
added by subsection (a)).

                      Subtitle C--Other Provisions

SEC. 621. MODIFICATIONS TO MEDICARE PAYMENT ADVISORY COMMISSION 
                    (MEDPAC).

  (a) Examination of Budget Consequences.--Section 1805(b) (42 U.S.C. 
1395b-6(b)) is amended by adding at the end the following new 
paragraph:
          ``(8) Examination of budget consequences.--Before making any 
        recommendations, the Commission shall examine the budget 
        consequences of such recommendations, directly or through 
        consultation with appropriate expert entities.''.
  (b) Consideration of Efficient Provision of Services.--Section 
1805(b)(2)(B)(i) (42 U.S.C. 1395b-6(b)(2)(B)(i)) is amended by 
inserting ``the efficient provision of'' after ``expenditures for''.
  (c) Additional Reports.--
          (1) Data needs and sources.--The Medicare Payment Advisory 
        Commission shall conduct a study, and submit a report to 
        Congress by not later than June 1, 2003, on the need for 
        current data, and sources of current data available, to 
        determine the solvency and financial circumstances of hospitals 
        and other medicare providers of services. The Commission shall 
        examine data on uncompensated care, as well as the sahre of 
        uncompensated care accounted for by the expenses for treating 
        illegal aliens.
          (2) Use of tax-related returns.--Using return information 
        provided under Form 990 of the Internal Revenue Service, the 
        Commission shall submit to Congress, by not later than June 1, 
        2003, a report on the following:
                  (A) Investments and capital financing of hospitals 
                participating under the medicare program and related 
                foundations.
                  (B) Access to capital financing for private and for 
                not-for-profit hospitals.

SEC. 622. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR CERTAIN 
                    MEDICARE BENEFICIARIES WITH DIABETES.

  (a) In General.--The Secretary of Health and Human Services shall 
conduct a demonstration project under this section (in this section 
referred to as the ``project'') to demonstrate the impact on costs and 
health outcomes of applying disease management to certain medicare 
beneficiaries with diagnosed diabetes. In no case may the number of 
participants in the project exceed 30,000 at any time.
  (b) Voluntary Participation.--
          (1) Eligibility.--Medicare beneficiaries are eligible to 
        participate in the project only if--
                  (A) they are Hispanic, as determined by the 
                Secretary;
                  (B) they meet specific medical criteria demonstrating 
                the appropriate diagnosis and the advanced nature of 
                their disease;
                  (C) their physicians approve of participation in the 
                project; and
                  (D) they are not enrolled in a Medicare+Choice plan.
          (2) Benefits.--A medicare beneficiary who is enrolled in the 
        project shall be eligible--
                  (A) for disease management services related to their 
                diabetes; and
                  (B) for payment for all costs for prescription drugs 
                without regard to whether or not they relate to the 
                diabetes, except that the project may provide for 
                modest cost-sharing with respect to prescription drug 
                coverage.
  (c) Contracts With Disease Management Organizations.--
          (1) In general.--The Secretary of Health and Human Services 
        shall carry out the project through contracts with up to three 
        disease management organizations. The Secretary shall not enter 
        into such a contract with an organization unless the 
        organization demonstrates that it can produce improved health 
        outcomes and reduce aggregate medicare expenditures consistent 
        with paragraph (2).
          (2) Contract provisions.--Under such contracts--
                  (A) such an organization shall be required to provide 
                for prescription drug coverage described in subsection 
                (b)(2)(B);
                  (B) such an organization shall be paid a fee 
                negotiated and established by the Secretary in a manner 
                so that (taking into account savings in expenditures 
                under parts A and B of the medicare program under title 
                XVIII of the Social Security Act) there will be no net 
                increase, and to the extent practicable, there will be 
                a net reduction in expenditures under the medicare 
                program as a result of the project; and
                  (C) such an organization shall guarantee, through an 
                appropriate arrangement with a reinsurance company or 
                otherwise, the prohibition on net increases in 
                expenditures described in subparagraph (B).
          (3) Payments.--Payments to such organizations shall be made 
        in appropriate proportion from the Trust Funds established 
        under title XVIII of the Social Security Act.
  (d) Application of Medigap Protections to Demonstration Project 
Enrollees.--(1) Subject to paragraph (2), the provisions of section 
1882(s)(3) (other than clauses (i) through (iv) of subparagraph (B)) 
and 1882(s)(4) of the Social Security Act shall apply to enrollment 
(and termination of enrollment) in the demonstration project under this 
section, in the same manner as they apply to enrollment (and 
termination of enrollment) with a Medicare+Choice organization in a 
Medicare+Choice plan.
  (2) In applying paragraph (1)--
          (A) any reference in clause (v) or (vi) of section 
        1882(s)(3)(B) of such Act to 12 months is deemed a reference to 
        the period of the demonstration project; and
          (B) the notification required under section 1882(s)(3)(D) of 
        such Act shall be provided in a manner specified by the 
        Secretary of Health and Human Services.
  (e) Duration.--The project shall last for not longer than 3 years.
  (f) Waiver.--The Secretary of Health and Human Services shall waive 
such provisions of title XVIII of the Social Security Act as may be 
necessary to provide for payment for services under the project in 
accordance with subsection (c)(3).
  (g) Report.--The Secretary of Health and Human Services shall submit 
to Congress an interim report on the project not later than 2 years 
after the date it is first implemented and a final report on the 
project not later than 6 months after the date of its completion. Such 
reports shall include information on the impact of the project on costs 
and health outcomes and recommendations on the cost-effectiveness of 
extending or expanding the project.
  (h) Working Group on Medicare Disease Management Programs.--The 
Secretary shall establish within the Department of Health and Human 
Services a working group consisting of employees of the Department to 
carry out the following:
          (1) To oversee the project.
          (2) To establish policy and criteria for medicare disease 
        management programs within the Department, including the 
        establishment of policy and criteria for such programs.
          (3) To identify targeted medical conditions and targeted 
        individuals.
          (4) To select areas in which such programs are carried out.
          (5) To monitor health outcomes under such programs.
          (6) To measure the effectiveness of such programs in meeting 
        any budget neutrality requirements.
          (7) Otherwise to serve as a central focal point within the 
        Department for dissemination of information on medicare disease 
        management programs.
  (i) GAO Study on Disease Management Programs.--The Comptroller 
General of the United States shall conduct a study that compares 
disease management programs under title XVIII of the Social Security 
Act with such programs conducted in the private sector, including the 
prevalence of such programs and programs for case management. The study 
shall identify the cost-effectiveness of such programs and any savings 
achieved by such programs. The Comptroller General shall submit a 
report on such study to Congress by not later than 18 months after the 
date of the enactment of this Act.

SEC. 623. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY CARE SERVICES.

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

              TITLE VII--MEDICARE BENEFITS ADMINISTRATION

SEC. 701. ESTABLISHMENT OF MEDICARE BENEFITS ADMINISTRATION.

  (a) In General.--Title XVIII (42 U.S.C. 1395 et seq.), as amended by 
section 105, is amended by inserting after 1806 the following new 
section:
                   ``medicare benefits administration
  ``Sec. 1808. (a) Establishment.--There is established within the 
Department of Health and Human Services an agency to be known as the 
Medicare Benefits Administration.
  ``(b) Administrator; Deputy Administrator; Chief Actuary.--
          ``(1) Administrator.--
                  ``(A) In general.--The Medicare Benefits 
                Administration shall be headed by an administrator to 
                be known as the `Medicare Benefits Administrator' (in 
                this section referred to as the `Administrator') who 
                shall be appointed by the President, by and with the 
                advice and consent of the Senate. The Administrator 
                shall be in direct line of authority to the Secretary.
                  ``(B) Compensation.--The Administrator shall be paid 
                at the rate of basic pay payable for level III of the 
                Executive Schedule under section 5314 of title 5, 
                United States Code.
                  ``(C) Term of office.--The Administrator shall be 
                appointed for a term of 5 years. In any case in which a 
                successor does not take office at the end of an 
                Administrator's term of office, that Administrator may 
                continue in office until the entry upon office of such 
                a successor. An Administrator appointed to a term of 
                office after the commencement of such term may serve 
                under such appointment only for the remainder of such 
                term.
                  ``(D) General authority.--The Administrator shall be 
                responsible for the exercise of all powers and the 
                discharge of all duties of the Administration, and 
                shall have authority and control over all personnel and 
                activities thereof.
                  ``(E) Rulemaking authority.--The Administrator may 
                prescribe such rules and regulations as the 
                Administrator determines necessary or appropriate to 
                carry out the functions of the Administration. The 
                regulations prescribed by the Administrator shall be 
                subject to the rulemaking procedures established under 
                section 553 of title 5, United States Code.
                  ``(F) Authority to establish organizational units.--
                The Administrator may establish, alter, consolidate, or 
                discontinue such organizational units or components 
                within the Administration as the Administrator 
                considers necessary or appropriate, except as specified 
                in this section.
                  ``(G) Authority to delegate.--The Administrator may 
                assign duties, and delegate, or authorize successive 
                redelegations of, authority to act and to render 
                decisions, to such officers and employees of the 
                Administration as the Administrator may find necessary. 
                Within the limitations of such delegations, 
                redelegations, or assignments, all official acts and 
                decisions of such officers and employees shall have the 
                same force and effect as though performed or rendered 
                by the Administrator.
          ``(2) Deputy administrator.--
                  ``(A) In general.--There shall be a Deputy 
                Administrator of the Medicare Benefits Administration 
                who shall be appointed by the President, by and with 
                the advice and consent of the Senate.
                  ``(B) Compensation.--The Deputy Administrator shall 
                be paid at the rate of basic pay payable for level IV 
                of the Executive Schedule under section 5315 of title 
                5, United States Code.
                  ``(C) Term of office.--The Deputy Administrator shall 
                be appointed for a term of 5 years. In any case in 
                which a successor does not take office at the end of a 
                Deputy Administrator's term of office, such Deputy 
                Administrator may continue in office until the entry 
                upon office of such a successor. A Deputy Administrator 
                appointed to a term of office after the commencement of 
                such term may serve under such appointment only for the 
                remainder of such term.
                  ``(D) Duties.--The Deputy Administrator shall perform 
                such duties and exercise such powers as the 
                Administrator shall from time to time assign or 
                delegate. The Deputy Administrator shall be Acting 
                Administrator of the Administration during the absence 
                or disability of the Administrator and, unless the 
                President designates another officer of the Government 
                as Acting Administrator, in the event of a vacancy in 
                the office of the Administrator.
          ``(3) Chief actuary.--
                  ``(A) In general.--There is established in the 
                Administration the position of Chief Actuary. The Chief 
                Actuary shall be appointed by, and in direct line of 
                authority to, the Administrator of such Administration. 
                The Chief Actuary shall be appointed from among 
                individuals who have demonstrated, by their education 
                and experience, superior expertise in the actuarial 
                sciences. The Chief Actuary may be removed only for 
                cause.
                  ``(B) Compensation.--The Chief Actuary shall be 
                compensated at the highest rate of basic pay for the 
                Senior Executive Service under section 5382(b) of title 
                5, United States Code.
                  ``(C) Duties.--The Chief Actuary shall exercise such 
                duties as are appropriate for the office of the Chief 
                Actuary and in accordance with professional standards 
                of actuarial independence.
          ``(4) Secretarial coordination of program administration.--
        The Secretary shall ensure appropriate coordination between the 
        Administrator and the Administrator of the Centers for Medicare 
        & Medicaid Services in carrying out the programs under this 
        title.
  ``(c) Duties; Administrative Provisions.--
          ``(1) Duties.--
                  ``(A) General duties.--The Administrator shall carry 
                out parts C and D, including--
                          ``(i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare+Choice plans under part C, 
                        including the offering of qualified 
                        prescription drug coverage under such plans; 
                        and
                          ``(ii) negotiating, entering into, and 
                        enforcing, contracts with PDP sponsors for the 
                        offering of prescription drug plans under part 
                        D.
                  ``(B) Other duties.--The Administrator shall carry 
                out any duty provided for under part C or part D, 
                including demonstration projects carried out in part or 
                in whole under such parts, the programs of all-
                inclusive care for the elderly (PACE program) under 
                section 1894, the social health maintenance 
                organization (SHMO) demonstration projects (referred to 
                in section 4104(c) of the Balanced Budget Act of 1997), 
                and 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).
                  ``(C) Prescription drug card.--The Administrator 
                shall carry out section 1807 (relating to the medicare 
                prescription drug discount card endorsement program).
                  ``(D) Noninterference.--In carrying out its duties 
                with respect to the provision of qualified prescription 
                drug coverage to beneficiaries under this title, the 
                Administrator may not--
                          ``(i) require a particular formulary or 
                        institute a price structure for the 
                        reimbursement of covered outpatient drugs;
                          ``(ii) interfere in any way with negotiations 
                        between PDP sponsors and Medicare+Choice 
                        organizations and drug manufacturers, 
                        wholesalers, or other suppliers of covered 
                        outpatient drugs; and
                          ``(iii) otherwise interfere with the 
                        competitive nature of providing such coverage 
                        through such sponsors and organizations.
                  ``(E) Annual reports.--Not later March 31 of each 
                year, the Administrator shall submit to Congress and 
                the President a report on the administration of parts C 
                and D during the previous fiscal year.
          ``(2) Staff.--
                  ``(A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, without regard 
                to chapter 31 of title 5, United States Code, other 
                than sections 3110 and 3112, such officers and 
                employees as are necessary to administer the activities 
                to be carried out through the Medicare Benefits 
                Administration. The Administrator shall employ staff 
                with appropriate and necessary expertise in negotiating 
                contracts in the private sector.
                  ``(B) Flexibility with respect to compensation.--
                          ``(i) In general.--The staff of the Medicare 
                        Benefits Administration shall, subject to 
                        clause (ii), be paid without regard to the 
                        provisions of chapter 51 (other than section 
                        5101) and chapter 53 (other than section 5301) 
                        of such title (relating to classification and 
                        schedule pay rates).
                          ``(ii) Maximum rate.--In no case may the rate 
                        of compensation determined under clause (i) 
                        exceed the rate of basic pay payable for level 
                        IV of the Executive Schedule under section 5315 
                        of title 5, United States Code.
                  ``(C) Limitation on full-time equivalent staffing for 
                current cms functions being transferred.--The 
                Administrator may not employ under this paragraph a 
                number of full-time equivalent employees, to carry out 
                functions that were previously conducted by the Centers 
                for Medicare & Medicaid Services and that are conducted 
                by the Administrator by reason of this section, that 
                exceeds the number of such full-time equivalent 
                employees authorized to be employed by the Centers for 
                Medicare & Medicaid Services to conduct such functions 
                as of the date of the enactment of this Act.
          ``(3) Redelegation of certain functions of the centers for 
        medicare & medicaid services.--
                  ``(A) In general.--The Secretary, the Administrator, 
                and the Administrator of the Centers for Medicare & 
                Medicaid Services shall establish an appropriate 
                transition of responsibility in order to redelegate the 
                administration of part C from the Secretary and the 
                Administrator of the Centers for Medicare & Medicaid 
                Services to the Administrator as is appropriate to 
                carry out the purposes of this section.
                  ``(B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator of the 
                Centers for Medicare & Medicaid Services transfers to 
                the Administrator of the Medicare Benefits 
                Administration such information and data in the 
                possession of the Administrator of the Centers for 
                Medicare & Medicaid Services as the Administrator of 
                the Medicare Benefits Administration requires to carry 
                out the duties described in paragraph (1).
                  ``(C) Construction.--Insofar as a responsibility of 
                the Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services is redelegated to the 
                Administrator under this section, any reference to the 
                Secretary or the Administrator of the Centers for 
                Medicare & Medicaid Services in this title or title XI 
                with respect to such responsibility is deemed to be a 
                reference to the Administrator.
  ``(d) Office of Beneficiary Assistance.--
          ``(1) Establishment.--The Secretary shall establish within 
        the Medicare Benefits Administration an Office of Beneficiary 
        Assistance to coordinate functions relating to outreach and 
        education of medicare beneficiaries under this title, including 
        the functions described in paragraph (2). The Office shall be 
        separate operating division within the Administration.
          ``(2) Dissemination of information on benefits and appeals 
        rights.--
                  ``(A) Dissemination of benefits information.--The 
                Office of Beneficiary Assistance shall disseminate, 
                directly or through contract, to medicare 
                beneficiaries, by mail, by posting on the Internet site 
                of the Medicare Benefits Administration and through a 
                toll-free telephone number, information with respect to 
                the following:
                          ``(i) Benefits, and limitations on payment 
                        (including cost-sharing, stop-loss provisions, 
                        and formulary restrictions) under parts C and 
                        D.
                          ``(ii) Benefits, and limitations on payment 
                        under parts A and B, including information on 
                        medicare supplemental policies under section 
                        1882.
                Such information shall be presented in a manner so that 
                medicare beneficiaries may compare benefits under parts 
                A, B, D, and medicare supplemental policies with 
                benefits under Medicare+Choice plans under part C.
                  ``(B) Dissemination of appeals rights information.--
                The Office of Beneficiary Assistance shall disseminate 
                to medicare beneficiaries in the manner provided under 
                subparagraph (A) a description of procedural rights 
                (including grievance and appeals procedures) of 
                beneficiaries under the original medicare fee-for-
                service program under parts A and B, the 
                Medicare+Choice program under part C, and the Voluntary 
                Prescription Drug Benefit Program under part D.
  ``(e) Medicare Policy Advisory Board.--
          ``(1) Establishment.--There is established within the 
        Medicare Benefits Administration the Medicare Policy Advisory 
        Board (in this section referred to the `Board'). The Board 
        shall advise, consult with, and make recommendations to the 
        Administrator of the Medicare Benefits Administration with 
        respect to the administration of parts C and D, including the 
        review of payment policies under such parts.
          ``(2) Reports.--
                  ``(A) In general.--With respect to matters of the 
                administration of parts C and D, the Board shall submit 
                to Congress and to the Administrator of the Medicare 
                Benefits Administration such reports as the Board 
                determines appropriate. Each such report may contain 
                such recommendations as the Board determines 
                appropriate for legislative or administrative changes 
                to improve the administration of such parts, including 
                the topics described in subparagraph (B). Each such 
                report shall be published in the Federal Register.
                  ``(B) Topics described.--Reports required under 
                subparagraph (A) may include the following topics:
                          ``(i) Fostering competition.--Recommendations 
                        or proposals to increase competition under 
                        parts C and D for services furnished to 
                        medicare beneficiaries.
                          ``(ii) Education and enrollment.--
                        Recommendations for the improvement to efforts 
                        to provide medicare beneficiaries information 
                        and education on the program under this title, 
                        and specifically parts C and D, and the program 
                        for enrollment under the title.
                          ``(iii) Implementation of risk-adjustment.--
                        Evaluation of the implementation under section 
                        1853(a)(3)(C) of the risk adjustment 
                        methodology to payment rates under that section 
                        to Medicare+Choice organizations offering 
                        Medicare+Choice plans that accounts for 
                        variations in per capita costs based on health 
                        status and other demographic factors.
                          ``(iv) Disease management programs.--
                        Recommendations on the incorporation of disease 
                        management programs under parts C and D.
                          ``(v) Rural access.--Recommendations to 
                        improve competition and access to plans under 
                        parts C and D in rural areas.
                  ``(C) Maintaining independence of board.--The Board 
                shall directly submit to Congress reports required 
                under subparagraph (A). No officer or agency of the 
                United States may require the Board to submit to any 
                officer or agency of the United States for approval, 
                comments, or review, prior to the submission to 
                Congress of such reports.
          ``(3) Duty of administrator of medicare benefits 
        administration.--With respect to any report submitted by the 
        Board under paragraph (2)(A), not later than 90 days after the 
        report is submitted, the Administrator of the Medicare Benefits 
        Administration shall submit to Congress and the President an 
        analysis of recommendations made by the Board in such report. 
        Each such analysis shall be published in the Federal Register.
          ``(4) Membership.--
                  ``(A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall consist 
                of seven members to be appointed as follows:
                          ``(i) Three members shall be appointed by the 
                        President.
                          ``(ii) Two members shall be appointed by the 
                        Speaker of the House of Representatives, with 
                        the advice of the chairmen and the ranking 
                        minority members of the Committees on Ways and 
                        Means and on Energy and Commerce of the House 
                        of Representatives.
                          ``(iii) Two members shall be appointed by the 
                        President pro tempore of the Senate with the 
                        advice of the chairman and the ranking minority 
                        member of the Senate Committee on Finance.
                  ``(B) Qualifications.--The members shall be chosen on 
                the basis of their integrity, impartiality, and good 
                judgment, and shall be individuals who are, by reason 
                of their education and experience in health care 
                benefits management, exceptionally qualified to perform 
                the duties of members of the Board.
                  ``(C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the United States 
                may serve as a member of the Board.
          ``(5) Compensation.--Members of the Board shall receive, for 
        each day (including travel time) they are engaged in the 
        performance of the functions of the board, compensation at 
        rates not to exceed the daily equivalent to the annual rate in 
        effect for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code.
          ``(6) Terms of office.--
                  ``(A) In general.--The term of office of members of 
                the Board shall be 3 years.
                  ``(B) Terms of initial appointees.--As designated by 
                the President at the time of appointment, of the 
                members first appointed--
                          ``(i) one shall be appointed for a term of 1 
                        year;
                          ``(ii) three shall be appointed for terms of 
                        2 years; and
                          ``(iii) three shall be appointed for terms of 
                        3 years.
                  ``(C) Reappointments.--Any person appointed as a 
                member of the Board may not serve for more than 8 
                years.
                  ``(D) Vacancy.--Any member appointed to fill a 
                vacancy occurring before the expiration of the term for 
                which the member's predecessor was appointed shall be 
                appointed only for the remainder of that term. A member 
                may serve after the expiration of that member's term 
                until a successor has taken office. A vacancy in the 
                Board shall be filled in the manner in which the 
                original appointment was made.
          ``(7) Chair.--The Chair of the Board shall be elected by the 
        members. The term of office of the Chair shall be 3 years.
          ``(8) Meetings.--The Board shall meet at the call of the 
        Chair, but in no event less than three times during each fiscal 
        year.
          ``(9) Director and staff.--
                  ``(A) Appointment of director.--The Board shall have 
                a Director who shall be appointed by the Chair.
                  ``(B) In general.--With the approval of the Board, 
                the Director may appoint, without regard to chapter 31 
                of title 5, United States Code, such additional 
                personnel as the Director considers appropriate.
                  ``(C) Flexibility with respect to compensation.--
                          ``(i) In general.--The Director and staff of 
                        the Board shall, subject to clause (ii), be 
                        paid without regard to the provisions of 
                        chapter 51 and chapter 53 of such title 
                        (relating to classification and schedule pay 
                        rates).
                          ``(ii) Maximum rate.--In no case may the rate 
                        of compensation determined under clause (i) 
                        exceed the rate of basic pay payable for level 
                        IV of the Executive Schedule under section 5315 
                        of title 5, United States Code.
                  ``(D) Assistance from the administrator of the 
                medicare benefits administration.--The Administrator of 
                the Medicare Benefits Administration shall make 
                available to the Board such information and other 
                assistance as it may require to carry out its 
                functions.
          ``(10) Contract authority.--The Board may contract with and 
        compensate government and private agencies or persons to carry 
        out its duties under this subsection, without regard to section 
        3709 of the Revised Statutes (41 U.S.C. 5).
  ``(f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund and 
from the Federal Supplementary Medical Insurance Trust Fund (including 
the Medicare Prescription Drug Account), such sums as are necessary to 
carry out this section.''.
  (b) Effective Date.--
          (1) In general.--The amendment made by subsection (a) shall 
        take effect on the date of the enactment of this Act.
          (2) Timing of initial appointments.--The Administrator and 
        Deputy Administrator of the Medicare Benefits Administration 
        may not be appointed before March 1, 2003.
          (3) Duties with respect to eligibility determinations and 
        enrollment.--The Administrator of the Medicare Benefits 
        Administration shall carry out enrollment under title XVIII of 
        the Social Security Act, make eligibility determinations under 
        such title, and carry out part C of such title for years 
        beginning or after January 1, 2005.
          (4) Transition.--Before the date the Administrator of the 
        Medicare Benefits Administration is appointed and assumes 
        responsibilities under this section and section 1807 of the 
        Social Security Act, the Secretary of Health and Human Services 
        shall provide for the conduct of any responsibilities of such 
        Administrator that are otherwise provided under law.
  (c) Miscellaneous Administrative Provisions.--
          (1) Administrator as member of the board of trustees of the 
        medicare trust funds.--Section 1817(b) and section 1841(b) (42 
        U.S.C. 1395i(b), 1395t(b)) are each amended by striking ``and 
        the Secretary of Health and Human Services, all ex officio,'' 
        and inserting ``the Secretary of Health and Human Services, and 
        the Administrator of the Medicare Benefits Administration, all 
        ex officio,''.
          (2) Increase in grade to executive level iii for the 
        administrator of the centers for medicare & medicaid services; 
        level for medicare benefits administrator.--
                  (A) In general.--Section 5314 of title 5, United 
                States Code, by adding at the end the following:
          ``Administrator of the Centers for Medicare & Medicaid 
        Services .
          ``Administrator of the Medicare Benefits Administration.''.
                  (B) Conforming amendment.--Section 5315 of such title 
                is amended by striking ``Administrator of the Health 
                Care Financing Administration.''.
                  (C) Effective date.--The amendments made by this 
                paragraph take effect on January 1, 2003.

        TITLE VIII--REGULATORY REDUCTION AND CONTRACTING REFORM

                     Subtitle A--Regulatory Reform

SEC. 801. CONSTRUCTION; DEFINITION OF SUPPLIER.

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

                               ``Supplier

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

SEC. 802. ISSUANCE OF REGULATIONS.

  (a) Consolidation of Promulgation to Once a Month.--
          (1) In general.--Section 1871 (42 U.S.C. 1395hh) is amended 
        by adding at the end the following new subsection:
  ``(d)(1) Subject to paragraph (2), the Secretary shall issue proposed 
or final (including interim final) regulations to carry out this title 
only on one business day of every month.
  ``(2) The Secretary may issue a proposed or final regulation 
described in paragraph (1) on any other day than the day described in 
paragraph (1) if the Secretary--
          ``(A) finds that issuance of such regulation on another day 
        is necessary to comply with requirements under law; or
          ``(B) finds that with respect to that regulation the 
        limitation of issuance on the date described in paragraph (1) 
        is contrary to the public interest.
If the Secretary makes a finding under this paragraph, the Secretary 
shall include such finding, and brief statement of the reasons for such 
finding, in the issuance of such regulation.
  ``(3) The Secretary shall coordinate issuance of new regulations 
described in paragraph (1) relating to a category of provider of 
services or suppliers based on an analysis of the collective impact of 
regulatory changes on that category of providers or suppliers.''.
          (2) GAO report on publication of regulations on a quarterly 
        basis.--Not later than 3 years after the date of the enactment 
        of this Act, the Comptroller General of the United States shall 
        submit to Congress a report on the feasibility of requiring 
        that regulations described in section 1871(d) of the Social 
        Security Act be promulgated on a quarterly basis rather than on 
        a monthly basis.
          (3) Effective date.--The amendment made by paragraph (1) 
        shall apply to regulations promulgated on or after the date 
        that is 30 days after the date of the enactment of this Act.
  (b) Regular Timeline for Publication of Final Rules.--
          (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)) is 
        amended by adding at the end the following new paragraph:
  ``(3)(A) The Secretary, in consultation with the Director of the 
Office of Management and Budget, shall establish and publish a regular 
timeline for the publication of final regulations based on the previous 
publication of a proposed regulation or an interim final regulation.
  ``(B) Such timeline may vary among different regulations based on 
differences in the complexity of the regulation, the number and scope 
of comments received, and other relevant factors, but shall not be 
longer than 3 years except under exceptional circumstances. If the 
Secretary intends to vary such timeline with respect to the publication 
of a final regulation, the Secretary shall cause to have published in 
the Federal Register notice of the different timeline by not later than 
the timeline previously established with respect to such regulation. 
Such notice shall include a brief explanation of the justification for 
such variation.
  ``(C) In the case of interim final regulations, upon the expiration 
of the regular timeline established under this paragraph for the 
publication of a final regulation after opportunity for public comment, 
the interim final regulation shall not continue in effect unless the 
Secretary publishes (at the end of the regular timeline and, if 
applicable, at the end of each succeeding 1-year period) a notice of 
continuation of the regulation that includes an explanation of why the 
regular timeline (and any subsequent 1-year extension) was not complied 
with. If such a notice is published, the regular timeline (or such 
timeline as previously extended under this paragraph) for publication 
of the final regulation shall be treated as having been extended for 1 
additional year.
  ``(D) The Secretary shall annually submit to Congress a report that 
describes the instances in which the Secretary failed to publish a 
final regulation within the applicable regular timeline under this 
paragraph and that provides an explanation for such failures.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act. The 
        Secretary shall provide for an appropriate transition to take 
        into account the backlog of previously published interim final 
        regulations.
  (c) Limitations on New Matter in Final Regulations.--
          (1) In general.--Section 1871(a) (42 U.S.C. 1395hh(a)), as 
        amended by subsection (b), is further amended by adding at the 
        end the following new paragraph:
  ``(4) If the Secretary publishes notice of proposed rulemaking 
relating to a regulation (including an interim final regulation), 
insofar as such final regulation includes a provision that is not a 
logical outgrowth of such notice of proposed rulemaking, that provision 
shall be treated as a proposed regulation and shall not take effect 
until there is the further opportunity for public comment and a 
publication of the provision again as a final regulation.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to final regulations published on or after the date 
        of the enactment of this Act.

SEC. 803. COMPLIANCE WITH CHANGES IN REGULATIONS AND POLICIES.

  (a) No Retroactive Application of Substantive Changes.--
          (1) In general.--Section 1871 (42 U.S.C. 1395hh), as amended 
        by section 802(a), is amended by adding at the end the 
        following new subsection:
  ``(e)(1)(A) A substantive change in regulations, manual instructions, 
interpretative rules, statements of policy, or guidelines of general 
applicability under this title shall not be applied (by extrapolation 
or otherwise) retroactively to items and services furnished before the 
effective date of the change, unless the Secretary determines that--
          ``(i) such retroactive application is necessary to comply 
        with statutory requirements; or
          ``(ii) failure to apply the change retroactively would be 
        contrary to the public interest.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to substantive changes issued on or after the date 
        of the enactment of this Act.
  (b) Timeline for Compliance With Substantive Changes After Notice.--
          (1) In general.--Section 1871(e)(1), as added by subsection 
        (a), is amended by adding at the end the following:
  ``(B)(i) Except as provided in clause (ii), a substantive change 
referred to in subparagraph (A) shall not become effective before the 
end of the 30-day period that begins on the date that the Secretary has 
issued or published, as the case may be, the substantive change.
  ``(ii) The Secretary may provide for such a substantive change to 
take effect on a date that precedes the end of the 30-day period under 
clause (i) if the Secretary finds that waiver of such 30-day period is 
necessary to comply with statutory requirements or that the application 
of such 30-day period is contrary to the public interest. If the 
Secretary provides for an earlier effective date pursuant to this 
clause, the Secretary shall include in the issuance or publication of 
the substantive change a finding described in the first sentence, and a 
brief statement of the reasons for such finding.
  ``(C) No action shall be taken against a provider of services or 
supplier with respect to noncompliance with such a substantive change 
for items and services furnished before the effective date of such a 
change.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to compliance actions undertaken on or after the 
        date of the enactment of this Act.
  (c) Reliance on Guidance.--
          (1) In general.--Section 1871(e), as added by subsection (a), 
        is further amended by adding at the end the following new 
        paragraph:
  ``(2)(A) If--
          ``(i) a provider of services or supplier follows the written 
        guidance (which may be transmitted electronically) provided by 
        the Secretary or by a medicare contractor (as defined in 
        section 1889(g)) acting within the scope of the contractor's 
        contract authority, with respect to the furnishing of items or 
        services and submission of a claim for benefits for such items 
        or services with respect to such provider or supplier;
          ``(ii) the Secretary determines that the provider of services 
        or supplier has accurately presented the circumstances relating 
        to such items, services, and claim to the contractor in 
        writing; and
          ``(iii) the guidance was in error;
the provider of services or supplier shall not be subject to any 
sanction (including any penalty or requirement for repayment of any 
amount) if the provider of services or supplier reasonably relied on 
such guidance.
  ``(B) Subparagraph (A) shall not be construed as preventing the 
recoupment or repayment (without any additional penalty) relating to an 
overpayment insofar as the overpayment was solely the result of a 
clerical or technical operational error.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act but 
        shall not apply to any sanction for which notice was provided 
        on or before the date of the enactment of this Act.

SEC. 804. REPORTS AND STUDIES RELATING TO REGULATORY REFORM.

  (a) GAO Study on Advisory Opinion Authority.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study to determine the feasibility and 
        appropriateness of establishing in the Secretary authority to 
        provide legally binding advisory opinions on appropriate 
        interpretation and application of regulations to carry out the 
        medicare program under title XVIII of the Social Security Act. 
        Such study shall examine the appropriate timeframe for issuing 
        such advisory opinions, as well as the need for additional 
        staff and funding to provide such opinions.
          (2) Report.--The Comptroller General shall submit to Congress 
        a report on the study conducted under paragraph (1) by not 
        later than January 1, 2004.
  (b) Report on Legal and Regulatory Inconsistencies.--Section 1871 (42 
U.S.C. 1395hh), as amended by section 803(a), is amended by adding at 
the end the following new subsection:
  ``(f)(1) Not later than 2 years after the date of the enactment of 
this subsection, and every 2 years thereafter, the Secretary shall 
submit to Congress a report with respect to the administration of this 
title and areas of inconsistency or conflict among the various 
provisions under law and regulation.
  ``(2) In preparing a report under paragraph (1), the Secretary shall 
collect--
          ``(A) information from individuals entitled to benefits under 
        part A or enrolled under part B, or both, providers of 
        services, and suppliers and from the Medicare Beneficiary 
        Ombudsman and the Medicare Provider Ombudsman with respect to 
        such areas of inconsistency and conflict; and
          ``(B) information from medicare contractors that tracks the 
        nature of written and telephone inquiries.
  ``(3) A report under paragraph (1) shall include a description of 
efforts by the Secretary to reduce such inconsistency or conflicts, and 
recommendations for legislation or administrative action that the 
Secretary determines appropriate to further reduce such inconsistency 
or conflicts.''.

                     Subtitle B--Contracting Reform

SEC. 811. INCREASED FLEXIBILITY IN MEDICARE ADMINISTRATION.

  (a) Consolidation and Flexibility in Medicare Administration.--
          (1) In general.--Title XVIII is amended by inserting after 
        section 1874 the following new section:
          ``contracts with medicare administrative contractors
  ``Sec. 1874A. (a) Authority.--
          ``(1) Authority to enter into contracts.--The Secretary may 
        enter into contracts with any eligible entity to serve as a 
        medicare administrative contractor with respect to the 
        performance of any or all of the functions described in 
        paragraph (4) or parts of those functions (or, to the extent 
        provided in a contract, to secure performance thereof by other 
        entities).
          ``(2) Eligibility of entities.--An entity is eligible to 
        enter into a contract with respect to the performance of a 
        particular function described in paragraph (4) only if--
                  ``(A) the entity has demonstrated capability to carry 
                out such function;
                  ``(B) the entity complies with such conflict of 
                interest standards as are generally applicable to 
                Federal acquisition and procurement;
                  ``(C) the entity has sufficient assets to financially 
                support the performance of such function; and
                  ``(D) the entity meets such other requirements as the 
                Secretary may impose.
          ``(3) Medicare administrative contractor defined.--For 
        purposes of this title and title XI--
                  ``(A) In general.--The term `medicare administrative 
                contractor' means an agency, organization, or other 
                person with a contract under this section.
                  ``(B) Appropriate medicare administrative 
                contractor.--With respect to the performance of a 
                particular function in relation to an individual 
                entitled to benefits under part A or enrolled under 
                part B, or both, a specific provider of services or 
                supplier (or class of such providers of services or 
                suppliers), the `appropriate' medicare administrative 
                contractor is the medicare administrative contractor 
                that has a contract under this section with respect to 
                the performance of that function in relation to that 
                individual, provider of services or supplier or class 
                of provider of services or supplier.
          ``(4) Functions described.--The functions referred to in 
        paragraphs (1) and (2) are payment functions, provider services 
        functions, and functions relating to services furnished to 
        individuals entitled to benefits under part A or enrolled under 
        part B, or both, as follows:
                  ``(A) Determination of payment amounts.--Determining 
                (subject to the provisions of section 1878 and to such 
                review by the Secretary as may be provided for by the 
                contracts) the amount of the payments required pursuant 
                to this title to be made to providers of services, 
                suppliers and individuals.
                  ``(B) Making payments.--Making payments described in 
                subparagraph (A) (including receipt, disbursement, and 
                accounting for funds in making such payments).
                  ``(C) Beneficiary education and assistance.--
                Providing education and outreach to individuals 
                entitled to benefits under part A or enrolled under 
                part B, or both, and providing assistance to those 
                individuals with specific issues, concerns or problems.
                  ``(D) Provider consultative services.--Providing 
                consultative services to institutions, agencies, and 
                other persons to enable them to establish and maintain 
                fiscal records necessary for purposes of this title and 
                otherwise to qualify as providers of services or 
                suppliers.
                  ``(E) Communication with providers.--Communicating to 
                providers of services and suppliers any information or 
                instructions furnished to the medicare administrative 
                contractor by the Secretary, and facilitating 
                communication between such providers and suppliers and 
                the Secretary.
                  ``(F) Provider education and technical assistance.--
                Performing the functions relating to provider 
                education, training, and technical assistance.
                  ``(G) Additional functions.--Performing such other 
                functions as are necessary to carry out the purposes of 
                this title.
          ``(5) Relationship to mip contracts.--
                  ``(A) Nonduplication of duties.--In entering into 
                contracts under this section, the Secretary shall 
                assure that functions of medicare administrative 
                contractors in carrying out activities under parts A 
                and B do not duplicate activities carried out under the 
                Medicare Integrity Program under section 1893. The 
                previous sentence shall not apply with respect to the 
                activity described in section 1893(b)(5) (relating to 
                prior authorization of certain items of durable medical 
                equipment under section 1834(a)(15)).
                  ``(B) Construction.--An entity shall not be treated 
                as a medicare administrative contractor merely by 
                reason of having entered into a contract with the 
                Secretary under section 1893.
          ``(6) Application of federal acquisition regulation.--Except 
        to the extent inconsistent with a specific requirement of this 
        title, the Federal Acquisition Regulation applies to contracts 
        under this title.
  ``(b) Contracting Requirements.--
          ``(1) Use of competitive procedures.--
                  ``(A) In general.--Except as provided in laws with 
                general applicability to Federal acquisition and 
                procurement or in subparagraph (B), the Secretary shall 
                use competitive procedures when entering into contracts 
                with medicare administrative contractors under this 
                section, taking into account performance quality as 
                well as price and other factors.
                  ``(B) Renewal of contracts.--The Secretary may renew 
                a contract with a medicare administrative contractor 
                under this section from term to term without regard to 
                section 5 of title 41, United States Code, or any other 
                provision of law requiring competition, if the medicare 
                administrative contractor has met or exceeded the 
                performance requirements applicable with respect to the 
                contract and contractor, except that the Secretary 
                shall provide for the application of competitive 
                procedures under such a contract not less frequently 
                than once every five years.
                  ``(C) Transfer of functions.--The Secretary may 
                transfer functions among medicare administrative 
                contractors consistent with the provisions of this 
                paragraph. The Secretary shall ensure that performance 
                quality is considered in such transfers. The Secretary 
                shall provide public notice (whether in the Federal 
                Register or otherwise) of any such transfer (including 
                a description of the functions so transferred, a 
                description of the providers of services and suppliers 
                affected by such transfer, and contact information for 
                the contractors involved).
                  ``(D) Incentives for quality.--The Secretary shall 
                provide incentives for medicare administrative 
                contractors to provide quality service and to promote 
                efficiency.
          ``(2) Compliance with requirements.--No contract under this 
        section shall be entered into with any medicare administrative 
        contractor unless the Secretary finds that such medicare 
        administrative contractor will perform its obligations under 
        the contract efficiently and effectively and will meet such 
        requirements as to financial responsibility, legal authority, 
        quality of services provided, and other matters as the 
        Secretary finds pertinent.
          ``(3) Performance requirements.--
                  ``(A) Development of specific performance 
                requirements.--In developing contract performance 
                requirements, the Secretary shall develop performance 
                requirements applicable to functions described in 
                subsection (a)(4).
                  ``(B) Consultation.-- In developing such 
                requirements, the Secretary may consult with providers 
                of services and suppliers, organizations representing 
                individuals entitled to benefits under part A or 
                enrolled under part B, or both, and organizations and 
                agencies performing functions necessary to carry out 
                the purposes of this section with respect to such 
                performance requirements.
                  ``(C) Inclusion in contracts.--All contractor 
                performance requirements shall be set forth in the 
                contract between the Secretary and the appropriate 
                medicare administrative contractor. Such performance 
                requirements--
                          ``(i) shall reflect the performance 
                        requirements developed under subparagraph (A), 
                        but may include additional performance 
                        requirements;
                          ``(ii) shall be used for evaluating 
                        contractor performance under the contract; and
                          ``(iii) shall be consistent with the written 
                        statement of work provided under the contract.
          ``(4) Information requirements.--The Secretary shall not 
        enter into a contract with a medicare administrative contractor 
        under this section unless the contractor agrees--
                  ``(A) to furnish to the Secretary such timely 
                information and reports as the Secretary may find 
                necessary in performing his functions under this title; 
                and
                  ``(B) to maintain such records and afford such access 
                thereto as the Secretary finds necessary to assure the 
                correctness and verification of the information and 
                reports under subparagraph (A) and otherwise to carry 
                out the purposes of this title.
          ``(5) Surety bond.--A contract with a medicare administrative 
        contractor under this section may require the medicare 
        administrative contractor, and any of its officers or employees 
        certifying payments or disbursing funds pursuant to the 
        contract, or otherwise participating in carrying out the 
        contract, to give surety bond to the United States in such 
        amount as the Secretary may deem appropriate.
  ``(c) Terms and Conditions.--
          ``(1) In general.--A contract with any medicare 
        administrative contractor under this section may contain such 
        terms and conditions as the Secretary finds necessary or 
        appropriate and may provide for advances of funds to the 
        medicare administrative contractor for the making of payments 
        by it under subsection (a)(4)(B).
          ``(2) Prohibition on mandates for certain data collection.--
        The Secretary may not require, as a condition of entering into, 
        or renewing, a contract under this section, that the medicare 
        administrative contractor match data obtained other than in its 
        activities under this title with data used in the 
        administration of this title for purposes of identifying 
        situations in which the provisions of section 1862(b) may 
        apply.
  ``(d) Limitation on Liability of Medicare Administrative Contractors 
and Certain Officers.--
          ``(1) Certifying officer.--No individual designated pursuant 
        to a contract under this section as a certifying officer shall, 
        in the absence of gross negligence or intent to defraud the 
        United States, be liable with respect to any payments certified 
        by the individual under this section.
          ``(2) Disbursing officer.--No disbursing officer shall, in 
        the absence of gross negligence or intent to defraud the United 
        States, be liable with respect to any payment by such officer 
        under this section if it was based upon an authorization (which 
        meets the applicable requirements for such internal controls 
        established by the Comptroller General) of a certifying officer 
        designated as provided in paragraph (1) of this subsection.
          ``(3) Liability of medicare administrative contractor.--No 
        medicare administrative contractor shall be liable to the 
        United States for a payment by a certifying or disbursing 
        officer unless in connection with such payment or in the 
        supervision of or selection of such officer the medicare 
        administrative contractor acted with gross negligence.
          ``(4) Indemnification by secretary.--
                  ``(A) In general.--Subject to subparagraphs (B) and 
                (D), in the case of a medicare administrative 
                contractor (or a person who is a director, officer, or 
                employee of such a contractor or who is engaged by the 
                contractor to participate directly in the claims 
                administration process) who is made a party to any 
                judicial or administrative proceeding arising from or 
                relating directly to the claims administration process 
                under this title, the Secretary may, to the extent the 
                Secretary determines to be appropriate and as specified 
                in the contract with the contractor, indemnify the 
                contractor and such persons.
                  ``(B) Conditions.--The Secretary may not provide 
                indemnification under subparagraph (A) insofar as the 
                liability for such costs arises directly from conduct 
                that is determined by the judicial proceeding or by the 
                Secretary to be criminal in nature, fraudulent, or 
                grossly negligent. If indemnification is provided by 
                the Secretary with respect to a contractor before a 
                determination that such costs arose directly from such 
                conduct, the contractor shall reimburse the Secretary 
                for costs of indemnification.
                  ``(C) Scope of indemnification.--Indemnification by 
                the Secretary under subparagraph (A) may include 
                payment of judgments, settlements (subject to 
                subparagraph (D)), awards, and costs (including 
                reasonable legal expenses).
                  ``(D) Written approval for settlements.--A contractor 
                or other person described in subparagraph (A) may not 
                propose to negotiate a settlement or compromise of a 
                proceeding described in such subparagraph without the 
                prior written approval of the Secretary to negotiate 
                such settlement or compromise. Any indemnification 
                under subparagraph (A) with respect to amounts paid 
                under a settlement or compromise of a proceeding 
                described in such subparagraph are conditioned upon 
                prior written approval by the Secretary of the final 
                settlement or compromise.
                  ``(E) Construction.--Nothing in this paragraph shall 
                be construed--
                          ``(i) to change any common law immunity that 
                        may be available to a medicare administrative 
                        contractor or person described in subparagraph 
                        (A); or
                          ``(ii) to permit the payment of costs not 
                        otherwise allowable, reasonable, or allocable 
                        under the Federal Acquisition Regulations.''.
          (2) Consideration of incorporation of current law 
        standards.--In developing contract performance requirements 
        under section 1874A(b) of the Social Security Act, as inserted 
        by paragraph (1), the Secretary shall consider inclusion of the 
        performance standards described in sections 1816(f)(2) of such 
        Act (relating to timely processing of reconsiderations and 
        applications for exemptions) and section 1842(b)(2)(B) of such 
        Act (relating to timely review of determinations and fair 
        hearing requests), as such sections were in effect before the 
        date of the enactment of this Act.
  (b) Conforming Amendments to Section 1816 (Relating to Fiscal 
Intermediaries).--Section 1816 (42 U.S.C. 1395h) is amended as follows:
          (1) The heading is amended to read as follows:
        ``provisions relating to the administration of part a''.
          (2) Subsection (a) is amended to read as follows:
  ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
          (3) Subsection (b) is repealed.
          (4) Subsection (c) is amended--
                  (A) by striking paragraph (1); and
                  (B) in each of paragraphs (2)(A) and (3)(A), by 
                striking ``agreement under this section'' and inserting 
                ``contract under section 1874A that provides for making 
                payments under this part''.
          (5) Subsections (d) through (i) are repealed.
          (6) Subsections (j) and (k) are each amended--
                  (A) by striking ``An agreement with an agency or 
                organization under this section'' and inserting ``A 
                contract with a medicare administrative contractor 
                under section 1874A with respect to the administration 
                of this part''; and
                  (B) by striking ``such agency or organization'' and 
                inserting ``such medicare administrative contractor'' 
                each place it appears.
          (7) Subsection (l) is repealed.
  (c) Conforming Amendments to Section 1842 (Relating to Carriers).--
Section 1842 (42 U.S.C. 1395u) is amended as follows:
          (1) The heading is amended to read as follows:
        ``provisions relating to the administration of part b''.
          (2) Subsection (a) is amended to read as follows:
  ``(a) The administration of this part shall be conducted through 
contracts with medicare administrative contractors under section 
1874A.''.
          (3) Subsection (b) is amended--
                  (A) by striking paragraph (1);
                  (B) in paragraph (2)--
                          (i) by striking subparagraphs (A) and (B);
                          (ii) in subparagraph (C), by striking 
                        ``carriers'' and inserting ``medicare 
                        administrative contractors''; and
                          (iii) by striking subparagraphs (D) and (E);
                  (C) in paragraph (3)--
                          (i) in the matter before subparagraph (A), by 
                        striking ``Each such contract shall provide 
                        that the carrier'' and inserting ``The 
                        Secretary'';
                          (ii) by striking ``will'' the first place it 
                        appears in each of subparagraphs (A), (B), (F), 
                        (G), (H), and (L) and inserting ``shall'';
                          (iii) in subparagraph (B), in the matter 
                        before clause (i), by striking ``to the 
                        policyholders and subscribers of the carrier'' 
                        and inserting ``to the policyholders and 
                        subscribers of the medicare administrative 
                        contractor'';
                          (iv) by striking subparagraphs (C), (D), and 
                        (E);
                          (v) in subparagraph (H)--
                                  (I) by striking ``if it makes 
                                determinations or payments with respect 
                                to physicians' services,'' in the 
                                matter preceding clause (i); and
                                  (II) by striking ``carrier'' and 
                                inserting ``medicare administrative 
                                contractor'' in clause (i);
                          (vi) by striking subparagraph (I);
                          (vii) in subparagraph (L), by striking the 
                        semicolon and inserting a period;
                          (viii) in the first sentence, after 
                        subparagraph (L), by striking ``and shall 
                        contain'' and all that follows through the 
                        period; and
                          (ix) in the seventh sentence, by inserting 
                        ``medicare administrative contractor,'' after 
                        ``carrier,''; and
                  (D) by striking paragraph (5);
                  (E) in paragraph (6)(D)(iv), by striking ``carrier'' 
                and inserting ``medicare administrative contractor''; 
                and
                  (F) in paragraph (7), by striking ``the carrier'' and 
                inserting ``the Secretary'' each place it appears.
          (4) Subsection (c) is amended--
                  (A) by striking paragraph (1);
                  (B) in paragraph (2)(A), by striking ``contract under 
                this section which provides for the disbursement of 
                funds, as described in subsection (a)(1)(B),'' and 
                inserting ``contract under section 1874A that provides 
                for making payments under this part'';
                  (C) in paragraph (3)(A), by striking ``subsection 
                (a)(1)(B)'' and inserting ``section 1874A(a)(3)(B)'';
                  (D) in paragraph (4), in the matter preceding 
                subparagraph (A), by striking ``carrier'' and inserting 
                ``medicare administrative contractor''; and
                  (E) by striking paragraphs (5) and (6).
          (5) Subsections (d), (e), and (f) are repealed.
          (6) Subsection (g) is amended by striking ``carrier or 
        carriers'' and inserting ``medicare administrative contractor 
        or contractors''.
          (7) Subsection (h) is amended--
                  (A) in paragraph (2)--
                          (i) by striking ``Each carrier having an 
                        agreement with the Secretary under subsection 
                        (a)'' and inserting ``The Secretary''; and
                          (ii) by striking ``Each such carrier'' and 
                        inserting ``The Secretary'';
                  (B) in paragraph (3)(A)--
                          (i) by striking ``a carrier having an 
                        agreement with the Secretary under subsection 
                        (a)'' and inserting ``medicare administrative 
                        contractor having a contract under section 
                        1874A that provides for making payments under 
                        this part''; and
                          (ii) by striking ``such carrier'' and 
                        inserting ``such contractor'';
                  (C) in paragraph (3)(B)--
                          (i) by striking ``a carrier'' and inserting 
                        ``a medicare administrative contractor'' each 
                        place it appears; and
                          (ii) by striking ``the carrier'' and 
                        inserting ``the contractor'' each place it 
                        appears; and
                  (D) in paragraphs (5)(A) and (5)(B)(iii), by striking 
                ``carriers'' and inserting ``medicare administrative 
                contractors'' each place it appears.
          (8) Subsection (l) is amended--
                  (A) in paragraph (1)(A)(iii), by striking ``carrier'' 
                and inserting ``medicare administrative contractor''; 
                and
                  (B) in paragraph (2), by striking ``carrier'' and 
                inserting ``medicare administrative contractor''.
          (9) Subsection (p)(3)(A) is amended by striking ``carrier'' 
        and inserting ``medicare administrative contractor''.
          (10) Subsection (q)(1)(A) is amended by striking ``carrier''.
  (d) Effective Date; Transition Rule.--
          (1) Effective date.--
                  (A) In general.--Except as otherwise provided in this 
                subsection, the amendments made by this section shall 
                take effect on October 1, 2004, and the Secretary is 
                authorized to take such steps before such date as may 
                be necessary to implement such amendments on a timely 
                basis.
                  (B) Construction for current contracts.--Such 
                amendments shall not apply to contracts in effect 
                before the date specified under subparagraph (A) that 
                continue to retain the terms and conditions in effect 
                on such date (except as otherwise provided under this 
                Act, other than under this section) until such date as 
                the contract is let out for competitive bidding under 
                such amendments.
                  (C) Deadline for competitive bidding.--The Secretary 
                shall provide for the letting by competitive bidding of 
                all contracts for functions of medicare administrative 
                contractors for annual contract periods that begin on 
                or after October 1, 2009.
                  (D) Waiver of provider nomination provisions during 
                transition.--During the period beginning on the date of 
                the enactment of this Act and before the date specified 
                under subparagraph (A), the Secretary may enter into 
                new agreements under section 1816 of the Social 
                Security Act (42 U.S.C. 1395h) without regard to any of 
                the provider nomination provisions of such section.
          (2) General transition rules.--The Secretary shall take such 
        steps, consistent with paragraph (1)(B) and (1)(C), as are 
        necessary to provide for an appropriate transition from 
        contracts under section 1816 and section 1842 of the Social 
        Security Act (42 U.S.C. 1395h, 1395u) to contracts under 
        section 1874A, as added by subsection (a)(1).
          (3) Authorizing continuation of mip functions under current 
        contracts and agreements and under rollover contracts.--The 
        provisions contained in the exception in section 1893(d)(2) of 
        the Social Security Act (42 U.S.C. 1395ddd(d)(2)) shall 
        continue to apply notwithstanding the amendments made by this 
        section, and any reference in such provisions to an agreement 
        or contract shall be deemed to include a contract under section 
        1874A of such Act, as inserted by subsection (a)(1), that 
        continues the activities referred to in such provisions.
  (e) References.--On and after the effective date provided under 
subsection (d)(1), any reference to a fiscal intermediary or carrier 
under title XI or XVIII of the Social Security Act (or any regulation, 
manual instruction, interpretative rule, statement of policy, or 
guideline issued to carry out such titles) shall be deemed a reference 
to an appropriate medicare administrative contractor (as provided under 
section 1874A of the Social Security Act).
  (f) Reports on Implementation.--
          (1) Plan for implementation.--By not later than October 1, 
        2003, the Secretary shall submit a report to Congress and the 
        Comptroller General of the United States that describes the 
        plan for implementation of the amendments made by this section. 
        The Comptroller General shall conduct an evaluation of such 
        plan and shall submit to Congress, not later than 6 months 
        after the date the report is received, a report on such 
        evaluation and shall include in such report such 
        recommendations as the Comptroller General deems appropriate.
          (2) Status of implementation.--The Secretary shall submit a 
        report to Congress not later than October 1, 2007, that 
        describes the status of implementation of such amendments and 
        that includes a description of the following:
                  (A) The number of contracts that have been 
                competitively bid as of such date.
                  (B) The distribution of functions among contracts and 
                contractors.
                  (C) A timeline for complete transition to full 
                competition.
                  (D) A detailed description of how the Secretary has 
                modified oversight and management of medicare 
                contractors to adapt to full competition.

SEC. 812. REQUIREMENTS FOR INFORMATION SECURITY FOR MEDICARE 
                    ADMINISTRATIVE CONTRACTORS.

  (a) In General.--Section 1874A, as added by section 811(a)(1), is 
amended by adding at the end the following new subsection:
  ``(e) Requirements for Information Security.--
          ``(1) Development of information security program.--A 
        medicare administrative contractor that performs the functions 
        referred to in subparagraphs (A) and (B) of subsection (a)(4) 
        (relating to determining and making payments) shall implement a 
        contractor-wide information security program to provide 
        information security for the operation and assets of the 
        contractor with respect to such functions under this title. An 
        information security program under this paragraph shall meet 
        the requirements for information security programs imposed on 
        Federal agencies under section 3534(b)(2) of title 44, United 
        States Code (other than requirements under subparagraphs 
        (B)(ii), (F)(iii), and (F)(iv) of such section).
          ``(2) Independent audits.--
                  ``(A) Performance of annual evaluations.--Each year a 
                medicare administrative contractor that performs the 
                functions referred to in subparagraphs (A) and (B) of 
                subsection (a)(4) (relating to determining and making 
                payments) shall undergo an evaluation of the 
                information security of the contractor with respect to 
                such functions under this title. The evaluation shall--
                          ``(i) be performed by an entity that meets 
                        such requirements for independence as the 
                        Inspector General of the Department of Health 
                        and Human Services may establish; and
                          ``(ii) test the effectiveness of information 
                        security control techniques for an appropriate 
                        subset of the contractor's information systems 
                        (as defined in section 3502(8) of title 44, 
                        United States Code) relating to such functions 
                        under this title and an assessment of 
                        compliance with the requirements of this 
                        subsection and related information security 
                        policies, procedures, standards and guidelines.
                  ``(B) Deadline for initial evaluation.--
                          ``(i) New contractors.--In the case of a 
                        medicare administrative contractor covered by 
                        this subsection that has not previously 
                        performed the functions referred to in 
                        subparagraphs (A) and (B) of subsection (a)(4) 
                        (relating to determining and making payments) 
                        as a fiscal intermediary or carrier under 
                        section 1816 or 1842, the first independent 
                        evaluation conducted pursuant subparagraph (A) 
                        shall be completed prior to commencing such 
                        functions.
                          ``(ii) Other contractors.--In the case of a 
                        medicare administrative contractor covered by 
                        this subsection that is not described in clause 
                        (i), the first independent evaluation conducted 
                        pursuant subparagraph (A) shall be completed 
                        within 1 year after the date the contractor 
                        commences functions referred to in clause (i) 
                        under this section.
                  ``(C) Reports on evaluations.--
                          ``(i) To the inspector general.--The results 
                        of independent evaluations under subparagraph 
                        (A) shall be submitted promptly to the 
                        Inspector General of the Department of Health 
                        and Human Services.
                          ``(ii) To congress.--The Inspector General of 
                        Department of Health and Human Services shall 
                        submit to Congress annual reports on the 
                        results of such evaluations.''.
  (b) Application of Requirements to Fiscal Intermediaries and 
Carriers.--
          (1) In general.--The provisions of section 1874A(e)(2) of the 
        Social Security Act (other than subparagraph (B)), as added by 
        subsection (a), shall apply to each fiscal intermediary under 
        section 1816 of the Social Security Act (42 U.S.C. 1395h) and 
        each carrier under section 1842 of such Act (42 U.S.C. 1395u) 
        in the same manner as they apply to medicare administrative 
        contractors under such provisions.
          (2) Deadline for initial evaluation.--In the case of such a 
        fiscal intermediary or carrier with an agreement or contract 
        under such respective section in effect as of the date of the 
        enactment of this Act, the first evaluation under section 
        1874A(e)(2)(A) of the Social Security Act (as added by 
        subsection (a)), pursuant to paragraph (1), shall be completed 
        (and a report on the evaluation submitted to the Secretary) by 
        not later than 1 year after such date.

                   Subtitle C--Education and Outreach

SEC. 821. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

  (a) Coordination of Education Funding.--
          (1) In general.--The Social Security Act is amended by 
        inserting after section 1888 the following new section:
             ``provider education and technical assistance
  ``Sec. 1889. (a) Coordination of Education Funding.--The Secretary 
shall coordinate the educational activities provided through medicare 
contractors (as defined in subsection (g), including under section 
1893) in order to maximize the effectiveness of Federal education 
efforts for providers of services and suppliers.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
          (3) Report.--Not later than October 1, 2003, the Secretary 
        shall submit to Congress a report that includes a description 
        and evaluation of the steps taken to coordinate the funding of 
        provider education under section 1889(a) of the Social Security 
        Act, as added by paragraph (1).
  (b) Incentives To Improve Contractor Performance.--
          (1) In general.--Section 1874A, as added by section 811(a)(1) 
        and as amended by section 812(a), is amended by adding at the 
        end the following new subsection:
  ``(f) Incentives To Improve Contractor Performance in Provider 
Education and Outreach.--In order to give medicare administrative 
contractors an incentive to implement effective education and outreach 
programs for providers of services and suppliers, the Secretary shall 
develop and implement a methodology to measure the specific claims 
payment error rates of such contractors in the processing or reviewing 
of medicare claims.''.
          (2) Application to fiscal intermediaries and carriers.--The 
        provisions of section 1874A(f) of the Social Security Act, as 
        added by paragraph (1), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
          (3) GAO report on adequacy of methodology.--Not later than 
        October 1, 2003, the Comptroller General of the United States 
        shall submit to Congress and to the Secretary a report on the 
        adequacy of the methodology under section 1874A(f) of the 
        Social Security Act, as added by paragraph (1), and shall 
        include in the report such recommendations as the Comptroller 
        General determines appropriate with respect to the methodology.
          (4) Report on use of methodology in assessing contractor 
        performance.--Not later than October 1, 2003, the Secretary 
        shall submit to Congress a report that describes how the 
        Secretary intends to use such methodology in assessing medicare 
        contractor performance in implementing effective education and 
        outreach programs, including whether to use such methodology as 
        a basis for performance bonuses. The report shall include an 
        analysis of the sources of identified errors and potential 
        changes in systems of contractors and rules of the Secretary 
        that could reduce claims error rates.
  (c) Provision of Access to and Prompt Responses From Medicare 
Administrative Contractors.--
          (1) In general.--Section 1874A, as added by section 811(a)(1) 
        and as amended by section 812(a) and subsection (b), is further 
        amended by adding at the end the following new subsection:
  ``(g) Communications with Beneficiaries, Providers of Services and 
Suppliers.--
          ``(1) Communication strategy.--The Secretary shall develop a 
        strategy for communications with individuals entitled to 
        benefits under part A or enrolled under part B, or both, and 
        with providers of services and suppliers under this title.
          ``(2) Response to written inquiries.--Each medicare 
        administrative contractor shall, for those providers of 
        services and suppliers which submit claims to the contractor 
        for claims processing and for those individuals entitled to 
        benefits under part A or enrolled under part B, or both, with 
        respect to whom claims are submitted for claims processing, 
        provide general written responses (which may be through 
        electronic transmission) in a clear, concise, and accurate 
        manner to inquiries of providers of services, suppliers and 
        individuals entitled to benefits under part A or enrolled under 
        part B, or both, concerning the programs under this title 
        within 45 business days of the date of receipt of such 
        inquiries.
          ``(3) Response to toll-free lines.--The Secretary shall 
        ensure that each medicare administrative contractor shall 
        provide, for those providers of services and suppliers which 
        submit claims to the contractor for claims processing and for 
        those individuals entitled to benefits under part A or enrolled 
        under part B, or both, with respect to whom claims are 
        submitted for claims processing, a toll-free telephone number 
        at which such individuals, providers of services and suppliers 
        may obtain information regarding billing, coding, claims, 
        coverage, and other appropriate information under this title.
          ``(4) Monitoring of contractor responses.--
                  ``(A) In general.--Each medicare administrative 
                contractor shall, consistent with standards developed 
                by the Secretary under subparagraph (B)--
                          ``(i) maintain a system for identifying who 
                        provides the information referred to in 
                        paragraphs (2) and (3); and
                          ``(ii) monitor the accuracy, consistency, and 
                        timeliness of the information so provided.
                  ``(B) Development of standards.--
                          ``(i) In general.--The Secretary shall 
                        establish and make public standards to monitor 
                        the accuracy, consistency, and timeliness of 
                        the information provided in response to written 
                        and telephone inquiries under this subsection. 
                        Such standards shall be consistent with the 
                        performance requirements established under 
                        subsection (b)(3).
                          ``(ii) Evaluation.--In conducting evaluations 
                        of individual medicare administrative 
                        contractors, the Secretary shall take into 
                        account the results of the monitoring conducted 
                        under subparagraph (A) taking into account as 
                        performance requirements the standards 
                        established under clause (i). The Secretary 
                        shall, in consultation with organizations 
                        representing providers of services, suppliers, 
                        and individuals entitled to benefits under part 
                        A or enrolled under part B, or both, establish 
                        standards relating to the accuracy, 
                        consistency, and timeliness of the information 
                        so provided.
                  ``(C) Direct monitoring.--Nothing in this paragraph 
                shall be construed as preventing the Secretary from 
                directly monitoring the accuracy, consistency, and 
                timeliness of the information so provided.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect October 1, 2003.
          (3) Application to fiscal intermediaries and carriers.--The 
        provisions of section 1874A(g) of the Social Security Act, as 
        added by paragraph (1), shall apply to each fiscal intermediary 
        under section 1816 of the Social Security Act (42 U.S.C. 1395h) 
        and each carrier under section 1842 of such Act (42 U.S.C. 
        1395u) in the same manner as they apply to medicare 
        administrative contractors under such provisions.
  (d) Improved Provider Education and Training.--
          (1) In general.--Section 1889, as added by subsection (a), is 
        amended by adding at the end the following new subsections:
  ``(b) Enhanced Education and Training.--
          ``(1) Additional resources.--There are authorized to be 
        appropriated to the Secretary (in appropriate part from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund) $25,000,000 for 
        each of fiscal years 2004 and 2005 and such sums as may be 
        necessary for succeeding fiscal years.
          ``(2) Use.--The funds made available under paragraph (1) 
        shall be used to increase the conduct by medicare contractors 
        of education and training of providers of services and 
        suppliers regarding billing, coding, and other appropriate 
        items and may also be used to improve the accuracy, 
        consistency, and timeliness of contractor responses.
  ``(c) Tailoring Education and Training Activities for Small Providers 
or Suppliers.--
          ``(1) In general.--Insofar as a medicare contractor conducts 
        education and training activities, it shall tailor such 
        activities to meet the special needs of small providers of 
        services or suppliers (as defined in paragraph (2)).
          ``(2) Small provider of services or supplier.--In this 
        subsection, the term `small provider of services or supplier' 
        means--
                  ``(A) a provider of services with fewer than 25 full-
                time-equivalent employees; or
                  ``(B) a supplier with fewer than 10 full-time-
                equivalent employees.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2003.
  (e) Requirement To Maintain Internet Sites.--
          (1) In general.--Section 1889, as added by subsection (a) and 
        as amended by subsection (d), is further amended by adding at 
        the end the following new subsection:
  ``(d) Internet Sites; FAQs.--The Secretary, and each medicare 
contractor insofar as it provides services (including claims 
processing) for providers of services or suppliers, shall maintain an 
Internet site which--
          ``(1) provides answers in an easily accessible format to 
        frequently asked questions, and
          ``(2) includes other published materials of the contractor,
that relate to providers of services and suppliers under the programs 
under this title (and title XI insofar as it relates to such 
programs).''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2003.
  (f) Additional Provider Education Provisions.--
          (1) In general.--Section 1889, as added by subsection (a) and 
        as amended by subsections (d) and (e), is further amended by 
        adding at the end the following new subsections:
  ``(e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of attendance 
at (or failure to attend) educational activities or other information 
gathered during an educational program conducted under this section or 
otherwise by the Secretary to select or track providers of services or 
suppliers for the purpose of conducting any type of audit or prepayment 
review.
  ``(f) Construction.--Nothing in this section or section 1893(g) shall 
be construed as providing for disclosure by a medicare contractor of 
information that would compromise pending law enforcement activities or 
reveal findings of law enforcement-related audits.
  ``(g) Definitions.--For purposes of this section, the term `medicare 
contractor' includes the following:
          ``(1) A medicare administrative contractor with a contract 
        under section 1874A, including a fiscal intermediary with a 
        contract under section 1816 and a carrier with a contract under 
        section 1842.
          ``(2) An eligible entity with a contract under section 1893.
Such term does not include, with respect to activities of a specific 
provider of services or supplier an entity that has no authority under 
this title or title IX with respect to such activities and such 
provider of services or supplier.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.

SEC. 822. SMALL PROVIDER TECHNICAL ASSISTANCE DEMONSTRATION PROGRAM.

  (a) Establishment.--
          (1) In general.--The Secretary shall establish a 
        demonstration program (in this section referred to as the 
        ``demonstration program'') under which technical assistance 
        described in paragraph (2) is made available, upon request and 
        on a voluntary basis, to small providers of services or 
        suppliers in order to improve compliance with the applicable 
        requirements of the programs under medicare program under title 
        XVIII of the Social Security Act (including provisions of title 
        XI of such Act insofar as they relate to such title and are not 
        administered by the Office of the Inspector General of the 
        Department of Health and Human Services).
          (2) Forms of technical assistance.--The technical assistance 
        described in this paragraph is--
                  (A) evaluation and recommendations regarding billing 
                and related systems; and
                  (B) information and assistance regarding policies and 
                procedures under the medicare program, including coding 
                and reimbursement.
          (3) Small providers of services or suppliers.--In this 
        section, the term ``small providers of services or suppliers'' 
        means--
                  (A) a provider of services with fewer than 25 full-
                time-equivalent employees; or
                  (B) a supplier with fewer than 10 full-time-
                equivalent employees.
  (b) Qualification of Contractors.--In conducting the demonstration 
program, the Secretary shall enter into contracts with qualified 
organizations (such as peer review organizations or entities described 
in section 1889(g)(2) of the Social Security Act, as inserted by 
section 5(f)(1)) with appropriate expertise with billing systems of the 
full range of providers of services and suppliers to provide the 
technical assistance. In awarding such contracts, the Secretary shall 
consider any prior investigations of the entity's work by the Inspector 
General of Department of Health and Human Services or the Comptroller 
General of the United States.
  (c) Description of Technical Assistance.--The technical assistance 
provided under the demonstration program shall include a direct and in-
person examination of billing systems and internal controls of small 
providers of services or suppliers to determine program compliance and 
to suggest more efficient or effective means of achieving such 
compliance.
  (d) Avoidance of Recovery Actions for Problems Identified as 
Corrected.--The Secretary shall provide that, absent evidence of fraud 
and notwithstanding any other provision of law, any errors found in a 
compliance review for a small provider of services or supplier that 
participates in the demonstration program shall not be subject to 
recovery action if the technical assistance personnel under the program 
determine that--
          (1) the problem that is the subject of the compliance review 
        has been corrected to their satisfaction within 30 days of the 
        date of the visit by such personnel to the small provider of 
        services or supplier; and
          (2) such problem remains corrected for such period as is 
        appropriate.
The previous sentence applies only to claims filed as part of the 
demonstration program and lasts only for the duration of such program 
and only as long as the small provider of services or supplier is a 
participant in such program.
  (e) GAO Evaluation.--Not later than 2 years after the date of the 
date the demonstration program is first implemented, the Comptroller 
General, in consultation with the Inspector General of the Department 
of Health and Human Services, shall conduct an evaluation of the 
demonstration program. The evaluation shall include a determination of 
whether claims error rates are reduced for small providers of services 
or suppliers who participated in the program and the extent of improper 
payments made as a result of the demonstration program. The Comptroller 
General shall submit a report to the Secretary and the Congress on such 
evaluation and shall include in such report recommendations regarding 
the continuation or extension of the demonstration program.
  (f) Financial Participation by Providers.--The provision of technical 
assistance to a small provider of services or supplier under the 
demonstration program is conditioned upon the small provider of 
services or supplier paying an amount estimated (and disclosed in 
advance of a provider's or supplier's participation in the program) to 
be equal to 25 percent of the cost of the technical assistance.
  (g) Authorization of Appropriations.--There are authorized to be 
appropriated to the Secretary (in appropriate part from the Federal 
Hospital Insurance Trust Fund and the Federal Supplementary Medical 
Insurance Trust Fund) to carry out the demonstration program--
          (1) for fiscal year 2004, $1,000,000, and
          (2) for fiscal year 2005, $6,000,000.

SEC. 823. MEDICARE PROVIDER OMBUDSMAN; MEDICARE BENEFICIARY OMBUDSMAN.

  (a) Medicare Provider Ombudsman.--Section 1868 (42 U.S.C. 1395ee) is 
amended--
          (1) by adding at the end of the heading the following: ``; 
        medicare provider ombudsman'';
          (2) by inserting ``Practicing Physicians Advisory Council.--
        (1)'' after ``(a)'';
          (3) in paragraph (1), as so redesignated under paragraph (2), 
        by striking ``in this section'' and inserting ``in this 
        subsection'';
          (4) by redesignating subsections (b) and (c) as paragraphs 
        (2) and (3), respectively; and
          (5) by adding at the end the following new subsection:
  ``(b) Medicare Provider Ombudsman.--The Secretary shall appoint 
within the Department of Health and Human Services a Medicare Provider 
Ombudsman. The Ombudsman shall--
          ``(1) provide assistance, on a confidential basis, to 
        providers of services and suppliers with respect to complaints, 
        grievances, and requests for information concerning the 
        programs under this title (including provisions of title XI 
        insofar as they relate to this title and are not administered 
        by the Office of the Inspector General of the Department of 
        Health and Human Services) and in the resolution of unclear or 
        conflicting guidance given by the Secretary and medicare 
        contractors to such providers of services and suppliers 
        regarding such programs and provisions and requirements under 
        this title and such provisions; and
          ``(2) submit recommendations to the Secretary for improvement 
        in the administration of this title and such provisions, 
        including--
                  ``(A) recommendations to respond to recurring 
                patterns of confusion in this title and such provisions 
                (including recommendations regarding suspending 
                imposition of sanctions where there is widespread 
                confusion in program administration), and
                  ``(B) recommendations to provide for an appropriate 
                and consistent response (including not providing for 
                audits) in cases of self-identified overpayments by 
                providers of services and suppliers.
The Ombudsman shall not serve as an advocate for any increases in 
payments or new coverage of services, but may identify issues and 
problems in payment or coverage policies.''.
  (b) Medicare Beneficiary Ombudsman.--Title XVIII, as amended by 
sections 105 and 701, is amended by inserting after section 1808 the 
following new section:
                    ``medicare beneficiary ombudsman
  ``Sec. 1809. (a) In General.--The Secretary shall appoint within the 
Department of Health and Human Services a Medicare Beneficiary 
Ombudsman who shall have expertise and experience in the fields of 
health care and education of (and assistance to) individuals entitled 
to benefits under this title.
  ``(b) Duties.--The Medicare Beneficiary Ombudsman shall--
          ``(1) receive complaints, grievances, and requests for 
        information submitted by individuals entitled to benefits under 
        part A or enrolled under part B, or both, with respect to any 
        aspect of the medicare program;
          ``(2) provide assistance with respect to complaints, 
        grievances, and requests referred to in paragraph (1), 
        including--
                  ``(A) assistance in collecting relevant information 
                for such individuals, to seek an appeal of a decision 
                or determination made by a fiscal intermediary, 
                carrier, Medicare+Choice organization, or the 
                Secretary; and
                  ``(B) assistance to such individuals with any 
                problems arising from disenrollment from a 
                Medicare+Choice plan under part C; and
          ``(3) submit annual reports to Congress and the Secretary 
        that describe the activities of the Office and that include 
        such recommendations for improvement in the administration of 
        this title as the Ombudsman determines appropriate.
The Ombudsman shall not serve as an advocate for any increases in 
payments or new coverage of services, but may identify issues and 
problems in payment or coverage policies.
  ``(c) Working with Health Insurance Counseling Programs.--To the 
extent possible, the Ombudsman shall work with health insurance 
counseling programs (receiving funding under section 4360 of Omnibus 
Budget Reconciliation Act of 1990) to facilitate the provision of 
information to individuals entitled to benefits under part A or 
enrolled under part B, or both regarding Medicare+Choice plans and 
changes to those plans. Nothing in this subsection shall preclude 
further collaboration between the Ombudsman and such programs.''.
  (c) Deadline for Appointment.--The Secretary shall appoint the 
Medicare Provider Ombudsman and the Medicare Beneficiary Ombudsman, 
under the amendments made by subsections (a) and (b), respectively, by 
not later than 1 year after the date of the enactment of this Act.
  (d) Funding.--There are authorized to be appropriated to the 
Secretary (in appropriate part from the Federal Hospital Insurance 
Trust Fund and the Federal Supplementary Medical Insurance Trust Fund) 
to carry out the provisions of subsection (b) of section 1868 of the 
Social Security Act (relating to the Medicare Provider Ombudsman), as 
added by subsection (a)(5) and section 1809 of such Act (relating to 
the Medicare Beneficiary Ombudsman), as added by subsection (b), such 
sums as are necessary for fiscal year 2003 and each succeeding fiscal 
year.
  (e) Use of Central, Toll-Free Number (1-800-MEDICARE).--
          (1) Phone triage system; listing in medicare handbook instead 
        of other toll-free numbers.--Section 1804(b) (42 U.S.C. 1395b-
        2(b)) is amended by adding at the end the following: ``The 
        Secretary shall provide, through the toll-free number 1-800-
        MEDICARE, for a means by which individuals seeking information 
        about, or assistance with, such programs who phone such toll-
        free number are transferred (without charge) to appropriate 
        entities for the provision of such information or assistance. 
        Such toll-free number shall be the toll-free number listed for 
        general information and assistance in the annual notice under 
        subsection (a) instead of the listing of numbers of individual 
        contractors.''.
          (2) Monitoring accuracy.--
                  (A) Study.--The Comptroller General of the United 
                States shall conduct a study to monitor the accuracy 
                and consistency of information provided to individuals 
                entitled to benefits under part A or enrolled under 
                part B, or both, through the toll-free number 1-800-
                MEDICARE, including an assessment of whether the 
                information provided is sufficient to answer questions 
                of such individuals. In conducting the study, the 
                Comptroller General shall examine the education and 
                training of the individuals providing information 
                through such number.
                  (B) Report.--Not later than 1 year after the date of 
                the enactment of this Act, the Comptroller General 
                shall submit to Congress a report on the study 
                conducted under subparagraph (A).

SEC. 824. BENEFICIARY OUTREACH DEMONSTRATION PROGRAM.

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

                    Subtitle D--Appeals and Recovery

SEC. 831. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

  (a) Transition Plan.--
          (1) In general.--Not later than October 1, 2003, the 
        Commissioner of Social Security and the Secretary shall develop 
        and transmit to Congress and the Comptroller General of the 
        United States a plan under which the functions of 
        administrative law judges responsible for hearing cases under 
        title XVIII of the Social Security Act (and related provisions 
        in title XI of such Act) are transferred from the 
        responsibility of the Commissioner and the Social Security 
        Administration to the Secretary and the Department of Health 
        and Human Services.
          (2) GAO evaluation.--The Comptroller General of the United 
        States shall evaluate the plan and, not later than the date 
        that is 6 months after the date on which the plan is received 
        by the Comptroller General, shall submit to Congress a report 
        on such evaluation.
  (b) Transfer of Adjudication Authority.--
          (1) In general.--Not earlier than July 1, 2004, and not later 
        than October 1, 2004, the Commissioner of Social Security and 
        the Secretary shall implement the transition plan under 
        subsection (a) and transfer the administrative law judge 
        functions described in such subsection from the Social Security 
        Administration to the Secretary.
          (2) Assuring independence of judges.--The Secretary shall 
        assure the independence of administrative law judges performing 
        the administrative law judge functions transferred under 
        paragraph (1) from the Centers for Medicare & Medicaid Services 
        and its contractors.
          (3) Geographic distribution.--The Secretary shall provide for 
        an appropriate geographic distribution of administrative law 
        judges performing the administrative law judge functions 
        transferred under paragraph (1) throughout the United States to 
        ensure timely access to such judges.
          (4) Hiring authority.--Subject to the amounts provided in 
        advance in appropriations Act, the Secretary shall have 
        authority to hire administrative law judges to hear such cases, 
        giving priority to those judges with prior experience in 
        handling medicare appeals and in a manner consistent with 
        paragraph (3), and to hire support staff for such judges.
          (5) Financing.--Amounts payable under law to the Commissioner 
        for administrative law judges performing the administrative law 
        judge functions transferred under paragraph (1) from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund shall become payable 
        to the Secretary for the functions so transferred.
          (6) Shared resources.--The Secretary shall enter into such 
        arrangements with the Commissioner as may be appropriate with 
        respect to transferred functions of administrative law judges 
        to share office space, support staff, and other resources, with 
        appropriate reimbursement from the Trust Funds described in 
        paragraph (5).
  (c) Increased Financial Support.--In addition to any amounts 
otherwise appropriated, to ensure timely action on appeals before 
administrative law judges and the Departmental Appeals Board consistent 
with section 1869 of the Social Security Act (as amended by section 521 
of BIPA, 114 Stat. 2763A-534), there are authorized to be appropriated 
(in appropriate part from the Federal Hospital Insurance Trust Fund and 
the Federal Supplementary Medical Insurance Trust Fund) to the 
Secretary such sums as are necessary for fiscal year 2004 and each 
subsequent fiscal year to--
          (1) increase the number of administrative law judges (and 
        their staffs) under subsection (b)(4);
          (2) improve education and training opportunities for 
        administrative law judges (and their staffs); and
          (3) increase the staff of the Departmental Appeals Board.
  (d) Conforming Amendment.--Section 1869(f)(2)(A)(i) (42 U.S.C. 
1395ff(f)(2)(A)(i)), as added by section 522(a) of BIPA (114 Stat. 
2763A-543), is amended by striking ``of the Social Security 
Administration''.

SEC. 832. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

  (a) Expedited Access to Judicial Review.--Section 1869(b) (42 U.S.C. 
1395ff(b)) as amended by BIPA, is amended--
          (1) in paragraph (1)(A), by inserting ``, subject to 
        paragraph (2),'' before ``to judicial review of the Secretary's 
        final decision'';
          (2) in paragraph (1)(F)--
                  (A) by striking clause (ii);
                  (B) by striking ``proceeding'' and all that follows 
                through ``determination'' and inserting 
                ``determinations and reconsiderations''; and
                  (C) by redesignating subclauses (I) and (II) as 
                clauses (i) and (ii) and by moving the indentation of 
                such subclauses (and the matter that follows) 2 ems to 
                the left; and
          (3) by adding at the end the following new paragraph:
          ``(2) Expedited access to judicial review.--
                  ``(A) In general.--The Secretary shall establish a 
                process under which a provider of services or supplier 
                that furnishes an item or service or an individual 
                entitled to benefits under part A or enrolled under 
                part B, or both, who has filed an appeal under 
                paragraph (1) may obtain access to judicial review when 
                a review panel (described in subparagraph (D)), on its 
                own motion or at the request of the appellant, 
                determines that no entity in the administrative appeals 
                process has the authority to decide the question of law 
                or regulation relevant to the matters in controversy 
                and that there is no material issue of fact in dispute. 
                The appellant may make such request only once with 
                respect to a question of law or regulation in a case of 
                an appeal.
                  ``(B) Prompt determinations.--If, after or coincident 
                with appropriately filing a request for an 
                administrative hearing, the appellant requests a 
                determination by the appropriate review panel that no 
                review panel has the authority to decide the question 
                of law or regulations relevant to the matters in 
                controversy and that there is no material issue of fact 
                in dispute and if such request is accompanied by the 
                documents and materials as the appropriate review panel 
                shall require for purposes of making such 
                determination, such review panel shall make a 
                determination on the request in writing within 60 days 
                after the date such review panel receives the request 
                and such accompanying documents and materials. Such a 
                determination by such review panel shall be considered 
                a final decision and not subject to review by the 
                Secretary.
                  ``(C) Access to judicial review.--
                          ``(i) In general.--If the appropriate review 
                        panel--
                                  ``(I) determines that there are no 
                                material issues of fact in dispute and 
                                that the only issue is one of law or 
                                regulation that no review panel has the 
                                authority to decide; or
                                  ``(II) fails to make such 
                                determination within the period 
                                provided under subparagraph (B);
                        then the appellant may bring a civil action as 
                        described in this subparagraph.
                          ``(ii) Deadline for filing.--Such action 
                        shall be filed, in the case described in--
                                  ``(I) clause (i)(I), within 60 days 
                                of date of the determination described 
                                in such subparagraph; or
                                  ``(II) clause (i)(II), within 60 days 
                                of the end of the period provided under 
                                subparagraph (B) for the determination.
                          ``(iii) Venue.--Such action shall be brought 
                        in the district court of the United States for 
                        the judicial district in which the appellant is 
                        located (or, in the case of an action brought 
                        jointly by more than one applicant, the 
                        judicial district in which the greatest number 
                        of applicants are located) or in the district 
                        court for the District of Columbia.
                          ``(iv) Interest on amounts in controversy.--
                        Where a provider of services or supplier seeks 
                        judicial review pursuant to this paragraph, the 
                        amount in controversy shall be subject to 
                        annual interest beginning on the first day of 
                        the first month beginning after the 60-day 
                        period as determined pursuant to clause (ii) 
                        and equal to the rate of interest on 
                        obligations issued for purchase by the Federal 
                        Hospital Insurance Trust Fund and by the 
                        Federal Supplementary Medical Insurance Trust 
                        Fund for the month in which the civil action 
                        authorized under this paragraph is commenced, 
                        to be awarded by the reviewing court in favor 
                        of the prevailing party. No interest awarded 
                        pursuant to the preceding sentence shall be 
                        deemed income or cost for the purposes of 
                        determining reimbursement due providers of 
                        services or suppliers under this Act.
                  ``(D) Review panels.--For purposes of this 
                subsection, a `review panel' is a panel consisting of 3 
                members (who shall be administrative law judges, 
                members of the Departmental Appeals Board, or qualified 
                individuals associated with a qualified independent 
                contractor (as defined in subsection (c)(2)) or with 
                another independent entity) designated by the Secretary 
                for purposes of making determinations under this 
                paragraph.''.
  (b) Application to Provider Agreement Determinations.--Section 
1866(h)(1) (42 U.S.C. 1395cc(h)(1)) is amended--
          (1) by inserting ``(A)'' after ``(h)(1)''; and
          (2) by adding at the end the following new subparagraph:
  ``(B) An institution or agency described in subparagraph (A) that has 
filed for a hearing under subparagraph (A) shall have expedited access 
to judicial review under this subparagraph in the same manner as 
providers of services, suppliers, and individuals entitled to benefits 
under part A or enrolled under part B, or both, may obtain expedited 
access to judicial review under the process established under section 
1869(b)(2). Nothing in this subparagraph shall be construed to affect 
the application of any remedy imposed under section 1819 during the 
pendency of an appeal under this subparagraph.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to appeals filed on or after October 1, 2003.
  (d) Expedited Review of Certain Provider Agreement Determinations.--
          (1) Termination and certain other immediate remedies.--The 
        Secretary shall develop and implement a process to expedite 
        proceedings under sections 1866(h) of the Social Security Act 
        (42 U.S.C. 1395cc(h)) in which the remedy of termination of 
        participation, or a remedy described in clause (i) or (iii) of 
        section 1819(h)(2)(B) of such Act (42 U.S.C. 1395i-3(h)(2)(B)) 
        which is applied on an immediate basis, has been imposed. Under 
        such process priority shall be provided in cases of 
        termination.
          (2) Increased financial support.--In addition to any amounts 
        otherwise appropriated, to reduce by 50 percent the average 
        time for administrative determinations on appeals under section 
        1866(h) of the Social Security Act (42 U.S.C. 1395cc(h)), there 
        are authorized to be appropriated (in appropriate part from the 
        Federal Hospital Insurance Trust Fund and the Federal 
        Supplementary Medical Insurance Trust Fund) to the Secretary 
        such additional sums for fiscal year 2004 and each subsequent 
        fiscal year as may be necessary. The purposes for which such 
        amounts are available include increasing the number of 
        administrative law judges (and their staffs) and the appellate 
        level staff at the Departmental Appeals Board of the Department 
        of Health and Human Services and educating such judges and 
        staffs on long-term care issues.

SEC. 833. REVISIONS TO MEDICARE APPEALS PROCESS.

  (a) Requiring Full and Early Presentation of Evidence.--
          (1) In general.--Section 1869(b) (42 U.S.C. 1395ff(b)), as 
        amended by BIPA and as amended by section 832(a), is further 
        amended by adding at the end the following new paragraph:
          ``(3) Requiring full and early presentation of evidence by 
        providers.--A provider of services or supplier may not 
        introduce evidence in any appeal under this section that was 
        not presented at the reconsideration conducted by the qualified 
        independent contractor under subsection (c), unless there is 
        good cause which precluded the introduction of such evidence at 
        or before that reconsideration.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on October 1, 2003.
  (b) Use of Patients' Medical Records.--Section 1869(c)(3)(B)(i) (42 
U.S.C. 1395ff(c)(3)(B)(i)), as amended by BIPA, is amended by inserting 
``(including the medical records of the individual involved)'' after 
``clinical experience''.
  (c) Notice Requirements for Medicare Appeals.--
          (1) Initial determinations and redeterminations.--Section 
        1869(a) (42 U.S.C. 1395ff(a)), as amended by BIPA, is amended 
        by adding at the end the following new paragraph:
          ``(4) Requirements of notice of determinations and 
        redeterminations.--A written notice of a determination on an 
        initial determination or on a redetermination, insofar as such 
        determination or redetermination results in a denial of a claim 
        for benefits, shall include--
                  ``(A) the specific reasons for the determination, 
                including--
                          ``(i) upon request, the provision of the 
                        policy, manual, or regulation used in making 
                        the determination; and
                          ``(ii) as appropriate in the case of a 
                        redetermination, a summary of the clinical or 
                        scientific evidence used in making the 
                        determination;
                  ``(B) the procedures for obtaining additional 
                information concerning the determination or 
                redetermination; and
                  ``(C) notification of the right to seek a 
                redetermination or otherwise appeal the determination 
                and instructions on how to initiate such a 
                redetermination or appeal under this section.
        The written notice on a redetermination shall be provided in 
        printed form and written in a manner calculated to be 
        understood by the individual entitled to benefits under part A 
        or enrolled under part B, or both.''.
          (2) Reconsiderations.--Section 1869(c)(3)(E) (42 U.S.C. 
        1395ff(c)(3)(E)), as amended by BIPA, is amended--
                  (A) by inserting ``be written in a manner calculated 
                to be understood by the individual entitled to benefits 
                under part A or enrolled under part B, or both, and 
                shall include (to the extent appropriate)'' after ``in 
                writing, ''; and
                  (B) by inserting ``and a notification of the right to 
                appeal such determination and instructions on how to 
                initiate such appeal under this section'' after ``such 
                decision, ''.
          (3) Appeals.--Section 1869(d) (42 U.S.C. 1395ff(d)), as 
        amended by BIPA, is amended--
                  (A) in the heading, by inserting ``; Notice'' after 
                ``Secretary''; and
                  (B) by adding at the end the following new paragraph:
          ``(4) Notice.--Notice of the decision of an administrative 
        law judge shall be in writing in a manner calculated to be 
        understood by the individual entitled to benefits under part A 
        or enrolled under part B, or both, and shall include--
                  ``(A) the specific reasons for the determination 
                (including, to the extent appropriate, a summary of the 
                clinical or scientific evidence used in making the 
                determination);
                  ``(B) the procedures for obtaining additional 
                information concerning the decision; and
                  ``(C) notification of the right to appeal the 
                decision and instructions on how to initiate such an 
                appeal under this section.''.
          (4) Submission of record for appeal.--Section 
        1869(c)(3)(J)(i) (42 U.S.C. 1395ff(c)(3)(J)(i)) by striking 
        ``prepare'' and inserting ``submit'' and by striking ``with 
        respect to'' and all that follows through ``and relevant 
        policies''.
  (d) Qualified Independent Contractors.--
          (1) Eligibility requirements of qualified independent 
        contractors.--Section 1869(c)(3) (42 U.S.C. 1395ff(c)(3)), as 
        amended by BIPA, is amended--
                  (A) in subparagraph (A), by striking ``sufficient 
                training and expertise in medical science and legal 
                matters'' and inserting ``sufficient medical, legal, 
                and other expertise (including knowledge of the program 
                under this title) and sufficient staffing''; and
                  (B) by adding at the end the following new 
                subparagraph:
                  ``(K) Independence requirements.--
                          ``(i) In general.--Subject to clause (ii), a 
                        qualified independent contractor shall not 
                        conduct any activities in a case unless the 
                        entity--
                                  ``(I) is not a related party (as 
                                defined in subsection (g)(5));
                                  ``(II) does not have a material 
                                familial, financial, or professional 
                                relationship with such a party in 
                                relation to such case; and
                                  ``(III) does not otherwise have a 
                                conflict of interest with such a party.
                          ``(ii) Exception for reasonable 
                        compensation.--Nothing in clause (i) shall be 
                        construed to prohibit receipt by a qualified 
                        independent contractor of compensation from the 
                        Secretary for the conduct of activities under 
                        this section if the compensation is provided 
                        consistent with clause (iii).
                          ``(iii) Limitations on entity compensation.--
                        Compensation provided by the Secretary to a 
                        qualified independent contractor in connection 
                        with reviews under this section shall not be 
                        contingent on any decision rendered by the 
                        contractor or by any reviewing professional.''.
          (2) Eligibility requirements for reviewers.--Section 1869 (42 
        U.S.C. 1395ff), as amended by BIPA, is amended--
                  (A) by amending subsection (c)(3)(D) to read as 
                follows:
                  ``(D) Qualifications for reviewers.--The requirements 
                of subsection (g) shall be met (relating to 
                qualifications of reviewing professionals).''; and
                  (B) by adding at the end the following new 
                subsection:
  ``(g) Qualifications of Reviewers.--
          ``(1) In general.--In reviewing determinations under this 
        section, a qualified independent contractor shall assure that--
                  ``(A) each individual conducting a review shall meet 
                the qualifications of paragraph (2);
                  ``(B) compensation provided by the contractor to each 
                such reviewer is consistent with paragraph (3); and
                  ``(C) in the case of a review by a panel described in 
                subsection (c)(3)(B) composed of physicians or other 
                health care professionals (each in this subsection 
                referred to as a `reviewing professional'), each 
                reviewing professional meets the qualifications 
                described in paragraph (4) and, where a claim is 
                regarding the furnishing of treatment by a physician 
                (allopathic or osteopathic) or the provision of items 
                or services by a physician (allopathic or osteopathic), 
                each reviewing professional shall be a physician 
                (allopathic or osteopathic).
          ``(2) Independence.--
                  ``(A) In general.--Subject to subparagraph (B), each 
                individual conducting a review in a case shall--
                          ``(i) not be a related party (as defined in 
                        paragraph (5));
                          ``(ii) not have a material familial, 
                        financial, or professional relationship with 
                        such a party in the case under review; and
                          ``(iii) not otherwise have a conflict of 
                        interest with such a party.
                  ``(B) Exception.--Nothing in subparagraph (A) shall 
                be construed to--
                          ``(i) prohibit an individual, solely on the 
                        basis of a participation agreement with a 
                        fiscal intermediary, carrier, or other 
                        contractor, from serving as a reviewing 
                        professional if--
                                  ``(I) the individual is not involved 
                                in the provision of items or services 
                                in the case under review;
                                  ``(II) the fact of such an agreement 
                                is disclosed to the Secretary and the 
                                individual entitled to benefits under 
                                part A or enrolled under part B, or 
                                both, (or authorized representative) 
                                and neither party objects; and
                                  ``(III) the individual is not an 
                                employee of the intermediary, carrier, 
                                or contractor and does not provide 
                                services exclusively or primarily to or 
                                on behalf of such intermediary, 
                                carrier, or contractor;
                          ``(ii) prohibit an individual who has staff 
                        privileges at the institution where the 
                        treatment involved takes place from serving as 
                        a reviewer merely on the basis of having such 
                        staff privileges if the existence of such 
                        privileges is disclosed to the Secretary and 
                        such individual (or authorized representative), 
                        and neither party objects; or
                          ``(iii) prohibit receipt of compensation by a 
                        reviewing professional from a contractor if the 
                        compensation is provided consistent with 
                        paragraph (3).
                For purposes of this paragraph, the term `participation 
                agreement' means an agreement relating to the provision 
                of health care services by the individual and does not 
                include the provision of services as a reviewer under 
                this subsection.
          ``(3) Limitations on reviewer compensation.--Compensation 
        provided by a qualified independent contractor to a reviewer in 
        connection with a review under this section shall not be 
        contingent on the decision rendered by the reviewer.
          ``(4) Licensure and expertise.--Each reviewing professional 
        shall be--
                  ``(A) a physician (allopathic or osteopathic) who is 
                appropriately credentialed or licensed in one or more 
                States to deliver health care services and has medical 
                expertise in the field of practice that is appropriate 
                for the items or services at issue; or
                  ``(B) a health care professional who is legally 
                authorized in one or more States (in accordance with 
                State law or the State regulatory mechanism provided by 
                State law) to furnish the health care items or services 
                at issue and has medical expertise in the field of 
                practice that is appropriate for such items or 
                services.
          ``(5) Related party defined.--For purposes of this section, 
        the term `related party' means, with respect to a case under 
        this title involving a specific individual entitled to benefits 
        under part A or enrolled under part B, or both, any of the 
        following:
                  ``(A) The Secretary, the medicare administrative 
                contractor involved, or any fiduciary, officer, 
                director, or employee of the Department of Health and 
                Human Services, or of such contractor.
                  ``(B) The individual (or authorized representative).
                  ``(C) The health care professional that provides the 
                items or services involved in the case.
                  ``(D) The institution at which the items or services 
                (or treatment) involved in the case are provided.
                  ``(E) The manufacturer of any drug or other item that 
                is included in the items or services involved in the 
                case.
                  ``(F) Any other party determined under any 
                regulations to have a substantial interest in the case 
                involved.''.
          (3) Effective date.--The amendments made by paragraphs (1) 
        and (2) shall be effective as if included in the enactment of 
        the respective provisions of subtitle C of title V of BIPA, 
        (114 Stat. 2763A-534).
          (4) Transition.--In applying section 1869(g) of the Social 
        Security Act (as added by paragraph (2)), any reference to a 
        medicare administrative contractor shall be deemed to include a 
        reference to a fiscal intermediary under section 1816 of the 
        Social Security Act (42 U.S.C. 1395h) and a carrier under 
        section 1842 of such Act (42 U.S.C. 1395u).

SEC. 834. PREPAYMENT REVIEW.

  (a) In General.--Section 1874A, as added by section 811(a)(1) and as 
amended by sections 812(b), 821(b)(1), and 821(c)(1), is further 
amended by adding at the end the following new subsection:
  ``(h) Conduct of Prepayment Review.--
          ``(1) Conduct of random prepayment review.--
                  ``(A) In general.--A medicare administrative 
                contractor may conduct random prepayment review only to 
                develop a contractor-wide or program-wide claims 
                payment error rates or under such additional 
                circumstances as may be provided under regulations, 
                developed in consultation with providers of services 
                and suppliers.
                  ``(B) Use of standard protocols when conducting 
                prepayment reviews.--When a medicare administrative 
                contractor conducts a random prepayment review, the 
                contractor may conduct such review only in accordance 
                with a standard protocol for random prepayment audits 
                developed by the Secretary.
                  ``(C) Construction.--Nothing in this paragraph shall 
                be construed as preventing the denial of payments for 
                claims actually reviewed under a random prepayment 
                review.
                  ``(D) Random prepayment review.--For purposes of this 
                subsection, the term `random prepayment review' means a 
                demand for the production of records or documentation 
                absent cause with respect to a claim.
          ``(2) Limitations on non-random prepayment review.--
                  ``(A) Limitations on initiation of non-random 
                prepayment review.--A medicare administrative 
                contractor may not initiate non-random prepayment 
                review of a provider of services or supplier based on 
                the initial identification by that provider of services 
                or supplier of an improper billing practice unless 
                there is a likelihood of sustained or high level of 
                payment error (as defined in subsection (i)(3)(A)).
                  ``(B) Termination of non-random prepayment review.--
                The Secretary shall issue regulations relating to the 
                termination, including termination dates, of non-random 
                prepayment review. Such regulations may vary such a 
                termination date based upon the differences in the 
                circumstances triggering prepayment review.''.
  (b) Effective Date.--
          (1) In general.--Except as provided in this subsection, the 
        amendment made by subsection (a) shall take effect 1 year after 
        the date of the enactment of this Act.
          (2) Deadline for promulgation of certain regulations.--The 
        Secretary shall first issue regulations under section 1874A(h) 
        of the Social Security Act, as added by subsection (a), by not 
        later than 1 year after the date of the enactment of this Act.
          (3) Application of standard protocols for random prepayment 
        review.--Section 1874A(h)(1)(B) of the Social Security Act, as 
        added by subsection (a), shall apply to random prepayment 
        reviews conducted on or after such date (not later than 1 year 
        after the date of the enactment of this Act) as the Secretary 
        shall specify.
  (c) Application to Fiscal Intermediaries and Carriers.--The 
provisions of section 1874A(h) of the Social Security Act, as added by 
subsection (a), shall apply to each fiscal intermediary under section 
1816 of the Social Security Act (42 U.S.C. 1395h) and each carrier 
under section 1842 of such Act (42 U.S.C. 1395u) in the same manner as 
they apply to medicare administrative contractors under such 
provisions.

SEC. 835. RECOVERY OF OVERPAYMENTS.

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

SEC. 836. PROVIDER ENROLLMENT PROCESS; RIGHT OF APPEAL.

  (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
          (1) by adding at the end of the heading the following: ``; 
        enrollment processes''; and
          (2) by adding at the end the following new subsection:
  ``(j) Enrollment Process for Providers of Services and Suppliers.--
          ``(1) Enrollment process.--
                  ``(A) In general.--The Secretary shall establish by 
                regulation a process for the enrollment of providers of 
                services and suppliers under this title.
                  ``(B) Deadlines.--The Secretary shall establish by 
                regulation procedures under which there are deadlines 
                for actions on applications for enrollment (and, if 
                applicable, renewal of enrollment). The Secretary shall 
                monitor the performance of medicare administrative 
                contractors in meeting the deadlines established under 
                this subparagraph.
                  ``(C) Consultation before changing provider 
                enrollment forms.--The Secretary shall consult with 
                providers of services and suppliers before making 
                changes in the provider enrollment forms required of 
                such providers and suppliers to be eligible to submit 
                claims for which payment may be made under this title.
          ``(2) Hearing rights in cases of denial or non-renewal.--A 
        provider of services or supplier whose application to enroll 
        (or, if applicable, to renew enrollment) under this title is 
        denied may have a hearing and judicial review of such denial 
        under the procedures that apply under subsection (h)(1)(A) to a 
        provider of services that is dissatisfied with a determination 
        by the Secretary.''.
  (b) Effective Dates.--
          (1) Enrollment process.--The Secretary shall provide for the 
        establishment of the enrollment process under section 
        1866(j)(1) of the Social Security Act, as added by subsection 
        (a)(2), within 6 months after the date of the enactment of this 
        Act.
          (2) Consultation.--Section 1866(j)(1)(C) of the Social 
        Security Act, as added by subsection (a)(2), shall apply with 
        respect to changes in provider enrollment forms made on or 
        after January 1, 2003.
          (3) Hearing rights.--Section 1866(j)(2) of the Social 
        Security Act, as added by subsection (a)(2), shall apply to 
        denials occurring on or after such date (not later than 1 year 
        after the date of the enactment of this Act) as the Secretary 
        specifies.

SEC. 837. PROCESS FOR CORRECTION OF MINOR ERRORS AND OMISSIONS ON 
                    CLAIMS WITHOUT PURSUING APPEALS PROCESS.

  The Secretary shall develop, in consultation with appropriate 
medicare contractors (as defined in section 1889(g) of the Social 
Security Act, as inserted by section 821(a)(1)) and representatives of 
providers of services and suppliers, a process whereby, in the case of 
minor errors or omissions (as defined by the Secretary) that are 
detected in the submission of claims under the programs under title 
XVIII of such Act, a provider of services or supplier is given an 
opportunity to correct such an error or omission without the need to 
initiate an appeal. Such process shall include the ability to resubmit 
corrected claims.

SEC. 838. PRIOR DETERMINATION PROCESS FOR CERTAIN ITEMS AND SERVICES; 
                    ADVANCE BENEFICIARY NOTICES.

  (a) In General.--Section 1869 (42 U.S.C. 1395ff(b)), as amended by 
sections 521 and 522 of BIPA and section 833(d)(2)(B), is further 
amended by adding at the end the following new subsection:
  ``(h) Prior Determination Process for Certain Items and Services.--
          ``(1) Establishment of process.--
                  ``(A) In general.--With respect to a medicare 
                administrative contractor that has a contract under 
                section 1874A that provides for making payments under 
                this title with respect to eligible items and services 
                described in subparagraph (C), the Secretary shall 
                establish a prior determination process that meets the 
                requirements of this subsection and that shall be 
                applied by such contractor in the case of eligible 
                requesters.
                  ``(B) Eligible requester.--For purposes of this 
                subsection, each of the following shall be an eligible 
                requester:
                          ``(i) A physician, but only with respect to 
                        eligible items and services for which the 
                        physician may be paid directly.
                          ``(ii) An individual entitled to benefits 
                        under this title, but only with respect to an 
                        item or service for which the individual 
                        receives, from the physician who may be paid 
                        directly for the item or service, an advance 
                        beneficiary notice under section 1879(a) that 
                        payment may not be made (or may no longer be 
                        made) for the item or service under this title.
                  ``(C) Eligible items and services.--For purposes of 
                this subsection and subject to paragraph (2), eligible 
                items and services are items and services which are 
                physicians' services (as defined in paragraph (4)(A) of 
                section 1848(f) for purposes of calculating the 
                sustainable growth rate under such section).
          ``(2) Secretarial flexibility.--The Secretary shall establish 
        by regulation reasonable limits on the categories of eligible 
        items and services for which a prior determination of coverage 
        may be requested under this subsection. In establishing such 
        limits, the Secretary may consider the dollar amount involved 
        with respect to the item or service, administrative costs and 
        burdens, and other relevant factors.
          ``(3) Request for prior determination.--
                  ``(A) In general.--Subject to paragraph (2), under 
                the process established under this subsection an 
                eligible requester may submit to the contractor a 
                request for a determination, before the furnishing of 
                an eligible item or service involved as to whether the 
                item or service is covered under this title consistent 
                with the applicable requirements of section 
                1862(a)(1)(A) (relating to medical necessity).
                  ``(B) Accompanying documentation.--The Secretary may 
                require that the request be accompanied by a 
                description of the item or service, supporting 
                documentation relating to the medical necessity for the 
                item or service, and any other appropriate 
                documentation. In the case of a request submitted by an 
                eligible requester who is described in paragraph 
                (1)(B)(ii), the Secretary may require that the request 
                also be accompanied by a copy of the advance 
                beneficiary notice involved.
          ``(4) Response to request.--
                  ``(A) In general.--Under such process, the contractor 
                shall provide the eligible requester with written 
                notice of a determination as to whether--
                          ``(i) the item or service is so covered;
                          ``(ii) the item or service is not so covered; 
                        or
                          ``(iii) the contractor lacks sufficient 
                        information to make a coverage determination.
                If the contractor makes the determination described in 
                clause (iii), the contractor shall include in the 
                notice a description of the additional information 
                required to make the coverage determination.
                  ``(B) Deadline to respond.--Such notice shall be 
                provided within the same time period as the time period 
                applicable to the contractor providing notice of 
                initial determinations on a claim for benefits under 
                subsection (a)(2)(A).
                  ``(C) Informing beneficiary in case of physician 
                request.--In the case of a request in which an eligible 
                requester is not the individual described in paragraph 
                (1)(B)(ii), the process shall provide that the 
                individual to whom the item or service is proposed to 
                be furnished shall be informed of any determination 
                described in clause (ii) (relating to a determination 
                of non-coverage) and the right (referred to in 
                paragraph (6)(B)) to obtain the item or service and 
                have a claim submitted for the item or service.
          ``(5) Effect of determinations.--
                  ``(A) Binding nature of positive determination.--If 
                the contractor makes the determination described in 
                paragraph (4)(A)(i), such determination shall be 
                binding on the contractor in the absence of fraud or 
                evidence of misrepresentation of facts presented to the 
                contractor.
                  ``(B) Notice and right to redetermination in case of 
                a denial.--
                          ``(i) In general.--If the contractor makes 
                        the determination described in paragraph 
                        (4)(A)(ii)--
                                  ``(I) the eligible requester has the 
                                right to a redetermination by the 
                                contractor on the determination that 
                                the item or service is not so covered; 
                                and
                                  ``(II) the contractor shall include 
                                in notice under paragraph (4)(A) a 
                                brief explanation of the basis for the 
                                determination, including on what 
                                national or local coverage or 
                                noncoverage determination (if any) the 
                                determination is based, and the right 
                                to such a redetermination.
                          ``(ii) Deadline for redeterminations.--The 
                        contractor shall complete and provide notice of 
                        such redetermination within the same time 
                        period as the time period applicable to the 
                        contractor providing notice of redeterminations 
                        relating to a claim for benefits under 
                        subsection (a)(3)(C)(ii).
          ``(6) Limitation on further review.--
                  ``(A) In general.--Contractor determinations 
                described in paragraph (4)(A)(ii) or (4)(A)(iii) (and 
                redeterminations made under paragraph (5)(B)), relating 
                to pre-service claims are not subject to further 
                administrative appeal or judicial review under this 
                section or otherwise.
                  ``(B) Decision not to seek prior determination or 
                negative determination does not impact right to obtain 
                services, seek reimbursement, or appeal rights.--
                Nothing in this subsection shall be construed as 
                affecting the right of an individual who--
                          ``(i) decides not to seek a prior 
                        determination under this subsection with 
                        respect to items or services; or
                          ``(ii) seeks such a determination and has 
                        received a determination described in paragraph 
                        (4)(A)(ii),
                from receiving (and submitting a claim for) such items 
                services and from obtaining administrative or judicial 
                review respecting such claim under the other applicable 
                provisions of this section. Failure to seek a prior 
                determination under this subsection with respect to 
                items and services shall not be taken into account in 
                such administrative or judicial review.
                  ``(C) No prior determination after receipt of 
                services.--Once an individual is provided items and 
                services, there shall be no prior determination under 
                this subsection with respect to such items or 
                services.''.
  (b) Effective Date; Transition.--
          (1) Effective date.--The Secretary shall establish the prior 
        determination process under the amendment made by subsection 
        (a) in such a manner as to provide for the acceptance of 
        requests for determinations under such process filed not later 
        than 18 months after the date of the enactment of this Act.
          (2) Transition.--During the period in which the amendment 
        made by subsection (a) has become effective but contracts are 
        not provided under section 1874A of the Social Security Act 
        with medicare administrative contractors, any reference in 
        section 1869(g) of such Act (as added by such amendment) to 
        such a contractor is deemed a reference to a fiscal 
        intermediary or carrier with an agreement under section 1816, 
        or contract under section 1842, respectively, of such Act.
          (3) Limitation on application to sgr.--For purposes of 
        applying section 1848(f)(2)(D) of the Social Security Act (42 
        U.S.C. 1395w-4(f)(2)(D)), the amendment made by subsection (a) 
        shall not be considered to be a change in law or regulation.
  (c) Provisions Relating to Advance Beneficiary Notices; Report on 
Prior Determination Process.--
          (1) Data collection.--The Secretary shall establish a process 
        for the collection of information on the instances in which an 
        advance beneficiary notice (as defined in paragraph (4)) has 
        been provided and on instances in which a beneficiary indicates 
        on such a notice that the beneficiary does not intend to seek 
        to have the item or service that is the subject of the notice 
        furnished.
          (2) Outreach and education.--The Secretary shall establish a 
        program of outreach and education for beneficiaries and 
        providers of services and other persons on the appropriate use 
        of advance beneficiary notices and coverage policies under the 
        medicare program.
          (3) GAO report report on use of advance beneficiary 
        notices.--Not later than 18 months after the date on which 
        section 1869(g) of the Social Security Act (as added by 
        subsection (a)) takes effect, the Comptroller General of the 
        United States shall submit to Congress a report on the use of 
        advance beneficiary notices under title XVIII of such Act. Such 
        report shall include information concerning the providers of 
        services and other persons that have provided such notices and 
        the response of beneficiaries to such notices.
          (4) GAO report on use of prior determination process.--Not 
        later than 18 months after the date on which section 1869(g) of 
        the Social Security Act (as added by subsection (a)) takes 
        effect, the Comptroller General of the United States shall 
        submit to Congress a report on the use of the prior 
        determination process under such section. Such report shall 
        include--
                  (A) information concerning the types of procedures 
                for which a prior determination has been sought, 
                determinations made under the process, and changes in 
                receipt of services resulting from the application of 
                such process; and
                  (B) an evaluation of whether the process was useful 
                for physicians (and other suppliers) and beneficiaries, 
                whether it was timely, and whether the amount of 
                information required was burdensome to physicians and 
                beneficiaries.
          (5) Advance beneficiary notice defined.--In this subsection, 
        the term ``advance beneficiary notice'' means a written notice 
        provided under section 1879(a) of the Social Security Act (42 
        U.S.C. 1395pp(a)) to an individual entitled to benefits under 
        part A or B of title XVIII of such Act before items or services 
        are furnished under such part in cases where a provider of 
        services or other person that would furnish the item or service 
        believes that payment will not be made for some or all of such 
        items or services under such title.

                  Subtitle E--Miscellaneous Provisions

SEC. 841. POLICY DEVELOPMENT REGARDING EVALUATION AND MANAGEMENT (E & 
                    M) DOCUMENTATION GUIDELINES.

  (a) In General.--The Secretary may not implement any new 
documentation guidelines for evaluation and management physician 
services under the title XVIII of the Social Security Act on or after 
the date of the enactment of this Act unless the Secretary--
          (1) has developed the guidelines in collaboration with 
        practicing physicians (including both generalists and 
        specialists) and provided for an assessment of the proposed 
        guidelines by the physician community;
          (2) has established a plan that contains specific goals, 
        including a schedule, for improving the use of such guidelines;
          (3) has conducted appropriate and representative pilot 
        projects under subsection (b) to test modifications to the 
        evaluation and management documentation guidelines;
          (4) finds that the objectives described in subsection (c) 
        will be met in the implementation of such guidelines; and
          (5) has established, and is implementing, a program to 
        educate physicians on the use of such guidelines and that 
        includes appropriate outreach.
The Secretary shall make changes to the manner in which existing 
evaluation and management documentation guidelines are implemented to 
reduce paperwork burdens on physicians.
  (b) Pilot Projects to Test Evaluation and Management Documentation 
Guidelines.--
          (1) In general.--The Secretary shall conduct under this 
        subsection appropriate and representative pilot projects to 
        test new evaluation and management documentation guidelines 
        referred to in subsection (a).
          (2) Length and consultation.--Each pilot project under this 
        subsection shall--
                  (A) be voluntary;
                  (B) be of sufficient length as determined by the 
                Secretary to allow for preparatory physician and 
                medicare contractor education, analysis, and use and 
                assessment of potential evaluation and management 
                guidelines; and
                  (C) be conducted, in development and throughout the 
                planning and operational stages of the project, in 
                consultation with practicing physicians (including both 
                generalists and specialists).
          (3) Range of pilot projects.--Of the pilot projects conducted 
        under this subsection--
                  (A) at least one shall focus on a peer review method 
                by physicians (not employed by a medicare contractor) 
                which evaluates medical record information for claims 
                submitted by physicians identified as statistical 
                outliers relative to definitions published in the 
                Current Procedures Terminology (CPT) code book of the 
                American Medical Association;
                  (B) at least one shall focus on an alternative method 
                to detailed guidelines based on physician documentation 
                of face to face encounter time with a patient;
                  (C) at least one shall be conducted for services 
                furnished in a rural area and at least one for services 
                furnished outside such an area; and
                  (D) at least one shall be conducted in a setting 
                where physicians bill under physicians' services in 
                teaching settings and at least one shall be conducted 
                in a setting other than a teaching setting.
          (4) Banning of targeting of pilot project participants.--Data 
        collected under this subsection shall not be used as the basis 
        for overpayment demands or post-payment audits. Such limitation 
        applies only to claims filed as part of the pilot project and 
        lasts only for the duration of the pilot project and only as 
        long as the provider is a participant in the pilot project.
          (5) Study of impact.--Each pilot project shall examine the 
        effect of the new evaluation and management documentation 
        guidelines on--
                  (A) different types of physician practices, including 
                those with fewer than 10 full-time-equivalent employees 
                (including physicians); and
                  (B) the costs of physician compliance, including 
                education, implementation, auditing, and monitoring.
          (6) Periodic reports.--The Secretary shall submit to Congress 
        periodic reports on the pilot projects under this subsection.
  (c) Objectives for Evaluation and Management Guidelines.--The 
objectives for modified evaluation and management documentation 
guidelines developed by the Secretary shall be to--
          (1) identify clinically relevant documentation needed to code 
        accurately and assess coding levels accurately;
          (2) decrease the level of non-clinically pertinent and 
        burdensome documentation time and content in the physician's 
        medical record;
          (3) increase accuracy by reviewers; and
          (4) educate both physicians and reviewers.
  (d) Study of Simpler, Alternative Systems of Documentation for 
Physician Claims.--
          (1) Study.--The Secretary shall carry out a study of the 
        matters described in paragraph (2).
          (2) Matters described.--The matters referred to in paragraph 
        (1) are--
                  (A) the development of a simpler, alternative system 
                of requirements for documentation accompanying claims 
                for evaluation and management physician services for 
                which payment is made under title XVIII of the Social 
                Security Act; and
                  (B) consideration of systems other than current 
                coding and documentation requirements for payment for 
                such physician services.
          (3) Consultation with practicing physicians.--In designing 
        and carrying out the study under paragraph (1), the Secretary 
        shall consult with practicing physicians, including physicians 
        who are part of group practices and including both generalists 
        and specialists.
          (4) Application of hipaa uniform coding requirements.--In 
        developing an alternative system under paragraph (2), the 
        Secretary shall consider requirements of administrative 
        simplification under part C of title XI of the Social Security 
        Act.
          (5) Report to congress.--(A) Not later than October 1, 2004, 
        the Secretary shall submit to Congress a report on the results 
        of the study conducted under paragraph (1).
          (B) The Medicare Payment Advisory Commission shall conduct an 
        analysis of the results of the study included in the report 
        under subparagraph (A) and shall submit a report on such 
        analysis to Congress.
  (e) Study on Appropriate Coding of Certain Extended Office Visits.--
The Secretary shall conduct a study of the appropriateness of coding in 
cases of extended office visits in which there is no diagnosis made. 
Not later than October 1, 2004, the Secretary shall submit a report to 
Congress on such study and shall include recommendations on how to code 
appropriately for such visits in a manner that takes into account the 
amount of time the physician spent with the patient.
  (f) Definitions.--In this section--
          (1) the term ``rural area'' has the meaning given that term 
        in section 1886(d)(2)(D) of the Social Security Act, 42 U.S.C. 
        1395ww(d)(2)(D); and
          (2) the term ``teaching settings'' are those settings 
        described in section 415.150 of title 42, Code of Federal 
        Regulations.

SEC. 842. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY AND COVERAGE.

  (a) Improved Coordination Between FDA and CMS on Coverage of 
Breakthrough Medical Devices.--
          (1) In general.--Upon request by an applicant and to the 
        extent feasible (as determined by the Secretary), the Secretary 
        shall, in the case of a class III medical device that is 
        subject to premarket approval under section 515 of the Federal 
        Food, Drug, and Cosmetic Act, ensure the sharing of appropriate 
        information from the review for application for premarket 
        approval conducted by the Food and Drug Administration for 
        coverage decisions under title XVIII of the Social Security 
        Act.
          (2) Publication of plan.--Not later than 6 months after the 
        date of the enactment of this Act, the Secretary shall submit 
        to appropriate Committees of Congress a report that contains 
        the plan for improving such coordination and for shortening the 
        time lag between the premarket approval by the Food and Drug 
        Administration and coding and coverage decisions by the Centers 
        for Medicare & Medicaid Services.
          (3) Construction.--Nothing in this subsection shall be 
        construed as changing the criteria for coverage of a medical 
        device under title XVIII of the Social Security Act nor 
        premarket approval by the Food and Drug Administration and 
        nothing in this subsection shall be construed to increase 
        premarket approval application requirements under the Federal 
        Food, Drug, and Cosmetic Act.
  (b) Council for Technology and Innovation.--Section 1868 (42 U.S.C. 
1395ee), as amended by section 823(a), is amended by adding at the end 
the following new subsection:
  ``(c) Council for Technology and Innovation.--
          ``(1) Establishment.--The Secretary shall establish a Council 
        for Technology and Innovation within the Centers for Medicare & 
        Medicaid Services (in this section referred to as `CMS').
          ``(2) Composition.--The Council shall be composed of senior 
        CMS staff and clinicians and shall be chaired by the Executive 
        Coordinator for Technology and Innovation (appointed or 
        designated under paragraph (4)).
          ``(3) Duties.--The Council shall coordinate the activities of 
        coverage, coding, and payment processes under this title with 
        respect to new technologies and procedures, including new drug 
        therapies, and shall coordinate the exchange of information on 
        new technologies between CMS and other entities that make 
        similar decisions.
          ``(4) Executive coordinator for technology and innovation.--
        The Secretary shall appoint (or designate) a noncareer 
        appointee (as defined in section 3132(a)(7) of title 5, United 
        States Code) who shall serve as the Executive Coordinator for 
        Technology and Innovation. Such executive coordinator shall 
        report to the Administrator of CMS, shall chair the Council, 
        shall oversee the execution of its duties, and shall serve as a 
        single point of contact for outside groups and entities 
        regarding the coverage, coding, and payment processes under 
        this title.''.
  (c) GAO Study on Improvements in External Data Collection for Use in 
the Medicare Inpatient Payment System.--
          (1) Study.--The Comptroller General of the United States 
        shall conduct a study that analyzes which external data can be 
        collected in a shorter time frame by the Centers for Medicare & 
        Medicaid Services for use in computing payments for inpatient 
        hospital services. The study may include an evaluation of the 
        feasibility and appropriateness of using of quarterly samples 
        or special surveys or any other methods. The study shall 
        include an analysis of whether other executive agencies, such 
        as the Bureau of Labor Statistics in the Department of 
        Commerce, are best suited to collect this information.
          (2) Report.--By not later than October 1, 2003, the 
        Comptroller General shall submit a report to Congress on the 
        study under paragraph (1).
  (d) IOM Study on Local Coverage Determinations.--
          (1) Study.--The Secretary shall enter into an arrangement 
        with the Institute of Medicine of the National Academy of 
        Sciences under which the Institute shall conduct a study on 
        local coverage determinations (including the application of 
        local medical review policies) under the medicare program under 
        title XVIII of the Social Security Act. Such study shall 
        examine--
                  (A) the consistency of the definitions used in such 
                determinations;
                  (B) the types of evidence on which such 
                determinations are based, including medical and 
                scientific evidence;
                  (C) the advantages and disadvantages of local 
                coverage decisionmaking, including the flexibility it 
                offers for ensuring timely patient access to new 
                medical technology for which data are still be 
                collected;
                  (D) the manner in which the local coverage 
                determination process is used to develop data needed 
                for a national coverage determination, including the 
                need for collection of such data within a protocol and 
                informed consent by individuals entitled to benefits 
                under part A of title XVIII of the Social Security Act, 
                or enrolled under part B of such title, or both; and
                  (E) the advantages and disadvantages of maintaining 
                local medicare contractor advisory committees that can 
                advise on local coverage decisions based on an open, 
                collaborative public process.
          (2) Report.--Such arrangement shall provide that the 
        Institute shall submit to the Secretary a report on such study 
        by not later than 3 years after the date of the enactment of 
        this Act. The Secretary shall promptly transmit a copy of such 
        report to Congress.
  (e) Methods for Determining Payment Basis For New Lab Tests.--Section 
1833(h) (42 U.S.C. 1395l(h)) is amended by adding at the end the 
following:
  ``(8)(A) The Secretary shall establish by regulation procedures for 
determining the basis for, and amount of, payment under this subsection 
for any clinical diagnostic laboratory test with respect to which a new 
or substantially revised HCPCS code is assigned on or after January 1, 
2004 (in this paragraph referred to as `new tests').
  ``(B) Determinations under subparagraph (A) shall be made only after 
the Secretary--
          ``(i) makes available to the public (through an Internet site 
        and other appropriate mechanisms) a list that includes any such 
        test for which establishment of a payment amount under this 
        subsection is being considered for a year;
          ``(ii) on the same day such list is made available, causes to 
        have published in the Federal Register notice of a meeting to 
        receive comments and recommendations (and data on which 
        recommendations are based) from the public on the appropriate 
        basis under this subsection for establishing payment amounts 
        for the tests on such list;
          ``(iii) not less than 30 days after publication of such 
        notice convenes a meeting, that includes representatives of 
        officials of the Centers for Medicare & Medicaid Services 
        involved in determining payment amounts, to receive such 
        comments and recommendations (and data on which the 
        recommendations are based);
          ``(iv) taking into account the comments and recommendations 
        (and accompanying data) received at such meeting, develops and 
        makes available to the public (through an Internet site and 
        other appropriate mechanisms) a list of proposed determinations 
        with respect to the appropriate basis for establishing a 
        payment amount under this subsection for each such code, 
        together with an explanation of the reasons for each such 
        determination, the data on which the determinations are based, 
        and a request for public written comments on the proposed 
        determination; and
          ``(v) taking into account the comments received during the 
        public comment period, develops and makes available to the 
        public (through an Internet site and other appropriate 
        mechanisms) a list of final determinations of the payment 
        amounts for such tests under this subsection, together with the 
        rationale for each such determination, the data on which the 
        determinations are based, and responses to comments and 
        suggestions received from the public.
  ``(C) Under the procedures established pursuant to subparagraph (A), 
the Secretary shall--
          ``(i) set forth the criteria for making determinations under 
        subparagraph (A); and
          ``(ii) make available to the public the data (other than 
        proprietary data) considered in making such determinations.
  ``(D) The Secretary may convene such further public meetings to 
receive public comments on payment amounts for new tests under this 
subsection as the Secretary deems appropriate.
  ``(E) For purposes of this paragraph:
          ``(i) The term `HCPCS' refers to the Health Care Procedure 
        Coding System.
          ``(ii) A code shall be considered to be `substantially 
        revised' if there is a substantive change to the definition of 
        the test or procedure to which the code applies (such as a new 
        analyte or a new methodology for measuring an existing analyte-
        specific test).''.

SEC. 843. TREATMENT OF HOSPITALS FOR CERTAIN SERVICES UNDER MEDICARE 
                    SECONDARY PAYOR (MSP) PROVISIONS.

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

SEC. 844. EMTALA IMPROVEMENTS.

  (a) Payment for EMTALA-Mandated Screening and Stabilization 
Services.--
          (1) In general.--Section 1862 (42 U.S.C. 1395y) is amended by 
        inserting after subsection (c) the following new subsection:
  ``(d) For purposes of subsection (a)(1)(A), in the case of any item 
or service that is required to be provided pursuant to section 1867 to 
an individual who is entitled to benefits under this title, 
determinations as to whether the item or service is reasonable and 
necessary shall be made on the basis of the information available to 
the treating physician or practitioner (including the patient's 
presenting symptoms or complaint) at the time the item or service was 
ordered or furnished by the physician or practitioner (and not on the 
patient's principal diagnosis). When making such determinations with 
respect to such an item or service, the Secretary shall not consider 
the frequency with which the item or service was provided to the 
patient before or after the time of the admission or visit.''.
          (2) Effective date.--The amendment made by paragraph (1) 
        shall apply to items and services furnished on or after January 
        1, 2003.
  (b) Notification of Providers When EMTALA Investigation Closed.--
Section 1867(d) (42 U.S.C. 42 U.S.C. 1395dd(d)) is amended by adding at 
the end the following new paragraph:
          ``(4) Notice upon closing an investigation.--The Secretary 
        shall establish a procedure to notify hospitals and physicians 
        when an investigation under this section is closed.''.
  (c) Prior Review by Peer Review Organizations in EMTALA Cases 
Involving Termination of Participation.--
          (1) In general.--Section 1867(d)(3) (42 U.S.C. 1395dd(d)(3)) 
        is amended--
                  (A) in the first sentence, by inserting ``or in 
                terminating a hospital's participation under this 
                title'' after ``in imposing sanctions under paragraph 
                (1)''; and
                  (B) by adding at the end the following new sentences: 
                ``Except in the case in which a delay would jeopardize 
                the health or safety of individuals, the Secretary 
                shall also request such a review before making a 
                compliance determination as part of the process of 
                terminating a hospital's participation under this title 
                for violations related to the appropriateness of a 
                medical screening examination, stabilizing treatment, 
                or an appropriate transfer as required by this section, 
                and shall provide a period of 5 days for such review. 
                The Secretary shall provide a copy of the 
                organization's report to the hospital or physician 
                consistent with confidentiality requirements imposed on 
                the organization under such part B.''.
          (2) Effective date.--The amendments made by paragraph (1) 
        shall apply to terminations of participation initiated on or 
        after the date of the enactment of this Act.

SEC. 845. EMERGENCY MEDICAL TREATMENT AND LABOR ACT (EMTALA) TECHNICAL 
                    ADVISORY GROUP.

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

SEC. 846. AUTHORIZING USE OF ARRANGEMENTS WITH OTHER HOSPICE PROGRAMS 
                    TO PROVIDE CORE HOSPICE SERVICES IN CERTAIN 
                    CIRCUMSTANCES.

  (a) In General.--Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5)) is 
amended by adding at the end the following new subparagraph:
  ``(D) In extraordinary, exigent, or other non-routine circumstances, 
such as unanticipated periods of high patient loads, staffing shortages 
due to illness or other events, or temporary travel of a patient 
outside a hospice program's service area, a hospice program may enter 
into arrangements with another hospice program for the provision by 
that other program of services described in paragraph (2)(A)(ii)(I). 
The provisions of paragraph (2)(A)(ii)(II) shall apply with respect to 
the services provided under such arrangements.''.
  (b) Conforming Payment Provision.--Section 1814(i) (42 U.S.C. 
1395f(i)), as amended by section 421(b), is amended by adding at the 
end the following new paragraph:
  ``(5) In the case of hospice care provided by a hospice program under 
arrangements under section 1861(dd)(5)(D) made by another hospice 
program, the hospice program that made the arrangements shall bill and 
be paid for the hospice care.''.
  (c) Effective Date.--The amendments made by this section shall apply 
to hospice care provided on or after the date of the enactment of this 
Act.

SEC. 847. APPLICATION OF OSHA BLOODBORNE PATHOGENS STANDARD TO CERTAIN 
                    HOSPITALS.

  (a) In General.--Section 1866 (42 U.S.C. 1395cc) is amended--
          (1) in subsection (a)(1)--
                  (A) in subparagraph (R), by striking ``and'' at the 
                end;
                  (B) in subparagraph (S), by striking the period at 
                the end and inserting ``, and''; and
                  (C) by inserting after subparagraph (S) the following 
                new subparagraph:
          ``(T) in the case of hospitals that are not otherwise subject 
        to the Occupational Safety and Health Act of 1970, to comply 
        with the Bloodborne Pathogens standard under section 1910.1030 
        of title 29 of the Code of Federal Regulations (or as 
        subsequently redesignated).''; and
          (2) by adding at the end of subsection (b) the following new 
        paragraph:
  ``(4)(A) A hospital that fails to comply with the requirement of 
subsection (a)(1)(T) (relating to the Bloodborne Pathogens standard) is 
subject to a civil money penalty in an amount described in subparagraph 
(B), but is not subject to termination of an agreement under this 
section.
  ``(B) The amount referred to in subparagraph (A) is an amount that is 
similar to the amount of civil penalties that may be imposed under 
section 17 of the Occupational Safety and Health Act of 1970 for a 
violation of the Bloodborne Pathogens standard referred to in 
subsection (a)(1)(T) by a hospital that is subject to the provisions of 
such Act.
  ``(C) A civil money penalty under this paragraph shall be imposed and 
collected in the same manner as civil money penalties under subsection 
(a) of section 1128A are imposed and collected under that section.''.
  (b) Effective Date.--The amendments made by this subsection (a) shall 
apply to hospitals as of July 1, 2003.

SEC. 848. BIPA-RELATED TECHNICAL AMENDMENTS AND CORRECTIONS.

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

SEC. 849. CONFORMING AUTHORITY TO WAIVE A PROGRAM EXCLUSION.

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

SEC. 850. TREATMENT OF CERTAIN DENTAL CLAIMS.

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

SEC. 851. ANNUAL PUBLICATION OF LIST OF NATIONAL COVERAGE 
                    DETERMINATIONS.

  The Secretary shall provide, in an appropriate annual publication 
available to the public, a list of national coverage determinations 
made under title XVIII of the Social Security Act in the previous year 
and information on how to get more information with respect to such 
determinations.

     TITLE IX--MEDICAID, PUBLIC HEALTH, AND OTHER HEALTH PROVISIONS

                    Subtitle A--Medicaid Provisions

SEC. 901. NATIONAL BIPARTISAN COMMISSION ON THE FUTURE OF MEDICAID.

  (a) Establishment.--There is established a commission to be known as 
the National Bipartisan Commission on the Future of Medicaid (in this 
section referred to as the ``Commission'').
  (b) Duties of the Commission.--The Commission shall--
          (1) review and analyze the long-term financial condition of 
        the medicaid program under title XIX of the Social Security Act 
        (42 U.S.C. 1396 et seq.);
          (2) identify the factors that are causing, and the 
        consequences of, increases in costs under the medicaid program, 
        including--
                  (A) the impact of these cost increases upon State 
                budgets, funding for other State programs, and levels 
                of State taxes necessary to fund growing expenditures 
                under the medicaid program;
                  (B) the financial obligations of the Federal 
                government arising from the Federal matching 
                requirement for expenditures under the medicaid 
                program; and
                  (C) the size and scope of the current program and how 
                the program has evolved over time;
          (3) analyze potential policies that will ensure both the 
        financial integrity of the medicaid program and the provision 
        of appropriate benefits under such program;
          (4) make recommendations for establishing incentives and 
        structures to promote enhanced efficiencies and ways of 
        encouraging innovative State policies under the medicaid 
        program;
          (5) make recommendations for establishing the appropriate 
        balance between benefits covered, payments to providers, State 
        and Federal contributions and, where appropriate, recipient 
        cost-sharing obligations;
          (6) make recommendations on the impact of promoting increased 
        utilization of competitive, private enterprise models to 
        contain program cost growth, through enhanced utilization of 
        private plans, pharmacy benefit managers, and other methods 
        currently being used to contain private sector health-care 
        costs;
          (7) make recommendations on the financing of prescription 
        drug benefits currently covered under medicaid programs, 
        including analysis of the current Federal manufacturer rebate 
        program, its impact upon both private market prices as well as 
        those paid by other government purchasers, recent State efforts 
        to negotiate additional supplemental manufacturer rebates and 
        the ability of pharmacy benefit managers to lower drug costs;
          (8) review and analyze such other matters relating to the 
        medicaid program as the Commission deems appropriate; and
          (9) analyze the impact of impending demographic changes upon 
        medicaid benefits, including long term care services, and make 
        recommendations for how best to appropriately divide State and 
        Federal responsibilities for funding these benefits.
  (c) Membership.--
          (1) Number and appointment.--The Commission shall be composed 
        of 17 members, of whom--
                  (A) four shall be appointed by the President;
                  (B) six shall be appointed by the Majority Leader of 
                the Senate, in consultation with the Minority Leader of 
                the Senate, of whom not more than 4 shall be of the 
                same political party;
                  (C) six shall be appointed by the Speaker of the 
                House of Representatives, in consultation with the 
                Minority Leader of the House of Representatives, of 
                whom not more than 4 shall be of the same political 
                party; and
                  (D) one, who shall serve as Chairman of the 
                Commission, appointed jointly by the President, 
                Majority Leader of the Senate, and the Speaker of the 
                House of Representatives.
          (2) Deadline for appointment.--Members of the Commission 
        shall be appointed by not later than December 1, 2002.
          (3) Terms of appointment.--The term of any appointment under 
        paragraph (1) to the Commission shall be for the life of the 
        Commission.
          (4) Meetings.--The Commission shall meet at the call of its 
        Chairman or a majority of its members.
          (5) Quorum.--A quorum shall consist of 8 members of the 
        Commission, except that 4 members may conduct a hearing under 
        subsection (e).
          (6) Vacancies.--A vacancy on the Commission shall be filled 
        in the same manner in which the original appointment was made 
        not later than 30 days after the Commission is given notice of 
        the vacancy and shall not affect the power of the remaining 
        members to execute the duties of the Commission.
          (7) Compensation.--Members of the Commission shall receive no 
        additional pay, allowances, or benefits by reason of their 
        service on the Commission.
          (8) Expenses.--Each member of the Commission shall receive 
        travel expenses and per diem in lieu of subsistence in 
        accordance with sections 5702 and 5703 of title 5, United 
        States Code.
  (d) Staff and Support Services.--
          (1) Executive director.--
                  (A) Appointment.--The Chairman shall appoint an 
                executive director of the Commission.
                  (B) Compensation.--The executive director shall be 
                paid the rate of basic pay for level V of the Executive 
                Schedule.
          (2) Staff.--With the approval of the Commission, the 
        executive director may appoint such personnel as the executive 
        director considers appropriate.
          (3) Applicability of civil service laws.--The staff of the 
        Commission shall be appointed without regard to the provisions 
        of title 5, United States Code, governing appointments in the 
        competitive service, and shall be paid without regard to the 
        provisions of chapter 51 and subchapter III of chapter 53 of 
        such title (relating to classification and General Schedule pay 
        rates).
          (4) Experts and consultants.--With the approval of the 
        Commission, the executive director may procure temporary and 
        intermittent services under section 3109(b) of title 5, United 
        States Code.
          (5) Physical facilities.--The Administrator of the General 
        Services Administration shall locate suitable office space for 
        the operation of the Commission. The facilities shall serve as 
        the headquarters of the Commission and shall include all 
        necessary equipment and incidentals required for the proper 
        functioning of the Commission.
  (e) Powers of Commission.--
          (1) Hearings and other activities.--For the purpose of 
        carrying out its duties, the Commission may hold such hearings 
        and undertake such other activities as the Commission 
        determines to be necessary to carry out its duties.
          (2) Studies by gao.--Upon the request of the Commission, the 
        Comptroller General shall conduct such studies or 
        investigations as the Commission determines to be necessary to 
        carry out its duties.
          (3) Cost estimates by congressional budget office and office 
        of the chief actuary of cms.--
                  (A) The Director of the Congressional Budget Office 
                or the Chief Actuary of the Centers for Medicare & 
                Medicaid Services, or both, shall provide to the 
                Commission, upon the request of the Commission, such 
                cost estimates as the Commission determines to be 
                necessary to carry out its duties.
                  (B) The Commission shall reimburse the Director of 
                the Congressional Budget Office for expenses relating 
                to the employment in the office of the Director of such 
                additional staff as may be necessary for the Director 
                to comply with requests by the Commission under 
                subparagraph (A).
          (4) Detail of federal employees.--Upon the request of the 
        Commission, the head of any Federal agency is authorized to 
        detail, without reimbursement, any of the personnel of such 
        agency to the Commission to assist the Commission in carrying 
        out its duties. Any such detail shall not interrupt or 
        otherwise affect the civil service status or privileges of the 
        Federal employee.
          (5) Technical assistance.--Upon the request of the 
        Commission, the head of a Federal agency shall provide such 
        technical assistance to the Commission as the Commission 
        determines to be necessary to carry out its duties.
          (6) Use of mails.--The Commission may use the United States 
        mails in the same manner and under the same conditions as 
        Federal agencies and shall, for purposes of the frank, be 
        considered a commission of Congress as described in section 
        3215 of title 39, United States Code.
          (7) Obtaining information.--The Commission may secure 
        directly from any Federal agency information necessary to 
        enable it to carry out its duties, if the information may be 
        disclosed under section 552 of title 5, United States Code. 
        Upon request of the Chairman of the Commission, the head of 
        such agency shall furnish such information to the Commission.
          (8) Administrative support services.--Upon the request of the 
        Commission, the Administrator of General Services shall provide 
        to the Commission on a reimbursable basis such administrative 
        support services as the Commission may request.
          (9) Printing.--For purposes of costs relating to printing and 
        binding, including the cost of personnel detailed from the 
        Government Printing Office, the Commission shall be deemed to 
        be a committee of the Congress.
  (f) Report.--Not later than March 1, 2004, the Commission shall 
submit a report to the President and Congress which shall contain a 
detailed statement of only those the recommendations, findings, and 
conclusions of the Commission.
  (g) Termination.--The Commission shall terminate 30 days after the 
date of submission of the report required in subsection (f).
  (h) Authorization of Appropriations.--There are authorized to be 
appropriated $1,500,000 to carry out this section.

SEC. 902. GAO STUDY ON MEDICAID DRUG PAYMENT SYSTEM.

  (a) Study.--The Comptroller General of the United States shall 
conduct a study on the reimbursement under the medicaid program for 
covered outpatient drugs. Such study shall examine--
          (1) the extent to which such reimbursements for a drug exceed 
        the acquisition costs for that drug;
          (2) the services and resources associated with dispensing a 
        prescription and any additional payments available to 
        compensate for expenses for these services and resources; and
          (3) efforts undertaken by States to change the levels of such 
        reimbursement and the price data they use in effecting such 
        change.
  (b) Report.--Not later than 1 year after the date of the enactment of 
this Act, the Comptroller General shall submit to Congress a report on 
the study conducted under subsection (a) and shall include in such 
report such recommendations for changes for legislative or 
administrative action regarding medicaid reimbursement methodologies 
for outpatient prescription drugs, and their application to the 
medicare program, as the Comptroller General deems appropriate.

                    Subtitle B--Internet Pharmacies

SEC. 911. FINDINGS.

  The Congress finds as follows:
          (1) Legitimate Internet sellers of prescription drugs can 
        offer substantial benefits to consumers. These potential 
        benefits include convenience, privacy, valuable information, 
        competitive prices, and personalized services.
          (2) Unlawful Internet sellers of prescription drugs may 
        dispense inappropriate, contaminated, counterfeit, or subpotent 
        prescription drugs that could put at risk the health and safety 
        of consumers.
          (3) Unlawful Internet sellers have exposed consumers to 
        significant health risks by knowingly filling invalid 
        prescriptions, such as prescriptions based solely on an online 
        questionnaire, or by dispensing prescription drugs without any 
        prescription.
          (4) Consumers may have difficulty distinguishing legitimate 
        from unlawful Internet sellers, as well as foreign from 
        domestic Internet sellers, of prescription drugs.

SEC. 912. AMENDMENT TO FEDERAL FOOD, DRUG, AND COSMETIC ACT.

  (a) In General.--Chapter V of the Federal Food, Drug, and Cosmetic 
Act (21 U.S.C. 351 et seq.) is amended by inserting after section 503A 
the following:

``SEC. 503B. INTERNET PRESCRIPTION DRUG SALES.

  ``(a) Definitions.--For purposes of this section:
          ``(1) Consumer.--The term `consumer' means a person (other 
        than an entity licensed or otherwise authorized under Federal 
        or State law as a pharmacy or to dispense or distribute 
        prescription drugs) that purchases or seeks to purchase 
        prescription drugs through the Internet.
          ``(2) Home page.--The term `home page' means the entry point 
        or main web page for an Internet site.
          ``(3) Internet.--The term `Internet' means collectively the 
        myriad of computer and telecommunications facilities, including 
        equipment and operating software, which comprise the 
        interconnected worldwide network of networks that employ the 
        Transmission Control Protocol/Internet Protocol, or any 
        predecessor or successor protocols to such protocol, to 
        communicate information of all kinds by wire or radio, 
        including electronic mail.
          ``(4) Interstate internet seller.--
                  ``(A) In general.--The term `interstate Internet 
                seller' means a person whether in the United States or 
                abroad, that engages in, offers to engage in, or causes 
                the delivery or sale of a prescription drug through the 
                Internet and has such drug delivered directly to the 
                consumer via the Postal Service, or any private or 
                commercial interstate carrier to a consumer in the 
                United States who is residing in a State other than the 
                State in which the seller's place of business is 
                located. This definition excludes a person who only 
                delivers a prescription drug to a consumer, such as an 
                interstate carrier service.
                  ``(B) Exemption.--With respect to the consumer 
                involved, the term `interstate Internet seller' does 
                not include a person described in subparagraph (A) 
                whose place of business is located within 75 miles of 
                the consumer.
          ``(5) Link.--The term `link' means either a textual or 
        graphical marker on a web page that, when clicked on, takes the 
        consumer to another part of the Internet, such as to another 
        web page or a different area on the same web page, or from an 
        electronic message to a web page.
          ``(6) Pharmacy.--The term `pharmacy' means any place licensed 
        or otherwise authorized as a pharmacy under State law.
          ``(7) Prescriber.--The term `prescriber' means an individual, 
        licensed or otherwise authorized under applicable Federal and 
        State law to issue prescriptions for prescription drugs.
          ``(8) Prescription drug.--The term `prescription drug' means 
        a drug under section 503(b)(1).
          ``(9) Valid prescription.--The term `valid prescription' 
        means a prescription that meets the requirements of section 
        503(b)(1) and other applicable Federal and State law.
          ``(10) Web site; site.--The terms `web site' and `site' mean 
        a specific location on the Internet that is determined by 
        Internet protocol numbers or by a domain name.
  ``(b) Requirements for Interstate Internet Sellers.--
          ``(1) In general.--Each interstate Internet seller shall 
        comply with the requirements of this subsection with respect to 
        the sale of, or the offer to sell, prescription drugs through 
        the Internet and shall at all times display on its web site 
        information in accordance with paragraph (2).
          ``(2) Web site disclosure information.--An interstate 
        Internet seller shall post in a visible and clear manner (as 
        determined by regulation) on the home page of its web site, or 
        on a page directly linked to such home page--
                  ``(A) the street address of the interstate Internet 
                seller's place of business, and the telephone number of 
                such place of business;
                  ``(B) each State in which the interstate Internet 
                seller is licensed or otherwise authorized as a 
                pharmacy, or if the interstate Internet seller is not 
                licensed or otherwise authorized by a State as a 
                pharmacy, each State in which the interstate Internet 
                seller is licensed or otherwise authorized to dispense 
                prescription drugs, and the type of State license or 
                authorization;
                  ``(C) in the case of an interstate Internet seller 
                that makes referrals to or solicits on behalf of a 
                prescriber, the name of each prescriber, the street 
                address of each such prescriber's place of business, 
                the telephone number of such place of business, each 
                State in which each such prescriber is licensed or 
                otherwise authorized to prescribe prescription drugs, 
                and the type of such license or authorization; and
                  ``(D) a statement that the interstate Internet seller 
                will dispense prescription drugs only upon a valid 
                prescription.
          ``(3) Date of posting.--Information required to be posted 
        under paragraph (2) shall be posted by an interstate Internet 
        seller--
                  ``(A) not later than 90 days after the effective date 
                of this section if the web site of such seller is in 
                operation as of such date; or
                  ``(B) on the date of the first day of operation of 
                such seller's web site if such site goes into operation 
                after such date.
          ``(4) Qualifying statements.--An interstate Internet seller 
        shall not indicate in any manner that posting disclosure 
        information on its web site signifies that the Federal 
        Government has made any determination on the legitimacy of the 
        interstate Internet seller or its business.
          ``(5) Disclosure to state licensing boards.--An interstate 
        Internet seller licensed or otherwise authorized to dispense 
        prescription drugs in accordance with applicable State law 
        shall notify each State entity that granted such licensure or 
        authorization that it is an interstate Internet seller, the 
        name of its business, the Internet address of its business, the 
        street address of its place of business, and the telephone 
        number of such place of business.
          ``(6) Regulations.--The Secretary is authorized to promulgate 
        such regulations as are necessary to carry out the provisions 
        of this subsection. In issuing such regulations, the 
        Secretary--
                  ``(A) shall take into consideration disclosure 
                formats used by existing interstate Internet seller 
                certification programs; and
                  ``(B) shall in defining the term `place of business' 
                include provisions providing that such place is a 
                single location at which employees of the business 
                perform job functions, and not a post office box or 
                similar locale.''.
  (b) Prohibited Acts.--Section 301 of the Federal Food, Drug, and 
Cosmetic Act (21 U.S.C. 331) is amended by adding at the end the 
following:
  ``(bb) The failure to post information required under section 
503B(b)(2) or for knowingly making a materially false statement when 
posting such information as required under such section or violating 
section 503B(b)(4).''.

SEC. 913. PUBLIC EDUCATION.

  The Secretary of Health and Human Services shall engage in activities 
to educate the public about the dangers of purchasing prescription 
drugs from unlawful Internet sources. The Secretary should educate the 
public about effective public and private sector consumer protection 
efforts, as appropriate, with input from the public and private 
sectors, as appropriate.

SEC. 914. STUDY REGARDING COORDINATION OF REGULATORY ACTIVITIES.

  Not later than 180 days after the date of enactment of this Act, the 
Secretary of Health and Human Services, after consultation with the 
Attorney General, shall submit to Congress a report providing 
recommendations for coordinating the activities of Federal agencies 
regarding interstate Internet sellers that operate from foreign 
countries and for coordinating the activities of the Federal Government 
with the activities of governments of foreign countries regarding such 
interstate Internet sellers.

SEC. 915. EFFECTIVE DATE.

  The amendments made by this subtitle shall take effect 1 year after 
the date of enactment of this Act, except that the authority of the 
Secretary of Health and Human Services to commence the process of 
rulemaking is effective on the date of enactment of this Act.

            Subtitle C--Promotion of Electronic Prescription

SEC. 921. PROGRAM OF GRANTS TO HEALTH CARE PROVIDERS TO IMPLEMENT 
                    ELECTRONIC PRESCRIPTION DRUG PROGRAMS.

  Part P of title III of the Public Health Service Act is amended by 
inserting after section 399N the following new section:

``SEC. 399O. GRANTS TO HEALTH CARE PROVIDERS TO IMPLEMENT ELECTRONIC 
                    PRESCRIPTION DRUG PROGRAMS.

  ``(a) In General.--The Secretary is authorized to make grants for the 
purpose of assisting health care providers who prescribe drugs and 
biologicals in implementing electronic prescription programs described 
in section 1860C(d)(3) of the Social Security Act.
  ``(b) Application.--No grant may be made under this section except 
pursuant to a grant application that is submitted in a time, manner, 
and form approved by the Secretary.
  ``(c) Authorization of Appropriations.--There are authorized to be 
appropriated for fiscal year 2004, such sums as may be appropriate to 
carry out this section.''.

                 Subtitle D--Treatment of Rare Diseases

SEC. 931. NIH OFFICE OF RARE DISEASES AT NATIONAL INSTITUTES OF HEALTH.

  Title IV of the Public Health Service Act (42 U.S.C. 281 et seq.), as 
amended by Public Law 107-84, is amended by inserting after section 
404E the following:
                       ``office of rare diseases
  ``Sec. 404F. (a) Establishment.--There is established within the 
Office of the Director of NIH an office to be known as the Office of 
Rare Diseases (in this section referred to as the `Office'), which 
shall be headed by a Director (in this section referred to as the 
`Director'), appointed by the Director of NIH.
  ``(b) Duties.--
          ``(1) In general.--The Director of the Office shall carry out 
        the following:
                  ``(A) The Director shall recommend an agenda for 
                conducting and supporting research on rare diseases 
                through the national research institutes and centers. 
                The agenda shall provide for a broad range of research 
                and education activities, including scientific 
                workshops and symposia to identify research 
                opportunities for rare diseases.
                  ``(B) The Director shall, with respect to rare 
                diseases, promote coordination and cooperation among 
                the national research institutes and centers and 
                entities whose research is supported by such 
                institutes.
                  ``(C) The Director, in collaboration with the 
                directors of the other relevant institutes and centers 
                of the National Institutes of Health, may enter into 
                cooperative agreements with and make grants for 
                regional centers of excellence on rare diseases in 
                accordance with section 404G.
                  ``(D) The Director shall promote the sufficient 
                allocation of the resources of the National Institutes 
                of Health for conducting and supporting research on 
                rare diseases.
                  ``(E) The Director shall promote and encourage the 
                establishment of a centralized clearinghouse for rare 
                and genetic disease information that will provide 
                understandable information about these diseases to the 
                public, medical professionals, patients and families.
                  ``(F) The Director shall biennially prepare a report 
                that describes the research and education activities on 
                rare diseases being conducted or supported through the 
                national research institutes and centers, and that 
                identifies particular projects or types of projects 
                that should in the future be conducted or supported by 
                the national research institutes and centers or other 
                entities in the field of research on rare diseases.
                  ``(G) The Director shall prepare the NIH Director's 
                annual report to Congress on rare disease research 
                conducted by or supported through the national research 
                institutes and centers.
          ``(2) Principal advisor regarding orphan diseases.--With 
        respect to rare diseases, the Director shall serve as the 
        principal advisor to the Director of NIH and shall provide 
        advice to other relevant agencies. The Director shall provide 
        liaison with national and international patient, health and 
        scientific organizations concerned with rare diseases.
  ``(c) Definition.--For purposes of this section, the term `rare 
disease' means any disease or condition that affects less than 200,000 
persons in the United States.
  ``(d) Authorization of Appropriations.--For the purpose of carrying 
out this section, there are authorized to be appropriated such sums as 
already have been appropriated for fiscal year 2002, and $4,000,000 for 
each of the fiscal years 2003 through 2006.''.

SEC. 932. RARE DISEASE REGIONAL CENTERS OF EXCELLENCE.

  Title IV of the Public Health Service Act (42 U.S.C. 281 et seq.), as 
amended by section 931, is further amended by inserting after section 
404F the following:
             ``rare disease regional centers of excellence
  ``Sec. 404G. (a) Cooperative Agreements and Grants.--
          ``(1) In general.--The Director of the Office of Rare 
        Diseases (in this section referred to as the `Director'), in 
        collaboration with the directors of the other relevant 
        institutes and centers of the National Institutes of Health, 
        may enter into cooperative agreements with and make grants to 
        public or private nonprofit entities to pay all or part of the 
        cost of planning, establishing, or strengthening, and providing 
        basic operating support for regional centers of excellence for 
        clinical research into, training in, and demonstration of 
        diagnostic, prevention, control, and treatment methods for rare 
        diseases.
          ``(2) Policies.--A cooperative agreement or grant under 
        paragraph (1) shall be entered into in accordance with policies 
        established by the Director of NIH.
  ``(b) Coordination With Other Institutes.--The Director shall 
coordinate the activities under this section with similar activities 
conducted by other national research institutes, centers and agencies 
of the National Institutes of Health and by the Food and Drug 
Administration to the extent that such institutes, centers and agencies 
have responsibilities that are related to rare diseases.
  ``(c) Uses for Federal Payments Under Cooperative Agreements or 
Grants.--Federal payments made under a cooperative agreement or grant 
under subsection (a) may be used for--
          ``(1) staffing, administrative, and other basic operating 
        costs, including such patient care costs as are required for 
        research;
          ``(2) clinical training, including training for allied health 
        professionals, continuing education for health professionals 
        and allied health professions personnel, and information 
        programs for the public with respect to rare diseases; and
          ``(3) clinical research and demonstration programs.
  ``(d) Period of Support; Additional Periods.--Support of a center 
under subsection (a) may be for a period of not to exceed 5 years. Such 
period may be extended by the Director for additional periods of not 
more than 5 years if the operations of such center have been reviewed 
by an appropriate technical and scientific peer review group 
established by the Director and if such group has recommended to the 
Director that such period should be extended.
  ``(e) Authorization of Appropriations.--For the purpose of carrying 
out this section, there are authorized to be appropriated such sums as 
already have been appropriated for fiscal year 2002, and $20,000,000 
for each of the fiscal years 2003 through 2006.''.

             Subtitle E--Other Provisions Relating to Drugs

SEC. 941. GAO STUDY REGARDING DIRECT-TO-CONSUMER ADVERTISING OF 
                    PRESCRIPTION DRUGS.

  (a) In General.--The Comptroller General of the United States shall 
conduct a study for the purpose of determining--
          (1) whether and to what extent there have been increases in 
        utilization rates of prescription drugs that are attributable 
        to guidance regarding direct-to-consumer advertising of such 
        drugs that has been issued by the Food and Drug Administration 
        under section 502(n) of the Federal Food, Drug, and Cosmetic 
        Act; and
          (2) if so, whether and to what extent such increased 
        utilization rates have resulted in increases in the costs of 
        public or private health plans, health insurance, or other 
        health programs.
  (b) Certain Determinations.--The study under subsection (a) shall 
include determinations of the following:
          (1) The extent to which advertisements referred to in such 
        subsection have resulted in effective consumer education about 
        the prescription drugs involved, including an understanding of 
        the risks of the drugs relative to the benefits.
          (2) The extent of consumer satisfaction with such 
        advertisements.
          (3) The extent of physician satisfaction with the 
        advertisements, including determining whether physicians 
        believe that the advertisements interfere with the exercise of 
        their medical judgment by influencing consumers to prefer 
        advertised drugs over alternative therapies.
          (4) The extent to which the advertisements have resulted in 
        increases in health care costs for taxpayers, for employers, or 
        for consumers due to consumer decisions to seek advertised 
        drugs rather than lower-costs alternative therapies.
          (5) The extent to which the advertisements have resulted in 
        decreases in health care costs for taxpayers, for employers, or 
        for consumers due to decreased hospitalization rates, fewer 
        physician visits (not related to hospitalization), lower 
        treatment costs, or reduced instances of employee absences to 
        care for family members with diseases or disorders.
  (c) Report.--Not later than two years after the date of the enactment 
of this Act, the Comptroller General of the United States shall submit 
to the Congress a report providing the findings of the study under 
subsection (a).

SEC. 942. CERTAIN HEALTH PROFESSIONS PROGRAMS REGARDING PRACTICE OF 
                    PHARMACY.

  Part E of title VII of the Public Health Service Act (42 U.S.C. 294n 
et seq.) is amended by adding at the end the following subpart:

               ``Subpart 3--Pharmacist Workforce Programs

``SEC. 771. PUBLIC SERVICE ANNOUNCEMENTS.

  ``(a) Public Service Announcements.--
          ``(1) In general.--The Secretary shall develop and issue 
        public service announcements that advertise and promote the 
        pharmacist profession, highlight the advantages and rewards of 
        being a pharmacist, and encourage individuals to enter the 
        pharmacist profession.
          ``(2) Method.--The public service announcements described in 
        subsection (a) shall be broadcast through appropriate media 
        outlets, including television or radio, in a manner intended to 
        reach as wide and diverse an audience as possible.
  ``(b) State and Local Public Service Announcements.--
          ``(1) In general.--The Secretary shall award grants to 
        entities to support State and local advertising campaigns 
        through appropriate media outlets to promote the pharmacist 
        profession, highlight the advantages and rewards of being a 
        pharmacist, and encourage individuals to enter the pharmacist 
        profession.
          ``(2) Use of funds.--An entity that receives a grant under 
        subsection (a) shall use funds received through such grant to 
        acquire local television and radio time, place advertisements 
        in local newspapers, and post information on billboards or on 
        the Internet, in order to--
                  ``(A) advertise and promote the pharmacist 
                profession;
                  ``(B) promote pharmacist education programs;
                  ``(C) inform the public of public assistance 
                regarding such education programs;
                  ``(D) highlight individuals in the community that are 
                presently practicing as pharmacists to recruit new 
                pharmacists; and
                  ``(E) provide any other information to recruit 
                individuals for the pharmacist profession.
          ``(3) Method.--The campaigns described in subsection (a) 
        shall be broadcast on television or radio, placed in newspapers 
        as advertisements, or posted on billboards or the Internet, in 
        a manner intended to reach as wide and diverse an audience as 
        possible.

``SEC. 772. DEMONSTRATION PROJECT.

  ``(a) In General.--The Secretary shall establish a demonstration 
project to enhance the participation of individuals who are pharmacists 
in the National Health Service Corps Loan Repayment Program described 
in section 338B.
  ``(b) Services.--Services that may be provided by pharmacists 
pursuant to the demonstration project established under this section 
include medication therapy management services to assure that 
medications are used appropriately by patients, to enhance patients' 
understanding of the appropriate use of medications, to increase 
patients' adherence to prescription medication regimens, to reduce the 
risk of adverse events associated with medications, and to reduce the 
need for other costly medical services through better management of 
medication therapy. Such services may include case management, disease 
management, drug therapy management, patient training and education, 
counseling, drug therapy problem resolution, medication administration, 
the provision of special packaging, or other services that enhance the 
use of prescription medications.
  ``(c) Procedure.--The Secretary may not provide assistance to an 
individual under this section unless the individual agrees to comply 
with all requirements described in sections 338B and 338D.
  ``(d) Limitations.--The demonstration project described in this 
section shall provide for the participation of--
          ``(1) individuals to provide services in rural and urban 
        areas; and
          ``(2) enough individuals to allow the Secretary to properly 
        analyze the effectiveness of such project.
  ``(e) Designations.--The demonstration project described in this 
section, and any pharmacists who are selected to participate in such 
project, shall not be considered by the Secretary in the designation of 
a health professional shortage area under section 332 during fiscal 
years 2003 through 2005.
  ``(f) Rule of Construction.--This section shall not be construed to 
require any State to participate in the project described in this 
section.
  ``(g) Report.--The Secretary shall prepare and submit a report on the 
project to--
          ``(1) the Committee on Health, Education, Labor, and Pensions 
        of the Senate;
          ``(2) the Subcommittee on Labor, Health and Human Services, 
        and Education of the Committee on Appropriations of the Senate;
          ``(3) the Committee on Energy and Commerce of the House of 
        Representatives; and
          ``(4) the Subcommittee on Labor, Health and Human Services, 
        and Education of the Committee on Appropriations of the House 
        of Representatives.

``SEC. 773. INFORMATION TECHNOLOGY.

  ``(a) Grants and Contracts.--The Secretary may make awards of grants 
or contracts to qualifying schools of pharmacy for the purpose of 
assisting such schools in acquiring and installing computer-based 
systems to provide pharmaceutical education. Education provided through 
such systems may be graduate education, professional education, or 
continuing education. The computer-based systems may be designed to 
provide on-site education, or education at remote sites (commonly 
referred to as distance learning), or both.
  ``(b) Qualifying School of Pharmacy.--For purposes of this section, 
the term `qualifying school of pharmacy' means a school of pharmacy (as 
defined in section 799B) that requires students to serve in a clinical 
rotation in which pharmacist services are part of the curriculum.

``SEC. 774. AUTHORIZATION OF APPROPRIATIONS.

  ``For the purpose of carrying out this subpart, there are authorized 
to be appropriated such sums as may be necessary for each of the fiscal 
years 2003 through 2006.''.
                            I. INTRODUCTION

                      A. Purpose and Summary and,

                 B. Background and Need for Legislation

    Thirty-seven years ago Congress enacted the Medicare 
program to help provide health care to our nation's seniors. 
Medicare has improved and lengthened the lives of millions of 
people. In recent years, Congress successively slowed 
Medicare's growth rate and added new preventive benefits to 
keep seniors healthier. Yet Medicare has still not met its true 
promise because it remains mired in a rigid administrative 
structure, which can only change when Congress enacts a law.
    When Medicare was enacted, there were few prescription 
drugs, and most care was delivered in hospitals. Consequently, 
prescription drugs were not covered under Medicare. While about 
two-thirds of seniors have some prescription drug coverage 
through former employers, Medicare+Choice organizations, 
Medicaid, state pharmacy assistance programs and Medigap, that 
coverage has been declining and is often inadequate. Many other 
seniors lack prescription drug coverage and the bargaining 
power to reduce the price of drugs.
    Prescription drugs are an integral part of healthcare 
today. They prevent and manage diseases and are less invasive 
and costly than alternative health care options (e.g. surgery, 
hospitalization, nursing home admissions, etc.) Most private 
health plans voluntarily integrated prescription drugs into 
their benefits. Nobody today with a blank sheet of paper would 
design a seniors health care program that excluded prescription 
drugs. Yet, the absence of a prescription drug benefit 
epitomizes how Medicare has not kept pace with modern medicine. 
While a Medicare prescription drug benefit is long overdue, it 
is not the only problem afflicting a program so many of us 
cherish and want to strengthen.
    Medicare's irrational and unpredictable payments to 
physicians are just one example of what is wrong with 
reimbursement policy in the Medicare program. While health 
costs are escalating, under the current Sustainable Growth Rate 
formula, payments to physicians are being substantially 
reduced. Failure to change the law would result in nearly a 20 
percent cut in physician reimbursement over the next several 
years. Patients' access to physicians will suffer and the 
doctors Medicare beneficiaries rely on will only become more 
demoralized. Similarly, rural hospitals continue to struggle 
and are not paid equitably in comparison to large urban 
hospitals. In addition, numerous Medicare+Choice plans are 
withdrawing from the program and are substantially cutting 
benefits because government payments are not related to the 
actual costs of health care.
    At the same time Medicare is arguably overpaying for other 
services, such as durable medical equipment. Recently, the 
Office of Inspector General documented that taxpayers and 
Medicare beneficiaries are paying millions more for durable 
medical equipment than other programs, such as the Federal 
Employee Health Benefit Plan.
    In addition, the health care professionals that serve 
Medicare beneficiaries are being crushed by more than 130,000 
pages of overly burdensome regulations--four times more than 
those governing the Internal Revenue Code. This hampers their 
ability to provide quality care to seniors, and it must be 
changed.
    This bill addresses all of these issues and more.
    First and foremost, it provides a voluntary, affordable 
prescription drug benefit as an entitlement to all 
beneficiaries. The proposal is within the $350 billion 
allocated under the budget resolution and there are no 
gimmicks, such as a sunset that terminates the program after 
five years of operation, as has been suggested by the Senate. 
The bill provides a markedly more generous than the benefit the 
House passed just two years ago. First, the subsidy has been 
increased from 35 percent to 65 percent. Second, the front-end 
coverage has been improved from a 50-50 cost share, to 80-20 
cost-share, which is similar to employer provided coverage. 
Third, the catastrophic protection has been lowered from $6,000 
in out-of-pocket costs to $3,800. Finally, the bill does more 
for the low-income--those who need help most. It provides low-
income individuals additional assistance with their premiums 
and cost sharing up to 175 percent of poverty, as opposed to 
150 percent. It is important to note 175 percent of poverty in 
2005, when this program is up and running is $17,575 for an 
individual and $22,624 for a couple.
    The prescription drug benefit is delivered through 
competing private sector entities, which already deliver 
pharmaceutical benefits for millions of people, including every 
Member of Congress. The bill permits and encourages these plans 
to utilize private sector tools to aggressively negotiate lower 
prices and provide better service for beneficiaries. By 
exempting prices negotiated for Medicare beneficiaries from the 
Medicaid ``best price'' provision, the bill encourages steep 
discounting by pharmaceutical manufacturers, saving taxpayers 
and beneficiaries over $15 billion. The private sector delivery 
is backed up by a government guarantee that all seniors in 
every area of the country must be covered. Indeed, the 
Congressional Budget Office and the CMS Office of the Actuary 
predicts that more than 95 percent of seniors will voluntarily 
sign up for this benefit.
    More than 57 different provider and patient groups have 
endorsed this legislation because it modernizes irrational 
reimbursements and burdensome regulatory structures, which 
undermine the quality and accessibility of care. The bill 
reforms physician payments, addresses inequities between rural 
and large urban hospitals, stabilizes the Medicare+Choice 
program, permanently repeals the 15 percent home health cut 
that has been hanging like a guillotine over home health 
agencies, and improves payments for skilled nursing facilities 
and dialysis centers.. More importantly, the legislation sets 
Medicare on a path of more rational pricing, determined by the 
market place rather than by government edict, by moving durable 
medical equipment, the Medicare+Choice program, and its 
contractors, to a competitive system, making Medicare more 
efficient over the long-term.
    In addition, the bill includes the bipartisan Johnson-Stark 
regulatory and contracting reform bill that reduces unnecessary 
regulation and modernizes how Medicare selects its contractors. 
The Johnson-Stark Regulatory and Contracting Reform Act of 
2001, which the House of Representatives unanimously passed in 
December 2001, has failed to even receive a hearing in the 
Senate.
    The bill also establishes a new Medicare Benefits 
Administration to manage and oversee the Medicare+Choice and 
prescription drug benefits, parts C and D of the Medicare 
program. Creation of the MBA eliminates the inherent conflict 
of interest of requiring the government-run fee-for-service 
plan to regulate competing private plans.
    Finally, the bill provides clear improvements for 
beneficiaries by reducing excessive beneficiary cost-sharing 
charges for hospital outpatient settings by nearly $10 billion 
and for the first time covering physicals and cholesterol 
screening to keep seniors healthy and diagnose problems before 
they become serious.

                         C. Legislative History

    In the 106th Congress, the House of Representatives passed 
the ``Rx 2000'' bill (H.R. 4680), which would create a 
prescription drug benefit in Medicare. However, President 
Clinton opposed that legislation and the Senate failed to act 
on Medicare prescription drugs.

                          LEGISLATIVE HEARINGS

    During the 107th Congress, the Committee on Ways and Means 
or its Subcommittee on Health held 16 hearings exploring how 
Medicare should be strengthened and modernized. These hearings, 
which examined all aspects of the Medicare program, included 
expert testimony from academics and beneficiary and provider 
representatives.

February 28, 2001  Perspectives on Medicare Reform
March 14, 2001  Administration's Health and Welfare Priorities
March 15, 2001  Bringing Regulatory Relief to Beneficiaries and 
        Providers
March 20, 2001  Medicare Solvency
March 27, 2001  Laying the Groundwork for a Rx Drug Benefit
May 1, 2001  Medicare+Choice: Lessons for Reform
May 9, 2001  Strengthening Medicare: Modernizing Beneficiary 
        Cost Sharing
June 12, 2001  Rural Health Care in Medicare
July 19, 2001  Administration's Principles to Strengthen and 
        Modernize Medicare
September 25, 2001  H.R. 2768, Medicare Regulatory and 
        Contracting Reform Act
December 4, 2001  Status of the Medicare+Choice Program
February 28, 2002  Reforming Physician Payments
March 7, 2002  Health Quality and Medical Errors
March 14, 2002  Medicare Supplemental Insurance
April 16, 2002  Promoting Disease Management in Medicare
April 17, 2002  Integrating Prescription Drugs into Medicare
    In October 2001, the Ways and Means Committee unanimously 
approved the Medicare Regulatory and Contracting Reform Act 
(H.R. 2768), sponsored by Representatives Nancy Johnson and 
Pete Stark. After resolving differences with the Energy and 
Commerce Committee, that bill was unanimously approved by the 
House of Representatives in December 2001, but not taken up by 
the Senate. That legislation constitutes Title VIII of the 
Medicare Modernization and Prescription Drug Act of 2002.
    The House-passed Budget Resolution (H. Con. Res. 353) 
allocated $350 billion over 10 years for Medicare 
modernization, prescription drugs and adjustments to provider 
reimbursements.
    H.R. 4954, ``The Medicare Modernization and Prescription 
Drug Act of 2002,'' was introduced by Health Subcommittee 
Chairman Nancy Johnson on June 18 2002 (after being released to 
the public June 14) and jointly referred to the Ways and Means 
and Energy and Commerce Committee. It was marked up by the Full 
Committee June 18, 2002 and approved 22-16 after accepting 
several amendments, including the Thomas amendment in the 
nature of a substitute.
    The reported bill has nine titles:
           Title I: Establishment of a Medicare 
        Prescription Drug Benefit
           Title II: Medicare+Choice Revitalization and 
        Medicare+Choice Competition Program.
           Title III: Rural Health Care Improvements
           Title IV: Provisions Relating to Part A
           Title V: Provisions Relating to Part B
           Title VI: Provisions Relating to Part A and 
        B
           Title VII: Medicare Benefits Administration
           Title VIII: Regulatory Reduction and 
        Contracting Reform
           Title IX: Medicaid, Public Health and Other 
        Provisions

                     II. EXPLANATION OF PROVISIONS

              TITLE I--MEDICARE PRESCRIPTION DRUG BENEFIT

Section 101. Establishment of a Medicare Prescription Drug Benefit

                              CURRENT LAW

    Medicare does not cover most outpatient prescription drugs. 
Beneficiaries who are inpatients of hospitals or skilled 
nursing facilities may receive drugs as part of their 
treatment. Medicare payments made to the facilities cover these 
costs. Medicare also makes payments to physicians for drugs or 
biologicals that are not usually self-administered. This means 
that coverage is generally limited to drugs or biologicals 
administered by injection. However, if the injection is 
generally self-administered (e.g., insulin), it is not covered.
    Despite the general limitation on coverage for outpatient 
drugs, the law specifically authorizes coverage for the 
following: (1) drugs used in immunosuppressive therapy (such as 
cyclosporin) following discharge from a hospital for a Medicare 
covered organ transplant; (2) erythropoietin (EPO) for the 
treatment of anemia for persons with chronic renal failure who 
are on dialysis; (3) drugs taken orally during cancer 
chemotherapy providing they have the same active ingredients 
and are used for the same indications as chemotherapy drugs 
which would be covered if they were not self-administered and 
were administered as incident to a physician's professional 
service; and (4) hemophilia clotting factors for hemophilia 
patients competent to use such factors to control bleeding 
without medical supervision, and items related to the 
administration of such factors. The program also pays for 
supplies (including drugs) that are necessary for the effective 
use of covered durable medical equipment, including those, 
which must be put directly into the equipment (e.g., tumor 
chemotherapy agents used with an infusion pump). Medicare also 
covers pneumococcal pneumonia vaccines, hepatitis B vaccines, 
and influenza virus vaccines.

                        EXPLANATION OF PROVISION

    The provision would establish a new Voluntary Prescription 
Drug Benefit Program under a new Part D of Title XVIII of the 
Social Security Act.

New Section 1860A. Benefits; Eligibility; Enrollment; and Coverage 
        Period

    The new Section 1860A would specify that each individual 
entitled to Medicare Part A and enrolled in Medicare Part B 
would be entitled to obtain qualified prescription drug 
coverage. An individual enrolled in a Medicare+Choice (M+C) 
plan providing qualified prescription drug coverage could 
obtain coverage through the plan. An individual not enrolled in 
a M+C plan providing qualified prescription drug coverage could 
enroll under Part D in a new prescription drug plan (PDP). The 
provision would specify that an individual eligible to make an 
election to enroll in a PDP, or with a M+C with qualified drug 
coverage, would do so in accordance with regulations issued by 
the Administrator of the new Medicare Benefits Administration 
(MBA). Enrollments and changes in enrollment could occur only 
during a specified election period. The election periods would 
generally be the same as those established for M+C, including 
annual coordinated election periods and special election 
periods. An individual discontinuing a M+C election during the 
first year ofeligibility would be permitted to enroll in a PDP 
at the same time as the election of coverage under the original fee-
for-service plan.
    The provision would establish initial election periods. A 
six-month election period, beginning on November 1, 2004, would 
be established for persons enrolled under Part B on that date. 
For persons first enrolling in Part B after that date, an 
initial election period, which is the same as that for initial 
part B enrollment, would be established. The Administrator 
would be required to establish special election periods for 
persons in special circumstances. Specifically these would 
apply to: persons having and involuntarily losing prescription 
drug coverage; in cases of enrollment delays or non-enrollment 
attributable to government action; in the case of an individual 
meeting exceptional circumstances specified by the 
Administrator (including circumstances identified by the 
Administrator for M+C enrollment); and in cases of individuals 
who become eligible for Medicaid drug coverage.
    The provision would establish guaranteed issue and 
community-rating requirements. The provision would specify that 
individuals electing qualified prescription drug coverage under 
a PDP plan or M+C could not be denied enrollment based on 
health status or other factors. Existing M+C provisions 
relating to priority enrollment (where capacity limits have 
been reached) and limitations on terminations of elections 
would apply to PDP sponsors.
    The provision would specify that PDP sponsors and M+C 
organizations providing qualified prescription drug coverage 
could not deny, limit, or condition the coverage or provision 
of benefits or increase the premium based on any health-related 
status factor in the case of persons who maintained continuous 
prescription drug coverage since the date they first qualified 
to elect drug coverage under Part D. Individuals who did not 
maintain continuous coverage could be subject to an adjusted 
premium or a pre-existing condition exclusion in a manner 
reflecting the additional actuarial risk involved. Such risk 
would be established through an appropriate actuarial opinion.
    The provision would specify that an individual is 
considered to have had continuous prescription drug coverage if 
the individual establishes that he or she has had coverage 
under one of the following (and coverage in one plan occurs no 
more than 63 days after termination of coverage in another 
plan): (1) qualified prescription drug coverage under a PDP or 
M+C plan; (2) Medicaid prescription drug coverage; (3) 
prescription drug coverage under a group health plan, but only 
if benefits are at least equivalent to benefits under a 
qualified PDP; (4) prescription drug coverage under a Medigap 
plan, but only if the policy was in effect on January 1, 2005, 
and only if the benefits are at least equivalent to benefits 
under a qualified PDP; (5) state pharmaceutical assistance 
program, but only if benefits are at least equivalent to 
benefits under a qualified PDP; and (6) veterans coverage for 
prescription drugs, but only if benefits are at least 
equivalent to benefits under a qualified PDP. Individuals could 
apply to the Administrator to waive the requirement that such 
coverage be at least equivalent to benefits under a qualified 
prescription drug plan. They could make such application if 
they could establish that they were not adequately informed 
that the coverage did not provide such level of coverage.
    The provision would prohibit PDP sponsors from establishing 
a service area in a manner that would discriminate based on the 
health or economic status of potential enrollees.
    The provision would provide that elections would take 
effect at the same time that elections take effect for M+C 
plans. However, no election could take effect before January 1, 
2005. The Secretary would provide for the termination of an 
election in the case of termination of Part B coverage or 
termination of an election by the M+C for cause (including 
failure to pay the required premium).

New Section 1860B. Requirements for Qualified Prescription Drug 
        Coverage

    The new Section 1860B specifies the requirements for 
qualified prescription drug coverage. Qualified coverage is 
defined as either a standard coverage or actuarially equivalent 
coverage. The Administrator would have to approve plans as 
actuarially equivalent and meeting the requirements of this 
part. In either standard coverage or actuarially equivalent 
coverage, access would have to be provided to negotiated 
prices.
    For 2005, standard coverage would be defined as having a 
$250 deductible; 20 percent cost-sharing up to the initial co-
payment threshold ($1,000) 50 percent cost-sharing for costs 
above the initial co-payment threshold up to the $2,000 initial 
coverage limit and catastrophic coverage at $3,800. Once the 
beneficiary reached the catastrophic level (a stop loss at 
limit), full coverage would be provided. Beginning in 2006, the 
annual dollar amounts would 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.
    Plans may offer alternate coverage if the plan meets the 
following five criteria: (1) the entire benefit is actuarially 
equivalent to the standard benefit; (2) costs up to the initial 
co-payment threshold, from the $250 deductible to $1000, are 
actuarially consistent with an average expected 20 percent 
cost-sharing for costs up to the initial co-payment threshold; 
(3) for costs above $1000 threshold up to the initial coverage 
limit ($2,000), are actuarially consistent with an average 
expected 50 percent cost-sharing for costs up to the initial 
coverage threshold; (4) the plan must offer the identical 
catastrophic benefit ($3,800); and (5) the unsubsidized value 
of the standard benefit equals the unsubsidized value of an 
alternative benefit.
    The provision would specify incurred costs that would count 
toward meeting the deductible, initial coverage limit, and 
amounts for which benefits are not provided because of 
application of the initial coverage limits. Costs would be 
treated as incurred costs only if they were paid by the 
individual, paid on behalf of a low-income individual under the 
subsidy provisions, or paid under the Medicaid program.
    Both standard coverage and actuarially equivalent coverage 
would have to offer access to negotiated prices, even when no 
benefits were payable because of the application of cost 
sharing or an initial coverage limit. Insofar as a state 
elected to use these negotiated prices for its Medicaid 
program, the Medicaid drug payment provisions would not apply. 
The PDP sponsor or M+C organization would be required to 
disclose to the Administrator the extent to which manufacturer 
discounts or rebates were made available to the sponsor or 
organization and passed through to enrollees through pharmacies 
and other dispensers. Manufacturers would be required to 
disclose pricing information to the Administrator under the 
same conditions currently required for Medicaid. In order to 
encourage significant discounting for pharmaceutical 
manufacturers, Medicaid best price requirements would not apply 
with respect to covered prescription drugs provided to Medicare 
beneficiaries. This provision removes the arbitrary floor 
price, which as numerous studies documents has led to 
discounting by pharmaceutical manufacturers. More competitive 
negotiation between Medicare PDPs, Medicare+Choice 
organizations, retiree employee plans could commence with 
pharmaceutical manufacturers.
    Qualified prescription drug coverage could include coverage 
exceeding that specified for standard coverage or actuarially 
equivalent coverage. However, any additional coverage would be 
limited to covered outpatient drugs. The Administrator could 
terminate a contract with a PDP sponsor or M+C organization if 
a determination was made that the sponsor or organizations 
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.
    Covered outpatient drugs would be defined to include: (1) a 
drug which may only be dispensed subject to a prescription and 
which is described in subparagraph (A)(i) or (A)(ii) of Section 
1927(k) of the Social Security Act (relating to drugs covered 
under Medicaid); (2) a biological product described in 
paragraph (b) of such subsection; (3) insulin described in 
subparagraph C of such section; and (4) prescription smoking 
cessation agents otherwise excluded under Medicaid. The 
definition includes any use of a covered outpatient drug for a 
medically accepted indication. Drugs that could be paid for 
under Medicare Part A or B would not be covered under Part D. A 
plan could elect to exclude a drug which would otherwise be 
covered, if the drug was excluded under the formulary and the 
exclusion was not successfully appealed under the new Section 
1660C. In addition, a PDP or M+C plan could exclude from 
coverage, subject to reconsideration and appeals provisions, 
any drug that would not meet Medicare's definition of medically 
necessary or was not prescribed in accordance with the plan or 
Part D.

New Section 1860C. Beneficiary Protections for Qualified Prescription 
        Drug Coverage

    The New Section 1860C would specify required beneficiary 
protections. Plans would have to comply with guaranteed issue 
and community-rated premium requirements specified in the New 
Section 1860A and the non-discrimination provisions specified 
in the new Section 1860F.
    PDP plan sponsors would be required to disclose, to each 
enrolling beneficiary, information about the plan's benefit 
structure. The plan would have to disclose information on: (1) 
access to covered drugs, including access through pharmacy 
networks; (2) how any formulary used by the sponsor functions; 
(3) co-payment and deductible requirements (including any 
applicable tiered co-payment requirements; and (4) grievance 
and appeals procedures. In addition, as is the case for M+C, 
beneficiaries would have the right to obtain more detailed plan 
information. Plans would be required to have a mechanism for 
providing specific information to enrollees on request. The 
sponsor would be required to make available, through an 
Internet web site and, on request, in writing, information on 
specific changes in the formulary. Plans would be required to 
furnish to enrollees, at least monthly, a detailed explanation 
of benefits when drug benefits were provided.
    Plans would be required to secure the participation in its 
network of a sufficient number of pharmacies that distribute 
drugs directly to patients to make access to covered benefits 
convenient for enrollees. Mail order only pharmacies would not 
count towards meeting this requirement. Medicare, not the plan, 
must certify this requirement. The PDP sponsor would be 
required to establish an optional point-of-service method of 
operation under which the plan provides access to any or all 
pharmacies that are not participating pharmacies in its 
network. Plans could charge beneficiaries, through adjustments 
in premiums or co-payments, additional costs associated with 
the point of service option.
    The PDP sponsor would be required to issue (and reissue as 
appropriate) a card or other technology that may be used by an 
enrolled beneficiary to assure access to negotiated prices for 
drugs when coverage is not otherwise provided under the plan.
    Plans are not required to establish formularies, however, 
the provision would specify that if a plan used a formulary, it 
would have to meet certain requirements. It would be required 
to establish a pharmaceutical and therapeutics committee to 
develop and review the formulary. The committee would include 
at least one physician and one pharmacist with expertise in the 
care of elderly or disabled persons and majority of members 
would be physicians or pharmacists. The committee would be 
required, when developing and reviewing the formulary, to base 
clinical decisions on the strength of scientific evidence and 
standards of practice. This would include assessing peer-
reviewed medical literature, such as randomized clinical 
trials, pharmacoeconomic studies, outcomes research data, and 
such other information the committee determined appropriate. 
The formulary would have to include drugs within each 
therapeutic category and class of covered outpatient drugs, 
although not necessarily all drugs within such categories or 
classes. The committee would be required to establish policies 
and procedures to educate and inform health care providers 
concerning the formulary. Any removal of a drug from the 
formulary could not occur until appropriate notice had been 
provided to beneficiaries and physicians. The PDP sponsor would 
be required to have, as part of its appeals process, a process 
for appeals of coverage denials based on application of the 
formulary.
    The PDP sponsor would be required to have an effective cost 
and drug utilization management program, quality assurance 
measures including a medication therapy management program. 
Beginning in 2006, prescriptions must be transmitted 
electronically. Utilization management programs would be 
required to include medically appropriate incentives to use 
generic drugs and therapeutic interchange where appropriate. 
Medication therapy management programs would be designed to 
assure, for beneficiaries with chronic diseases or multiple 
prescriptions, that drugs under the plan were appropriately 
used to achieve therapeutic goals and reduce the risk of 
adverse events, including adverse drug interactions. The 
program would be developed in cooperation with licensed 
pharmacists and physicians. The PDP sponsor would be required, 
when establishing fees for pharmacists and other providers, to 
take into account the resources and time associated with the 
medication therapy management program.
    Each PDP sponsor would ensure that enrolled beneficiaries 
were informed at the time of purchase, of any price 
differential between their prescribed drug and the price of the 
lowest cost generic drug covered under the plan that was 
therapeutically equivalent and bioequivalent.
    The electronic prescription drug program would have to be 
consistent with national standards developed by the 
Administrator. It would be required to provide for electronic 
transmittal of prescriptions (except in emergencies and 
exceptional cases) and for provision of information to the 
prescribing health professional. To the extent feasible, the 
program would permit the prescribing health professional to 
provide, and be provided, information on an interactive real-
time basis. Grants would be authorized under the Public Health 
Service Act to assist health care professionals in implementing 
electronic prescription drug programs.
    The electronic prescribing standards would be compatible 
with those established for the administrative simplification 
program established under title XI of the Social Security Act. 
The Administrator would establish an advisory task force that 
included representatives of physicians, hospitals, pharmacists, 
and technology experts, Department of Veterans Affairs, 
Department of Defense and other appropriate Federal agencies. 
The task force would provide recommendations to the 
Administrator on standards including recommendations relating 
to: (1) range of available computerized prescribing software 
and hardware and their costs to develop and implement; (2) 
extent to which such systems reduce medication errors and can 
be readily implemented by physicians and hospitals; (3) efforts 
to develop a common software platform for computerized 
prescribing; (4) cost of implementing such systems in hospital 
and physician office settings; and (5) implementation issues as 
they relate to administrative simplification requirements and 
current Federal and state prescribing laws and regulations and 
their impact on implementation and computerized prescribing. 
The Administrator would be required to establish the task force 
by April 1, 2003. It would be required to submit 
recommendations to the Administrator by January 1, 2004. The 
Administrator would be required to promulgate national 
standards by January 1, 2005.
    Each PDP sponsor would be required to have meaningful 
procedures for the hearing and resolving of any grievances 
between the organization (including any entity or individual 
through which the organization provides covered benefits) and 
enrollees. Enrollees would be afforded access to expedited 
determinations and reconsiderations, in the same manner 
afforded under M+C. A beneficiary in a plan that provided for 
tiered cost-sharing could request coverage of a non-preferred 
drug on the same conditions applicable to preferred drugs, if 
the prescribing physician determined that the preferred drug 
was not as effective for the enrollee or had adverse effects 
for the enrollee.
    In general, PDP plan sponsors would be required to meet the 
requirements for independent review of coverage denials and 
appeals in the same manner that such requirements apply to M+C 
plans. An individual enrolled in a PDP plan could appeal to 
obtain coverage for a drug not on the formulary if the 
prescribing physician determined that the formulary drug for 
treatment of the same condition was not as effective for the 
individual or had adverse effects for the individual. The PDP 
sponsor would be required to meet requirements related to 
confidentiality and accuracy of enrollee records in the same 
manner that such requirements apply to M+C plans.

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

    New Section 1860D would specify organizational plan 
requirements for entities seeking to become PDP plan sponsors. 
In general, the section would require PDP sponsors to be 
licensed under state law as a risk bearing entity eligible to 
offer health benefits or health insurance coverage in each 
state in which it offers a prescription drug plan. 
Alternatively it could meet solvency standards established by 
the Administrator for entities not licensed by the state. Plans 
would be required to assume full financial risk on a 
prospective basis for covered benefits except: (1) as covered 
by federal reinsurance payments for high cost enrollees; or (2) 
as covered by federal incentive payments to encourage plans to 
expand service areas for existing plans or establish new plans. 
The entity could obtain reinsurance to cover the risk of 
providing benefits.
    PDP plan sponsors would be required to enter into a 
contract with the Administrator under which the sponsor agrees 
to comply both with the applicable requirements and standards 
and the terms and conditions of payment. The contract could 
cover more than one plan. The Administrator would have the same 
authority to negotiate the terms and conditions of the plans as 
the Director of Personnel Management has with respect to 
Federal Employee Health Benefits (FEHB) plans. The 
Administrator would be required to take into account 
reinsurance subsidy payments and the adjusted community rate 
for covered benefits in negotiating the terms and conditions 
regarding premiums.
    The new section would incorporate, by reference, many of 
the contract requirements applicable to M+C plans including 
minimum enrollment, contract periods, allowable audits to 
protect against fraud and abuse, intermediate sanctions, and 
contract terminations. Pro rata user fees could be established 
to help finance enrollment activities; in no case could the 
amount of the fee exceed 20 percent of the maximum fee 
permitted for a M+C plan.
    The new Section would permit the Administrator to waive the 
state licensure requirement under circumstances similar to 
those permitted under Part C for provider sponsored 
organizations. In such cases, plans would be required to meet 
financial solvency and capital adequacy standards established 
by the Administrator. The Administrator would be given 
authority to establish by regulation additional standards as 
deemed appropriate to implement Part D and would be required to 
publish such regulations by October 1, 2003.
    The standards established under Part D would supersede any 
state law or regulation (other than state licensing laws or 
laws relating to plan solvency). In addition, states would be 
prohibited from imposing premium taxes or similar taxes with 
respect to premiums paid to PDP sponsors or payments made to 
such sponsors by the Administrator.

New Section 1860E. Process for Beneficiaries to Select Qualified 
        Prescription Drug Coverage

    The new Section 1860E would require the Administrator to 
establish a process for the selection of a PDP plan or a 
Medicare+Choice plan that provided qualified prescription drug 
coverage. The process would include the conduct of annual 
coordinated electionperiods under which individuals could 
change the qualifying plans through which they obtained coverage. The 
process would also include the active dissemination of information to 
promote an informed selection among qualifying plans (based on price, 
quality, and other features) in a manner consistent with and in 
coordination with the dissemination of information under M+C. Further, 
the process would provide for the coordination of elections through 
filing with a M+C organization or a PDP sponsor in a manner consistent 
with that provided under M+C.
    The section would specify that a Medicare+Choice enrollee 
in a M+C plan offering qualified prescription drug coverage 
could only elect to receive such coverage through the plan.
    The Administrator would assure that all eligible 
individuals residing in the U.S. would have a choice of 
enrollment in at least two qualifying plan options (at least 
one of which was a PDP) in their area of residence. The 
requirement would not be satisfied if only one PDP sponsor or 
M+C organization offered all the qualifying plans in the area. 
If necessary to ensure such access, the Administrator would be 
authorized to provide financial incentives, including the 
partial underwriting of risk, for a PDP sponsor to expand its 
service area under an existing prescription drug plan to 
adjoining or additional areas, or to establish such a plan, 
including offering such plan on a regional or nationwide basis. 
The assistance would be available only so long as, and to the 
extent, necessary to assure the guaranteed access. However, the 
Administrator could never provide for the full underwriting of 
financial risk for any PDP sponsor, nor could the Administrator 
provide for any assumption of financial risk for a public PDP 
sponsor offering a nationwide drug plan. Additionally, the 
Administrator would be directed to seek to maximize the 
assumption of financial risk by PDP sponsors and M+C 
organizations. The Administrator would be required to report to 
Congress annually on the exercise of this authority and 
recommendations to minimize the exercise of such authority.

New Section 1860F. Submission of Bids

    Each PDP sponsor must submit to the Administrator specified 
information in the same manner as such information is submitted 
by M+C organizations. The information to be submitted would be 
information on the qualified drug coverage to be provided, the 
actuarial value of the coverage, and information on the bid for 
the coverage. The PDP sponsor would have to include an 
actuarial certification of: (1) the actuarial basis for the 
bid; (2) the portion of the bid attributable to benefits in 
excess of the standard coverage; (3) the reduction in the bid 
resulting from reinsurance subsidies; and (4) such other 
information required by the Administrator. The Administrator 
would review and approve the submitted information for purposes 
of conducting negotiations with the plan.
    The bid for a PDP could not vary among individuals enrolled 
in the plan in the same service area, provided they were not 
subject to late enrollment penalties. A PDP Plan must permit an 
enrollee the option of withholding their premium from Social 
Security. Additionally it could encourage enrollees to make 
payment of the premium through an electronic funds transfer 
mechanism or withholding their premium from Social Security. 
The amount would be credited to the Medicare Prescription Drug 
Trust Fund. Reductions in Part B premiums attributable to 
enrollment in M+C plans could be used to reduce the premium 
otherwise applicable. PDP plans would receive payment based on 
the bid amount in the same manner applicable for M+C except 
that payment would be made from the Medicare Prescription Drug 
Trust Fund.
    Under certain conditions, the PDP sponsor of any plan in an 
area would be required to accept, for an individual eligible 
for a premium subsidy, the benchmark amount (as defined in new 
Section 1860G) as payment in full for the premium for qualified 
prescription coverage; this requirement would apply if there 
was no standard coverage available in the area. M+C plans would 
be required to accept the benchmark amount under the same 
conditions.

New Section 1860G. Premium and Cost-Sharing Subsidies for Low-Income 
        Individuals

    The New Section 1860G would provide income-related 
subsidies for low-income individuals. Low-income persons would 
receive a premium subsidy based on the value of standard 
coverage. Individuals with incomes below 150 percent of poverty 
would have a subsidy equal to 100 percent of the value of 
standard drug coverage provided under the plan. Beginning in 
2006, these amounts would be increased by the percentage 
increase in per capita beneficiary drug costs. For individuals 
between 150 percent and 175 percent of poverty, there would be 
a sliding scale premium subsidy ranging from 100 percent of 
such value at 150 percent of poverty to 0 percent of such value 
at 175 percent of poverty. For both groups, beneficiary cost-
sharing for spending up to the initial coverage limit would be 
reduced to an amount not to exceed $2 for a multiple source or 
generic drug and $5 for a non-preferred drug. PDPs cannot 
charge individuals receiving cost-sharing subsidies more than 
$5 per prescription. PDPs could reduce to zero the cost sharing 
otherwise applicable for generic drugs.
    A beneficiary would have the option of having State 
Medicaid plans or Social Security offices determine whether an 
individual was eligible for the subsidy and the amount of the 
subsidy. Funds would be authorized to fund the new 
responsibility for the Social Security offices. The 
Administrator would make the determination if the state did not 
operate such a plan (or a state waiver program under Section 
1115 of the Social Security Act). Individuals not in the 50 
states or the District of Columbia could not be subsidy 
eligible individuals but could be eligible for financial 
assistance with drug costs under new Section 1935(e) added by 
Section 103.
    The premium subsidy amount would be defined as the 
benchmark bid amount for the qualified prescription drug 
coverage that the beneficiary selects whether offered by a PDP 
plan or a M+C plan in the area. The benchmark bid amount for a 
PDP plan means the bid amount for enrollment under the plan 
(without regard to any subsidies or late enrollment penalties) 
for enrollment in a plan-providing standard converge (or 
alternative coverage if the actuarial value is equivalent). If 
a plan provides alternative coverage with a higher actuarial 
value than that for standard coverage, the benchmark amount 
would bear the same ratio to the total bid as the actuarial 
value of standard coverage was to the actuarial value of 
alternative coverage. The benchmark amount for M+C plans would 
be the portion of the bid attributable to standard drug 
coverage.
    The Administrator would provide a process whereby the 
Administrator would notify the PDP sponsor or M+C organization 
that an individual is eligible for a subsidy and the amount of 
the subsidy. The sponsor or organization would reduce the 
premiums or cost-sharing otherwise imposed by the amount of the 
subsidy. The Administrator would periodically, and on a timely 
basis, reimburse the sponsor or organization for the amount of 
the reductions. Part D benefits would be primary to any 
coverage available under Medicaid.
    The Administrator would be required to develop and 
implement a plan for the coordination of Part D benefits and 
Medicaid benefits. Particular attention would be given to 
coordination of payments and preventing fraud and abuse. The 
Administrator would be required to involve the Secretary, the 
States, the data processing industry, pharmacists, 
pharmaceutical manufacturers, and other experts in the 
development and administration of the plan.

Section 1860H. Subsidies for All Medicare Beneficiaries for Qualified 
        Prescription Drug Coverage

    New Section 1860H would provide for subsidy payments to 
qualifying entities. The Payments would reduce premiums for all 
beneficiaries, reduce adverse selection among plans, and 
promote the participation of PDP sponsors. Such payments would 
be made as direct subsidies or through reinsurance, and 
together create an average combined 65 percent subsidy. The 
section would constitute budget authority in advance of 
appropriations and represent the obligation of the 
Administrator to provide for subsidy payments specified under 
the section.
    Direct subsidies would be made for individuals enrolled in 
a PDP, M+C plan, or qualified retiree prescription drug plan 
equal to a percentage, specified by the Administrator of the 
actuarial value of standard coverage provided under the plan 
and totaling 35 percent.
    Reinsurance payments totaling 30 percent of the standard 
benefit would be made for specified costs incurred in providing 
prescription drug coverage for individuals enrolled in either a 
PDP plan, a M+C plan providing qualified prescription drug 
coverage, or a qualified retiree drug plan. The Administrator 
would provide for reinsurance payments to PDP sponsors, M+C 
plans providing qualified prescription drug coverage, and 
qualified retiree drug plans. Reinsurance payments would be 
provided for 30 percent of an individual's allowable drug costs 
over the initial coverage limit ($1,000 in 2005) but not over 
the initial coverage limit ($2,000 in 2005). Reinsurance, not 
to exceed 80 percent would also be provided for costs over the 
out-of-pocket limit ($3,800 in 2005).
    For purposes of calculating reinsurance payments, allowable 
costs would be defined as the portion of gross covered 
prescription drug costs that are actually paid by the plan, but 
in no case be more than the part of such costs that would have 
been paid by the plan if the drug coverage under the plan were 
standard coverage. Gross covered drug costs would be defined as 
costs (including administrative costs) incurred under the plan 
for covered prescription drugs dispensed during the year, 
including costs related to the deductible, whether paid by the 
enrollee or the plan, regardless of whether coverage under the 
plan exceeded standard coverage and regardless of when the 
payment for the drugs was made.
    The Administrator would be required to estimate the total 
subsidy payments that would be made during the year and total 
benefit payments that would be expected to be made by 
qualifying entities for standard coverage during the year. The 
Administrator would proportionately adjust payments such that: 
(1) total subsidy payments during the year were equal to 65 
percent of total payments made by qualifying plans for standard 
coverage during the year; and (2) the ratio of total payments 
for direct subsidies to total reinsurance payments for the year 
is 35 to 30. The Administrator could adjust direct subsidy 
payments in order to avoid risk selection, but may not make any 
adjustment that would reduce the aggregate subsidy. The payment 
method would be determined by the Administrator who could use 
an interim payment system based on estimates. Payments would be 
made from the Medicare Prescription Drug Trust Fund.
    ``Qualified retiree prescription drug plans'' would be 
defined as employment-based retiree health coverage meeting 
certain requirements. The sponsor of the plan would be required 
to annually attest to the Administrator (and to provide such 
assurances as required by the Administrator) that the coverage 
meets requirements for qualified coverage. The sponsor (and the 
plan) would be required to maintain and provide access to 
records needed to ensure the adequacy of coverage and the 
accuracy of payments made. Further, the sponsor would be 
required to provide certifications of coverage. Payment could 
not be made for an individual unless: the individual was 
covered under the retiree plan, entitled to enroll under a PDP 
or M+C plan with prescription drug coverage but elected not to. 
Payments could not be made for persons covered under the 
Medicare a secondary payer program.

New Section 1860I. Medicare Prescription Drug Trust Fund

    New Section 1860I would create a Medicare Prescription Drug 
Trust Fund. Requirements applicable to the Part B trust fund 
would apply in the same manner to the Drug Trust Fund as they 
apply to the Part B Trust Fund. The Managing Trustee would pay 
from the account, from time to time, low-income subsidy 
payments, subsidy payments, and payments for administrative 
expenses. The Managing Trustee would transfer, from time to 
time, to the Medicaid account amounts attributable to allowable 
increases in administrative costs associated with identifying 
and qualifying beneficiaries eligible for low-income subsidies. 
Amounts deposited into the Trust Fund would include the federal 
amount which would otherwise be payable by Medicaid except for 
the fact that Medicaid becomes the secondary payer of drug 
benefits for the dual eligibles. The provision would authorize 
appropriations to the Trust Fund an amount equal to the amount 
of payments from the Trust Fund reduced by the amount 
transferred to the Trust Fund.
    The provision would specify that any provision of law 
relating to the solvency of the Trust Fund would take into 
account the Fund and the amounts received by, or payable from, 
the Fund.

New Section 1860J. Definitions; Treatment of References to Provisions 
        in Part C

    New section 1860J would include definitions of terms and 
specify how cross references to Part C would be applied. It 
would further provide that any reduction or waiver of cost-
sharing would not be in violation of kickback and similar 
prohibitions. The section would further require the 
Administrator to submit a report to Congress by January 1, 
2004, that makes recommendations regarding providing benefits 
under Part D.

                             EFFECTIVE DATE

    Enactment.

Section 102. Offering of Qualified Prescription Drug Coverage Under the 
        Medicare+Choice Program

                              CURRENT LAW

    Under current law, Medicare+Choice plans may elect to offer 
prescription drug coverage under Part C. The extent of these 
benefits varies and is not subject to any explicit 
standardization requirements. However, as with all 
Medicare+Choice benefit specifics, the financing and design of 
such benefits must meet the approval of the Secretary under the 
adjusted community rate (ACR) approval process. Generally, 
plans offering drugs must either finance such benefits from the 
differences between the applicable county payment rate and 
their costs in providing Medicare's basic benefits, or by 
assessing beneficiaries who enroll in the plan supplemental 
premiums.

                        EXPLANATION OF PROVISION

    The provision would specify that a M+C plan could not offer 
drug coverage (other than that already required under Medicare) 
unless the coverage was at least qualified prescription drug 
coverage. No M+C organization would be required to offer such 
coverage. An individual not electing qualified prescription 
drug coverage under Part D would be treated as ineligible to 
enroll in a M+C plan offering such coverage.
    The organization would be required to meet beneficiary 
protections outlined in the new Section 1860C, including 
requirements relating to information dissemination and 
grievance and appeals. The organization would also be required 
to submit the same information required of PDP sponsors when 
submitting a bid. The Administrator could waive such 
requirements to the extent the Administrator determined they 
were duplicative of requirements otherwise applicable to the 
organization or plan.

                             EFFECTIVE DATE

    Applies to coverage provided on or after January 1, 2005.

Section 103. Medicaid Amendments

                              CURRENT LAW

    Some low-income aged and disabled Medicare beneficiaries 
are also eligible for full or partial coverage under Medicaid. 
Within broad federal guidelines, each state sets its own 
eligibility criteria, including income eligibility standards. 
Persons meeting the state standards are entitled to coverage 
under Medicaid. Persons entitled to Medicaid protection 
generally have all of their health care expenses met by a 
combination of Medicare and Medicaid. For these dual eligibles, 
Medicare pays first for services both programs cover. Medicaid 
picks up Medicare cost-sharing charges and provides protection 
against the costs of services generally not covered by 
Medicare, including prescription drugs. State Medicaid programs 
have the option to include prescription drugs in their Medicaid 
benefit packages. All states include drugs for at least some of 
their Medicaid beneficiaries and many offer it to all program 
recipients entitled to full Medicaid benefits.
    Federal law specifies several population groups that are 
entitled to more limited Medicaid protection. These are 
qualified Medicare beneficiaries (QMBs), specified low-income 
beneficiaries (SLIMBs), and certain qualified individuals. QMBs 
are aged or disabled persons with incomes at or below the 
federal poverty level and assets below $4,000 for an individual 
and $6,000 for a couple. QMBs are entitled to have their 
Medicare cost-sharing charges, including the Part B premium, 
paid by the federal-state Medicaid program. SLIMBs are persons 
who meet the QMB criteria, except that their income is over the 
QMB limit; the SLIMB limit is 120 percent of the federal 
poverty level. Medicaid protection for SLIMBs is limited to 
payment of the Medicare Part B premium. QMBs and SLIMBs are not 
entitled to Medicaid's prescription drug benefit unless they 
are also entitled to full Medicaid coverage under their state's 
Medicaid program.
    Qualifying individuals (QIs) are never entitled to Medicaid 
drug coverage (because, by definition, they are not eligible 
for full Medicaid benefits). QI-1s are persons who meet the QMB 
criteria, except that their income is between 120 percent and 
135 percent of poverty. Medicaid protection for QI-1s is 
limited to payment of the monthly Medicare Part B premium. QI-
2s are persons who meet the QMB criteria, except that their 
income is between 135 percent and 175 percent of poverty. 
Medicaid protection for QI-2s is limited to payment of that 
portion of the Part B premium attributable to the gradual 
transfer of some home health visits from Medicare Part A to 
Medicare Part B. Expenditures under the QI-1 and QI-2 programs 
are paid for 100 percent by the federal government (from the 
Part B trust fund) up to the state's allocation level. A state 
is only required to cover the number of persons which would 
bring its spending on these population groups in a year up to 
its allocation level. Any expenditure beyond that level is paid 
by the state. Assistance under the QI-1 and QI-2 programs is 
available for the period January 1, 1998 to December 31, 2002.

                        EXPLANATION OF PROVISION

    Section 103 would add a new Section 1935 to the Social 
Security Act entitled a Special Provisions Relating to Medicare 
Prescription Drug Benefit. The provision requires states, as a 
condition of receiving federal Medicaid assistance, to make 
eligibility determinations for low-income premium and cost-
sharing subsidies. Individuals could qualify for low-income 
subsidies at Social Security offices as well. The provision 
would provide for the phased-in federal assumption of 
associated administrative costs. In 2005, the federal matching 
rate would be increased by 10 percent and in 2006 by 20 
percent. In each subsequent year the percent would be increased 
by ten percentage points (but in no case could the rate exceed 
100 percent). Beginning in 2013, the federal matching rate 
would be100 percent. The state would be required to provide the 
Administrator with the appropriate information needed to properly 
allocate administrative expenditures that may be made for similar 
eligibility determinations.
    The provision would provide for the federal phase-in of the 
costs of premiums and cost-sharing subsidies for dual eligibles 
(i.e. persons eligible for Medicare and full Medicaid benefits, 
including drugs). Over a 10-year period the federal matching 
rate for these costs would be increased to cover 100 percent of 
what would otherwise be state costs. States would be required 
to maintain Medicaid benefits as a wrap around to Medicare 
benefits for dual eligibles; states could require that these 
persons elect Part D drug coverage.
    Territories would be able to get additional Medicaid funds, 
beginning at $20 million in 2005 and increasing in subsequent 
years 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. The Administrator would be required to report to 
Congress on the application of the law in the territories.

                             EFFECTIVE DATE

    Enactment.

Section 104. Medigap Transition

                              CURRENT LAW

    Most beneficiaries have some health insurance coverage in 
addition to basic Medicare benefits. Some individuals obtain 
private supplementary coverage through an individually-
purchased policy, commonly referred to as a Medigap policy. 
Beneficiaries with Medigap insurance typically have coverage 
for Medicare's deductibles and coinsurance; they may also have 
coverage for some items and services not covered by Medicare. 
Individuals generally select from one of 10 standardized plans, 
though not all 10 plans are offered in all states. The 10 plans 
are known as Plans A through Plan J. Plan A covers a basic 
package of benefits. Each of the other nine plans includes the 
basic benefits plus a different combination of additional 
benefits. Plan J is the most comprehensive. Plans H, I, and J 
offer some drug coverage.
    The law provided for the development by the National 
Association of Insurance Commissioners (NAIC) of standardized 
benefit packages. It also provides for modifications of such 
packages when Medicare benefit changes are enacted.
    All insurers offering Medigap policies are required to 
offer open enrollment for 6 months from the date a person first 
enrolls in Medicare Part B (generally when the enrollee turns 
65). The law also guarantees issuance of specified Medigap 
policies for certain persons whose previous supplementary 
coverage was terminated. Guaranteed issue also applies to 
certain persons who elect to try out a managed care option 
under the Medicare+Choice plan program.

                        EXPLANATION OF PROVISION

    The provision would prohibit, effective January 1, 2005, 
the issuance of new Medigap policies with prescription drug 
coverage. The prohibition would not apply to policies replacing 
another policy with drug coverage. Further, it would not apply 
to policies meeting new standards, as outlined below.
    The provision would guarantee issuance of a substitute 
Medigap policy for persons, enrolling in Part D, who at the 
time of such enrollment were enrolled in and terminated 
enrollment in a Medigap policy H, I, or J. The guaranteed 
enrollment would be for any of the Plans A through Plan G. The 
guarantee would apply for enrollments occurring in the new 
Medigap plan within 63 days of termination of enrollment in a 
Medigap drug Plan H, I, or J. The insurer could not impose an 
exclusion based on a pre-existing condition for such 
individuals. Further, the insurer would be prohibited from 
discriminating in the pricing of such policy on the basis of 
the individual's health status, claims experience, receipt of 
health care or medical condition.
    The provision would provide for the development by the NAIC 
of two new standardized Medigap plans and would outline the 
standards for these policies. The first new policy would have 
the following benefits (notwithstanding other provisions of law 
relating to core benefits): (1) coverage of 50 percent of the 
cost-sharing otherwise applicable (except coverage of 100 
percent cost-sharing applicable for preventive benefits); (2) 
no coverage of the Part B deductible; (3) coverage of all 
hospital coinsurance for long stays (as in current core 
package); and (4) a limitation on annual out-of-pocket costs of 
$4,000 in 2005 (increased in future years by an appropriate 
inflation adjustment as specified by the Secretary). The second 
new policy would have the same benefit structure as the first 
new policy, except that: (1) coverage would be provided for 75 
percent, rather than 50 percent, of cost-sharing otherwise 
applicable; and (2) the limitation on out-of-pocket costs would 
be $2,000, rather than $4,000. Both policies could provide for 
coverage of Part D cost sharing; however, neither policy could 
cover the Part D deductible. Medigap cost sharing of qualified 
prescription drug expenses would be limited to the two new 
policies.

                             EFFECTIVE DATE

    Enactment.

Section 105. Medicare Prescription Drug Discount Card Endorsement 
        Program

                              CURRENT LAW

    On July 12, 2001, the President announced a new national 
drug discount card program for Medicare beneficiaries. Under 
this program, CMS would endorse drug card programs meeting 
certain requirements. This program was viewed as an interim 
step until a legislative reform package, including both a drug 
benefit and other Medicare reforms, was enacted. Implementation 
of the drug discount card program was delayed by court action. 
However, CMS was allowed to proceed with rule making. On March 
6, 2002, CMS issued proposed rule making.

                        EXPLANATION OF PROVISION

    The provision would provide the authority for the Secretary 
to initiate an endorsed prescription drug discount program to 
provide immediate savings for beneficiaries and to establish 
the infrastructure to later deliver the full funded 
prescription drug program. The program would have to pass on to 
enrollees' discounts on drugs, including discounts negotiated 
with manufacturers. The program could not be limited to mail 
order drugs. It would have to provide pharmaceutical support 
services, such as education and counseling, and services to 
prevent adverse drug interactions. It would have to provide, 
through the Internet and otherwise, information to enrollees 
that the Secretary identified as being necessary to provide for 
informed choice by beneficiaries among endorsed programs. This 
would include information on enrollment fees, prices charged to 
beneficiaries, and services offered under the program. The 
entity operating the program would have to demonstrate 
experience and expertise in operating such a program or a 
similar program. Further, the program would be required to meet 
additional requirements identified by the Secretary to protect 
and promote the interest of Medicare beneficiaries, including 
requirements that assure that beneficiaries were not charged 
more than the lower of the negotiated retail price or the usual 
and customary price.
    The Secretary would provide for the dissemination of 
information, which compared the costs and benefits of such 
programs. This activity would be coordinated with the 
dissemination of educational information on M+C plans. The 
Secretary would provide appropriate oversight to ensure 
compliance of endorsed programs with the requirements of 
Section 105, including verification of discounts and services. 
The Secretary would be required to provide, through the use of 
the Medicare toll free number, for the receipt and response to 
inquiries and complaints. The Secretary would be required to 
revoke the endorsement of any program the Secretary deemed no 
longer met requirements or engaged in false or misleading 
marketing practices. The provision would specify that a 
beneficiary could only be enrolled in one endorsed program at a 
time.
    The provision would provide that the Secretary would 
provide for an appropriate transition and discontinuance of the 
endorsement program at the time benefits first become available 
under Part D.

                             EFFECTIVE DATE

    Enactment.

     TITLE II--MEDICARE+CHOICE REVITALIZATION AND MEDICARE+CHOICE 
                          COMPETITION PROGRAM

               Subtitle A--Medicare+Choice Revitalization

Section 201. Medicare+Choice Improvements

                              CURRENT LAW

    Under current law, Medicare+Choice (M+C) plans are paid an 
administered monthly payment amount, called the M+C payment 
rate, for each enrollee. The per capita rate for a payment area 
is set at the highest of three amounts, calculated according to 
formulas established in statute. The three amounts are:
         A minimum payment (or floor) rate,
         A rate calculated as a blend of an area-
        specific (local) rate and a national rate or,
         A rate reflecting a minimum increase from the 
        previous year's rate.
    Each year, the three payment amounts are updated by 
formulas set in statute. Both the floor and the blend are 
updated each year by a measure of growth in program spending, 
the national growth percentage. The third payment amount, the 
minimum increase, is updated annually by an additional 2 
percent over the previous year's amount.
    After preliminary M+C payment rates are determined for each 
payment area (typically a county), a budget neutrality 
adjustment is required by law to determine final payment rates. 
This adjustment is made so that estimated total M+C payments in 
a given year will be equal to the total payments that would be 
made if payments were based solely on area-specific rates. The 
budget neutrality adjustment may only be applied to the blended 
rates because rates cannot be reduced below the floor or 
minimum increase amounts. The blend payment is also adjusted to 
remove the costs of direct and indirect graduate medical 
education. The blend payment amount is based on a weighted 
average of local and national rates for all Medicare 
beneficiaries.

                        EXPLANATION OF PROVISION

    This provision would make changes to the M+C payment 
amounts for 2003 and 2004 to stabilize the program. The 
capitation rate for an M+C payment area would be based on the 
largest of 4 amounts, by adding a fee-for-service rate. If 
higher than other M+C payment rates, plans would be paid based 
on100 percent of fee-for-service (FFS) costs, as calculated by 
the adjusted average per capita cost (AAPCC) for that year, for 
a payment area, including costs for only the fee-for-service 
beneficiaries and not the costs for those enrolled in an M+C 
plan. The AAPCC would be adjusted to include an estimate of the 
additional Medicare payments that would have been made if 
Medicare beneficiaries had not used facilities of the 
Department of Veterans Affairs (VA) and the Department of 
Defense (DOD) for Medicare-covered benefits.
    This provision would make adjustments to the calculation of 
the blend payment in 2003 and 2004: (1) the national average 
used in the calculation of the blend would be revised, to 
reflect only M+C enrollees, rather than all beneficiaries; and 
(2) the area-specific rate component of the blend would be 
modified to include an estimate of the additional payments that 
would have been made if Medicare beneficiaries had not received 
Medicare covered benefits from facilities of the VA and the 
DOD. Both of these modifications would increase the blend rate. 
Budget neutrality would be permanently eliminated, so that 
plans would receive a blend rate, if that rate were the highest 
rate.
    For 2003 and 2004, the minimum percentage increase would be 
3 percent above the previous year's amount instead of 2 percent 
under current law. This provision would guarantee that all 
plans receive at least a 3 percent increase.
    Within two weeks after enactment, the Secretary would be 
required to determine and announce the new M+C payments rates, 
as revised by this Section.
    MedPAC would be required to conduct a study to assess the 
method for determining the AAPCC, including information on the 
appropriate geographic area, variation in cost between 
different areas, and the accuracy of risk adjustment. This 
study must be submitted within 9 months of enactment.
    The Secretary would be required to submit a report to 
Congress describing the impact of additional financing provided 
under this Act and other Acts (including the Balanced Budget 
Refinement Act (BBRA) of 1999 and the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (BIPA)) 
on the availability of Medicare+Choice plans in different areas 
and its impact on lowering premiums and increasing benefits 
under such plans.

                             EFFECTIVE DATE

    Enactment.

Section 202. Making Permanent Change in Medicare+Choice Reporting 
        Deadlines and Annual, Coordinated Election Period

                              CURRENT LAW

    Prior to enactment of the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002 (P.L. 107-
188), the Centers for Medicare and Medicaid Services (CMS) was 
required to announce the annual Medicare+Choice (M+C) payment 
rates, which would be applicable on January 1st of the 
following year, by no later than March 1 of each year. Each M+C 
organization was required to submit to the Secretary of HHS, 
for each of its M+C plans, specific information about the 
adjusted community rate (ACR), M+C premiums, cost sharing, and 
additional benefits (if any) no later than July 1 of each year, 
also for the following year. The Secretary then reviewed this 
information and approved or disapproved the M+C plan premiums, 
cost-sharing amounts, and benefits. Medicare beneficiaries 
could also make or change elections to an M+C plan each 
November, during the annual coordinated election period.
    P.L. 107-188 made a number of temporary changes. First, CMS 
moved its annual announcement of M+C payment rates from no 
later than March 1 to no later than the 2nd Monday in May, 
effective for 2003 and 2004. P.L. 107-188 also temporarily 
moved the deadline for plans to submit information about ACRs, 
M+C premiums, cost sharing, and additional benefits (if any) 
from no later than July 1 to no later than the 2nd Monday in 
September in 2002, 2003, and 2004. It also changed the annual 
coordinated election period from the month of November to 
November 15th through December 31 in 2002, 2003, and 2004.

                        EXPLANATION OF PROVISION

    This provision would permanently extend the deadline 
changes that were temporarily changed by P.L. 107-188. CMS 
would make its annual announcement of payment rates no later 
than the 2nd Monday in May of each year. The deadline for plans 
to submit their information would be no later than the 2nd 
Monday in September. The annual coordinated election period 
would take place from November 15th through December 31 of each 
year.

                             EFFECTIVE DATE

    Enactment.

Section 203. Avoiding Duplicative State Regulation

                              CURRENT LAW

    Medicare law currently preempts State law or regulation 
from applying to M+C plans to the extent they are inconsistent 
with federal requirements imposed on M+C plans, and 
specifically, relating to benefit requirements, the inclusion 
or treatment of providers, and coverage determinations 
(including related appeals and grievance processes).

                        EXPLANATION OF PROVISION

    This provision would clarify that Federal standards would 
supersede any State law or regulation (other than State 
licensing laws or State laws relating to plan solvency), with 
respect to M+C plans offered by M+C organizations.

                             EFFECTIVE DATE

    Enactment.

Section 204. Specialized Medicare+Choice Plans for Special Needs 
        Beneficiaries

                              CURRENT LAW

    One model for providing a specialized M+C plan, EverCare, 
operates as a demonstration program. EverCare is designed to 
study the effectiveness of managing acute-careneeds of nursing 
home residents by pairing physicians and geriatric nurse practitioners 
(who function as primary Medicare care givers and case managers). 
EverCare receives a fixed capitated payment, based on a percentage of 
the AAPCC, for all nursing home resident Medicare enrollees. There are 
6 demonstration sites, for a total enrollment of about 10,000 
individuals.

                        EXPLANATION OF PROVISION

    This provision would allow specialized plans for special 
needs beneficiaries (such as the EverCare demonstration) to 
become any type of M+C coordinated care plan. Special needs 
beneficiaries would be defined as those M+C eligible 
individuals who are institutionalized, entitled to Medicaid, or 
meet requirements determined by the Secretary. Enrollment in 
specialized M+C plans could be limited to special needs 
beneficiaries until January 1, 2007. The Medicare Benefits 
Administrator would be required to report to Congress by 
December 31, 2005 providing an assessment of the impact of 
these plans. The Secretary would be required to issue final 
regulations establishing requirements for special needs 
beneficiaries within 6 months after enactment of this 
legislation.

                             EFFECTIVE DATE

    Enactment.

Section 205. Medicare MSAs

                              CURRENT LAW

    The Balanced Budget Act authorized a demonstration to test 
the feasibility of medical savings accounts for the Medicare 
program. The M+C option is a combination of a health insurance 
plan with a large deductible and an M+C MSA. Contributions to 
an M+C MSA may be made annually from the enrollee's capitation 
rate after the plan's insurance premium has been paid. These 
contributions, as well as account earnings, are exempt from 
taxes. Withdrawals used to pay unreimbursed enrollee medical 
expenses (that are deductible under the Internal Revenue Code) 
are not taxed. New enrollment is not allowed after 2003 or 
after the number of enrollees reaches 390,000.

                        EXPLANATION OF PROVISION

    This provision would permanently extend Medicare MSAs and 
remove the enrollment cap. It would eliminate the requirement 
that Medicare MSA plans report on enrollee encounters since 
MSAs are not plans, but bank accounts. Non-contract providers 
furnishing services to enrollees of MSAs would be subject to 
the same balanced billing limitations as non-contract providers 
furnishing services to enrollees of coordinated care plans.

                             EFFECTIVE DATE

    Enactment.

Section 206. Extension of Reasonable Cost and SHMO Contracts

                              CURRENT LAW

    Reasonable Cost Contracts. Medicare reimburses cost-based 
plans for the actual cost of furnishing covered services, less 
the estimated value of beneficiary cost sharing. Following the 
enactment of BBA 97, the Secretary was prohibited from entering 
into new cost reimbursement contracts, except with 
organizations that had provided only Part B services. 
Reasonable cost contracts may apply to expand service areas 
through September 1, 2003. The Secretary cannot extend or renew 
a reasonable cost reimbursement contract for any period beyond 
December 31, 2004.
    SHMOs. The Deficit Reduction Act of 1984 required the 
Secretary to grant 3-year waivers for demonstrations of social 
health maintenance organizations (SHMOs) which provide 
integrated health and long-term care services on a prepaid, 
capitated payment basis. The waivers have been extended on 
several occasions since then, and the Omnibus Budget 
Reconciliation Act of 1990 authorized a second generation of 
projects. BBA 97 extended waivers for SHMOs through December 
31, 2000, and expanded the number of persons who can be served 
per site from 12,000 to 36,000. BBRA 99 extended the SHMO 
waivers until 18 months after the Secretary submits a report 
with a plan for integration and transition of SHMOs into an 
option under M+C. BIPA extended SHMO waivers until 30 months 
after the Secretary submits a report with a plan for 
integration and transition of SHMOs into an option under the 
M+C program. This 30-month extension supersedes the 18-month 
extension in BBRA 99.

                        EXPLANATION OF PROVISION

    Reasonable Cost Contracts. This provision would allow a 
reasonable cost contract to be extended or renewed beyond 
December 31, 2004 if there were no coordinated care M+C plans 
in its service area. A cost contract could convert to an M+C 
plan to serve its previously served area. The cost contract 
could continue to operate in parts of its service area without 
M+C coordinated care plans. A cost contract could re-enter a 
previously served area if all other coordinated care M+C plans 
in the area terminated their contracts. The Medicare Benefits 
Administrator shall submit a report to Congress no later than 
February 1, 2004 on an appropriate transition for cost contract 
plans.
    SHMOs. The provisions would extend the waivers permitting 
operation of SHMOs through December 31, 2004. Nothing would 
prevent a SHMO from offering an M+C plan.

                             EFFECTIVE DATE

    Enactment.

Section 207. Extension of Municipal Health Service Demonstration 
        Projects

                              CURRENT LAW

    The Medicare Municipal Health Services demonstration 
projects to improve access to primary care services have been 
extended: through December 2000 by the BBA 97; through 2002 by 
the BBRA 99; and through 2004 by the BIPA of 2000.

                        EXPLANATION OF PROVISION

    This provision would extend the Medicare Municipal Health 
Services demonstration projects through December 31, 2009, but 
only with respect to individuals who reside in the city in 
which the project is operated. The total number of participants 
could not exceed the number participating as of January 1, 
1996.

                             EFFECTIVE DATE

    Enactment.

            Subtitle B--Medicare+Choice Competition Program

Section 211. Medicare+Choice Competition Program

                              CURRENT LAW

    See Section 201 explanation of current law.

                        EXPLANATION OF PROVISION

    Beginning in 2005, a new M+C payment system would be 
established based on competitive bidding for the provision of 
all items and services. Plans would compete for enrollees based 
on cost and quality of care. Beneficiaries and the government 
would save when beneficiaries enroll in plans that provide 
efficient care.
    The provision would establish a benchmark amount for each 
payment area and a procedure for plans to develop a bid amount. 
Additionally, enrollees would be eligible for rebates, under 
certain circumstances.
    The bid amount would indicate the proportion of the bid 
attributable to the provision of: (1) statutory non-drug 
benefits, (2) statutory prescription drug benefits, and (3) 
non-statutory benefits. Plans would be required to submit this 
information and the actuarial bases for determining these 
amounts, as well as other information that the Administrator 
may require to verify the actuarial bases. The bid amount could 
not vary by enrollees within a plan.
    The Administrator would have authority to negotiate monthly 
bid amounts (including portions of the bid), and may reject a 
bid amount, or a portion of it, that is not supported by the 
actuarial bases provided by the plan.
    The fee-for-service area-specific non-drug benchmark 
(benchmark) amount would be set at the larger of 100 percent of 
the FFS costs (95 percent for 2008 and thereafter), the minimum 
update, or the minimum monthly amount (i.e., floor). FFS costs 
would be set at the AAPCC for that year, for a payment area 
(including costs for only the fee-for-service beneficiaries and 
not the costs for those enrolled in an M+C plan) adjusted to 
include estimated costs for VA and DOD services to Medicare-
eligible beneficiaries.
    Both the benchmark and the bids would be risk adjusted 
based on statewide assumptions, or based on a determination by 
the Administrator.
    If the risk adjusted benchmark exceeded the risk adjusted 
bid (for statutory non-drug benefits), beneficiaries would 
qualify for rebates of 75 percent of the difference in the form 
of: (1) a credit towards their M+C monthly supplementary 
beneficiary premium, or the premium imposed for prescription 
drug coverage; (2) a direct monthly payment; (3) other means 
approved by the Secretary; or (4) some combination. The 
government would retain the remaining 25 percent of the 
savings. If the monthly bid exceeded the benchmark, enrollees 
would pay an M+C monthly basic beneficiary premium, equal to 
the amount by which the monthly bid exceeded the benchmark.
    Plans would be paid based on their bid amounts. For plans 
with bids below the benchmark, their payment would be the bid 
amount, risk adjusted for demographic and health status 
factors, plus the rebate amount. The risk adjustment procedure 
would not be changed from current law. The rebate amount would 
be distributed to the plan's enrollees by one of the approved 
methods, as discussed above. For plans with bids at or above 
the benchmark, their payments would equal the benchmark amount, 
risk adjusted for demographic and health status factors.

                             EFFECTIVE DATE

    Effective for payments and premiums for months beginning 
with January 2005.

Section 212. Demonstration Program for Competitive-Demonstration Areas

                              CURRENT LAW

    See Section 201 explanation of current law.

                        EXPLANATION OF PROVISION

    This provision would establish a demonstration program for 
competitive-demonstration areas, defined as: (1) metropolitan 
statistical areas or areas with a substantial number of M+C 
enrollees; (2) with at least 2 M+C plans offered by different 
organizations; and (3) with at least 50 percent of M+C 
eligibles enrolled in an M+C plan. The demonstration program 
would be limited to a maximum of 4 sites and no area could be 
designated as a competitive-demonstration area for more than 2 
years. The Administrator would have discretion to decide 
whether or not to designate a qualified area as a competitive-
demonstration area.
    For each competitive-demonstration area, the Administrator 
shall annually determine the choice non-drug benchmark amount, 
defined as the sum of the weighted FFS and M+C components. The 
weighted FFS component would be calculated by multiplying the 
national fee-for-service (FFS) market share for the year 
(defined as the nationwide proportion of M+C eligibles during 
March of the previous year who were not enrolled in an M+C 
plan) by the FFS area-specific non-drug bid (set at the AAPCC 
for that year, for a payment area (including costs for only the 
fee-for-service beneficiaries and not the costs for those 
enrolled in an M+C plan) adjusted to include estimated costs 
for VA and DOD services to Medicare-eligible beneficiaries). 
The M+C component would be calculated by multiplying 1 minus 
the national FFS market share for the year by the weighted 
average of plan bids for the area and year. The weighted 
average of plan bids would equal the sum of the proportion of 
each plan's enrollees in the area times the unadjusted monthly 
non-drug bid amount, as calculated for each plan.
    If the choice risk adjusted benchmark exceeded the risk 
adjusted bid (for statutory non-drug benefits), beneficiaries 
would qualify for rebates for 75 percent of the difference in 
the form of: (1) a credit towards their M+C monthly 
supplementary beneficiary premium, or the premium imposed for 
prescription drug coverage; (2) a direct monthly payment; (3) 
other means approved by the Secretary; or (4) some combination. 
If instead, the monthly bid exceeded the benchmark, enrollees 
would pay the amount by which the monthly bid exceeded the 
benchmark.
    Plans would be paid based on their bid amounts. For plans 
with bids below the choice benchmark, their payment would be 
the bid amount, risk adjusted for demographic and health status 
factors, plus the rebate amount for beneficiaries. Plans would 
be responsible for passing rebates through to beneficiaries as 
outlined above. For plans with bids at or above the choice 
benchmark, their payments would equal the benchmark amount, 
risk adjusted for demographic and health status factors.

Effective for payments and premiums for months beginning with January 
        2005

    No later than 6 months after the designation of the 4th 
competitive-demonstration area, the Medicare Benefits 
Administrator would be required to submit a report to Congress 
on the impact of this demonstration program on Medicare 
beneficiaries, savings to the Medicare program, and adverse 
selection issues.

                             EFFECTIVE DATE

    Effective January 1, 2005.

Section 213. Conforming Amendments

                              CURRENT LAW

    National Coverage Determinations. If National Coverage 
Determinations (NCDs) occur during a contract year, such 
changes shall not apply to the M+C plan until the following 
contract year. If the NCD provides for coverage of additional 
benefits or coverage under additional circumstances, the M+C 
payment rate shall not apply to payment for such benefits until 
the following contract year.

                        EXPLANATION OF PROVISION

    National Coverage Determinations. The provision would allow 
the Secretary to implement a national coverage determination 
that will result in a significant change in the cost to an M+C 
organization only in a prospective manner.
    Consolidation of M+C Payment Areas. The chief executive 
officer of a State may request that the Medicare Benefit 
Administrator make a geographic adjustment to an M+C payment 
area, changing the payment area from a county-based system to a 
single statewide M+C payment area, or a metropolitan-based 
system. Any adjustment to the geographic payment area must 
ensure that aggregate payments after geographic adjustment 
would equal payments that would have been made without the 
geographic adjustment.

                             EFFECTIVE DATE

    Enactment.

               TITLE III--RURAL HEALTH CARE IMPROVEMENTS

Section 301. Reference to Full Market Basket Increase for Sole 
        Community Hospitals

                              CURRENT LAW

    Each year, Medicare's operating payments to hospitals are 
increased or updated by a factor that is determined in part by 
the projected increase in the hospital market basket index 
(MB). Sole community hospitals (SCH) receive special treatment 
under the inpatient hospital prospective payment system (PPS). 
A SCH can elect to be paid on the basis of its updated 
hospital-specific amount if that results in greater Medicare 
reimbursement than payment based on the federal amount. 
Currently, the update factor is set at MB-0.55 percentage 
points for FY2002 and FY2003 and at the MBI for subsequent 
years.

                        EXPLANATION OF PROVISION

    The provision would eliminate the reduction from the MB 
update specified in Section 401(a) for SCHs for FY2003.

                             EFFECTIVE DATE

    Upon enactment.

Section 302. Enhanced Disproportionate Share Hospital (DSH) Treatment 
        for Rural and Urban Hospitals with Fewer than 100 Beds

                              CURRENT LAW

    Medicare makes additional payments to certain acute 
hospitals that serve a large number of low-income Medicare and 
Medicaid patients. As specified by BIPA, all hospitals are 
eligible to receive disproportionate share hospital (DSH) 
payments when their DSH percentage or threshold amount exceeds 
15 percent starting with discharges occurring on or after April 
1, 2001. BIPA modified the payment formulas to create the same 
eligibility threshold for across all hospitals. Still, 
different formulas are used to establish a hospital's DSH 
payment, depending upon the hospital's location, number of beds 
and status as a rural referral center or sole community 
hospital. BIPA also increased the DSH payment but a small urban 
or rural hospital receives 5.25 percent while large (100 beds 
and more) urban hospitals and large rural hospitals (500 beds 
and more) receive a higher adjustment.

                        EXPLANATION OF PROVISION

    Starting for discharges on or after October 1, 2002, 
hospitals (other than urban hospitals with a 100 or more beds 
or certain public hospitals) would receive payments based on a 
blend of their current DSH adjustment and the current DSH 
adjustment for large urban hospitals. However, the new DSH 
adjustment would not exceed 10 percent for any hospital that 
was not classified as a RRC. A hospital's new DSH adjustment 
would be calculated using 80 percent of the existing DSH 
adjustment in FY2003; 60 percent in FY2004; 40 percent in 
FY2005; 20 percent in FY2006; and 0 percent in FY2007 and 
subsequently.

                             EFFECTIVE DATE

    The amendment would apply to discharges occurring on or 
after October 1, 2002.

Section 303. 2-Year Phased-in Increase of Small Urban Standardized 
        Amount to Achieve a Single, Uniform Standardized Amount

                              CURRENT LAW

    Medicare pays for inpatient services in acute hospitals in 
large urban areas using a standardized amount (or base rate) 
that is 1.6 percent larger than the standardized amount used to 
reimburse hospitals in other areas (both rural areas and 
smaller urban areas).

                        EXPLANATION OF PROVISION

    For discharges occurring in FY2003, the average 
standardized amount for hospitals in other areas would be 
increased by half the difference between the current amount and 
the larger standardized amount paid to hospitals in large urban 
areas. For discharges occurring in FY2004, the Secretary would 
compute one standardized amount for all hospitals, increase 
this amount by the applicable update, and use this amount to 
pay all hospitals.

                             EFFECTIVE DATE

    Upon enactment.

Section 304. More Frequent Update in Weights Used in Hospital Market 
        Basket (MB)

                              CURRENT LAW

    Medicare's payment amounts are increased annually using an 
update factor composed in part by the projected increase in the 
hospital MB. The market basket index is a fixed-weight hospital 
input price index which measures the average change in the 
price of goods and services hospitals purchased to furnish 
inpatient care. The Centers for Medicare and Medicaid Services 
(CMS) periodically revises the cost category weights, 
reevaluates the price proxies for such categories, and rebases 
(or changes the base period) for the MB. The MB used through 
FY2002 was last rebased in 1997 and reflected data from FY1992. 
As discussed in its May, 2002 proposed regulation, CMS has 
developed a revised and rebased MB using 1997 data for use in 
the FY2003 Medicare hospital payment rates.

                        EXPLANATION OF PROVISION

    The provision would direct the Secretary to revise the MB 
cost weights to reflect the most currently available data and 
to establish a schedule for revising the cost weights more 
often than once every 5 years. The Secretary would be required 
to submit a report to Congress by October 1, 2004 on the 
reasons for and the options considered in establishing such a 
schedule.

                             EFFECTIVE DATE

    Upon enactment.

Section 305. Improvement to the Critical Access Hospital Program

            (a) Reinstatement of Periodic Interim Payment (PIP)

                              CURRENT LAW

    Eligible hospitals, skilled nursing facilities, and 
hospices, which meet certain requirements, receive Medicare 
periodic interim payments (PIP) every 2 weeks; these payments 
are based on estimated annual costs without regard to the 
submission of individual claims. At the end of the year, a 
settlement is made to account for any differences between the 
PIP payments and actual payments.

                        EXPLANATION OF PROVISION

    Starting with payments made on or after January 1, 2003, 
eligible critical access hospitals (CAHs) would be able to 
receive payments made on a PIP basis for inpatient services.

                             EFFECTIVE DATE

    As established in subsection (e), this provision would be 
effective starting with payments made on or after January 1, 
2003.
            (b) Condition for Application of Special Physician Payment 
                    Adjustment

                              CURRENT LAW

    For cost reporting periods starting on or after October 1, 
2000, CAHs can elect to be paid for outpatient services using 
cost-based reimbursement for its facility fee and at 115 
percent of the fee schedule for professional.

                        EXPLANATION OF PROVISION

    The provision would preclude the Secretary from requiring 
that all physicians providing services in a CAH assign their 
billing rights to the entity for the CAH to be able to be paid 
on the basis of 115 percent of the fee schedule for the 
professional services providedby the physicians. However, a CAH 
would not receive payment based on 115 percent of the fee schedule for 
any individual physician who did not assign billing rights to the CAH.

                             EFFECTIVE DATE

    As established in subsection (e), this provision would be 
effective as if included in BBRA.
            (c) Flexibility in Bed Limitation For Hospitals with Strong 
                    Seasonal Census Fluctuations

                              CURRENT LAW

    CAHs are limited-service hospitals that provide 24-hour 
emergency care services with no more than 15 acute care beds or 
up 25 beds, including 10 swing beds, in limited cases. CAHs may 
not have patient stays that are, on average, more than 96-hours 
long.

                        EXPLANATION OF PROVISION

    The Secretary would be required to specify standards for 
determining whether a CAH has strong seasonal variations 
created by influenza outbreaks, tourism, or seasonal industries 
such as logging or agriculture in patient admissions that would 
justify a 5-bed increase in the number of inpatient acute beds 
it can maintain (and still retain its classification as a CAH).

                             EFFECTIVE DATE

    As established in subsection (e), this provision would 
apply to designations made on or after January 1, 2003, but 
would not apply to CAHs that were designated prior to 
enactment.
            (d) 5-Year Extension of the Authorization for 
                    Appropriations for Grant Program

                              CURRENT LAW

    The Rural Hospital Flexibility Grant Program that awards 
grants to (1) states for rural health care planning and 
implementation activities, rural network development, and CAH 
designations and to (2) hospitals that have applied to be CAHs 
to implement data systems required under BBA 97 expires in 
FY2002.

                        EXPLANATION OF PROVISION

    The provision would extend the grant program that affords 
for annual appropriations from the Medicare's Federal Hospital 
Insurance Trust Fund of $25 million through FY2007.

                             EFFECTIVE DATE

    Upon enactment.
            (e) Prohibition of Retroactive Recoupment

                              CURRENT LAW

    Critical Access Hospitals are paid based on estimated 
annual costs without regard to the submission of individual 
claims. At the end of the year, a settlement is made.

                        EXPLANATION OF PROVISION

    Starting with payments made for cost reports opening prior 
to October 1, 2002, the Secretary could not recoup overpayments 
made for outpatient services related to payment based on 80 
percent of reasonable costs (instead of 100% of reasonable 
costs minus 20 percent of charges.)

                             EFFECTIVE DATE

    Upon enactment.
            (f) Effective Dates

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Subsection (a) concerning PIP payments would be effective 
starting with payments made on or after January 1, 2003; 
subsection (b) concerning physician payment would be effective 
as if included in BBRA.; and subsection (c) concerning the CAH 
bed limit would apply to designations made on or after January 
1, 2003.

Sec. 306. Extension of Temporary Increase for Home Health Services 
        Furnished in a Rural Area

                              CURRENT LAW

    The Medicare home health PPS was implemented on October 1, 
2000. It provides a standardized payment for a 60-day episode 
of care furnished to a Medicare beneficiary, with the payment 
adjusted to reflect the type and intensity of care furnished 
and area wages as measured by the hospital wage index. BIPA 
2000 increased PPS payments by 10 percent for home health 
services furnished in the home of beneficiaries living in rural 
areas. The increased payments are effective during the 2-year 
period beginning April 1, 2001 through March 31, 2003, without 
regard to budget neutrality for the overall home health PPS. 
The temporary additional payment is not included in the base 
for determination of payment updates.

                        EXPLANATION OF PROVISION

    The provision would extend through December 31, 2004, the 
10 percent additional payment for home health care furnished to 
beneficiaries residing in rural areas.

                             EFFECTIVE DATE

    Enactment.

Sec. 307. Reference to 10 Percent Increase in Payment for Hospice Care 
        Furnished in a Frontier Area

    The provision would provide a cross reference to Section 
422 of the bill.

Section 308. Reference to Priority for Hospitals Located in Rural or 
        Small Urban Areas in Redistribution of Unused Graduate Medical 
        Education Residencies

                              CURRENT LAW

    With certain exceptions, Medicare limits the total number 
of paid residency positions in a hospital's approved teaching 
programs that are reimbursed based on the number that were 
reported by the hospital for the cost reporting period ending 
in calendar year 1996. For example, hospitals that established 
new training programs before August 5, 1997 are partially 
exempt from the payment cap. Other exceptions apply to certain 
hospitals including those with new programs established after 
that date. Hospitals in rural areas (and urban hospitals 
operating training programs in rural areas) can be reimbursed 
for 130 percent of the number of residents allowed by their 
cap. The cap is calculated as a 3-year rolling average, that 
is, the resident count will be based on the average of the 
resident count in the current year and the 2 preceding years.

                        EXPLANATION OF PROVISION

    Section 612 of this legislation would establish that 
hospitals located in rural or small urban areas would have 
priority for redistribution of unused graduate medical 
education residency payments. This provision will help attract 
physicians to rural and underserved areas.

                             EFFECTIVE DATE

    Upon enactment.

Section 309. GAO Study of Geographic Differences in Payments for 
        Physician Services

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    GAO would be required to study geographic differences in 
payment amounts in the physician fee schedule including: (1) an 
assessment of the validity of each component of the geographic 
adjustment factors; (2) an evaluation of the measures and the 
frequency with which they are revised; (3) an evaluation of the 
methods used to establish the costs of professional liability 
insurance including the variation between physician specialties 
and among different states, the update to the geographic cost 
of practice index, and the relative weighs for the malpractice 
component. The study, including recommendations concerning data 
and use of price proxies, would be due to Congress within 1 
year of enactment.

                             EFFECTIVE DATE

    Upon enactment.

Section 310. Providing Safe Harbor for Certain Collaborative Efforts 
        that Benefit Medically Underserved Populations

                              CURRENT LAW

    People who knowingly and willfully offer or pay a kickback, 
a bribe, or rebate to directly or indirectly to induce 
referrals or the provision of services under a Federal program 
may be subject to financial penalties and imprisonment. Certain 
exceptions or safe harbors that are not considered violations 
of the anti-kickback statute have been established.

                        EXPLANATION OF PROVISION

    Remuneration in the form of a contract, lease, grant, loan 
or other agreement between a public or non-profit private 
health center and an individual or entity providing goods or 
services to the health center would not be a violation of the 
anti-kickback statute if such an agreement would contribute to 
the ability of the health center to maintain or increase the 
availability or quality of services provided to a medically 
underserved population. The Secretary would be required to 
establish standards, on an expedited basis, related to this 
safe harbor that would consider whether the arrangement (1) 
resulted in savings of Federal grant funds or increased 
revenues to the health center; (2) restricts or limits a 
patient's freedom of choice; and (3) protects a health care 
professional's independence regarding the provision of 
medically appropriate treatment. The Secretary would also be 
able to include other standards that are consistent with 
Congressional intent. The Secretary would be required to 
publish an interim final rule in the Federal Register no later 
than 180 days from enactment that would establish these 
standards. The rule would be effective immediately, subject to 
change after a 30-day opportunity for public comment.

                             EFFECTIVE DATE

    Upon enactment.

Section 311. Relief for Certain Non-Teaching Hospitals

                              CURRENT LAW

    Section 4401(b) of the Balanced Budget Act of 1997 provided 
for temporary relief for certain non teaching and non 
disproportionate share hospitals located in states where 
operating costs exceeded operating payments in 1995. This 
provision expired in 1999.

                        EXPLANATION OF PROVISION

    This provision provides for a temporary three-year 
adjustment for non-teaching hospitals in areas where the 
Medicare inpatient margin is markedly different and lower than 
the rest of the nation's hospitals. Specifically, in states 
where the average aggregate rural Medicare inpatient margin for 
these hospitals is negative, the Medicare inpatient payments 
are adjusted upwards by 5 percent for 3 years. In states where 
the average aggregate inpatient margin over all urban hospitals 
is less than 3 percent, the Medicare inpatient payments are 
adjusted upwards by 5 percent for 3 years. The calculation of 
the margin by the Medicare Payment Advisory Commission using 
data from the Healthcare Cost Reporting Information System 
(HCRIS) as of 2001 Q1, including Medicare inpatient payments in 
the numerator, and the allowable costs for all hospitals paid 
under the prospective payment system in the denominator for 
each of the two area groupings for each state in 1999. For sole 
community hospitals, the additional increase is on the hospital 
specific or Federal rate.

                             EFFECTIVE DATE

    Upon enactment.

                TITLE IV--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

Section 401. Revision of Acute Care Hospital Payment Updates

                              CURRENT LAW

    Each year, Medicare's operating payments to hospitals are 
increased or updated by a factor that is determined in part by 
the projected increase in the hospital market basket index 
(MBI). Sole community hospitals (SCH) receive special treatment 
under the inpatient hospital prospective payment system (PPS). 
A SCH can elect to be paid on the basis of its updated 
hospital-specific amount if that results in greater Medicare 
reimbursement than payment based on the federal amount. 
Currently, the update factor is set at MB-0.55 percentage 
points for FY2002 and FY2003 and at the MB for subsequent 
years.

                        EXPLANATION OF PROVISION

    For FY2003, the hospital update factor would be MB-0.25 for 
all hospitals except SCHs that would receive an update factor 
of the full MB. The Secretary is directed to compile and 
clarify the procedures and policies for billing for blood and 
blood costs in the hospital inpatient setting as well as the 
operation of the collection of the blood deductible. The 
Secretary is also directed to permit hospitals to correct their 
wage index data for purposes of FY 2003 payment because of the 
change in policy included in the Benefit Improvement and 
Protection Act provision which permitted reclassification based 
on three prior years of data. This correction should be 
incorporated into the mid-year correction after review of the 
new applications by the Medicare Geographic Classification 
Board.

                             EFFECTIVE DATE

    Upon enactment.

Section 402. 2-Year Increase in Level of Adjustment for Indirect Costs 
        of Medical Education (IME)

                              CURRENT LAW

    Medicare makes additional payments to teaching hospitals 
for indirect medical education (IME), which is a subsidy based 
in part on the extra clinical and diagnostic costs for 
residents providing care. The Balanced Budget Act of 1997 (BBA 
97) reduced the IME adjustment from the existing 7.7 percent 
increase (for each 10 percent increase in a hospital's ratio of 
interns and residents to beds) in FY1997 to 7.0 percent in 
FY1998; to 6.5 percent in FY1999; to 6.0 percent in FY2000; and 
to 5.5 percent in FY2001 and subsequent years. These percentage 
IME adjustments were subsequently modified by the Balanced 
Budget Refinement Act of 1999 (BBRA) and the Benefits 
Improvement and Protection Act of 2000 (BIPA). Currently, the 
IME adjustment is set at 6.5 percent in FY2002 and 5.5 percent 
for FY20003 and subsequently.

                        EXPLANATION OF PROVISION

    This provision would set the IME adjustment to 6 percent in 
FY2003, 5.9 percent in FY2004 and 5.5 percent for FY2005.

                             EFFECTIVE DATE

    Upon enactment.

Section 403. Recognition of New Medical Technologies Under Inpatient 
        Hospital PPS

                              CURRENT LAW

    BIPA established that Medicare's inpatient hospital payment 
system should include a mechanism to recognize the costs of new 
medical services and technologies for discharges beginning on 
or after October 1, 2001. The additional hospital payments can 
be made by the means of a new technology groups, an add-on 
payment, a payment adjustment, or other mechanism, but cannot 
be a separate fee schedule and must be budget-neutral. A 
medical service or technology will be considered to be new if 
it meets criteria established by the Secretary after notice and 
the opportunity for public comment.
    CMS published the final regulation implementing these 
provisions on September 7, 2001. This regulation changed the 
meeting schedule for decisions on the creation and 
implementation of new billing codes. (ICD-9-CM codes). The 
regulation also established that technology that provided a 
substantial improvement to existing treatments would qualify 
for additional payments. The add-on payment for eligible new 
technology would occur when the standard diagnosis related 
group (DRG) payment was inadequate; as measured by the 
threshold, which was established as one standard deviation 
above the mean standardized DRG. In these cases, the add-on 
payment for new technology would be the lesser of (a) 50 
percent of the costs of the new technology or (b) 50 percent of 
the amount by which the costs exceeded the standard DRG 
payment; however if the new technology payments are estimated 
to exceed the budgeted target amount of 1 percent of the total 
operating inpatient payments, the add-on payments are reduced 
prospectively.

                        EXPLANATION OF PROVISION

    The Secretary would be required to add new diagnosis and 
procedure codes on April 1 of each year that would not be 
required to affect Medicare's payment or DRG classification 
until the following fiscal year. The Secretary would not be 
able to deny a service or technology treatment as a new 
technology because the service (or technology) has been in use 
prior to the 2- to 3-year period before it was issued a billing 
code and a sample of specific discharges where the service has 
been used can be identified.
    When establishing whether DRG payments are inadequate, the 
Secretary would be required to apply a threshold that is 50 
percent of the national standardized amount for all hospitals 
and all DRGS or one standard deviation for the DRG involved. 
The Secretary would be required to provide additional 
clarification in regulation on the criteria used to determine 
whether a new service represents a substantial improvement on 
existing treatment. The Secretary would be required to deem 
that a technology provides substantial improvement on an 
existing treatment if the technology in question is a drug or 
biological that is designated under section 506 (fast track 
product) or 526 (drugs for rare diseases and conditions) of the 
Federal Food, Drug, and Cosmetic Act, approved under section 
314.510 or 601.41 of Title 21, Code of Federal Regulations, 
designated for priority review when the marketing application 
was filed, is a medical device for which an exemption has been 
granted under section 520(m) of such Act, for which priority or 
expedited review has been provided under section 515(d)(5) 
(breakthrough technology). For other technologies that may be 
substantial improvements, the Secretary would be required to: 
(1) maintain and update a public list of pending applications 
for specific services and technologies to be evaluated for 
eligibility for additional payment; (2) accept comments 
recommendations and data from the public regarding whether a 
service or technology represents a substantial improvement; and 
(3) provide for a meeting at which organizations representing 
physicians, beneficiaries, manufacturers or other interested 
parties may present comments, recommendations, and data to the 
clinical staff of CMS regarding whether a service or technology 
represents a substantial improvement. These actions would occur 
prior to the publication of the proposed regulation. Before 
establishing an additional payment as the appropriate 
reimbursement mechanism, the Secretary would be directed to 
determine if instead one or more DRGs can be identified and 
assign the technology to that DRG, taking into account similar 
clinical or anatomical characteristics and the relative cost of 
the technology. The Secretary would assign an eligible 
technology into a DRG where the average cost of care most 
closely approximates the cost of the new technology. In such a 
case, no additional payment would be made and the other 
provisions of the new technology payment policy would not 
apply; the application of the budget neutrality requirement 
with respect to annual DRG reclassifications and recalculation 
of associated DRG weights would not be affected. Otherwise, the 
Secretary would be required to calculate additional payments 
based on the marginal rate associated with inpatient outlier 
cases.

                             EFFECTIVE DATE

    These provisions would be effective for classifications 
beginning in FY2004. The Secretary would be directed to 
automatically reconsider an application as a new technology 
that was denied for FY2003 as a FY2004 application under these 
new provisions. If such an application is granted, the maximum 
time period otherwise permitted for such classification as a 
new technology would be extended by 12 months.

Section 404. Phase-in of Federal Rate for Hospitals in Puerto Rico

                              CURRENT LAW

    Under Medicare's prospective payment system for inpatient 
services, a separate standardized amount is used to establish 
payments for discharges from short-term general hospitals in 
Puerto Rico. BBA 97 provides for an adjustment of the Puerto 
Rico rate from a blended amount based on 25 percent of the 
federal national amount and 75 percent of the local amount to a 
blended amount based on a 50/50 split between national and 
local amounts.

                        EXPLANATION OF PROVISION

    Hospitals in Puerto Rico would receive Medicare payments 
based on a 50/50 between federal and local amounts through 
October 1, 2003. From FY2004 though FY2007, an increasing 
amount of the payment rate would be based on federal national 
rates as follows: during FY2004, payment would be 55 percent 
national and 45 percent local; changing to 60 percent national 
and 40 percent local during FY2005; 65 percent national and 35 
percent local during FY2006; 70 percent national and 30 percent 
local during FY2007 and 75 percent national and 25 percent 
local for FY2007 and subsequently.

                             EFFECTIVE DATE

    Upon enactment.

Section 405. Reference to Provision Relating to Enhanced 
        Disproportionate Share Hospital (DSH) Payments for Rural 
        Hospitals and Urban Hospitals With Fewer than 100 Beds

                              CURRENT LAW

    As explained in Section 302, Medicare makes additional 
payments to certain acute hospitals that serve a 
disproportionate share of low-income Medicare and Medicaid 
patients.

                        EXPLANATION OF PROVISION

    The provision that would increase the adjustment for rural 
hospitals and under 100 bed urban hospitals that serve a 
disproportionate share of low-income Medicare and Medicaid 
patients is included in Section 302.

                             EFFECTIVE DATE

    Upon enactment.

Section 406. Reference to Provision Relating to 2-Year Phased-in 
        Increase in the Standardized Amount in Rural and Small Urban 
        Areas to Achieve a Single, Uniform Standardized Amount

                              CURRENT LAW

    Medicare pays for inpatient services in acute hospitals in 
large urban areas using a standardized amount that is 1.6 
percent larger than the standardized amount used to reimburse 
hospitals in other areas (both rural areas and smaller urban 
areas).

                        EXPLANATION OF PROVISION

    The provision that would increase the standardized amount 
for other areas to the standardized amount paid to hospitals in 
large urban areas over a 2-year period is included in Section 
303.

                             EFFECTIVE DATE

    Upon enactment.

Section 407. Reference to Provision for More Frequent Updates in the 
        Weights Used in the Hospital Market Basket

                              CURRENT LAW

    As discussed in Section 304, Medicare's standardized 
amounts, which serve as the basis of its payment per discharge 
from acute hospital, are increased annually using an update 
factor, which is determined, in part by the projected increase 
in the hospital market basket index (MBI).

                        EXPLANATION OF PROVISION

    The provision that would require more frequent updates in 
the hospital market basket is included in Section 304.

                             EFFECTIVE DATE

    Upon enactment.

             Subtitle B--Skilled Nursing Facility Services

Sec. 411. Payments for Covered Skilled Nursing Facility Services

                              CURRENT LAW

    Medicare uses a system of daily rates to pay for care in a 
SNF. There are 44 daily rate categories, known as resource 
utilization groups (RUGS), and each group reflects a different 
mix and intensity of services, such as skilled nursing care 
and/or various therapy and other services. BIPA 2000 provided 
for a temporary bonus payment that increased the skilled 
nursing care component of each RUG by 16.66 percent over and 
above the RUG rates for SNF care. The Balanced Budget 
Retirement Act also included for temporary increases for 
certain rates, pending a refinement by CMS of these payments. 
In Spring 2002, CMS announced it would not refine the RUGs 
under the BBRA provision, thereby increasing payment to SNFs by 
$1 billion per year.

                        EXPLANATION OF PROVISION

    The provision would retain the increase in the nursing 
component of each RUG at 12 percent, 10 percent, and 8 percent, 
respectively for FY 2003, 2004 and 2005. These increases are 
over and above the rates for SNF care as specified in Tables 3 
and 4 of the final rule published in the Federal Register on 
July 31, 2000, and as subsequently updated under section 
1888(e)(4)(E)(ii) of the Act. The increase would apply to SNF 
services furnished on or after October 1, 2002, and before 
October 1, 2005.
    The provision would also increase by 128 percent the RUG 
payment for a SNF resident with acquired immune deficiency 
syndrome (AIDS). The 128 percent increase shall not apply on or 
after such date as the Secretary certifies that there is an 
appropriate change to the SNF case mix adjustment to compensate 
for increased costs associated with caring for residents with 
AIDS. The provision would be effective October 1, 2002.

                             EFFECTIVE DATE

    Applies to services furnished on or after October 1, 2003.

                          Subtitle C--Hospice

Section 421. Coverage of Hospice Consultation Services

                              CURRENT LAW

    Current law authorizes coverage of hospice services, in 
lieu of certain other Medicare benefits, for individuals who 
elect such coverage.

                        EXPLANATION OF PROVISION

    The provision would authorize coverage of certain 
physicians' services for certain terminally ill individuals. 
Persons entitled to these services would be individuals who had 
not elected the hospice benefit and had not previously received 
these physicians' services. Covered services would be those 
furnished by a physician who is either the medical director or 
employee of a hospice program. Services would include 
evaluating the individual's need for pain and symptom 
management, counseling the individual with respect to end-of-
life issues and care options, and advising the individual 
regarding advanced care planning. Payment for such services 
would equal the amount established for a similar service of 
moderate complexity under the physician fee schedule, excluding 
the practice expense component.

                             EFFECTIVE DATE

    Applies to consultation services provided by a hospice 
program on or after January 1, 2004.

Sec. 422. 10 Percent Increases in Payment for Hospice Care Furnished in 
        a Frontier Area

                              CURRENT LAW

    Medicare pays for hospice care for terminally ill 
beneficiaries at daily rates that differ depending on the level 
of care, i.e., routine home care, continuous home care, 
inpatient respite care, and general inpatient care. The labor 
components of the rates are adjusted by the hospital wage index 
to reflect differences in area wage levels. BBRA 1999 
temporarily increased payment rates for FY 2001 and FY 2002 by 
0.5 percent and 0.75 percent respectively. BIPA 2000 increased 
Medicare daily payment rates for hospice care furnished on or 
after April 1, 2001, and during FY 2001 by 5 percent over the 
rates in effect in FY 2000.

                        EXPLANATION OF PROVISION

    The provision would increase by 10 percent the Medicare 
daily payment rate for hospice care furnished in a frontier 
area on or after January 1, 2003, and before January 1, 2008. A 
frontier area would be defined as a county in which the 
population density is less than 7 persons per square mile. The 
GAO would be required to submit a report to Congress, not later 
than January 1, 2007, on the costs of furnishing hospice care 
in frontier areas. The report would include recommendations 
regarding the appropriateness of extending, and modifying, the 
payment increase provided under this section.

                             EFFECTIVE DATE

    Upon enactment.

Section 423. Rural Hospice Demonstration Project

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The provision would require the Secretary to conduct a 
demonstration project for the delivery of hospice care for 
beneficiaries in rural areas. Under the project, beneficiaries 
who were unable to receive hospice care in the home for lack of 
an appropriate caregiver would be provided such care in a 
facility of 20 or fewer beds which offered, within its walls, 
the full range of covered Medicare hospice benefits. The 
project could cover no more than three hospice programs over a 
period of 5 years each. In general, the program would comply 
with requirements otherwise applicable for hospices except that 
it would not be required to offer services outside the home nor 
be subject to the limitation on inpatient days. Payments would 
be made at the rates otherwise applicable. The Secretary would 
be required, upon completion of the project in five years, to 
submit a report to the Congress. The report would include 
recommendations regarding extension of such project to programs 
serving rural areas. However, the Congress believes that this 
does not preclude the Secretary of Health and Human Services 
usual authority to continue or expand demonstrations.

                             EFFECTIVE DATE

    Upon Enactment.

                      Subtitle D--Other Provisions

Section 431. Demonstration Project for Use of Recovery Audit 
        Contractors

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to conduct a demonstration 
project which would examine the use of recovery audit 
contractors under the Medicare Integrity Program where (1) the 
contractor could receive payment on a contingent basis; (2) the 
Secretary could retain a percentage of the amount recovered for 
the CMS program management account; and (3) the Secretary would 
examine the efficacy of such use with respect to duplicate 
payments and coding accuracy as well as other payment policies 
where inaccurate payments may arise. The project would cover at 
least 2 states and 3 contractors for no longer than 3 years. 
The Secretary would be able to waive Medicare statutory 
provisions to pay for the contractors' services. The Secretary 
would not be able to enter into a recovery audit contract with 
an entity that is a fiscal intermediary, carrier, or Medicare 
Administrative Contractor. The Secretary would be required to 
show preference to contracting with entities that have 
employees with demonstrated proficiency in recovery audits with 
private insurers or Medicaid programs and have knowledge of 
Medicare's laws and regulations. Within 6 months of completion, 
the Secretary would be required to submit a report to Congress 
on the project's cost savings and include any recommendations 
on the cost-effectiveness of extending or expanding the 
project.

                             EFFECTIVE DATE

    Upon enactment.

            TITLE V--PROVISIONS RELATING TO MEDICARE PART B

        Subtitle A--Provisions Relating to Physicians' Services

Section 501. Revisions of Updates for Physicians Services

                              CURRENT LAW

    Medicare pays for services of physicians and certain non-
physician practitioners on the basis of a fee schedule. The fee 
schedule, in place since 1992, was intended to relate payments 
for a given service to the actual resources used in providing 
that service. The fee schedule assigns relative values to 
services. These relative values reflect physician work (i.e., 
the time, skill, and intensity it takes to provide the 
service), practice expenses, and malpractice costs. The 
relative values are adjusted for geographic variations in 
costs. The adjusted relative values are then converted into a 
dollar payment amount by a conversion factor. The conversion 
factor for 2001 was $38.2581. The conversion factor for 2002 
dropped 5.4 percent to $36.1992.
    The law provides a specific formula for calculating the 
annual update to the conversion factor. Several factors enter 
into the calculation of the formula. These include: (1) the 
sustainable growth rate (SGR), which is essentially a target 
for Medicare spending growth for physicians' services; (2) the 
Medicare economic index (MEI), which measures inflation in the 
inputs needed to produce physicians' services; and (3) an 
adjustment that modifies the update, which would otherwise be 
allowed by the MEI, to bring spending in line with the SGR 
target. The SGR target is not a limit on expenditures. Rather, 
the fee schedule update reflects the success or failure in 
meeting the target. If expenditures exceed the target, the 
update for a future year is reduced. If expenditures fall short 
of the target, the update for a future year is increased.
    The annual percentage update to the conversion factor 
equals the MEI, subject to an adjustment (known as the update 
adjustment factor) to match target spending for physicians' 
services under the SGR system. (During a transition period, 
2001-2005, an additional adjustment is made to achieve budget 
neutrality.) The update adjustment sets the conversion factor 
at a level so that projected spending for the year will meet 
allowed spending by the end of the year. Allowed spending for 
the year is calculated using the SGR. However, in no case can 
the update adjustment factor be less than minus 7 percent or 
more than plus 3 percent.
    The update adjustment factor is the sum of: (1) the prior 
year adjustment component, and (2) the cumulative adjustment 
component. The prior year adjustment component is determined 
by: (1) computing the difference between allowed expenditures 
for physicians' services for the prior year and the amount of 
actual expenditures for that year; (2) dividing this amount by 
the actual expenditures for that year; and (3) multiplying that 
amount by 0.75. The cumulative adjustment component is 
determined by: (1) computing the difference between allowed 
expenditures for physicians' services from April 1, 1996 
through the end of the prior year and the amount of actual 
expenditures during such period; (2) dividing that difference 
by actual expenditures for the prior year as increased by the 
SGR for the year for which the update adjustment factor is to 
be determined; and (3) multiplying that amount by 0.33. Use of 
both the prior year adjustment component and the cumulative 
adjustment component allows any deviation between cumulative 
actual expenditures and cumulative allowed expenditures to be 
corrected over several years rather than a single year.
    The law also specifies a formula for calculating the SGR. 
It is based on changes in four factors: (1) estimated changes 
in input prices for physician services; (2) estimated change in 
the average number of Part B enrollees (excluding 
Medicare+Choice beneficiaries); (3) estimated projected growth 
in real gross domestic product (GDP) per capita; and (4) 
estimated change in expenditures due to changes in law or 
regulations. By November 1 of each year, (using the best data 
available as of September (1), CMS is required to publish the 
SGRs for three time periods in the Federal Register. These 
periods are the upcoming year, the current year, and the 
preceding year. For example, by November 1, 2002, CMS is to 
publish an estimate of the SGR for CY2003, a revision of the 
CY2002 SGR estimated in 2001 and a revision of the CY2001 SGR 
first estimated 2 years earlier and revised 1 year earlier.
    The -5.4 percent negative update adjustment factor for 2002 
reflected the application of the SGR system. Four items had 
particular importance for the 2002 calculation. First, allowed 
expenditures under the SGR system declined from earlier 
estimates, in part because GDP growth was lower than 
anticipated. Second, claims data for physicians services in the 
first half of 2001 showed higher than expected spending over 
the period and raised estimates for all of 2001. Third, certain 
technical errors in the calculations for previous years (which 
raised the updates in those years) further reduced the 2002 
update. Fourth, underestimates of both the number of fee-for-
service beneficiaries, by over one million, and the growth in 
GDP in 1998 and 1999 resulted in a reduction in cumulative SGR 
targets. CMS estimates that under current law, the updates for 
2003 to 2006 would also be negative, at -5.7 percent in 2003, 
-5.7 percent in 2004, -2.8 percent in 2005, and -0.1 percent in 
2006.
    If CMS were to revise the SGR targets to reflect accurate 
data for the number of fee-for-service beneficiaries and GDP in 
1998 and 1999, CMS projects that the updates would be positive 
from 2003 to 2012. The updates would be 1.0 percent in 2003, 
1.4 percent in 2004, 2.3 percent in 2005, and positive, but 
less than 1.0 percent from 2006 through 2012. CMS claims that 
it lacks authority to make changes to the 1998 and 1999 SGR 
targets administratively, despite the fact that these changes 
would replace the erroneous data currently used in the 
calculations.

                        EXPLANATION OF PROVISION

    The provision would provide for use of a 10-year rolling 
average GDP in setting updates, to reduce variations in SGR 
targets due to variations in economic growth. This change would 
be permanent.
    The provision would set the update at 2 percent in 2003, 
instead of the projected -5.7 percent.
    The SGR formula for 2004 and 2005 would be modified to 
produce updates estimated at approximately 2 percent each year. 
First, the provision would replace GDP with GDP + 1 percent 
when computing updates for 2003 and 2004. The 10-year rolling 
average GDP would be calculated, and then this average would be 
increased by 1 percentage point. This provision would recognize 
that growth in health care expenditures typically exceeds 
growth in the economy, and would adopt CMS' long-range 
projected rate of growth in Medicare.
    Second, the provision would re-set the base for the SGR 
system such that the 2002 SGR target would equal 2002 actual 
expenditures. Re-setting the target would correct the formula 
for all past projection errors, including errors produced by 
underestimating the number of fee-for-service beneficiaries in 
1998 and 1999 by one million, and not accounting for all 
expenditures generated by national coverage decisions.
    Third, the provision would remove transitional adjustments 
for budget neutrality, equal to -0.2 percent in 2003, -0.2 
percent in 2004, and +0.8 percent in 2005.
    Under this provision, the SGR system would revert to 
current law in 2006, with the exception of continued use of the 
10-year rolling average GDP. This provision would not be 
considered a change in law and regulation when calculating the 
SGR.

                             EFFECTIVE DATE

    Enactment.

Section 502. Studies on Access to Physicians' Services

                              CURRENT LAW

    Periodic analyses by the Physician Payment Review 
Commission, and subsequently MedPAC, as well as CMS showed that 
access to physicians' services generally remained good for most 
beneficiaries through 1999. Detailed data are not available for 
a subsequent period; however, several surveys have shown a 
decline in the percentage of physicians accepting new Medicare 
patients.

                        EXPLANATION OF PROVISION

    The provision would require the GAO to conduct a study on 
access of Medicare beneficiaries to physicians' services under 
Medicare. The study would include an assessment of 
beneficiaries' use of services through an analysis of claims 
data. It would also examine changes in use of physicians' 
services over time. Further, it would examine the extent to 
which physicians are not accepting new Medicare patients. 
Within 18 months of enactment, GAO would be required to submit 
a report to Congress on this study. The report would include a 
determination whether data from claims submitted by physicians 
indicate potential access problems for beneficiaries in certain 
geographic areas. The report would also include a determination 
whether access by beneficiaries to physicians' services has 
improved, remained constant, or deteriorated over time.
    The provision would require the Secretary to request the 
Institute of Medicine to conduct a study on the adequacy of the 
supply of physicians (including specialists) in the country and 
the factors that affect supply. The Secretary would be required 
to submit a report to Congress, within two years of enactment, 
on the results of the study.

                             EFFECTIVE DATE

    Enactment.

Section 503. MedPAC Report on Payment for Physicians' Services

                              CURRENT LAW

    Medicare pays for physicians' services on the basis of a 
fee schedule. The fee schedule assigns relative values to 
services. These relative values reflect physician work, 
practice expenses and malpractice expenses. Resource-based 
practice expense relative values were phased-in beginning in 
1999. Beginning in 2002, the values were totally resource-
based.
    Certain services have a professional component and a 
technical component. The technical component does not include a 
relative value for physician work. A global value includes both 
the professional and technical components. The physician must 
bill for the global value if the physician furnishes both the 
professional component and the technical component.

                        EXPLANATION OF PROVISION

    The provision would require MedPAC to report to Congress on 
the effects of refinements to the practice expense component in 
the case of services for which there are no physician work 
relative value units. The report is to examine the following by 
specialty: (1) the effects of refinements on payments for 
physicians' services; (2) interaction of the practice expense 
component with other components of and adjustments to payment 
for physicians' services; (3) appropriateness of the amount of 
compensation by reason of such refinements; (4) effect of such 
refinements on access to physicians' services by Medicare 
beneficiaries; and (5) effect of such refinements on physician 
participation under the Medicare program. The report would be 
due within one year of enactment.

                             EFFECTIVE DATE

    Upon enactment.

Section 504. 1-Year Extension of Treatment of Certain Physician 
        Pathology Services Under Medicare.

                              CURRENT LAW

    The Beneficiary Improvement and Protection Act of 2000 
allowed the continuation of separate billing and payment for 
the technical component of pathology services furnished by an 
independent laboratory for 2001 and 2002. The relationship was 
only for those hospitals that had an arrangement with an 
independent laboratory in effect of July 1999.

                        EXPLANATION OF PROVISION

    This provision extends the BIPA provision for an additional 
year.

                             EFFECTIVE DATE

    Upon enactment.

Section 511. Competitive Acquisition of Certain Items and Services.

                              CURRENT LAW

    BBA 97 authorized the Secretary to conduct up to 5 
demonstration projects to test competitive bidding as a way for 
Medicare to price and pay for Part B services other than 
physician services. The Secretary was required to establish up 
to 3 competitive acquisition areas for this purpose. Medicare 
implemented the first competitive bidding demonstration for 
durable medical equipment, prosthetics, orthotics, and supplies 
(DMEPOS) in Polk County, Florida. Multiple suppliers were 
selected through a competitive bidding process in the Spring of 
1999 in five product categories: oxygen equipment and supplies, 
hospital beds and accessories, enteral nutrition products and 
supplies, urological supplies, and surgical dressings. Payments 
under this demonstration began on October 1, 1999, and 
demonstration prices remained in effect through September 30, 
2001.
    Medicare implemented a second DMEPOS competitive bidding 
demonstration in the San Antonio, Texas area (Bexar, Comal, and 
Guadalupe counties) on February 1, 2001. Multiple suppliers 
were selected through a competitive bidding process to provide 
the following product categories: oxygen equipment and 
supplies, hospital beds and accessories, manual wheelchairs and 
accessories, general orthotic devices, and nebulizer inhalation 
drugs. The demonstration prices in the San Antonio, Texas area 
will remain in effect until December 31, 2002.
    Another round of competitive bidding was implemented in 
Polk County in October 2001. Multiple suppliers were selected 
through a competitive bidding process to provide the following 
product categories: oxygen equipment and supplies, hospital 
beds and accessories, urological supplies, and surgical 
dressings. Demonstration prices are to remain in effect through 
September 30, 2002.

                        EXPLANATION OF PROVISION

    This provision requires the Secretary to establish and 
implement programs under which competitive acquisition areas 
were established throughout the United States. The areas could 
differ for different items and services. The programs would be 
phased-in over a period of not longer than 3 years with 
competition under the programs occurring in at least \1/3\ of 
the areas in 2004 and at least \2/3\ of the areas in 2005. In 
carrying out the programs, the Secretary would be permitted to 
waive provisions of the Federal Acquisition Regulation as 
necessary for efficient implementation, other than provisions 
relating to confidentiality of information furnished by bidders 
or other provisions the Secretary determines are appropriate.
    The provision would specify the items and services covered 
under the competitive acquisition programs as: (1) durable 
medical equipment as well as inhalation drugs paid for by 
Medicare, except for products used in infusion; and (2) 
orthotics paid for by Medicare which require minimal self-
adjustment for appropriate use and does not require expertise 
in trimming, bending, molding, assembling, or customizing to 
fit the patient.
    The Secretary would be permitted to exempt areas that were 
not competitive due to low population density. The Secretary 
would also be able to exempt items and services for which the 
application of competitive acquisition was not likely to result 
in significant savings.
    The provision would establish program requirements. The 
Secretary would be required to conduct a competition among 
entities supplying covered items and services for each 
competitive acquisition area in which the program was 
implemented for such items and services. The Secretary could 
not award a contract to an entity unless the Secretary made the 
following findings: (1) the entity met quality and financial 
standards specified by the Secretary or was automatically 
deemed to meet standards by accreditation entities or 
organizations recognized by the Secretary; (2) total amounts to 
be paid under the contract (including administrative costs) 
were expected to be less than what would otherwise be paid; (3) 
beneficiary access to a choice of multiple providers was 
maintained; and (4) beneficiary liability was limited to the 
applicable percentage of the contract award price. The 
specified quality standards could not be less than those that 
would otherwise apply and would include consumer services 
standards. The Secretary would be required to consult with an 
expert outside advisory panel composed of an appropriate 
selection of physicians, practitioners, and suppliers. The 
panel would review and advise the Secretary concerning quality 
standards.
    The provision would provide that the Secretary would 
specify the terms and conditions of the contract. The Secretary 
would be required to rebid contracts at least once every 3 
years (2 years are preferred as feasible.) The Secretary could 
limit the number of contractors in an area to the number needed 
to meet projected demand for the items and services covered 
under the contract. The Secretary would be required to take 
into account the ability of bidding entities to furnish the 
items and services in sufficient quantities to meet anticipated 
beneficiary needs in the geographic area covered by the 
contract on a timely basis. The Secretary would award contracts 
to more than one entity submitting a bid in each area for an 
item or service. Payments could not be made for services 
provided by a contractor in a competition area unless the 
contractor had submitted a bid and the Secretary had awarded a 
contract to the entity. The Secretary would be authorized to 
award a contract to an appropriate entity for education, 
outreach, and complaint services.
    The Secretary would be required to submit an annual 
management report to the Congress, which would include 
information on savings, reductions in beneficiary co-payments, 
access to items and services, and beneficiary satisfaction.
    The provision would require the Secretary to conduct a 
demonstration project on the application of competitive 
acquisition to clinical diagnostic laboratory tests (including 
colorectal cancer screening tests) that are furnished without a 
face-to-face encounter between the individual and entity 
furnishing the test. The project would be under the same terms 
and conditions applicable to durable medical equipment and off 
the shelf orthotics. The Secretary would be required to submit 
to the Congress an initial report on the project not later 
thanDecember 31, 2004. The Secretary would also submit progress and 
final reports as deemed appropriate.
    The provision would specify that any competitive 
acquisition demonstration project in effect on the day before 
enactment could continue under the same terms and conditions 
that were applicable to that project on that date.
    The provision would require the GAO to submit a report to 
Congress that analyses differences in reimbursement between 
public and private payors for clinical diagnostic laboratory 
services. The report would be due within 18 months of 
enactment.

                             EFFECTIVE DATE

    Enactment.

Section 512. Payment for Ambulance Services

                              CURRENT LAW

    Payments for ambulance services under Medicare have 
traditionally been based on reasonable charges for independent 
suppliers and reasonable costs for provider-based services. The 
BBA 97 provided for the replacement of these payment 
methodologies with a national fee schedule. The Secretary was 
required to phase-in the fee schedule in an efficient and fair 
manner. The fee schedule became effective April 1, 2002. By 
regulation, it is to be phased-in over the April 2002-January 
2006 period. Under the phase-in schedule, a gradually 
decreasing portion of the payment is to be based on the 
previously existing payment (reasonable charges or reasonable 
costs) received by each ambulance and a gradually increasing 
percentage is to be based on the national fee schedule. In 
2002, the blend is 80 percent of ambulance specific payments 
and 20 percent of the fee schedule. In 2003, the blend is 60 
percent of ambulance specific payments and 40 percent of the 
fee schedule. In 2004, the blend is 40 percent of ambulance 
specific payments and 20 percent of the fee schedule. In 2005, 
the blend is 20 percent of ambulance specific payments and 80 
percent of the fee schedule. Beginning in 2006, the payment is 
to be based entirely on the fee schedule.
    The fee schedule payment amount equals a base rate for the 
level of service plus payment for mileage and applicable 
adjustment factors. Additional mileage payments are made in 
rural areas. BIPA increased payment for rural ambulance mileage 
greater than 17 miles and up to 50 miles by at least one-half 
of the additional payment per mile established under the fee 
schedule for the first 17 miles of transport for services 
provided before January 1, 2004.

                        EXPLANATION OF PROVISION

    The provision would substitute a new phase-in methodology 
for the ambulance fee schedule amount portion of the phase-in 
and lengthens the phase-in schedule. Under the provision, the 
national part phase-in calculation would be based on a blend of 
the national fee schedule (geographically adjusted) and a 
regional fee schedule (geographically adjusted) or, if higher, 
the current phase-in is retained. The regional fee schedule 
would be established by the Secretary for each of the 9 Census 
regions using the methodology used for calculating the regional 
conversion factor and regional mileage rate used for the 
national fee schedule. It would also use the same payment 
adjustments and the same relative value units as used for the 
national fee schedule.
    In effect, the regional fee schedules would be based on the 
same methodology and data used to construct the national fee 
schedule. Essentially these fee schedules represent the 
national fee schedule broken out into 9 separate fee schedules. 
For example, to construct the national fee schedule, CMS used 
1998 data and created a national conversion factor. To 
construct the regional fee schedules, CMS will use the 1998 
data used to create the national fee schedule but will break it 
out region by region. Using the 1998 data for each region, CMS 
will create a conversion factor for each region. Some of the 
conversion factors will be lower than the national conversion 
factor and some will be higher. CMS will also use the 1998 data 
for each region to create a loaded mileage base rate for each 
region.
    Under the provision, the regional conversion factor for 
each region would be adjusted in the same way the national 
conversion factor is adjusted--the relative value units will be 
used with each regional conversion factor to create a regional 
base payment rate for each level of service. The payment for a 
given service under the national fee schedule would be compared 
with the payment under the appropriate regional fee schedule.
    In 2003, the blended rate would be based on 20 percent of 
the national fee schedule and 80 percent of the regional fee 
schedule. In 2004, the blended rate would be based on 40 
percent of the national fee schedule and 60 percent of the 
regional fee schedule. In 2005, the blended rate would be based 
on 60 percent of the national fee schedule and 40 percent of 
the regional fee schedule. In 2006, the blended rate would be 
based on 80 percent of the national fee schedule and 20 percent 
of the regional fee schedule. Beginning in 2007, the payment 
would be based entirely on the national fee schedule. The 
ambulance specific reasonable charges part of the phase-in is 
unaffected by this calculation.
    The provision would increase mileage payments for certain 
ground ambulance trips furnished on or after January 1, 2003, 
and before January 1, 2008. Payments for trips above 50 miles 
would be increased by at least one-quarter of the amount 
otherwise established under the fee schedule. This increase 
would apply regardless of where the transportation originated.

                             EFFECTIVE DATE

    Applies to ambulance services furnished on or after January 
1, 2003.

Section 513. 2-Year Extension of Moratorium on Therapy Caps; Provisions 
        Relating to Reports

                              CURRENT LAW

    BBA 97 established annual payment limits per beneficiary 
for all outpatient therapy services provided by non-hospital 
providers. The limits applied to services provided by 
independent therapists as well as to those provided by 
comprehensive outpatient rehabilitation facilities (CORFs) and 
other rehabilitation agencies. The limits did not apply to 
outpatient therapy services provided by hospitals.
    There were two per beneficiary limits. The first was a 
$1,500 per beneficiary annual cap for all outpatient physical 
therapy services and speech language pathology services. The 
second was a $1,500 per beneficiary annual cap for all 
outpatient occupational therapy services. Beginning in 2002, 
the amount would increase by the Medicare Economic Index (MEI), 
rounded to the nearest multiple of $10.
    BBRA 99 suspended application of the therapy limits in 2000 
and 2001. BIPA extended the suspension through 2002. The limits 
are scheduled to go into effect in 2003.
    BBA 97 required the Secretary to report to Congress by 
January 1, 2001, on recommendations on a revised coverage 
policy of outpatient physical therapy and occupational therapy 
services based on a classification of individuals by diagnostic 
category and prior use of services, in both inpatient and 
outpatient settings, in place of uniform dollar limitations. 
The BBRA 99 revised requirements for the BBA 97 report to 
include recommendations, and required a new study on 
utilization of therapy services. BBRA 99 required the Secretary 
to report to Congress on utilization of therapy services by 
June 30, 2001.
    Medicare provides that therapy patients must be under the 
care of a physician. The physician or therapist must develop a 
plan of treatment, and the physician must periodically review 
the plan.

                        EXPLANATION OF PROVISION

    The provision extends the moratorium on application of the 
therapy caps for an additional two years, through 2004. It 
would also require the Secretary to submit the reports required 
by BBA 97 and BBRA 99 by December 31, 2002.
    The provision would require the Secretary to request the 
Institute of Medicine to identify conditions or diseases that 
should justify conducting an assessment of the need to waive 
the therapy caps. The Secretary would be required to submit to 
Congress a preliminary report on the conditions and diseases 
identified by July 1, 2003, and a final report by September 1, 
2003.
    The provision would require the GAO to conduct a study on 
access to physical therapist services in states authorizing 
access to such services without a physicianreferral compared to 
states that require such a physician referral. The study would: (1) 
examine the use of and referral patterns for physical therapist 
services for patients age 50 and older in states that authorize such 
services without a physician referral and in states that require such a 
referral; (2) examine the use of and referral patterns for physical 
therapist services for patients who are Medicare beneficiaries; (3) 
examine the potential effect of prohibiting a physician from referring 
patients to physical therapy services owned by the physician and 
provided in the physician's office; (4) examine the physical therapist 
services within the facilities of the Department of Defense; and (5) 
analyze the potential impact on beneficiaries and on Medicare 
expenditures of eliminating the need for a physician referral and 
physician certification for physical therapist services under the 
Medicare program. The GAO would be required to submit a report to 
Congress on the study within one year of enactment.

                             EFFECTIVE DATE

    Enactment.

Section 514. Accelerated Implementation of 20 Percent Coinsurance for 
        Hospital Outpatient Department (OPD) Services; Other OPD 
        Provisions

                              CURRENT LAW

    BBA 97 provided for the implementation of a prospective 
payment system (PPS) for hospital outpatient department (OPD) 
services. This system was implemented August 2000. Under the 
system, services that are similar clinically and in terms of 
resource utilization are arranged into groups according to 
ambulatory payment classifications (APCs). A payment amount is 
established for each group and is the same for each service in 
the group. The payments cover hospital facility and 
nonphysician personnel costs with adjustments for geographic 
location of the facility and area wages.
    Before implementation of the PPS, beneficiary coinsurance 
was generally based on 20 percent of the hospital's charges, 
while the Medicare program based its payments on the hospital's 
costs. Over time, hospitals' charges grew more quickly than 
costs in part due to an error in the formula correct by the 
Balanced Budget Act; as a result the share paid by 
beneficiaries grew to about 50 percent. BBA 97 provided for a 
gradual decrease in the portion paid by beneficiaries. Under 
the new payment system, coinsurance is set at 20 percent of 
historical national median charges for all services in the 
group. For all APC groups with coinsurance rates above 20 
percent of the payment amount, the dollar amounts are frozen 
until the coinsurance represents 20 percent of payment. MedPAC 
estimated this process could take multiple decades for certain 
services.
    BBRA 99 limited the coinsurance by placing a dollar cap on 
the coinsurance for a given service equal to the inpatient 
hospital deductible. BIPA established an additional coinsurance 
reduction policy. A cap was placed on coinsurance liability for 
a single service. Starting April 1, 2001, the cap was 57 
percent of the total payment amount for the service. This cap 
is 55 percent in 2002 and 2003. It is reduced by 5 percentage 
points each year over the 2004-2006 period until the limit is 
40 percent for each service. During this period, the BBA 97 
provision decreasing coinsurance continues to apply as the 
underlying process.
    The law provides for transitional pass-through payments for 
additional costs of innovative medical devices, drugs, and 
biologicals.

                        EXPLANATION OF PROVISION

    The provision would modify the BIPA provision to accelerate 
the reductions in coinsurance, saving Medicare beneficiaries 
$9.7 billion in reduced co-payments over ten years. The per 
service coinsurance cap would be 45 percent in 2004, 40 percent 
in 2005, 35 percent in 2006-2009, 30 percent in 2010, 25 
percent in 2011, and 20 percent in 2012 and thereafter. Thus, 
by 2012, the coinsurance would be 20 percent for all services.
    The provision would remove temperature-monitored 
cryoablation from the list of cancer therapy drugs and 
biologicals entitled to pass-through payments.

                             EFFECTIVE DATE

    Enactment, except provision dealing with temperature-
monitored cryoablation applies to payments for services 
furnished on or after January 1, 2003.

Section 515. Coverage of an Initial Preventive Physical Examination

                              CURRENT LAW

    Medicare covers a number of preventive services. However, 
it does not cover routine physical examinations.

                        EXPLANATION OF PROVISION

    The provision would authorize coverage of a free initial 
preventive physical examination. The physical examination would 
be defined as physicians' services consisting of a physical 
examination with the goal of health promotion and disease 
detection. It would include items and services specified by the 
Secretary in regulations. A covered initial preventive physical 
examination would be one performed not later than six months 
after the individual's initial coverage date under Part B.
    The initial preventive physical examination would not be 
subject to the Part B deductible and would require no 
beneficiary coinsurance. Therefore, the beneficiary would pay 
nothing for the initial preventive physical examination.
    Initial preventive physical exams would be included in the 
definition of physicians' services for purposes of the 
physicians' fee schedule.

                             EFFECTIVE DATE

    Applies to services furnished on or after January 1, 2004 
for individuals whose coverage begins on or after such date.

Section 516. Renal Dialysis Services

                              CURRENT LAW

    Dialysis facilities providing care to beneficiaries with 
end-stage renal disease (ESRD) receive a fixed prospective 
payment amount for each dialysis treatment. BBRA 99 updated the 
composite rate by 1.2 percent for dialysis services furnished 
in 2000 and 1.2 percent for services furnished in 2001. BIPA 
provided for a 2.4 percent increase in 2001, in lieu of the 1.2 
percent provided under BBRA. BIPA specified that the increase 
would be implemented through the application of two composite 
rates in 2001, in order to avoid retroactive processing of 
claims caused by the January 1, 2001 effective date. For 
services furnished from January-March 2001, the 1.2 percent 
increase specified under BBRA applied; for the remainder of the 
year a 2.79 percent transition increase applied. Effective 
January 1, 2002, the composite rates reverted to the December 
31, 2000 rate, increased by 2.4 percent.
    BIPA prohibited exceptions to the composite rates, except 
in the case of facilities that had exceptions for their 2000 
rates or who applied for exceptions during the first 6 months 
of 2001.
    A small proportion of ESRD patients use home dialysis. 
Currently, the payment system does not vary rates by different 
methods of treatment.

                        EXPLANATION OF PROVISION

    The provision would increase the composite rate 1.2 percent 
for services furnished in 2004. The provision would specify 
that the prohibition on exceptions to the composite rate would 
not apply to pediatric facilities that, as of October 1, 2002, 
did not have an exception rate as of that date. Pediatric 
facilities would be defined as a renal facility at least 50 
percent of whose patients were under age 18.
    The provision would require the General Accounting Office 
of the Department of Health and Human Services to submit a 
report to Congress within one year of enactment. The report 
would be required to contain: (1) an analysis of the 
differences in costs of providing renal dialysis services in 
home settings and facility settings; (2) an assessment of the 
percentage of overhead costs in home settings and facility 
settings; and (3) an evaluation of whether the charges for home 
dialysis equipment and supplies were reasonable and necessary 
as well as the analysis of patient characteristics, outcomes 
(time spent waiting for transplantation), quality of life 
measures by modality.

                             EFFECTIVE DATE

    Enactment.

Section 517. Improved Payment for Certain Mammography Services

                              CURRENT LAW

    The Medicare physician fee schedule includes codes and 
amounts which apply to mammography procedures performed in 
physicians' offices and freestanding diagnostic imaging 
centers, and to payment for a physician's professional 
interpretation of a mammography performed in any setting. The 
Medicare hospital outpatient prospective payment system applies 
to the non-physician (i.e., facility) component of procedures 
furnished in hospital outpatient departments. The rates for the 
non-physician component of mammography differ, depending on the 
site of care and applicable payment system. Screening 
mammography services receive the same reimbursement from 
Medicare whether provided in a freestanding diagnostic imaging 
center, physician's office, or hospital outpatient department.

                        EXPLANATION OF PROVISION

    The payment amount for the facility component for hospital 
outpatient services for screening mammography and unilateral 
and bilateral diagnostic mammography would be made under the 
physician fee schedule. The Secretary would appropriately 
adjust the payment amount for the technical component for 
diagnostic mammography performed on or after January 1, 2004, 
paid under the physician fee schedule, based on the most recent 
cost data available.

                             EFFECTIVE DATE

    Applies to mammography performed on or after January 1, 
2004.

Section 518. Waiver of Part B Late Enrollment Penalty for Certain 
        Military Retirees

                              CURRENT LAW

    Medicare charges a 10 percent penalty on the Part B premium 
for every year that enrollment is delayed after a beneficiary 
first becomes eligible for Part B. Beneficiaries may enroll in 
Part B upon initial eligibility for Part B (beginning 3 months 
before they turn 65, for a period of 7 months), or during an 
annual general open enrollment period, which occurs from 
January 1 through March 31 each year. A beneficiary can delay 
enrollment in Part B without penalty if the beneficiary or 
spouse is working and has group health insurance coverage 
through his or her employer or union. Such a beneficiary may 
enroll in Part B during a special enrollment period, which 
includes any time the beneficiary is still covered by the group 
health plan through the current or active employment, or within 
8 months following the month that the health plan coverage ends 
or employment ends, whichever occurs first.
    The Floyd A. Spence National Defense Authorization Act for 
FY 2001 opened TRICARE to Medicare-eligible military retirees 
for the first time, allowing them to keep their military health 
benefits past the age of 65. This TRICARE For Life benefit 
became available on January 1, 2001, and provides wrap-around 
coverage like Medigap. For services payable by both Medicare 
and TRICARE, Medicare is the primary payer; TRICARE pays all 
remaining out-of-pocket expenses. Military retirees, Medicare-
eligible family members, and certain former spouses are 
eligible. They must be enrolled in Medicare Part B to join the 
TRICARE program.

                        EXPLANATION OF PROVISION

    This provision would waive the Part B late enrollment 
penalty, beginning in January 2003, for all individuals age 65 
and over who are covered beneficiaries under the TRICARE For 
Life program, and who enroll in Part B between January 1, 2001 
and December 31, 2003. The Secretary would consult with the 
Secretary of Defense in identifying individuals eligible for 
the waiver. The Secretary would establish a method for 
providing rebates of premium penalties paid for months on or 
after January 2003 for which a penalty would not apply, but for 
which a penalty was previously collected.
    The provision would create a continuous open enrollment 
period through the end of 2003 to allow military retirees to 
enroll in Part B immediately. Part B coverage would begin on 
the first day of the month following the month of enrollment.

                             EFFECTIVE DATE

    Enactment.

Section 519. Coverage of Cholesterol and Blood Lipid Screening

                              CURRENT LAW

    Medicare currently covers cholesterol and other blood lipid 
testing for patients who already suffer from known disease such 
as heart disease, stroke, or other disorders associated with 
elevated cholesterol levels. Medicare does not cover 
cholesterol and blood lipid screening for beneficiaries without 
these diseases.

                        EXPLANATION OF PROVISION

    Medicare would cover diagnostic testing of cholesterol and 
other blood lipid levels for early detection of abnormal 
cholesterol and other lipid levels. The Secretary would 
establish standards, in consultation with appropriate 
organizations, regarding the frequency and type of cholesterol 
and other blood lipid screening tests, except such frequency 
may not be more often than once every two years.

                             EFFECTIVE DATE

    Applies to tests furnished on or after January 1, 2004.

             TITLE VI--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 601. Elimination of 15 Percent Reduction in Payment Rates Under 
        the Prospective Payment System

                              CURRENT LAW

    In the first year of the home health PPS (FY 2001), 
payments to home health agencies were to be calculated so that, 
in that year, Medicare total spending for home health care 
would be the same as it would have been had the previous 
payment system remained in effect, but with the cost of the 
previous system calculated to include a 15 percent cut to 
limits on payments per visit and per beneficiary. However, 
Congress postponed the adjustment to PPS rates based on the 15 
percent cut to October 1, 2002, 2 years after the previous 
payment system had ended.

                        EXPLANATION OF PROVISION

    The provision would eliminate the adjustment to PPS rates 
based on the 15 percent reduction in the per visit and per 
beneficiary limits, effective for episodes of home health care 
concluding on or after October 1, 2001. In addition, the 
provision would continue to specify that the Secretary could 
include in the PPS recognition of regional differences or 
differences based on whether or not home health care services 
were furnished in an urbanized area or the home health agency 
was located in an urbanized area.

                             EFFECTIVE DATE

    Takes effect as if included in amendments made by BIPA.

Sec. 602. Establishment of Reduced Copayment for a Home Health Service 
        Episode of Care for Certain Beneficiaries

                              CURRENT LAW

    Current law does not require beneficiaries to pay any cost 
sharing, such as a deductible or coinsurance, when they use 
home health services. CMS and GAO have recently documented 
increased consumption of home health services, exceeding 30 
percent a year and very profitable margins of 35 percent or 
more.

                        EXPLANATION OF PROVISION

    The provision would establish, beginning with 2003, a 
beneficiary co-payment for each 60-day episode of care. The co-
payment would be 1.5 percent of the national average payment 
per episode in a calendar year as projected by the Secretary 
before the beginning of the year. (Administrative and judicial 
review of the average amounts would be prohibited.) The co-
payment would be rounded to the nearest multiple of $5. Unless 
theSecretary determines otherwise on a timely basis, the co-
payment in 2003 would be $40. Qualified Medicare beneficiaries (low 
income beneficiaries for whom Medicaid pays the Medicare premiums, 
deductibles, and coinsurance), persons dually eligible for both 
Medicare and Medicaid, and beneficiaries receiving 4 or fewer home 
health visits in an episode of care would be excluded from the co-
payment requirement.

                             EFFECTIVE DATE

    Enactment.

Sec. 603. Update in Home Health Services

                              CURRENT LAW

    Under current law, home health PPS amounts are updated 
annually by the increase in the home health market basket index 
minus 1.1 percentage points in FY 2002 and FY 2003 and by the 
full increase in the market basket index in subsequent years.
    Current law also provides payments to home health agencies 
for a outlier of home health patients (those for whom care is 
unusually costly) over and above the PPS amount, but the total 
amount of the additional payment or payment adjustments in a 
fiscal year may not exceed 5 percent of the total payments 
projected or estimated to be made in such year.

                        EXPLANATION OF PROVISION

    The provision would change the implementation updates to 
the home health PPS amounts from the start of a fiscal year to 
the start of a calendar year. It would increase payments by 2.0 
percentage points at the start of 2003; by 1.1 percentage point 
for 2004; and by the increase in the home health market basket 
index minus 0.8 percentage point for 2005.
    The provision would limit the total amount of outlier 
payments or payment adjustments for home health care in a 
fiscal year to no more than 3 percent of total projected 
payments, beginning in 2003.

                             EFFECTIVE DATE

    Applies to years beginning with 2003.

Section 604. OASIS Task Force; Suspension of Certain Oasis Data 
        Collection Requirements Pending Task Force Submittal of Report

                              CURRENT LAW

    BBA 97 authorized the Secretary to require all home health 
agencies to submit additional information that the Secretary 
considered necessary for development of a reliable case mix 
system. The Secretary has implemented an Outcome and Assessment 
Information Set (OASIS). Home health agencies are required to 
collect OASIS data and report information to their State survey 
agency.

                        EXPLANATION OF PROVISION

    The provision would require the secretary to establish and 
appoint a task force, known as the OASIS Task Force. The task 
force would be required to examine the data collection and 
reporting requirements under OASIS. It would be composed of 
staff from the Centers for Medicare and Medicaid Services with 
expertise in post-acute care; representatives of home health 
agencies, health care professionals and research and health 
quality experts outside the Federal government with experience 
in post-acute care, and advocates for individuals requiring 
home health services.
    The task force would review and make recommendations to the 
Secretary regarding changes in OASIS to improve and simplify 
data collection for the purposes of assessing the quality of 
home health services and providing consistency in payment for 
such services under the prospective payment system. The task 
force would report its findings and recommendations to the 
Secretary within 18 months of enactment and would terminate 60 
days after submission of the report. The task force would not 
be subject to the provisions of the Federal Advisory Committee 
Act.
    The provision would prohibit the Secretary from requiring 
home health agencies to gather or submit information on persons 
not eligible for Medicare or Medicaid benefits for the period 
beginning January 1, 2003 and ending on the last day of the 
second month following submission of the task force report.

                             EFFECTIVE DATE

    Enactment.

Section 605. MedPAC Study on Medicare Margins of Home Health Agencies

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The provision would require MedPAC to conduct a study of 
payment margins of home health agencies under the prospective 
payment system. The study would examine whether systematic 
differences in payment margins are related to differences in 
case mix, as measured by home health resource groups (HHRGs). 
MedPAC would be required to submit a report on the study to 
Congress, within two years of enactment.

                             EFFECTIVE DATE

    Enactment.

             Subtitle B--Direct Graduate Medical Education

Section 611. Extension of Update Limitation on High Cost Programs

                              CURRENT LAW

    Medicare pays hospitals for its share of direct graduate 
medical education (DGME) costs in approved programs using a 
count of the hospital's number of full-time equivalent 
residents and a hospital-specific historic cost per resident, 
updated for inflation. This historical cost based methodology 
resulted in inequities across hospitals with some hospitals 
receiving close to $200,000 per resident while others received 
less than $20,000 per resident. BBRA changed Medicare's 
methodology for calculating DGME payments to teaching hospitals 
to incorporate the concept of a national average amount 
adjusted by the physician geographic adjustment factor. 
Starting in FY2001, hospitals received no less than 70 percent 
of a geographically adjusted national average amount. Hospitals 
with per resident amounts above 140 percent of the 
geographically adjusted national average amount had payments 
frozen at current levels for FY2001 and FY2002, and in FY2003-
FY2005 would receive an update equal to the Consumer Price 
Index (CPI) increase minus 2 percentage points. Hospitals with 
per resident amounts between 70 percent and 140 percent of the 
geographically adjusted national average would continue to 
receive payments based on their hospital-specific per resident 
amounts updated for inflation.

                        EXPLANATION OF PROVISION

    Hospitals with per resident amounts above 140 percent of 
the geographically adjusted national average amount in FY2001 
or FY2002 would receive that payment amount through FY 2012.

                             EFFECTIVE DATE

    Upon enactment.

Section 612. Redistribution of Unused Resident Positions

                              CURRENT LAW

    Medicare's graduate medical education payment to teaching 
hospital is based on its updated cost per resident, the number 
of approved full-time-equivalent (FTE) residents, and 
Medicare's share of inpatient days in the hospital. Medicare 
counts residents in their initial residency period (the lesser 
of the minimum number of years required for board eligibility 
in the physician's specialty or 5 years) as 1.0 FTE. Residents 
whose training has extended beyond their initial residency 
period count as 0.5 FTE. Residents in certain specialties are 
allowed additional years in their initial residency period. 
Residents who are graduates from foreign medical schools do not 
count unless they pass certain exams. Medicare limits the total 
number of residents in a hospital's approved teaching programs 
that are reimbursed based on the number that were reported by 
the hospital for the cost reportingperiod ending in calendar 
year 1996. Hospitals that established new training programs before 
August 5, 1997 are partially exempt from the cap. Other exceptions 
apply to certain hospitals including those with new programs 
established after that date. Hospitals in rural areas (and non-rural 
hospitals operating training programs in rural areas) can be reimbursed 
for 130 percent of the number of residents allowed by their cap. The 
cap is calculated as a 3-year rolling average, that is, the resident 
count will be based on the average of the resident count in the current 
year and the 2 preceding years.

                        EXPLANATION OF PROVISION

    The Secretary will determine if a teaching hospital's 
current number of residents (reference level) is less than 
applicable resident limit. If so, 25 percent of the unused 
residency payments would be retained by the hospital and 75 
percent redistributed. The resident reference level would be 
the highest number of allopathic and osteopathic resident 
positions (before the application of any weighting factors) for 
the hospital during the reference period. A hospital's 
reference period would be the 3 most recent consecutive cost 
reporting periods for which a hospital's cost reports have been 
settled (or in the absence of such settled cost reports, 
submitted reports) on or before September 30, 2001. The 
Secretary would be able to adjust a hospital's resident 
reference level, upon the timely request for such an 
adjustment, for the cost reporting period that includes July 1, 
2002. The Secretary should also consult with the appropriate 
experts in graduate medical education and training such as the 
American Medical Association, the American Osteopathic 
Association, the Association of American Medical Colleges, the 
American Association of Colleges of Osteopathic Medicine and 
other groups as the Secretary deems appropriate.
    The Secretary would be authorized to increase the 
applicable resident limits for other hospitals. No increase 
would be permitted for any portion of cost reporting period 
that occurs before July 1, 2003 or before the date of a 
hospital's application for such an increase. No increase would 
be permitted unless the hospital has applied for such an 
increase by December 1, 2004. The Secretary would first 
distribute the increased resident count to programs in 
hospitals located in rural areas and hospitals that are not in 
large urban areas on a first-come-first-served basis. The 
hospital would have to demonstrate that the resident positions 
would be filled; not more than 25 positions would be given to 
any hospitals. These hospitals would be reimbursed for DGME for 
the increase in resident positions at the locality adjusted 
national average per resident amount rather than continuing the 
historically inequitable cost based methodology. A hospital's 
indirect medical education (IME) limit would be treated in the 
same way as changes to the aggregate limit except any resulting 
increase in resident counts would not affect a hospital's IME 
payments.
    These provisions would not apply to reductions in residency 
programs that occurred as part of the voluntary reduction 
program or would affect the ability of certain hospitals to 
establish new medical residency training programs. The 
Secretary would be required to submit a report to Congress no 
later than July 1, 2004 that recommends whether to extend the 
application deadline for increases in resident limits.

                             EFFECTIVE DATE

    Upon enactment.

                      Subtitle C--Other Provisions

Section 621. Modifications to Medicare Payment Advisory Commission 
        (MedPAC)

                              CURRENT LAW

    The Medicare Payment Advisory Commission (MedPAC) is 
required to review Medicare payment policies, make 
recommendations, and issue annual reports with respect to the 
Medicare +Choice program, Medicare's fee-for-service, and the 
interaction of these policies with the overall health care 
delivery system. MedPAC is composed of 17 members appointed by 
the Comptroller General to include individuals who are 
nationally recognized for their expertise in health finance and 
economics, actuarial science, health facility management, 
health plans and other related fields and who will provide a 
mix of broad geographic representation and a balance between 
rural and urban interests. Commission members include but are 
not limited to physicians, health professionals, employers, and 
other individuals skilled in health services and health 
economics research. Representatives of the elderly and 
consumers are also included in MedPAC. Individuals who are 
directly involved in the provision or management of the 
delivery of Medicare covered items or services are not to 
constitute a majority of the Commission.

                        EXPLANATION OF PROVISION

    MedPAC would be required to examine the budget consequences 
of its recommendations prior to issuing such recommendations, 
either directly or by consulting appropriate expert entities. 
MedPAC would be required to submit 2 reports to Congress no 
later than June 1, 2003 on: (1) the need and availability of 
data to determine the financial circumstances, including 
solvency, of hospitals and other Medicare providers; the report 
should also include an analysis of the advantages or 
disadvantages of the current TEFRA acute care payment system in 
the Virgin Islands compared to the Medicare prospective payment 
system; and (2) the investments and capital financing of 
participating hospitals and related foundations which would be 
based on data from Form 990 of the Internal Revenue Service.

                             EFFECTIVE DATE

    Upon enactment.

Section 622. Demonstration Project for Disease Management for Certain 
        Medicare Beneficiaries with Diabetes

                              CURRENT LAW

    BIPA required the Secretary to conduct a demonstration 
project targeting certain Medicare fee-for-service 
beneficiaries with diagnosed, advanced stage congestive heart 
failure, diabetes, or coronary heart disease to examine the 
impact on costs and health outcomes of applying disease 
management services, supplemented with prescription drug 
coverage. No more than 30,000 beneficiaries may participate at 
any time and the project must result in a net reduction in 
aggregate Medicare expenditures. CMS published a notice 
requesting proposals for this project on February 22, 2002.

                        EXPLANATION OF PROVISION

    The Secretary would be required to conduct a demonstration 
project, for up to 3 years, to examine the impact on costs and 
health outcomes of applying disease management to Hispanic 
Medicare beneficiaries who are diagnosed with diabetes. No more 
than 30,000 beneficiaries would be able to participate at any 
time. The beneficiaries would meet specified medical criteria, 
would have their physicians approve their participation in the 
project and would not be enrolled in a Medicare+Choice plan. 
These participants would be eligible for disease management 
services related to their diabetes and, except for modest cost 
sharing provided for by the project, would have all their 
prescription drug costs covered without regard to whether the 
drugs relate to the diabetes. The Secretary would carry out the 
project through contracts with up to 3 disease management 
organizations that have demonstrated improved health outcomes 
and reduced aggregate expenditures with such programs. Under 
the contracts, the organizations would be required to provide 
prescription drug coverage, would be paid a fee negotiated by 
the Secretary so that Medicare expenditures would not increase 
but rather, to the extent practicable, would decrease. The 
organization would be required to guarantee that Medicare 
expenditures would not increase through an appropriate 
arrangement with a reinsurance company. Payments to these 
organizations would be made in appropriate proportion from the 
Medicare trust funds.
    The Secretary would be required to establish a working 
group of employees of the Department of Health and Human 
Services to become the focal point of all disease management 
programs in the agency. Specifically, the working group would: 
(1) oversee the new diabetes disease management project; (2) 
establish policy and criteria for Medicare disease management 
programs; (3) identify targeted medical conditions and 
individuals; (4) select areas for disease management programs; 
(5) monitor health outcomes under the programs; (6) measure the 
effectiveness of such programs with respect to budget 
neutrality requirements; and (7) serve as a focal point for 
dissemination of information on all CMS run disease management 
programs. Participants would be offered certain protections for 
the period of the demonstration project that are afforded to 
Medicare beneficiaries enrolled in Medicare+Choice plans with 
respect to their existing Medicare supplemental insurance 
policies. The Secretary would be required to waive Medicare 
provisions as necessary to provide for payment for the disease 
management program.
    The Secretary would be required to submit an interim report 
to Congress on the project no later than 2 years after the date 
it is first implemented; a final report would be due 6 months 
after its completion. These reports would include information 
on the impact of the project on costs and health outcomes as 
well as recommendations on the cost-effectiveness of extending 
or expanding the project.
    GAO would be required to submit a report to Congress that 
compares Medicare's disease management programs with those 
conducted in the private sectors and identifies the cost 
effectiveness of such programs. The report would be due no 
later than 18 months from the date of enactment.

                             EFFECTIVE DATE

    Upon enactment.

Section 623. Demonstration Project for Medical Adult Day Care

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Subject to earlier provisions, the Secretary would be 
required to establish a demonstration project under which a 
home health agency, directly or under arrangement with a 
medical adult day care facility, provide medical adult day care 
services as a substitute for a portion of home health services 
otherwise provided in a beneficiary's home. Such services would 
have to be provided as part of a plan for an episode of care 
for home health services established for a beneficiary. Payment 
for the episode would equal 95 percent of the amount that would 
otherwise apply. In no case would the agency or facility be 
able to charge the beneficiary separately for the medical adult 
day care services. The Secretary would reduce payments made 
under the home health prospective payment system to offset any 
amounts spent on the demonstration project. The 3-year 
demonstration project would be conducted in states that license 
or certify providers of medical adult day care services, as 
selected by the Secretary. Participation of up to 15,000 
Medicare beneficiaries would be on a voluntary basis.
    When selecting participants, the Secretary would give 
preference to home health agencies that are currently licensed 
or certified to furnish medical adult day care services; The 
Secretary would define licensure to apply both directly or 
under common ownership and control. A medical adult day care 
facility would (1) have been licensed or certified by a State 
to furnish medical adult day care services for a continuous 2-
year period; (2) have been engaged in providing skilled nursing 
services or other therapeutic services directly or under 
arrangement with a home health agency; and (3) would meet 
quality standards and other requirements as established by the 
Secretary. The Secretary would be able to waive necessary 
Medicare requirements except that beneficiaries must be 
homebound in order to be eligible for home health services.
    The Secretary would be required to evaluate the project's 
clinical and cost effectiveness and submit a report to Congress 
no later than 30 months after its commencement. The report 
would include: (1) an analysis of patient outcomes and 
comparative costs relative to beneficiaries who receive only 
home health services for the same health conditions and (2) 
recommendations concerning the extension, expansion, or 
termination of the project.

                             EFFECTIVE DATE

    Upon enactment.

              TITLE VII--MEDICARE BENEFITS ADMINISTRATION

Section 701. Establishment of Medicare Benefits Administration

                              CURRENT LAW

    The Medicare statute requires that the Administrator of the 
Health Care Financing Administration (HCFA, now known as CMS) 
be appointed by the President with the advice and consent of 
the Senate. The HCFA Administrator is paid at level III of the 
Executive Schedule.
    The Medicare statute requires that the HCFA administrator 
appoint a Chief Actuary who reports directly to such 
administrator and is paid at the highest rate of basic pay for 
the Senior Executive Service. To be appointed as actuary, an 
individual must possess demonstrated experience and superior 
expertise in actuarial sciences, exercise duties that are 
appropriate to the office, and act in accordance with 
professional standards of actuarial independence. The Medicare 
statute specifies certain responsibilities for this position 
with respect to the Medicare+Choice program. Specifically, 
annual Medicare+Choice capitation rates are computed and 
published by the Secretary, through the Chief Actuary of HCFA; 
adjustments to the Medicare+Choice payment rates that reflect 
changes in coverage are based on an cost analysis by the CMS' 
Chief Actuary; and the assumptions and data in the adjusted 
community rating submitted by Medicare+Choice plans are 
reviewed and assessed by CMS' Chief Actuary. The Chief Actuary 
may be removed only for cause.

                        EXPLANATION OF PROVISION

    The Medicare Benefits Administration (MBA) would be an 
agency established within HHS that would be headed by an 
Administrator appointed by the President with the advice and 
consent of the Senate for a 5-year term. If a successor is not 
appointed immediately, the existing Administrator would 
continue in office. When the subsequent administrator was 
appointed, that person would serve as Administrator only for 
the remainder of the term. The Administrator who would be paid 
at level III of the Executive Schedule would report directly to 
the Secretary. The Secretary would ensure appropriate 
coordination between the Administrators of MBA and CMS.
    The Administrator would be (1) responsible for all the 
duties of the MBA; (2) would have control over all related 
personnel and activities; (3) able to establish alter 
consolidate or discontinue organizational units except as 
further specified; (4) able to assign duties and delegate the 
authority to act to such officers and employees of MBA (these 
actions, within the limitation of such delegations, shall have 
the same force as if performed by the Administrator); and (5) 
able to prescribe necessary rules and regulations to carry out 
the functions of the MBA (subject to the rulemaking procedures 
of the section 553 of Title 5 of the United States Code, the 
Administrative Procedure Act).
    The Deputy Administrator of MBA who would be paid at level 
IV of the Executive Schedule would be appointed by the 
President with the advice and consent of the Senate for a 5-
year term. If a successor is not appointed immediately, the 
existing Deputy Administrator would continue in office. The 
subsequent deputy administrator would serve in that capacity 
only for the remainder of the term. The Deputy would perform 
duties as assigned by the Administrator and would act as Acting 
Administrator during any absence or disability, unless the 
President designates another officer of the Government as 
Acting Administrator in the event of a vacancy in that office.
    The MBA Administrator would appoint a Chief Actuary who 
reports directly to such administrator and is paid at the 
highest rate of basic pay for the Senior Executive Service. To 
be appointed as Chief Actuary, an individual must possess 
demonstrated experience and superior expertise in actuarial 
sciences, exercise duties that are appropriate to the office, 
and act in accordance with professional standards of actuarial 
independence. The Chief Actuary would be able to be removed 
only for cause.
    The MBA Administrator would be responsible for carrying out 
the duties associated with Parts C and D of Medicare including 
(1) negotiating, entering into, and enforcing Medicare+Choice 
contracts, including prescription drug coverage; (2) 
negotiating, entering into, and enforcing contracts with PDP 
sponsors for prescription drug coverage; (3) other duties 
provided for under Parts C or D, including certain 
demonstration projects; and (4) other duties relating to the 
Medicare prescription drug discount cared endorsement program. 
In carrying out the duties with respect to prescription drug 
coverage, the Administrator may not (1) require a particular 
formulary or institute a price structure for reimbursement of 
covered outpatient drugs; (2) interfere with negotiations 
between PDP sponsors and Medicare+Choice organizations, drug 
manufacturers, wholesalers, or other suppliers of outpatient 
drugs; and (3) interfere with the competitive nature of 
providing coverage through such sponsors and organizations. The 
Administrator would be required to submit to Congress a report 
on the administration of Parts C and D by March 31st of each 
year.
    The MBA Administrator would be able to hire employees and 
officers with the necessary expertise to negotiate private 
sector contracts without regard to chapter 31 of Title 5 (other 
than 3110 and 3112) of the United States Code (relating to 
hiring of federal personnel and other employment matters) with 
the approval of the Secretary. The MBA staff would be paid 
without regard to the provisions of chapters 51 (other than 
5101) and 53 (other than 5301) of Title 5 of the United States 
Code (relating to classification and pay schedules), but in no 
case would these employees receive more than the basic pay for 
level IV of the Executive Schedule. The MBA Administrator would 
not be able to employ more FTE's to perform a specific function 
than were previously used by CMS on the date of enactment to 
perform that function.
    The Secretary and the Administrators of CMS and MBA would 
establish an appropriate transition of responsibility to 
redelegate the administration of Medicare Part C from CMS to 
MBA. The Secretary would ensure that the CMS Administrator 
transfer necessary data and information to the MBA 
Administrator. To the extent that a responsibility is 
transferred from the Secretary or from CMS to the MBA 
Administrator, any statutory reference with respect to such a 
responsibility is deemed to be a reference to the MBA 
Administrator.
    The Secretary would be required to establish an Office of 
Beneficiary Assistance as a separate operating division within 
the MBA to (1) make Medicare eligibilitydeterminations, and (2) 
enroll Medicare beneficiaries. The Office of Beneficiary Assistance 
would disseminate information on benefits and payment limitations 
(including cost-sharing requirements, stop-loss provisions, and 
formulary restrictions) under Parts C and D as well as benefits and 
payment limitations (including information on Medicare supplemental 
plans) under Parts A and B. The information would be disseminated by 
mail, through an internet site, and through a toll free telephone 
number in a way so that beneficiaries would be able to compare benefits 
under Parts A, B, D and supplemental insurance with benefits offered by 
Medicare +Choice plans. Information on the grievance and appeals 
procedures for all parts of Medicare would be disseminated as well.
    A Medicare Policy Advisory Board would be established 
within the MBA to advice, consult with, and make 
recommendations to the MBA Administrator with respect to Parts 
C and D. The Board would consist of 7 members who serve a 3-
year term and who are appointed as follows: 3 members would be 
appointed by the President; 2 members would be appointed by the 
Speaker of the House with the advice of the chairmen and 
ranking minority members of the committees of jurisdiction and 
2 members would be appointed by the President pro tempore of 
the Senate with the advice of chairman and ranking minority 
member of the committee of jurisdiction. The members would be 
chosen on the basis of their integrity, objectivity, and 
judgment as well as their experience with healthcare benefits 
management. No officer or employee of the United States would 
be able to serve on the Board. Board members would be 
compensated for each day of work (including time spent 
traveling) at a rates equal to level IV of the Executive 
Schedule.
    The terms of the initial appointees would be established on 
a staggered basis. As designated by the President at time of 
appointment, 1 member would have a 1-year term; 3 members would 
have a 2-year term; and 3 members would have a 3-year term. No 
individual would be able to serve on the Board for more than 8 
years. Any individual appointed to fill a vacancy on the Board 
would serve for the remainder of the term. A Board member would 
be able to serve after the expiration of that member's term 
until a successor is appointed. A vacancy in the Board would be 
filled in the manner in which the original appointment was 
made.
    The Chair of the Board would be elected by the members to 
serve 3 years. The Board would meet at least 3 times during 
each fiscal year at the call of the chair. The Board would have 
a Director who would be appointed by the Chair. The Director 
would be able to appoint personnel, without regard to chapter 
31 of Title 5 U.S.C., but with the Board's approval. The staff 
would be paid without regard to the provisions of chapters 51 
and 53 of Title 5 U.S.C. (relating to classification and pay 
schedules), but in no case would these employees receive more 
than the basic pay for level IV of the Executive Schedule.
    The Board would submit reports to Congress and the MBA 
Administrator that would contain recommendations for 
legislative or administrative changes to improve administration 
in such areas as fostering competition, beneficiary education, 
risk-adjustment methods, disease management programs, and 
access in rural areas. The Board would submit these reports 
directly to Congress without prior review and approval to any 
federal officer or agency. No later than 90 days after a report 
is submitted, the MBA Administrator would be required to submit 
an analysis of the Board's recommendations to Congress and the 
President. This analysis would also be published in the Federal 
Register.
    The MBA Administrator would be required to make necessary 
information available to the Board. The Board would be able to 
contract with and compensate government and private agencies 
without regard to sections 3709 of the Revised Statutes (41 
U.S.C. 5). Necessary sums would be authorized to be 
appropriated from the Medicare trust funds, including the 
Medicare Prescription Drug Account.
    The MBA Administrator would become an ex-officio member of 
the Board of Trustees of the Medicare Trust Funds. The 
Administrator of CMS would be paid at level III of the 
Executive Schedule.

                            EFFECTIVE DATES

    The Administrator and Deputy Administrator would be 
appointed on or after March 1, 2003. The MBA Administrator 
would be responsible for Medicare enrollment and eligibility 
determinations beginning on or after January 1, 2005. Before 
the MBA Administrator would be appointed, the Secretary would 
provide for the conduct of any of the Administrator's 
responsibilities that are otherwise provided for under law. On 
January 1, 2003, the MBA Administrator would become an ex-
officio member of the Board of Trustees of the Medicare Trust 
Funds. The Administrator of CMS would be paid at level III of 
the Executive Schedule, effective on January 1, 2003.

        TITLE VIII--REGULATORY REDUCTION AND CONTRACTING REFORM

Section 801. Construction; Definition of Supplier

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    None of the provisions shall be construed to (1) compromise 
the existing legal remedies for addressing Medicare fraud or 
abuse with respect to criminal prosecution, civil enforcement, 
or administrative remedies, including those established by the 
False Claims Act or (2) prevent the Department of Health and 
Human Services (HHS) from its ongoing efforts to eliminate 
waste, fraud, and abuse in Medicare. Also, consolidation of 
Medicare's administrative contracting functions (as provided 
for in this bill) would not consolidate the Federal Hospital 
Insurance Trust Fund, which pays for Part A, services and the 
Federal Supplementary Medical Insurance Trust fund, which pays 
for Part B services. The bill notes that this administrative 
consolidation does not reflect any position on that issue.
    The term ``supplier'' refers to a physician or other 
practitioner, a facility, or other entity (other than a 
provider of services) that furnishes items or services under 
title XVIII of the Social Security Act.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Committees are committed to extending needed regulatory 
relief to providers and suppliers while at the same time 
protecting taxpayers from waste, fraud and abuse.

                     Subtitle A--Regulatory Reform

Section 802. Issuance of Regulations

            (a) Consolidation of Promulgation to Once a Month

                              CURRENT LAW

    The Secretary is required to prescribe regulations that are 
necessary to administer Parts A and B of the Medicare program. 
No rule, requirement or policy statement (other than a national 
coverage determination) that establishes or changes a 
substantive legal standard that determines Medicare's scope of 
benefits, level of payment, or eligibility of individuals, 
entities or organizations to receive benefits or furnish 
services can take effect unless it is promulgated by 
regulation. The Secretary must publish a proposed regulation in 
the Federal Register, with at least 60 days to solicit public 
comment, before issuing the final regulation with the following 
exceptions:(1) the statute permits the regulation to be issued 
in interim final form or provides for a shorter public comment period; 
(2) the statutory deadline for implementation of a provision is less 
than 150 days after the date of enactment of the statute containing the 
provision; (3) under the good cause exception contained in the rule-
making provision of Title 5 of the United States Code, notice and 
public comment procedures are deemed impracticable, unnecessary or 
contrary to the public interest. The Secretary must publish in the 
Federal Register no less frequently than every three months a list of 
all manual instructions, interpretative rules, statements of policy, 
and guidelines which are promulgated to carry out Medicare's law.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to issue proposed or final 
regulations (including interim final regulations) on one 
business day of every month, unless the Secretary finds that 
publication on other dates is required to comply with Medicare 
law or that this restriction is contrary to the public 
interest. In such instances, the Secretary would be required to 
include an explanation of such a finding when the regulations 
are issued. The Secretary would be required to coordinate the 
issuance of new regulations relating to a category of provider 
or supplier based on an analysis of the collective impact of 
the regulatory changes on such category. No later than three 
years after enactment, the Comptroller General of the US 
General Accounting Office would be required to report to 
Congress on the feasibility of issuing regulations only on one 
day in each calendar quarter.

                             EFFECTIVE DATE

    The provisions would apply to regulations issued 30 days 
after enactment.

                           REASON FOR CHANGE

    The volume of Medicare regulations issued by CMS can be 
difficult for health care providers and suppliers, particularly 
small providers and suppliers, to monitor. By requiring 
regulations to be released on a certain date, providers and 
suppliers will be better able to keep informed of program 
changes. The Secretary may stagger the notice and comment 
periods of regulations issued on the same day, so that the 
comment deadlines for these regulations do not occur 
simultaneously, in order to ensure that interested parties have 
the opportunity to comment on multiple regulations.
    The collective impact provision ensures that the Department 
will consider the overall impact of any changes it is making on 
categories of providers and suppliers. If the Department 
determines that many changes affecting a particular category of 
providers or suppliers are underway, the Department should 
consult with representatives of that category to determine 
whether providers and suppliers would be better able to make 
the systems changes needed to accommodate those changes if all 
the new regulations were released simultaneously or staggered. 
Because of the burden implementing multiple regulations 
simultaneously can cause, the Secretary needs to coordinate new 
regulations based on an analysis of the collective impact the 
regulatory changes will have on any given category of provider 
or supplier.
            (b) Regular Timeline for Publication of Final Rules

                              CURRENT LAW

    See above. The Secretary must publish in the Federal 
Register no less frequently than every three months, a list of 
all manual instructions, interpretative rules, statements of 
policy, and guidelines which are promulgated to carry out 
Medicare's law.

                       EXPLANATION OF PROVISIONS

    The Secretary, in consultation with the Director of the 
Office of Management and Budget, would establish and publish a 
regular timeline for the publication of final regulations based 
on the previous publication of a proposed regulation or an 
interim final regulation. The timeline may vary by regulation 
due to complexity, number and scope of comments received and 
other factors, but would not be longer than three years unless 
there are exceptional circumstances. If the Secretary intends 
to vary a regulation's timeline, a notice of the different 
timeline would be required to be published in the Federal 
Register. This notice would include a brief explanation of the 
justification for such variation. If the timeline established 
for an interim final regulation expires without promulgation of 
a final regulation (including the public comment period), the 
interim final regulation would not remain in effect unless the 
Secretary publishes a notice of continuation that includes an 
explanation for not complying with the deadlines. This 
provision applies to the regular timelines and any subsequent 
1-year extension to the timeline. If a notice of continuation 
is published, the regular timeline or the timeline as 
previously extended would be extended for 1 additional year. 
The Secretary would be required to submit a report to Congress 
that describes and explains the instances where the final 
regulation was not published within the applicable timeline.

                             EFFECTIVE DATE

    Upon enactment. The Secretary would be required to provide 
for a transition period for previously published interim final 
regulations.

                           REASON FOR CHANGE

    Numerous regulations have been issued by CMS as interim 
final regulations and never finalized. This injects an element 
of uncertainty into the regulation in question, and it 
precludes the ability of CMS to incorporate changes based on 
comments received by interested parties into a final 
regulation. The provision ensures that proposed regulations 
will move through the process of finalization in a predictable 
and timely manner with input from affected parties.
            (c) Limitation on New Matter in Final Regulations

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    A provision in a final regulation that is not a logical 
outgrowth of the proposed regulation (including an interim 
final regulation) would be treated as a proposed regulation and 
would not take effect without a separate public comment period 
followed by its publication as a final regulation.

                             EFFECTIVE DATE

    Final regulations published on or after enactment.

                           REASON FOR CHANGE

    The provision ensures that interested parties will be given 
an opportunity to comment on issues addressed in regulations 
before they take effect. The Committees recognize that proposed 
regulations for annual payment updates for providers and 
suppliers include proposed overall payment updates, and that 
specific payment amounts for specific codes or specific payment 
areas are not typically included until final rules. The 
Committees do not intend to change past custom to recognize 
such details in final rules as a ``logical outgrowth'' of 
proposed rules. It is the Committees' intent that if the 
Secretary publishes a final rulemaking document which includes 
a provision that is not a logical outgrowth of a previously 
published notice of proposed rulemaking, such provision will 
not take effect until there is further opportunity for public 
comment and a publication of the provision again as a final 
regulation.

Section 803. Compliance with Changes in Regulations and Policies

            (a) No Retroactive Application of Substantive Changes

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    A substantive change in a regulatory or a subregulatory 
issuance would not be applied retroactively to items or 
services, unless the Secretary determines that retroactive 
application (1) would be necessary to comply with statutory 
requirements; or (2) would be beneficial to the public 
interest.

                             EFFECTIVE DATE

    For substantive changes issued on or after enactment.

                           REASON FOR CHANGE

    This provision will ensure that Medicare's rules are not 
generally applied retroactively.
            (b) Timeline for Compliance with Substantive Changes after 
                    Notice

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    A substantive change would not become effective before 30 
days after the date the change is issued or published. The 
Secretary would be able to waive the 30-day period to comply 
with statutory requirements or if such waiver is in the public 
interest. If an earlier date is established, the Secretary 
would be required to include a brief explanation of such 
finding in the issuance or publication of the substantive 
change. No compliance action would be permitted against a 
provider or supplier for goods and services furnished before 
the effective date of the substantive change.

                             EFFECTIVE DATE

    For compliance actions undertaken on or after enactment.

                           REASON FOR CHANGE

    This provision will ensure providers and suppliers have 
sufficient time to make any changes to systems needed to comply 
with changes in regulations.
            (c) Reliance on Guidance

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    (1) The provider or supplier follows written guidance 
(which may be transmitted electronically) provided by the 
Secretary or a Medicare contractor when furnishing an item or 
service and submitting a claim; (2) the Secretary finds that 
the circumstances relating to the furnished items and services 
have been accurately presented in writing to the contractor; 
(3) the guidance is inaccurate. A provider or supplier who 
reasonably relied on erroneous guidance would not be subject to 
any sanction or penalties, including repayment. This provision 
would not prevent recoupment or repayment (without additional 
penalty) if the overpayment was solely the result of a clerical 
or technical operational error.

                             EFFECTIVE DATE

    Upon enactment, but would not apply to sanctions where 
notice was provided on or before enactment.

                           REASON FOR CHANGE

    This provision will ensure that providers and suppliers 
who, in good faith based, on the information received from 
contractors, will not be vulnerable to recovery if it turns out 
that the contractor was in error. Providers should be able to 
rely on the directions or guidance provided by their Medicare 
contractors.

Section 804. Reports and Studies Relating to Regulatory Reform

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    The legislation has two studies in this area. First, the 
Comptroller General of the United States (GAO) would be 
required to conduct a study to determine the appropriateness 
and feasibility of providing the authority to the Secretary to 
issue legally binding advisory opinions on the interpretation 
and application of Medicare regulations. The study would 
examine the appropriate time frame for issuing the decisions as 
well as the need for additional staff and funding. GAO would 
submit the study to Congress by January 1, 2004.
    Second, the Secretary would be required to report to 
Congress on the administration of the Medicare program and 
inconsistencies among existing Medicare statutory or regulatory 
provisions. The report would include (1) information from 
beneficiaries, providers, suppliers, Medicare Beneficiary and 
Provider Ombudsmen (established in this legislation), and 
Medicare contractors; (2) descriptions of efforts to reduce 
inconsistencies; and (3) recommendations from the Secretary for 
appropriate legislation or administrative actions. The report 
would be due no later than two years after enactment and every 
two thereafter.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Committees are interested in receiving additional 
information regarding both advisory opinions and 
inconsistencies in Medicare regulations.

                     Subtitle B--Contracting Reform

Section 811. Increased Flexibility in Medicare Administration.

            (a) Consolidation and Flexibility in Medicare 
                    Administration

                              CURRENT LAW

    Section 1816 of the Social Security Act authorizes the 
Secretary to establish agreements with fiscal intermediaries 
nominated by different provider associations to make Medicare 
payments for health care services furnished by institutional 
providers. Section 1842 of the Act authorizes the Secretary to 
enter into contracts with health insurers (or carriers) to make 
Medicare payments to physicians, practitioners and other health 
care suppliers. Section 1834(a)(12) of the Act authorizes 
separate regional carriers for the payment of durable medical 
equipment (DME) claims. Section 1893 authorizes the Secretary 
to contract for certain program safeguard activities under the 
Medicare Integrity Program (MIP).
    Certain terms and conditions of the contracting agreements 
for fiscal intermediaries and carriers are specified in the 
Medicare statute. Medicare regulations coupled with long-
standing agency practices have further limited the way that 
contracts for claims administration services can be 
established. Specifically, the contracts are awarded without 
full and open competition; generally must cover the range of 
claims processing and related activities; cannot be terminated 
without cause and without the opportunity for a public hearing; 
and incorporate cost-based, not performance-based, 
reimbursement methods with no incentive bonuses.
    Certain functions and responsibilities of the fiscal 
intermediaries and carriers are specified in the statute as 
well. The Secretary may not require that carriers or 
intermediaries match data obtained in its other activities with 
Medicare data in order to identify beneficiaries who have other 
insurance coverage as part of the Medicare Secondary Payer 
(MSP) program. With the exception of prior authorization of DME 
claims, an entity may not perform activities (or receive 
related payments) under a claims processing contract to the 
extent that the activities are carried out pursuant to a MIP 
contract. Performance standards with respect to the timeliness 
of reviews, fair hearings, reconsiderations and exemption 
decisions are established as well.
    A Medicare contract with an intermediary or carrier may 
require any of its employees certifying or making payments 
provide a surety bond to the United States in an amount 
established by the Secretary. Neither the contractor nor the 
contractor's employee who certifies the amount of Medicare 
payments is liable for erroneous payments in the absence of 
gross negligence or intent to defraud the United States. 
Neither the contractor nor the contractor's employee who 
disburses payments is liable for erroneous payments in the 
absence of gross negligence or intent to defraud the United 
States, if such payments are based upon a voucher signed by the 
certifying employee.

                       EXPLANATION OF PROVISIONS

    The legislation would add Section 1874A to the Social 
Security Act to permit the Secretary to enter into contracts 
with any entity to serve as a Medicare administrative 
contractor. These contractors would perform or secure the 
performance (through subcontracting) of some or all of the 
following tasks: determine payment amounts; make payments; 
educate and assist beneficiaries; provide consultative 
services; communicate with providers and suppliers; educate and 
offer technical assistance to providers; and perform additional 
functions as necessary. An entity eligible to enter into a 
contract with respect to the performance of a particular 
function as an entity would (1) have demonstrated capability to 
carry out such function; (2) comply with conflict of interest 
standards that are generally applicable under Federal 
acquisition and procurement; (3) have sufficient assets to 
financially support the performance of such functions and (4) 
meet other requirements imposed by the Secretary. The claims 
processing jurisdiction of Medicare administrative contractor 
would be determined by the scope of the contract awarded to the 
entity. Specifically, the Medicare administrative contractor 
that would perform a particular function is the entity that has 
the contract to perform that function for any given 
beneficiary, any given provider or supplier, or class of same.
    The Federal Acquisition Rules (FAR) would apply to Medicare 
administration contracts except to the extent it is 
inconsistent with a specific Medicare requirement. The 
Secretary would be required to use competitive procedures when 
entering into a Medicare administrative contract and would take 
into account performance quality, price, and other factors. The 
Secretary would be able to renew a contract for up to five 
years without regard to statutory requirements concerning 
competitive contracting if the entity has met or exceeded 
specified performance standards. The Secretary would be able to 
transfer functions among contractors consistent with these 
provisions. The Secretary would be required to (1) ensure that 
performance quality is considered in such transfers and (2) 
provide notice of such transfer (in the Federal Register or 
otherwise) that describes the transferred functions, the 
affected providers and suppliers, and includes contractor 
contact information.
    The Secretary would be required to (1) provide incentives 
for the Medicare administrative contractors to provide 
efficient, high-quality services; and (2) develop performance 
standards with respect to each of the payment, provider 
service, and beneficiary service functions required of the 
contractors. In developing the performance standards, the 
Secretary would be able to consult with providers and 
suppliers, organizations representing Medicare beneficiaries, 
and Medicare contractors. In developing the performance 
requirements for Medicare administrative contractors, the 
Secretary may include satisfaction of beneficiaries as a 
standard for measuring performance. The Secretary would be 
required to contract only with those entities that will (1) 
perform efficiently andeffectively; (2) meet standards for 
financial responsibility, legal authority and service quality among 
other pertinent matters; (3) agree to furnish timely and necessary 
data; and (4) maintain and provide access to necessary records and 
data.
    The performance requirements would be (1) set forth in the 
contract between the Secretary and the appropriate Medicare 
contractor; (2) used to evaluate contractor performance; and 
(3) consistent with the contract's written statement of work. 
The statement of work and contract are public documents. A 
Medicare administrative contract would contain provisions 
deemed necessary by the Secretary and may provide for advances 
of Medicare funds for the purposes of making payments to 
providers and suppliers. In developing contract performance 
requirements for Medicare administrative contractors, the 
Secretary would be required to consider the inclusion of the 
existing standards in effect for timeliness of reviews, 
reconsiderations and exemption decisions.
    The existing MSP provision would apply: the Secretary would 
not be able to require contractors to match their data with 
Medicare data for the purposes of the identifying beneficiaries 
with other insurance coverage. The Secretary would assure that 
the activities of the Medicare administrative contractors do 
not duplicate the Medicare Integrity Program (MIP) functions 
except with respect to the prior authorization of durable 
medical equipment. An entity with a MIP contract would not be 
treated as a Medicare administrative contractor, simply because 
it has a MIP contract.
    A Medicare administrative contractor and any of its 
employees certifying or disbursing payments may be required to 
provide a surety bond to the United States in an amount 
established by the Secretary. It is the intent of Congress that 
the definition of a surety bond in this instance includes 
fidelity bonds and the Secretary has the authority to request 
fidelity bonds. The contractor's employee who disburses 
payments is not liable for erroneous payments in the absence of 
gross negligence or intent to defraud the United States, if 
such payments are based upon an authorization from the 
certifying employee and the authorization meets the internal 
control standards established by GAO. The contractor is not 
liable for payments made by its certifying or disbursing 
officers unless in connection with such payments or in the 
supervision or selection of such officers the contractor acted 
with gross negligence.
    The Secretary would be able to indemnify a Medicare 
administrative contractor, subcontractor, or employee who is 
made a party to any judicial or administrative proceeding 
arising from the claims administration process to an 
appropriate extent as determined by the Secretary and specified 
in the contract. Indemnification in this case may include 
payment of judgments, certain settlements, awards and costs 
(including reasonable legal expenses). Settlement proposals 
would not be negotiated or compromised without prior written 
approval by the Secretary. The Secretary would not be able to 
provide any indemnification if the liability arises directly 
from conduct that is determined in the proceeding or by the 
Secretary to be criminal in nature, fraudulent, or grossly 
negligent. If indemnification is provided before such 
determination is made and the contractor's conduct is found to 
be, the contractor would reimburse the Secretary for these 
costs. The provisions would not change common law immunity 
available to the Medicare contractor or other party, or permit 
the payment of costs not otherwise allowable, reasonable or 
allocable under the Federal Acquisition Regulation.

                             EFFECTIVE DATE

    See subsection (d).

                           REASON FOR CHANGE

    Medicare's current contracting represents an antiquated, 
inefficient, and closed system based on cozy relationships 
between the government, contractors and providers.
    Medicare contracting is antiquated because contractors may 
not provide service for the entire Medicare program, or 
particular functions within the program; rather Fiscal 
Intermediaries administer claims for facilities and carriers 
administer claims for all other providers. It has failed to 
keep pace with integrated claims administration practices in 
the private sector.
    Medicare contracting is inefficient because Medicare does 
not award contracts through competitive procedures, but rather 
on provider nomination.
    Medicare contracting is closed. All but one of the 
contractors today have been with Medicare since the program's 
inception 36 years ago, and only insurers can provide 
contracting services.
    This provision permits greater flexibility in contracting 
for administrative services between the Secretary and the 
Medicare contractors (entities that process claims under part A 
and part B of the Medicare program), including the flexibility 
to separately contract for all or parts of the contractor 
functions. The Secretary also may contract with a wider range 
of entities, so that the most efficient and effective 
contractor can be selected.
    These amendments require the Secretary to contract 
competitively at least once every five years for the 
administration of benefits under parts A and B. In conjunction 
with the elimination of cost contracts, it is intended to 
create incentives for improved service to beneficiaries and to 
providers of services and suppliers.
            (b) Conforming Amendments to Section 1816 (Relating to 
                    Fiscal Intermediaries)

                              CURRENT LAW

    Section 1816 of the Social Security Act establishes the 
provider nomination process, the contracting specifications, 
and performance standards for fiscal intermediaries that 
currently contract with Medicare to process claims and perform 
other related administrative activities for institutional 
providers.

                       EXPLANATION OF PROVISIONS

    The provisions establish that the activities of fiscal 
intermediaries in administering Medicare would be conducted 
through contracts with Medicare administrative contractors as 
set forth in subsection (a). The provider nomination process 
and contracting specifications would be repealed. Certain 
performance standards with respect to the processing of clean 
claims would be retained. Certain annual reporting requirements 
concerning the contractor's overpayment recovery efforts would 
be retained.

                             EFFECTIVE DATE

    See subsection (d).

                           REASON FOR CHANGE

    These amendments provide a basis for a unified contracting 
system for the administration of parts A and B, identical to 
the recent Congressionally mandated structure of the Medicare 
Integrity Program contractors. Consolidation of contracting 
duties as set forth in this legislation does not constitute 
consolidation of the Hospital Insurance and Medical 
Supplementary Insurance Trust Funds, or reflect any position on 
that issue. In addition, the elimination of provider 
nomination, which hospitals have rarely been allowed to 
exercise in recent years, is essential for bringing full and 
open competition into the contracting functions of the Medicare 
program.
            (c) Conforming Amendments to Section 1842 (Relating to 
                    Carriers)

                              CURRENT LAW

    Section 1842 of the Social Security Act establishes that 
carriers will be used to administer certain Medicare benefits 
as well as the contracting requirements and certain performance 
standards for those activities.

                       EXPLANATION OF PROVISIONS

    The provisions would establish that the activities of 
carriers administering Medicare would be conducted through 
contracts with Medicare administrative contractors as set forth 
in subsection (a). Certain instructions including those 
pertaining to nursing facilities payments, claims assignment, 
physician participation, overpayment recoveries and billing by 
suppliers would be retained. Certain performance standards with 
respect to the processing of clean claims would be retained. 
Contracting specifications and other conforming changes would 
be established. The Secretary, not the contractor, would be 
responsible for taking necessary actions to assure that 
reasonable payments are made, for those made on both a cost and 
charge basis. The Secretary, not the contractor, would be 
responsible for maintaining a toll-free telephone number for 
beneficiaries to obtain information on participating suppliers. 
Since the Carrier fair hearing requirement were eliminated in 
BIPA, the requirements for the hearing are eliminated to 
conform with existing law. Certain annual reporting 
requirements concerning the contractor's overpayment recovery 
efforts would be retained.
    The Committee directs the Secretary's attention to the 
provision of the Balanced Budget Act of 1997 requiring CMS to 
designate no more than five regional carriers to process 
laboratory claims.This provision was passed in order to 
streamline the processing of laboratory claims and was to be 
implemented by July 1, 1999, but CMS has taken no action to date. In 
consultation with the clinical laboratory industry, CMS may consider 
other potential solutions, including the designation of a single 
contractor to process all claims of laboratory entities operating in 
more than one state. CMS is directed to report back to the Committee on 
Ways and Means and the Committee on Energy and Commerce within three 
months detailing the action it has taken to implement this directive.

                             EFFECTIVE DATE

    See subsection (d).

                           REASON FOR CHANGE

    The provision establishes a basis for a unified contracting 
system, identical to the structure implemented for the Medicare 
Integrity Program contractors. It is important to note, 
however, that consolidation of contracting duties as set forth 
in this legislation does not constitute consolidation of the 
Hospital Insurance and Medical Supplementary Insurance Trust 
Funds, or reflect any position on that issue. In addition, the 
Secretary would have the flexibility to choose the best 
contractor(s) to provide telephone information on suppliers, 
which is intended to reduce administrative costs and improve 
quality. Since the carrier fair hearing requirement was 
eliminated in previous legislation, the requirements for the 
hearing are eliminated in order to conform with existing law.
            (d) Effective Date; Transition Rule

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    Except as otherwise provided in this subsection, the 
provisions in this section would be effective October 1, 2004. 
The Secretary would be authorized to take necessary actions 
prior to that date in order to implement these amendments on a 
timely basis to transition from the contracts established under 
sections 1816 and 1842 of the Social Security Act to those 
established under the new section 1874A created by this 
legislation. The transition would be consistent with the 
requirement that the administrative contracts be competitively 
bid by October 1, 2009. The requirement that MIP contracts be 
awarded on a competitive basis would continue to apply and 
would not be affected by the provisions in this section. The 
MIP contracting exception that allows agreements according to 
current law would be deemed to be a contract established under 
the new authority of 1874A and would continue existing 
activities. The Secretary has the authority to recognize the 
appropriate termination costs of the current contractors during 
the transition from cost contracts to competitively bid 
contracts.
            (e) References

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    After this section becomes effective, any reference to 
fiscal intermediary or carrier would be considered a reference 
to the appropriate Medicare administrative contractor.
            (f) Reports on Implementation

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    The Secretary would submit an implementation plan to 
Congress and GAO no later than October 1, 2003. GAO would 
evaluate the plan and include appropriate recommendations no 
later than six months after the plan is received. No later than 
October 1, 2007, the Secretary would be required to submit a 
status report to Congress including (1) the number of contracts 
that have been competitively bid; (2) the distribution of 
functions among contracts and contractors; (3) a timeline for 
complete transition to full competition; and (4) a detailed 
description of changes to contractor oversight and management.

                            EFFECTIVE DATES

    Upon enactment.

Section 812. Requirements for Information Security

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    Medicare administrative contractors that determine and make 
payments would be required to implement a contractor-wide 
information security program that meets the requirements 
imposed on Federal agencies to ensure the security, integrity, 
confidentiality, authenticity, and availability of operational 
data and systems supporting operations. An annual audit of the 
information security at each Medicare administrative 
contractor: (1) would be performed by an independent entity 
that meets the independence requirements specified by the 
Inspector General (OIG) in HHS; and (2) would test the 
effectiveness of the information security techniques for an 
appropriate subset of the contractor's systems. An audit of new 
contractors (those that have not been fiscal intermediaries or 
carriers) would be required prior to the start of their 
performing Medicare payment functions. An audit of existing 
contractors (those that are now fiscal intermediaries and 
carriers) would be required to be completed within one year 
from enactment. The results of the audits would be reported 
promptly to the OIG, which will submit a report annually to 
Congress. These provisions would be equally applicable to 
fiscal intermediaries and carriers as to Medicare 
administrative contractors.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The increased reliance by the Federal government on the 
Internet and related telecommunications technologies has 
resulted in enhanced inter-connectivity and interdependencies 
associated with Federal computer systems and between federal 
and private computer systems. Over the past several years, this 
inter-connectivity or Anetworking@ has resulted in increased 
security vulnerabilities that have put at greater risk computer 
systems and data that are critical to ensuring national and 
economic security and public health and welfare, including 
sensitive, non-public information that is collected and 
maintained by CMS and its business partners.
    On May 23, 2001, the Committee on Energy and Commerce held 
a hearing to investigate the extent to which sensitive, non-
public information related to collecting and processing 
Medicare claims was adequately secure on the computer networks 
operated by CMS and its business partners, including Medicare 
contractors. That investigation revealed significant 
weaknesses, which the agency has been working to address. Some 
of the computer security concerns identified include weak 
password management, inadequate access controls, excessive user 
privileges, improper network configurations, and inadequate 
testing of critical systems. In addition, the OIG conducted 
assessments of financial controls--including electronic data 
processing controls--at CMS and its major Medicare contractors, 
and, in every year since 1997, the OIG has identified computer 
security controls to be a material weakness at both CMS and the 
Medicare contractors reviewed.
    Section 812 is intended to assist CMS in identifying and 
working with contractors to address potential security 
deficiencies in order to ensure that sensitive, non-public 
information related to the processing of Medicare claims is 
adequately secure from unauthorized access, misuse, or 
destruction.

                   Subtitle C--Education and Outreach

Section 821. Provider Education and Technical Assistance

            (a) Coordination of Education Funding

                              CURRENT LAW

    Medicare's provider education activities are funded through 
the program management appropriation and through the Education 
and Training component of the Medicare Integrity Program (MIP). 
Both claims processing contractors (fiscal intermediaries and 
carriers) and MIP contractors may undertake provider education 
activities.

                       EXPLANATION OF PROVISIONS

    The provision would add Section 1889 to the Social Security 
Act which would require the Secretary to (1) coordinate the 
educational activities provided through the Medicare 
administrative and MIP contractors and (2) to submit an 
evaluation to Congress, no later than October 1, 2003, on 
actions taken to coordinate the funding of provider education.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision is intended to ensure that federal spending 
on provider education is coordinated and used as efficiently as 
possible to maximize the value obtained from the investment. It 
is not intended to change the proportion of Medicare Integrity 
Program funds spent on provider education.
            (b) Incentives to Improve Contractor Performance

                              CURRENT LAW

    No specific statutory provision. Since FY1996, as part of 
the audit required by the Chief Financial Officers Act, an 
estimate of improper payments in Medicare fee-for-service has 
been established annually. As a recent initiative, CMS is 
implementing a comprehensive error rate testing program to 
produce national, contractor specific, benefit category 
specific and provider specific paid claim error rates.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to develop and implement a 
methodology to measure the specific claims payment error rates 
at each Medicare administrative contractor. This methodology 
would apply to existing fiscal intermediaries and carriers in 
the same manner as it applies to Medicare administrative 
contractors. No later than October 1, 2003, GAO would submit to 
Congress and to the Secretary a report on the adequacy of the 
methodology, including recommendations as appropriate. No later 
than October 1, 2003, the Secretary would be required to report 
to Congress on (1) the use of the claims error rate methodology 
in assessing the effectiveness of contractors' provider 
education and outreach programs and (2) whether methodology 
should be used as a basis of contractors' performance bonuses.

                             EFFECTIVE DATE

    As specified.

                           REASON FOR CHANGE

    This provision would ensure that the Department monitors 
contractor performance for claims payment error rates, and it 
would identify best practices for provider education--all with 
the goal of reducing payment errors and helping providers and 
suppliers better comply with program requirements. It is the 
Committees' intent that, in consultation with representatives 
of providers and suppliers, the Secretary shall identify and 
encourage best practices developed by contractors for educating 
providers and suppliers.
            (c) Provision of Access to and Prompt Responses from 
                    Medicare Administrative Contractors

                              CURRENT LAW

    No specific statutory provision. Statutory provisions 
generally instruct carriers to assist providers and others who 
furnish services in developing procedures relating to 
utilization practices and to serve as a channel of 
communication relating information on program administration. 
Fiscal intermediaries are generally instructed to (1) provide 
consultative services to institutions and other agencies to 
enable them to establish and maintain fiscal records necessary 
for program participation and payment and (2) serve as a center 
for any information as well as a channel for communication with 
providers.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to develop a communication 
strategy with beneficiaries, providers and suppliers. Each 
Medicare administrative contractor would be required to (1) 
provide general written responses (which may be through 
electronic transmission) in a clear, concise and accurate 
manner to written inquiries from beneficiaries, providers and 
suppliers within 45 business days; (2) provide a toll-free 
telephone number where these interested parties may obtain 
billing, coding, claims, coverage and other appropriate 
Medicare information; (3) maintain a system for identifying 
which employee provided both the written and oral information; 
and (4) monitor the accuracy, consistency, and timeliness of 
the information provided. The Secretary would be required to 
establish and make public the standards used to monitor the 
accuracy, consistency, and timeliness of information provided 
in response to written and telephone inquiries. The standards 
would be developed in consultation with provider, supplier, and 
beneficiary organizations and would be consistent with the 
contractors' performance requirements. The Secretary would be 
able to directly monitor the quality of the information so 
provided. These provisions would also apply to existing fiscal 
intermediaries and carriers.

                             EFFECTIVE DATE

    By October 1, 2003.

                           REASON FOR CHANGE

    This provision is intended to improve contractor 
accountability to make contractors more responsive to providers 
and suppliers, and to increase the accuracy and reliability of 
the information provided in response to the questions received.
            (d) Improved Provider Education and Training

                              CURRENT LAW

    In FY2000, $54.8 million was spent on provider education 
and training activities: about $43 million came from the 
program management appropriation and about $12 million came 
from the Provider Education and Training component of MIP. In 
FY2001, about $57.3 million was budgeted for these activities.

                       EXPLANATION OF PROVISIONS

    The provisions would authorize $25 million in Medicare 
appropriations in FY2004 and FY2005 and such funds as necessary 
in subsequent years to increase provider education and training 
and to improve the accuracy and quality of contractor 
responses. The Committees intend for this amount to be provided 
in addition to current funding levels. Starting on October 1, 
2003, the contractors' training activities would accommodate 
the special needs of small providers and suppliers. The 
provision defines a small provider as an institution with fewer 
than 25 full-time equivalents (FTEs) and a non-facility based 
provider or supplier with fewer than 10 FTEs.

                             EFFECTIVE DATE

    Upon enactment and as specified.

                           REASON FOR CHANGE

    This provision acknowledges that contractors are being 
instructed to significantly improve their provider education 
and training efforts, and accordingly authorizes new funds to 
be available for those purposes.
            (e) Requirement to Maintain Internet Sites

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    The Secretary and each contractor would be required to 
maintain an Internet site that provides answers to frequently 
asked questions in an easily accessible format as well as other 
materials published by the contractor.

                             EFFECTIVE DATE

    By October 1, 2003.

                           REASON FOR CHANGE

    This provision will facilitate greater ease of provider and 
supplier access to information provided by Medicare's 
contractors.
            (f) Additional Provider Education Provisions

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    A Medicare contractor would not be able to use attendance 
records at educational programs or information gathered during 
these programs to select or track candidates for audit or 
prepayment review. Nothing in the proposed legislation would 
require Medicare administrative contractors to disclose 
information that would compromise pending law enforcement 
activities or reveal findings of law enforcement-related 
audits.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision addresses a concern raised by providers and 
suppliers that their participation in educational forums has 
been used to trigger audits. Participation in educational 
forums should be encouraged not discouraged.
    Nothing in this section or section 1893(g) shall be 
construed as preventing the disclosure by a Medicare contractor 
of information on attendance at education activities for law 
enforcement purposes. Nothing in this section or section 
1893(g) shall be construed as providing for the disclosure by a 
Medicare contractor of the claims processing screens or 
computer edits used for identifying claims that will be subject 
to review.

Section 822. Small Provider Technical Assistance Demonstration Program

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a 
demonstration program and contract with qualified entities to 
offer technical assistance, when requested and on a voluntary 
basis, to small providers or suppliers. Small providers and 
suppliers would be those institutional providers with less than 
25 full-time equivalents (FTEs) or suppliers with less than 10 
FTEs. Technical assistance would include direct, in-person 
examination of billing systems and internal controls by 
qualified entities such as peer review organizations or other 
entities. In awarding these contracts, the Secretary would be 
required to consider any prior investigations of the entity's 
work by the Office of the Inspector General (OIG) in HHS or the 
GAO. Participating providers and suppliers would be required to 
pay an amount estimated and disclosed in advance that would 
equal 25 percent of the cost of the technical assistance they 
received. Absent indications of fraud, errors found in the 
review would not be subject to recovery if the problem is 
corrected within 30 days of the on-site visit and remains 
corrected for an appropriate period. However, this protection 
would only apply to claims filed as part of the demonstration 
project, would last only for the duration of the project and 
only as long as the provider or supplier was participating in 
the project. GAO, in consultation with the OIG, would be 
required to evaluate and recommend continuation of the 
demonstration project no later than two years after its 
implementation. The evaluation would include a determination of 
whether claims error rates were reduced for providers and 
suppliers who participated in the program. The provision would 
authorize $1 million in FY2004 and $6 million in FY2005 of 
appropriations from the Medicare Trust Funds to carry out 
demonstration project.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Many large providers and suppliers have contracts with 
private consulting firms to help them navigate their 
interactions with the Medicare program. This type of assistance 
can be prohibitively expensive for small providers and 
suppliers--but they too are required to comply with complex 
program rules and regulations. This provision creates a new 
demonstration program to facilitate small provider and supplier 
access to expert technical assistance. The demonstration will 
also test whether encouraging technical assistance on the front 
end to help providers and suppliers play by the rules can save 
the program money in the long term by promoting greater program 
compliance.

Section 303. Medicare Provider Ombudsman; Medicare Beneficiary 
        Ombudsman.

            (a) Medicare Provider Ombudsman

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to appoint a Medicare 
Provider Ombudsman within HHS to (1) to resolve unclear 
guidance and provide confidential assistance to providers and 
suppliers regarding complaints or questions about the Medicare 
program including peer review and administrative requirements; 
and (2) recommend changes to improve program administration. 
The Ombudsman would not advocate any increases in payments or 
expanded coverage, but would identify issues and problems in 
current payment and coverage policies.

                             EFFECTIVE DATE

    One year after enactment.

                           REASON FOR CHANGE

    Providers are currently confronted with a morass of 
bureaucracy and regulation, with no clear individual to assist 
them. The new ombudsman will help providers navigate Medicare's 
complicated rules and regulations.
    The Medicare Provider Ombudsman shall make recommendations 
to the Secretary concerning how to respond to recurring 
patterns of confusion in the Medicare program. Such a 
recommendation may include calling for the suspension of the 
imposition of provider sanctions (except those sanctions 
relating to the quality of care) where there is widespread 
confusion in program administration. Nothing in this section 
shall be construed as allowing for the suspension of provider 
sanctions relating to the quality of care, regardless of 
whether widespread confusion in the Medicare program exists.
            (b) Medicare Beneficiary Ombudsman

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS.

    The Secretary would be required to appoint a Medicare 
Beneficiary Ombudsman within HHS from individuals with health 
care expertise, advocacy, and education of Medicare 
beneficiaries. The ombudsman would (1) receive complaints, 
grievances, and requests for information from Medicare 
beneficiaries; (2) provide assistance with respect to those 
complaints, grievances and requests, including assistance to 
beneficiaries who appeal claims determinations or those 
affected by the decisions of Medicare+Choice organizations to 
leave Medicare; and (3) submit an annual report to Congress and 
the Secretary describing activities and recommending changes to 
improve program administration. The Ombudsman would not 
advocate any increases in payments or expanded coverage, but 
would identify issues and problems in current payment and 
coverage policies.
    To the extent possible, the Beneficiary Ombudsman would 
work with the Health Insurance Counseling Programs authorized 
under Section 4360 of OBRA 1990, to facilitate the provision of 
information to Medicare beneficiaries regarding Medicare+Choice 
plans and any changes related to those plans. In addition, 
nothing in this section would preclude further collaboration, 
as appropriate, between the Beneficiary Ombudsman and these 
programs.

                             EFFECTIVE DATE

    Once year after enactment.

                           REASON FOR CHANGE

    Beneficiaries confront a morass of bureaucracy and 
regulation, with no clear individual to assist them. This new 
ombudsman will help beneficiaries navigate Medicare's 
complicated rules and regulations.
            (c) Funding

                              CURRENT LAW

    No provision

                       EXPLANATION OF PROVISIONS

    The provision would authorize appropriations of necessary 
sums in FY2003 and subsequently from the appropriate Medicare 
Trust Funds for the Ombudsman programs.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Committees acknowledge that implementing these new 
functions will have a cost and accordingly authorize necessary 
appropriations.
            (d) Use of Central Toll Free Number (1-800 MEDICARE)

                              CURRENT LAW

    The Secretary is required to prepare and distribute an 
annual notice explaining Medicare benefits and limitations to 
coverage to Medicare beneficiaries. The Secretary is also 
required to provide information via a toll-free telephone 
number.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to establish a toll-free 
number (1-800-MEDICARE), which will transfer individuals with 
questions or seeking help to theappropriate entities. The 
transfer would occur with no charge. This toll-free number would be the 
general information and assistance number listed on the annual notice 
provided to beneficiaries. GAO would be required to (1) monitor the 
adequacy, accuracy, and consistency of the information provided to 
Medicare beneficiaries through the toll-free 1-800 MEDICARE number and 
(2) examine the education and training of those providing the 
information through the toll-free number. GAO would be required to 
submit a report to Congress no later than one year from enactment.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The beneficiary handbook currently provides many pages of 
phone numbers, which can be very confusing for beneficiaries, 
rather than a single number that then can triage and transfer 
beneficiaries to the appropriate person or entity. This 
provision will promote better access to information for 
beneficiaries.

Section 824. Beneficiary Outreach Demonstration Program

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a 3-year 
demonstration project where Medicare specialists who are HHS 
employees are placed in at least six SSA offices to advise and 
assist Medicare beneficiaries. The SSA offices would be those 
with a high-volume of visits by Medicare beneficiaries; at 
least two of which would be in rural areas. In the rural SSA 
offices, the Secretary would provide for the Medicare 
specialists to travel among local offices on a scheduled basis. 
The Secretary would be required to (1) evaluate the project 
with respect to beneficiary utilization, beneficiary 
satisfaction, and cost-effectiveness and (2) recommend whether 
the demonstration should be established on a permanent basis.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision makes Medicare experts available in six 
Social Security Administration offices to assist beneficiaries 
and answer their questions. The demonstration will test whether 
such outsourced Medicare specialists improve beneficiary 
utilization and understanding of the program, and beneficiary 
satisfaction.

                    Subtitle D--Appeals and Recovery

Section 831. Transfer of Responsibility for Medicare Appeals

                              CURRENT LAW

    Medicare beneficiaries and, in certain circumstances, 
providers and suppliers of health care services may appeal 
claims that are denied or payments that are reduced. Section 
1869 of the Social Security Act, which covers the Medicare 
claims appeals process, was amended by BIPA in its entirety, 
but the BIPA provisions are not yet effective. Generally, 
parties who have been denied coverage of an item or service 
have the right to appeal that decision through a series of 
administrative appeals and then into federal district court if 
the amounts of disputed claims in question meet certain 
thresholds at each step of the appeals process. A hearing by an 
administrative law judge (ALJ) in the Social Security 
Administration (SSA) with review by the Department Appeals 
Board (DAB) are components of the administrative appeals 
process.

                       EXPLANATION OF PROVISIONS

    By October 1, 2003, the Commissioner of SSA and the 
Secretary would develop a plan to transfer the functions of the 
administrative law judges (ALJs) who are responsible for 
hearing Medicare and Medicare related cases from SSA to HHS. 
The plan would be transmitted to Congress and GAO no later than 
October 1, 2003. The GAO would evaluate the plan and submit a 
report to Congress within 6 months of receiving the plan. The 
Secretary and the Commissioner of SSA would implement the 
transition plan and transfer the ALJ functions no earlier than 
July 1, 2004 and no later than October 1, 2004. The Secretary 
would (1) assure the ALJ's independence from the Centers of 
Medicare and Medicaid Services (CMS); and (2) locate the ALJs 
with an appropriate geographic distribution to ensure access. 
Subject to appropriations, the Secretary would be permitted to 
hire ALJs and support staff with priority given to ALJs with 
experience in handling Medicare appeals. Amounts previously 
paid to SSA for the ALJs performing the ALJ functions would be 
payable to the Secretary for the transferred functions. The 
Secretary would be permitted to enter into arrangements with 
SSA to share office space, support staff, and other resources 
with appropriate reimbursement from the Medicare trust funds. 
Increased appropriations would be permitted to increase the 
number of ALJs and support staff; improve education and 
training for ALJs and their staff; and increase DAB staff.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Office of Inspector General has identified moving the 
functions of the Medicare Administrative Law Judges to the 
Department of Health and Human Services as an important 
priority in improving the appeals system. This provision makes 
that transition and increases the emphasis on providing 
training Administrative Law Judges and their staffs to increase 
their expertise in Medicare's rules and regulations. The SSA 
Commissioner and the Secretary are instructed to work together 
on the transition plans in order to assure that the transition 
does not adversely affect the SSA ALJ appeals system.
    The transition plan shall include information on the 
following:
           Workload--The number of such administrative 
        law judges and support staff required now and in the 
        future to hear and decide such cases in a timely 
        manner, taking into account the current and anticipated 
        claims volume, appeals, number of beneficiaries, and 
        statutory changes;
           Cost Projections--Funding levels required 
        under this subsection to hear such cases in a timely 
        manner;
           Transition Timetable--A timetable for the 
        transition;
           Regulations--The establishment of specific 
        regulations to govern the appeals process;
           Case Tracking--The development of a unified 
        case tracking system that will facilitate the 
        maintenance and transfer of case specific data across 
        both the fee-for-service and managed care components of 
        the Medicare program;
           Feasibility of Precedential Authority--The 
        feasibility of developing a process to give binding, 
        precedential authority to decisions of the Departmental 
        Appeals Board in the Department of Health and Human 
        Services that address broad legal issues; and,
           Access to Administrative Law Judges--The 
        feasibility of filing appeals with administrative law 
        judges electronically, and the feasibility of 
        conducting hearings using tele- or videoconference 
        technologies.

Section 832. Process for Expedited Access to Judicial Review

            (a) Expedited Access to Judicial Review

                              CURRENT LAW

    Section 521 of BIPA (which is not yet implemented) amends 
Section 1869 to establish deadlines for filing appeals and for 
making decisions in the Medicare appeals process. Generally, an 
initial determination is to be completed no later than 45 days 
from the date a claim for benefits is received; an individual 
dissatisfied with an initial determination is entitled to a 
redetermination by a carrier or fiscal intermediary if 
requested within 120 days of the determination date. The 
redetermination is to be completed no later than 30 days from 
the request date. The Secretary may reopen or revise any 
initial determination or reconsidered determination under 
guidelines established by regulation.
    An individual dissatisfied with the redetermination is 
entitled to reconsideration by a qualified independent 
contractor (QIC) if the request is initiated within 180 days of 
the notice of the adverse redetermination. With certain 
exceptions, a QIC reconsideration decision is to be 
completedwithin 30 days from the date a timely request has been filed. 
After a QIC's reconsideration, if the remaining contested amount is 
greater than $100, an individual is entitled to a hearing by an 
administrative law judge and then a review by the DAB. Both the ALJ 
hearing and the DAB review are to be completed within 90 days of a 
timely filed request for such an action.
    If the dispute is not satisfactorily resolved and the 
contested amounts are greater than $1,000, the individual is 
entitled to judicial review of the decision. Under certain 
circumstances, a beneficiary is entitled to an expedited 
determination with accelerated deadlines. BIPA also provides 
for an expedited hearing under Section 1869, where the moving 
party alleges that no material issues of fact are in dispute; 
the Secretary makes an expedited determination as to whether 
any such facts are in dispute and, if not, renders a decision 
expeditiously.

                       EXPLANATION OF PROVISIONS

    The Secretary would establish an appeals process for a 
provider, supplier, or beneficiary, which permits access to 
judicial review when a review panel determines that no entity 
in the administrative appeals process has authority to decide 
the question of law or regulation in controversy and where 
material facts are not in dispute. The appellant would be able 
to make such request only once with respect to a question of 
law or regulation for a specific dispute. If the appellant 
requests this determination and submits appropriate supporting 
documentation, the review panel would make this determination 
in writing no later than 60 days after the receiving the 
request. A review panel would consist of a panel of three 
members who are ALJs, members of the DAB, or qualified 
individuals associated with a QIC or other independent entity 
designated by the Secretary to make these determinations. The 
determination by the review panel would be considered a final 
decision and not subject to review by the Secretary. Given such 
a determination or a failure to make the determination within 
the 60-day deadline, the appellant would be able to request 
judicial review before a civil court. The filing deadline for 
this civil action would be within 60 days of the determination 
or within 60 days of the end of the deadline to make such 
determination. The venue for judicial review would be the U.S. 
District Court where the appellant is located, or where the 
greatest number of appellants are located, or in the district 
court for the District of Columbia. The amount in controversy 
would be subject to annual interest beginning on the first day 
of the first month beginning after the 60-day deadline for 
filing. Interest would be equal to the rate of interest on 
obligations issued for purchase by the Medicare trust funds 
effective for the month that the civil action is authorized to 
commence. The interest payments would not be deemed to be 
Medicare reimbursement.

                             EFFECTIVE DATE

    See section (c).
            (b) Application to Provider Agreement Determinations

                              CURRENT LAW

    Section 1866(h) of the Social Security Act provides for a 
hearing and for judicial review of that hearing for any 
institution or agency dissatisfied with a determination that it 
is not a provider (or that it can no longer be a provider).

                       EXPLANATION OF PROVISIONS

    An agency or institution's appeal concerning program 
participation under Section 1866 would have access to expedited 
judicial review under Section 1869 provisions. This provision 
would not be construed to affect remedies applied to assure 
quality of care in skilled nursing facilities (under Section 
1819) while such appeals are pending.
            (c) Effective Date

                        EXPLANATION OF PROVISION

    Amendments in the section would apply to appeals filed on 
or after October 1, 2003.

                           REASON FOR CHANGE

    The provisions in 402 (a-c) on expedited access to judicial 
review ensure that if a review board certifies that there are 
no material facts in dispute and that the appeals process does 
not have authority to resolve the question at issue, the 
provider, supplier, or beneficiary may take their case to court 
in an expedited manner. This will facilitate more prompt 
resolution of challenges to the underlying validity of CMS 
regulations and determinations. To the extent that any part of 
an appeal poses a factual dispute that is being adjudicated 
before an administrative tribunal, this provision would not 
authorize the severance of the legal issues from the underlying 
factual dispute.
            (d) Expedited Review of Certain Provider Agreement 
                    Determinations

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    The Secretary would develop and implement a process under 
1866(h) to expedite provider agreement determinations including 
those instances where participation is terminated or other 
sanctions (including denials of new admissions or appointment 
of temporary management) against skilled nursing facilities 
have been imposed. Priority would be given to termination of 
provider agreements. Increased appropriations from the Medicare 
trust funds in FY2003 and subsequently would be authorized in 
order to (1) reduce the average time for administrative 
determinations on provider participation appeals by 50 percent; 
(2) increase the number of ALJs and their staff; and (3) 
educate the ALJs and their staff on long term care issues.

                             EFFECTIVE DATE

    Upon enactment.

Section 833. Revisions to Medicare Appeals Process

            (a) Requiring Full and Early Presentation of Evidence

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    A provider or supplier would not be able to introduce 
evidence that was not presented at reconsideration conducted by 
the QIC unless a good cause precluded its introduction at or 
before that reconsideration.

                             EFFECTIVE DATE

    On or before October 1, 2003.

                           REASON FOR CHANGE

    The Office of Inspector General identified this change as a 
priority to promote more expeditious resolution of appeals of 
denied claims. This provision requires prompt introduction of 
evidence relevant to a provider appeal. When deciding whether 
there is good cause to introduce new evidence, the adjudicator 
should ensure, after consideration of the totality of the 
circumstances, that disallowing the introduction of such new 
evidence would unfairly prejudice the case. The totality of the 
circumstances may include, but is not limited to, the 
following: evidence is not yet available; the appellant was not 
represented at a lower level of appeal; the appellant was not 
aware of her rights; or the appellant did not understand the 
proceeding.
            (b) Use of Patients' Medical Records

                              CURRENT LAW

    BIPA established QIC reconsiderations as part of the 
Medicare's administrative review process. To reconsider whether 
a service is reasonable and necessary, a QIC will employ panel 
of physicians or other appropriate health care professionals to 
review the facts and the circumstances of the initial 
determination. The QIC reconsideration is to be based on 
applicable information, including clinical experience, and 
medical, technical, and scientific evidence.

                       EXPLANATION OF PROVISIONS

    Medical records of the individual involved in the appeal 
would be included as part of the applicable information used by 
QICs in their reconsideration process.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    In the determination of whether an item or service is 
reasonable and necessary for an individual, a beneficiary's 
medical records should be considered with other relevant 
information.
            (c) Notice Requirements for Medicare Appeals

                              CURRENT LAW

    Section 521 of BIPA (which is not yet implemented) amends 
Section 1869 appeals process in its entirety, but did not 
establish specific notice requirements for each part of 
Medicare appeals process.

                       EXPLANATION OF PROVISIONS

    The provisions would establish that a written notice of an 
initial determination associated with a claims denial be 
provided. The notice would include: (1) the reason for the 
denial and, upon request, the policy, manual or regulation used 
to make the decision; (2) the procedures for obtaining 
additional information concerning the determination; and (3) 
the notification of appeal rights and associated instructions.
    The provisions would amend the existing requirement that a 
reconsideration decision be written and establish that the 
decision would have to be provided in printed form and written 
in a manner that could be understood by the beneficiary; the 
notice would include: as appropriate, a summary of the clinical 
or scientific evidence used to make the decision; upon request, 
the policy manual or regulation used to make the decision; and 
a detailed explanation of the decision to the extent 
appropriate. The requirement that the reconsideration decision 
include a notice of appeal rights and relevant instructions 
would also be established.
    Comparable requirements would be extended to ALJ decisions. 
These decisions would have to be written in an understandable 
manner and include the specific reasons for the decision, an 
appropriate summary of the evidence, the procedures for 
obtaining additional information about the decision, and a 
notification of appeal rights and instructions.
    The current requirements that a QIC prepare documentation 
and an explanation of the issues for an appeal to an ALJ would 
be modified: a QIC would be required to submit the information 
required in an appeal of a Medicare contractor's decision to 
the ALJ.

                           REASON FOR CHANGE

    Currently, Medicare only provides beneficiaries with a 
brief statement about the initial determination of her claim on 
the Medicare Summary Notice. This provision provides additional 
information to beneficiaries (or providers who appeal on their 
behalf) about Medicare's denial of their claim for benefits; 
the reasons for the denial, and the rights to further appeal so 
that beneficiaries can have a clear and concise understanding 
of decisions affecting their medical care.
            (d) Qualified Independent Contractors

                              CURRENT LAW

    BIPA established Qualified Independent Contractor (QIC) 
reconsiderations as part of Medicare's administrative review 
process. A QIC is an entity or organization that is independent 
of any organization under contract with the Secretary that 
makes initial determinations and that meets the established 
requirements for sufficient training and expertise in medical 
science and legal matters to make such reconsiderations. QIC 
reviews include consideration of the facts and circumstances by 
a panel of physicians or appropriate health professionals. No 
physician or health care professional employed by a QIC may 
review determinations regarding services provided to a patient, 
if directly responsible for furnishing the services to that 
patient. Review of home health care services is also prohibited 
by physicians and other professionals who have a significant 
direct or indirect financial interest in the agency or 
institution providing the care. This prohibition extends to 
physicians and professionals who have family members with such 
significant financial interests.

                       EXPLANATION OF PROVISIONS

    To qualify as a QIC, an entity would be required to have 
sufficient medical, legal and other expertise, including 
knowledge of the Medicare program as well as sufficient 
professional qualifications, independence and staffing to make 
reconsideration decisions. A QIC would be required to assure 
that reviewers meet qualification and compensation 
requirements. If a reconsideration request indicates that the 
item or service was furnished by a physician, each reviewing 
professional should be a physician. Entities and their 
professional reviewers would have to meet independence 
requirements and may not: (1) be a related party; (2) have a 
material familial, financial, or professional relationships 
with a related party; or (3) have a conflict of interest with 
respect to a related party. QIC's compensation would not be 
contingent on any decision by the QIC or by any reviewing 
professional. A reviewer's compensation would not be contingent 
on any decision rendered by the reviewer. In this context, a 
related party to a Medicare case involving an individual 
beneficiary is (1) the Secretary, the Medicare administrative 
contractor involved, any fiduciary, officer, director or 
employee of HHS or such Medicare contractor; (2) the individual 
or authorized representative; (3) the health professional, 
institution or entity that provides or manufactures the item or 
service involved in the case; and (4) any other party with 
substantial interest in the case, as defined by regulation.
    Individuals affiliated with a fiscal intermediary, carrier 
or other contractor would be able to act as a QIC reviewer if 
(1) a individual is not involved with the provision of the item 
or service of the case; (2) individual is not an employee of 
the Medicare contractor and does not provide services 
exclusively or primarily to or on behalf of the contractor; and 
(3) the fact of the relationship is disclosed to the Secretary 
and the Medicare beneficiary or authorized representative who 
do not object. Individuals with staff privileges at the 
institution where treatment occurs would be able to serve as a 
reviewer if the affiliation is disclosed and there is no 
objection. Each reviewing professional shall be a allopathic or 
osteopathic physician or health care professional who is 
legally authorized to furnish items and services that are the 
subject of review in one or more states; and has medical 
expertise in the appropriate field for the case.

                             EFFECTIVE DATE

    As if included in BIPA.

                           REASON FOR CHANGE

    The BIPA 2000 law laid out broad provisions for revision of 
the Medicare appeals process. These provisions strengthen the 
appeals process by enhancing the criteria related to the 
independence and expertise of the reviewers and review 
entities.

Section 834. Prepayment Review

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    Medicare administrative contractors would be able to 
conduct random prepayment reviews in order to develop 
contractor-wide or program-wide claims payment error rates or 
under additional circumstances as established by regulations 
that are developed in consultation with providers and 
suppliers. Medicare administrative contractors would be 
permitted to conduct random prepayment reviews in accordance 
with a standard protocol developed by the Secretary. The 
Secretary would not be able to initiate non-random prepayment 
review based on the initial identification by a provider or 
supplier of an improper billing practice unless there is a 
likelihood of sustained or high level of payment error. The 
Secretary would be required to issue regulations relating to 
the termination, including termination dates, of non-random 
prepayment review. Such regulations may vary such a termination 
date based upon the differences in the circumstances triggering 
prepayment reviews. No provision would prevent the denial of 
payment for claims actually reviewed under random prepayment 
review. These provisions would be applied to fiscal 
intermediaries and carriers.

                             EFFECTIVE DATE

    No later than one year from enactment. The Secretary would 
be required to issue regulations before that deadline; the 
random prepayment review protocols would apply to reviews after 
a date specified by the Secretary (but no later than one year 
from enactment.)

                           REASON FOR CHANGE

    These provisions build greater consistency and 
predictability into Medicare's rules for prepayment review, 
while protecting program integrity.
            Section 835. Recovery of Overpayments

                              CURRENT LAW

    No provision with respect to repayment plans. Section 
1833(j) of the Social Security Act provides that interest 
accrues on underpayments or overpayments starting within 30 
days of the date of the final determination of the accurate 
payment amount.

                       EXPLANATION OF PROVISIONS

    Subject to certain qualifications, in circumstances where 
refund of an overpayment within 30 days would constitute a 
hardship, providers and suppliers on request would be allowed 
to repay the overpayment amount (by offset or otherwise) over a 
period of at least six months up to three years when their 
obligation exceeds a ten percent threshold of their annual 
payments from Medicare. The Secretary would be able to 
establish a repayment period of up to five years in cases of 
extreme hardship. Interest would accrue on the balance through 
the repayment period. The Secretary would be required to 
establish a process under which newly-participating providers 
and suppliers could qualify for a repayment plan under this 
hardship provision. Previous overpayment amounts already 
included in an ongoing repayment plans would not be included in 
the calculation of the hardship threshold. The Secretary would 
be allowed to seek immediate collection if payments are not 
made as scheduled. Exceptions to this provision would be 
permitted in cases where the Secretary has reason to suspect 
that bankruptcy may be declared or that the provider or 
supplier may otherwise cease to do business or discontinue 
participating in the Medicare program, or where fraud or abuse 
against Medicare is indicated. This provision would not affect 
the application of existing no-fault provisions, which preclude 
recovery under certain circumstances where incorrect payment 
has been made to an individual who is without fault or where 
the recovery would decrease payments to another person who is 
without fault.
    Upon enactment, the Secretary would not be able to initiate 
any recovery action if the provider or supplier has sought a 
reconsideration of the Medicare overpayment by a qualified 
independent contractor (QIC) until the date of the 
reconsideration decision. If QIC's are not yet in place, the 
recovery would not be initiated until the date of a 
redetermination decision by a fiscal intermediary or a carrier. 
If monies have been offset or repaid, the Secretary would 
return those amounts plus applicable interest if the original 
overpayment determination is reversed. If such an overpayment 
determination is upheld, interest would accrue beginning on the 
date of the original overpayment notice; the interest amount 
would be the rate otherwise applicable for Medicare 
overpayments.
    Not later than one year after enactment, a Medicare 
contractor would not be able to use extrapolation to make 
overpayment determinations initiated after the date of 
enactment, unless, as determined by the Secretary, a sustained 
or high level of payment error exists or a documented 
educational intervention did not correct the payment error.
    Where providers and suppliers have previously been 
overpaid, Medicare contractors would be able to require 
periodic production of records or supporting documentation for 
a limited sample of submitted claims to ensure that a previous 
practice has been discontinued.
    The Secretary would be able to use a consent settlement to 
resolve a projected overpayment. Before entering into any 
consent settlements after the date of enactment, the Secretary 
would be required to communicate to a provider or supplier that 
based on a preliminary evaluation of a medical records review, 
an overpayment may exist; the nature of the identified 
problems; and the necessary steps to address the problem. The 
Secretary would provide 45-days where additional information 
may be submitted concerning the claims for which the medical 
records have been reviewed. After considering the additional 
information, the Secretary would provide notice and explanation 
of any remaining overpayment determination and would offer the 
opportunity for a statistically valid random sample (which 
would not waive appeal rights) or a consent settlement (based 
on a smaller sample with a waiver of appeal rights) to resolve 
the overpayment amounts.
    Not later than one year after enactment, the Secretary 
would be required to establish, in consultation with health 
care associations, a process where classes of providers and 
suppliers are notified that their Medicare contractor has 
identified specific billing codes that may be over-utilized.
    For audits initiated after enactment, Medicare contractors 
would be required to provide a written notice (which may be in 
electronic form) of the intent to conduct a post-payment audit 
to those selected as audit candidates. Medicare contractors 
would be required to provide those who have been audited a full 
review and understandable explanation of the findings that: (1) 
permits the development of an appropriate corrective action 
plan; (2) provides information on appeal rights as well as 
consent settlements (which are at the discretion of the 
Secretary); and (3) provides for an opportunity to supply 
additional information to the contractor. Medicare contractors 
would be required to take into account the information provided 
on a timely basis. The provisions requiring notice of audit and 
findings would not apply if pending law enforcement activities 
would be compromised or findings of law enforcement-related 
audits would be revealed.
    Not later than one year after enactment, the Secretary 
would be required to establish a standard methodology for 
Medicare contractors to use in selecting a claims sample for a 
review of abnormal billing patterns.
    These provisions would apply to Medicare administrative 
contractors including fiscal intermediaries and carriers as 
well as those eligible entities with MIP contracts.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    These provisions build greater consistency and 
predictability into Medicare's rules for recovery of 
overpayments, while protecting program integrity.

Section 836. Provider Enrollment Process; Right of Appeal

                              CURRENT LAW

    Providers and, to some extent suppliers, have access to 
certain appeal mechanisms if their application to participate 
in Medicare is denied or terminated. Section 1866(h) of the 
Social Security Act provides for a hearing and for judicial 
review of that hearing for any institution or agency 
dissatisfied with a determination that it is not a provider (or 
that it can no longer be a provider). There is no statutory 
provision extending such judicial appeal rights to suppliers. 
Sections 1128(a) and (b) of the Act provide for the exclusion 
of certain individuals or entities because of the conviction of 
crimes related to their participation in Medicare; Section 
1128(f) provides for hearing and judicial review for 
exclusions. In 1999, the Health Care Financing Administration 
(HCFA- now the Centers for Medicare and Medicaid Services or 
CMS) published a proposed regulation that would revise existing 
Medicare Part B administrative appeals procedures and extend 
them to all suppliers not currently covered.

                        EXPLANATION OF PROVISION

    The Secretary would be required to (1) establish by 
regulation an enrollment process for providers and suppliers 
which would include deadlines for actions on enrollment 
applications within six months of enactment; (2) monitor the 
performance of Medicare administrative contractors in meeting 
the deadlines: (3) consult with providers and suppliers in 
making changes to the enrollment forms made on or after January 
1, 2003. In establishing an enrollment process for providers 
and suppliers, the Secretary would build upon existing Medicare 
practice.
    Providers and suppliers whose application to enroll or 
reenroll has been denied and who are dissatisfied with the 
determination would be entitled to a hearing and judicial 
review of the determination under the procedures that currently 
apply to providers. This provision would apply to denials after 
a date specified by the Secretary, which could not be later 
than one year from enactment.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision gives providers and suppliers an opportunity 
to appeal denials of their applications to participate in the 
Medicare program.

Section 837. Process for Correction of Minor Errors and Omissions on 
        Claims Without Pursuing Appeals Process

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to develop, in consultation 
with appropriate Medicare contractors and health care 
associations, a process where minor claims errors and omissions 
can be corrected and resubmitted without appealing the claims 
denial.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Many of the providers and suppliers who testified before 
the Subcommittee or contacted members directly emphasized the 
need to create a process in which they could correct claims 
that were denied because they were incomplete or contained 
minor errors without having to pursue a formal appeal. This 
provision instructs the Secretary to create such a process, 
which will alleviate pressure on the appeals system. The 
Committees would be concerned, however, if this process were to 
become an incentive for providers to knowingly or negligently 
submit incomplete information.
    The Committees intend that the process for correction of 
minor errors and omissions on claims cover both the submission 
of prepayment and post-payment review claims. For example, if 
in the case of a home health claim, the physician has signed 
the plan of care and/or physician's order but has not dated it, 
the claim shall be returned to the home health agency and may 
be resubmitted by the home health agency with any incomplete or 
missing information without having to appeal the claim.

Section 838. Prior Determination Process for Certain Items and 
        Services; Advance Beneficiary Notices

                              CURRENT LAW

    Medicare law prohibits payment for items and services that 
are not medically reasonable and necessary for the diagnosis or 
treatment of an illness or an injury. Under certain 
circumstances, however, Medicare will pay for noncovered 
services that have been provided if both the beneficiary and 
the provider of the services did not know and could not have 
reasonably been expected to know that Medicare payment would 
not be made for these services.
    However, in most circumstances either the beneficiary or 
the provider will be liable in the event that Medicare does not 
cover an item or service. There are detailed rules on 
beneficiary and provider liability in the statute. A provider 
may be held liable for providing uncovered services, if, for 
example, specific requirements are published by the Medicare 
contractor or the provider has received a denial or reduction 
of payment on the same or similar service. In cases where the 
provider believes that the service may not be covered as 
reasonable and necessary, the provider may limit his liability 
by providing an acceptable advance notice of Medicare's 
possible denial of payment to the patient. The notice must be 
given in writing, in advance of providing the service; include 
the patient's name, date and description of service as well as 
reasons why the service would not be covered; and must be 
signed and dated by the patient to indicate that the 
beneficiary will assume financial liability for the service if 
Medicare payment is denied or reduced. Currently, when there is 
a question about coverage, there is no way for a beneficiary or 
provider to find out in advance whether or not Medicare will 
cover that item or service for that particular beneficiary.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to establish a process 
through regulation where physicians and beneficiaries can 
establish whether Medicare covers certain items and services 
before such services are provided. An eligible requestor would 
be either a physician or a Medicare beneficiary who receives an 
advance beneficiary notice (ABN) from a physician. Eligible 
items and services for review are those physicians' services 
under 1848(f)(4)(A) for which a physician may be paid directly. 
The provisions would establish: (1) such prior determinations 
would be binding on the Medicare contractor, absent fraud or 
misrepresentation of facts; (2) the right to redetermination in 
the case of a denial; (3) the applicability of existing 
deadlines with respect to those redeterminations; (4) 
contractors' prior determinations (and redeterminations) are 
not subject to further administrative or judicial review; and 
(5) an individual retains all rights to usual administrative or 
judicial review after receiving the service or receiving a 
determination that a service would not be covered. This section 
also requires that whenever a physician requests a pre-service 
determination (or redetermination), beneficiaries must still 
receive notices that include information explaining the 
beneficiary's right to receive the service and request access 
to the appeals process under section 1869. The calculation of 
the sustainable growth rate for physician updates is modified 
so that the increase in utilization from this provision is 
included. These provisions would not affect a Medicare 
beneficiary's rights in any future appeal or judicial action. 
The Secretary must establish the process to allow for the 
processing of such requests beginning 18 months after 
enactment. The Secretary would be required to collect data on 
the advance determinations and to establish a beneficiary and 
provider outreach and education program. GAO is required to 
report on the use of the advance beneficiary notice and prior 
determination process within 18 months of its implementation.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Committees believe that when there is a question of 
whether Medicare will cover certain care for a beneficiary, the 
beneficiary should have the right to find out what will be 
covered before getting the service and risking financial 
liability. Doctors also should be able to make such a request 
on behalf of a particular patient. This provision is 
particularly important for seniors and disabled individuals who 
tend to be risk adverse and live on fixed incomes.

                  Subtitle E--Miscellaneous Provisions

Section 841. Policy Development Regarding Evaluation and Management 
        (E&M) Documentation Guidelines

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would not be permitted to implement any new 
documentation guidelines on or after enactment for evaluation 
and management (E&M) physician services unless the guidelines 
(1) are developed in collaboration with practicing physicians 
(both generalists and specialists) after assessment by the 
physician community; (2) based on a plan with deadlines for 
improving use of E&M codes; (3) are developed after completion 
of the pilot projects to test modifications to the codes; (4) 
are found to meet the desired objectives; and (5) are preceded 
the establishment of an appropriate outreach and education of 
the physician community. The Secretary would make changes to 
existing E&M guidelines to reduce paperwork burdens on 
physicians. The Secretary would be required to modify E&M 
guidelines to (1) identify clinically relevant documentation: 
(2) decrease non-clinically pertinent documentation; (3) 
increase the reviewers' accuracy; and (4) educate the 
physicians and the reviewers.
    The provisions would establish different pilot projects in 
specified settings that would be (1) conducted on a voluntary 
basis in consultation with practicing physicians (both 
generalists and specialists); (2) be of sufficient length to 
educate physicians and contractors on E&M guidelines and (3) 
allow for an assessment of E&M guidelines and their use. A 
range of different projects would be established and include at 
least one project that (1) uses a physician peer review method; 
(2) uses an alternative method based on face-to-face encounter 
time with the patient; (3) is in a rural area; (4) is outside a 
rural area; and (5) involves physicians billing in a teaching 
setting and non-teaching setting. The projects would examine 
the effect of modified E&M guidelines on different types of 
physician practices in terms of the cost of compliance. Data 
collected under these projects would not be the basis for 
overpayment demands or post-payment audits. This protection 
would apply to claims filed as part of the project, would last 
the duration of the project., and would last for as long as the 
provider participated in the project. The Secretary, in 
consultation with practicing physicians including those in 
groups practices as well as generalists and specialists, would 
be required to evaluate the development of alternative E&M 
documentation systems with respect to administrative 
simplification requirements and report results of the study to 
Congress by October 1, 2004. The Medicare Payment Advisory 
Commission would conduct an analysis of the results of this 
study and submit a report to Congress.
    The Secretary would be required to conduct a study of the 
appropriate coding of extended office visits where no diagnosis 
is made and submit a report with recommendations to Congress no 
later than October 1, 2004.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This provision is designed to promote greater consultation 
with practicing physicians with regard to the complicated 
evaluation and management and coding requirements governing 
Medicare payment for physician services.

Section 842. Improvement in Oversight of Technology and Coverage

            (a) Improved Coordination Between FDA and CMS on Coverage 
                    of Breakthrough Medical Devices

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    Upon request and to the extent feasible, the Secretary 
would be required to ensure that appropriate information from 
the review for application for premarket approval of class III 
medical devices conducted by the FDA for coverage decisions. 
Within 6 months of enactment, the Secretary would be required 
to submit a report to the appropriate Congressional committees 
on the implementation plan to shorten the delay between FDA's 
premarket approval and Medicare's coding and coverage 
decisions. This provision would not change Medicare's coverage 
nor FDA's premarket approval criteria. Nothing in this 
subsection will be construed to lengthen the time for premarket 
approval under the FFDCA.

                             EFFECTIVE DATE

    Upon enactment

                           REASON FOR CHANGE.

    After the FDA pre-market approval, the Medicare program 
does a second evaluation of breakthrough technologies to 
determine effectiveness and cost of those technologies compared 
to existing technologies. The review is necessary and 
appropriate, but it can take months between FDA approval and 
the availability of new technology for Medicare beneficiaries. 
By coordinating FDA and CMS approval of breakthrough medical 
devices, where feasible, this provision is intended to 
facilitate a more efficient process for the coverage of certain 
new technology by the Medicare program.
            (b) Council for Technology and Innovation

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary is required to establish a Council for 
Technology and Innovation within the Centers for Medicare and 
Medicaid Services (CMS). The council would be composed of 
senior CMS staff with an Executive Coordinator, who is 
designated or appointed by the Secretary and reports to the CMS 
administrator. The Chairperson would serve as a single point of 
contact for outside groups and entities regarding Medicare 
coverage, coding, and payment processes. The Council would 
coordinate Medicare's coverage, coding, and payment processes 
as well as information exchange with other entities with 
respect to new technologies and procedures, including drug 
therapies.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    CMS personnel responsible for coverage, coding and payment 
of medical innovation are often not well coordinated. This 
provision creates a focal point for technology and innovation 
within the Centers for Medicare and Medicaid Services by 
creating a Council to coordinate across the different Centers 
and Offices with responsibilities in this area. The Executive 
Coordinator also provides a single point of contact for outside 
groups, similar to recent initiatives launched by the Secretary 
for specific issues and types of providers.
            (c) GAO Study on Improvements in External Data Collection 
                    for Use in the Medicare Inpatient Payment System

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    GAO would be required to conduct a study analyzing which 
external data can be collected by CMS for use in computing 
Medicare's inpatient hospital payments. The study may include 
an evaluation of the feasibility and appropriateness of using 
quarterly samples or special surveys among other methods. The 
study would include an analysis of whether other agencies, such 
as the Bureau of Labor Statistics in the Department of 
Commerce, are best suited to collect this information. The 
report would be submitted to Congress no later than October 1, 
2003.

                             EFFECTIVE DATE

    Upon enactment.
            (d) IOM Study on Local Coverage Determinations

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to arrange for a study by 
the Institute of Medicine (IOM) that would examine Medicare's 
local coverage determinations. The study would examine: (1) the 
consistency of definitions used in the determinations; (2) the 
types of evidence that are the basis of the determinations; (3) 
the advantages and disadvantages of local coverage 
decisionmaking and of maintaining local Medicare contractor 
advisory committees; and (4) the manner in which local coverage 
decisions are used to develop data to support national coverage 
determinations. The IOM study would be due to the Secretary no 
later than 3 years after enactment when it would be promptly 
transmitted to Congress.

                             EFFECTIVE DATE

    Upon enactment.
            (e) Methods For Determining Payment Basis for New Lab Tests

                              CURRENT LAW

    Outpatient clinical diagnostic laboratory tests are paid on 
the basis of area wide fee schedules. The law establishes cap 
on the payment amounts, which is currently set at 74 percent of 
the median for all fee schedules for that test. The cap is set 
at 100 percent of the median for tests performed after January 
1, 2001 that the Secretary determines are new tests for which 
no limitation amount has previously been established.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to establish procedures (by 
regulation) for determining the basis and amount of payments 
for new clinical diagnostic laboratory tests. New laboratory 
tests would be defined as those assigned a new Health Care 
Procedure Coding System (HCPCS) code on or after January 1, 
2004. The Secretary, as part of this procedure, would be 
required to (1) provide a list (on an Internet site or other 
appropriate venue) of tests for which payments are being 
established in that year; (2) publish a notice of a meeting in 
the Federal Register on the day the list becomes available; (3) 
hold the public meeting no earlier than 30 days after the 
notice to receive public comments and recommendations; (4) take 
into account the comments, recommendations and accompanying 
data in both proposed and final payment determinations. The 
Secretary would set forth the criteria for making these 
determinations; make public the available data considered in 
making such determinations; and could convene other public 
meetings as necessary.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    The Secretary of Health and Human Services is required to 
establish by regulation an open process for any clinical 
diagnostic laboratory test. Under the regulations, the 
Secretary shall develop criteria for use in determining whether 
a laboratory test should be established through gap-filling or 
cross-walking to an existing code. When existing services are 
not sufficient and gap filling must be used, the criteria shall 
explain the basis of the data, the collection of the data, and 
the methodology for computing the rate.
    The intent of Congress is to open the process to allow CMS 
to have access to information from beneficiaries, physicians, 
health care experts and laboratories. Using the information it 
receives through this new process, CMS shall develop and make 
available to the public the information used to arrive at a 
final determination. The information will include the rationale 
for each such determination, the data on which the 
determination is based, and responses to public comments.

Section 843. Treatment of Hospitals for Certain Services Under the 
        Medicare Secondary Payor (MSP) Provisions

                              CURRENT LAW

    In certain instances when a beneficiary has other insurance 
coverage, Medicare becomes the secondary insurance. Medicare 
Secondary Payor is the Medicare program's coordination of 
benefits with other insurers. Section 1862(b)(6) of the Social 
Security Act requires an entity furnishing a Part B service to 
obtain information from the beneficiary on whether other 
insurance coverage is available.

                        EXPLANATION OF PROVISION

    The Secretary would not require a hospital or a critical 
access hospital to ask questions or obtain information relating 
to the Medicare secondary payor provisions in the case of 
reference laboratory services if the same requirements are not 
imposed upon those provided by an independent laboratory. 
Reference laboratory services would be those clinical 
laboratory diagnostic tests and interpretations of same that 
are furnished without a face-to-face encounter between the 
beneficiary and the hospital where the hospital submits a claim 
for the services.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Hospitals would not have to directly contact each 
beneficiary on their retirement date, black lung status and 
other insurance information for reference laboratory services. 
While current law provisions for a claim containing valid 
insurance information are maintained, this provision is 
intended to reduce the amount of paperwork and regulatory 
burden related to the provision of these reference laboratory 
services by hospital-based entities.

Section 844. EMTALA Improvements

                              CURRENT LAW

    Medicare requires participating hospitals that operate an 
emergency room to provide necessary screening and stabilization 
services to a patient in order to determine whether an 
emergency medical situation exist prior to asking about 
insurance status of the patient.
    Hospitals that are found to be in violation of EMTALA 
requirements may face civil monetary penalties and termination 
of their provider agreement. After a state investigation of an 
EMTALA complaint, the CMS Regional Office may ask their local 
peer review organization (PRO) to perform a 5-day review to 
obtain additional medical expertise. This review is 
discretionary. However, prior to imposing a civil monetary 
penalty, the Secretary is required to request that a PRO assess 
whether the involved beneficiary had an emergency condition, 
which had not been stabilized and provide a report on its 
findings. Except in the case where a delay would jeopardize the 
health or safety of individuals, the Secretary provides 60-day 
period for the requested PRO review.

                       EXPLANATION OF PROVISIONS

    Emergency room services provided to screen and stabilize a 
Medicare beneficiary furnished after January 1, 2003, would be 
evaluated as reasonable and necessary on the basis of the 
information available to the treating physician or practitioner 
at the time the services were ordered; this would include the 
patient's presenting symptoms or complaint and not the 
patient's principal diagnosis. The Secretary would not be able 
to consider the frequency with which the item or service was 
provided to the patient before the time of admission or visit. 
The Secretary shall also not count the provision of the item or 
service during such an admission or visit when considering the 
frequency with which the item or service is furnished on 
subsequent occasions.
    The Secretary would be required to establish a procedure to 
notify hospitals and physician when an EMTALA investigation is 
closed.
    Except in the case where a delay would jeopardize the 
health and safety of individuals, the Secretary would be 
required to request a PRO review before making a compliance 
determination that would terminate a hospital's Medicare 
participation because of EMTALA violation. The current period 
of review for the discretionary review--5 business days--would 
apply for such review. The Secretary shall provide a copy of 
the report on its findings to the hospital or physician, 
consistent with existing confidentiality requirements. This 
provision would apply to terminations initiated on or after 
enactment.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    Providers have reported that some Medicare contractors are 
looking at final diagnoses (not presenting symptoms) in 
applying local medical review policies (LMRPs) that match 
particular tests to particular diagnoses--if a test does not 
match a listed diagnosis, payment is denied. Other claims are 
reportedly being denied based on LMRPs that set frequency 
limits for certain tests--if the test's use in the emergency 
room exceeds a frequency limit, payment is denied. In its 
January 2001 report entitled AThe Emergency Medical Treatment 
and Labor Act: The Enforcement Process,@ the OIG recommended 
that CMS ensure that peer review occurs before a provider is 
terminated from the Medicare program for an EMTALA violation. 
This section implements that recommendation, making the current 
discretionary PRO review process mandatory in cases that 
involve a question of medical judgment.

Section 845. Emergency Medical Treatment and Active Labor (EMTALA) Task 
        Force

                              CURRENT LAW

    No provision.

                        EXPLANATION OF PROVISION

    The Secretary would be required to establish a 19-member 
technical advisory group under specified requirements to review 
issues related to the Emergency Medical Treatment and Labor Act 
(EMTALA). The advisory group would be comprised of: the CMS 
Administrator; the OIG; four hospital representatives who have 
EMTALA experience, (including one person from a public hospital 
and two of whom have not experienced EMTALA violations) seven 
practicing physicians with EMTALA experience; two patient 
representatives; two regional CMS staff involved in EMTALA 
investigations; one representative from a State survey 
organization and one representative from a PRO. The Secretary 
would select qualified individuals who are nominated by 
organizations representing providers and patients.
    The advisory group would be required to (1) elect a member 
to serve as chairperson; (2) schedule its first meeting at the 
direction of the Secretary and meet at least twice a year 
subsequently; and (3) terminate 30 months after the date of its 
first meeting. The advisory group would review EMTALA 
regulations; provide advice and recommendations to the 
Secretary; solicit public comments from interested parties; and 
disseminate information on the application of the EMTALA 
regulations.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    In its January 2001 report entitled The Emergency Medical 
Treatment and Labor Act: The Enforcement Process, the OIG 
recommended that CMS establish an EMTALA technical advisory 
group that includes all EMTALA stakeholders to help the agency 
resolve any emerging issues related to implementation of the 
law. Some of these current issues include specialists who 
refuse to service on call panels and inconsistencies between 
Stat and Federal law governing emergency medical services. In 
its June 2001 report entitled Emergency Care: EMTALA 
Implementations and Enforcement Issues, the GAO also concluded 
that the establishment of a technical advisory group could help 
CMS work with hospitals and physicians to achieve the goals of 
EMTALA and avoid creating unnecessary burdens for providers. 
This section implements the OIG recommendation, establishing a 
19-member technical advisory group within HHS.

Section 846. Authorizing Use of Arrangements with Other Hospice 
        Programs to Provide the Core Hospice Services in Certain 
        Circumstances

                              CURRENT LAW

    Hospice programs are not permitted to use services provided 
under arrangement to deliver hospice services. Under 
arrangement services are permitted for providers delivering 
Part A and Part B hospital services as well as skilled nursing 
services. However, the originating hospital or skilled nursing 
facility is required to bill for the service and be responsible 
for the quality of care delivered by the subcontractor.

                        EXPLANATION OF PROVISION

    Hospice programs may enter into arrangements with another 
certified hospice program to provide services. The provision 
for under arrangement services is limited to extraordinary or 
non-routine circumstances, such as unanticipated periods of 
staffing shortages. The originating hospice program continues 
to bear the legal responsibility for billing and maintaining 
quality of care.

                             EFFECTIVE DATE

    For hospice care provided after enactment.

                           REASON FOR CHANGE

    Hospice programs would be allowed to use personnel from 
other hospice programs to provide services to hospice patients. 
The program is given the flexibility so that a hospice program 
could continue to serve a patient if he or she was temporarily 
out of the area due to travel. Otherwise, the provision of the 
care to the patient might be delayed by the paperwork and 
requirements in starting up a new service at another agency. It 
is the intent of Congress that the originating hospice 
maintains control over the billing and quality of care.

Section 847. Application of OSHA Bloodborne Pathogens Standards to 
        Certain Hospitals

                              CURRENT LAW

    Section 1866 establishes certain conditions of 
participation that providers must meet in order to participate 
in Medicare.

                        EXPLANATION OF PROVISION

    Public hospitals that are not otherwise subject to the 
Occupational Safety and Health Act of 1970 would be required to 
comply with the Bloodborne Pathogens standard under section 
1910.1030 of title 29 of the Code of Federal Regulations. A 
hospital that fails to comply with the requirement would be 
subject to a civil monetary penalty, but would not be 
terminated from participating in Medicare.

                             EFFECTIVE DATE

    Applies to hospitals as of July 1, 2003.

                           REASON FOR CHANGE

    Last year, Congress enacted legislation that requires 
hospitals to utilize safe needles. However, that legislation 
only applies to non-government hospitals. Twenty-four states 
have similar requirements on public hospitals. This provision 
would protect the health and safety of health care workers in 
those facilities by requiring public hospitals in the other 26 
states and the District of Columbia to comply with this 
important standard.

Section 848. BIPA-Related Technical Amendments and Corrections

                              CURRENT LAW

    BIPA established an advisory process for national coverage 
determinations where panels of experts formed by advisory 
committees could forward their recommendations directly to the 
Secretary without prior approval of the advisory committee or 
the Executive Committee.

                        EXPLANATION OF PROVISION

    This provision makes technical corrections related to the 
Medicare Coverage Advisory Committee by transferring the 
provisions from Title 11 to Title 18 and by removing incorrect 
cross references to the establishment authority.

                             EFFECTIVE DATE

    As if included in BIPA.

Section 849. Conforming Authority to Waive A Program Exclusion

                              CURRENT LAW

    The Secretary is required to exclude individuals and 
entities from participation in Federal Health Programs who are 
(1) convicted of a criminal offense related to health care 
delivery under Medicare or under State health programs; (2) 
convicted of a criminal offense related to patient abuse or 
neglect under Federal or State law; (3) convicted of a felony 
relating to fraud, theft, or financial misconduct relating to a 
health care program financed or operated by the Federal, State 
or local government; or (4) convicted of a felony related to a 
controlled substance. At the request of a state, the Secretary 
is permitted to waive a program exclusion with respect to 
Medicare or Medicaid, but only for exclusions described in (1) 
above.

                       EXPLANATION OF PROVISIONS

    The Administrator of a Federal health program would be 
permitted to request a waiver of a program exclusion if the 
exclusion of a sole community physician or source of 
specialized services in a community would impose a hardship. 
This conforming change would extend the same waiver authority 
currently in Medicare and Medicaid to federal health programs. 
In addition, waivers could be requested for Medicare, Medicaid, 
and federal health programs with respect to all exclusions 
except those related to patient abuse or neglect.

                             EFFECTIVE DATE

    Upon enactment.

                           REASON FOR CHANGE

    This technical correction was requested by the Office of 
Inspector General.

Section 850. Treatment of Certain Dental Claims

                              CURRENT LAW

    Under current law, providers of services and suppliers 
submitting claims to Medicare must be enrolled in the Medicare 
program. However, certain services are specifically excluded 
from coverage under Medicare. Under current law, no payment may 
be made under part A or part B of the Medicare program for any 
services in connection with the care, treatment, filling, 
removal, or replacement of teeth or structures directly 
supporting teeth, except in the case of inpatient hospital 
services associated with the provision of these dental services 
if the individual's underlying medical condition and clinical 
status or the severity of the dental service require 
hospitalization.

                        EXPLANATION OF PROVISION

    This provision would prohibit group health plans from 
requiring a Medicare claims determination for dental benefits 
that are specifically excluded from Medicare coverage as a 
condition of making a determination for coverage under the 
group health plan. In so doing, this provision would ensure 
that dentists would not have to submit claims to the Medicare 
program (and thus enroll in the Medicare program) when the 
services they are providing are clearly those that are 
categorically excluded from coverage. In those cases that 
involve or appear to involve inpatient hospital services or 
dental services expressly covered by Medicare, a group health 
plan may require the claim to be first submitted to the 
Medicare program.

                             EFFECTIVE DATE

    60 days after enactment.

                           REASON FOR CHANGE

    The Committees are concerned about private insurers 
requiring dentists to submit claims to Medicare for non-covered 
services before making a determination for coverage under the 
group health plan. Because of this requirement, dentists have 
been forced to enroll in the Medicare program to submit claims 
for services that are categorically excluded from Medicare 
coverage. Dentists view Medicare's enrollment application 
process as overly burdensome, particularly in light of the fact 
that most dental services are not covered by Medicare. This 
provision would alleviate the enrollment burden placed on 
dentists providing services clearly excluded from Medicare 
coverage, consistent with the overarching goal of this 
legislation to reduce regulatory burdens.

Section 851. Annual Publication of List on National Coverage 
        Determinations

                              CURRENT LAW

    No provision.

                       EXPLANATION OF PROVISIONS

    The Secretary would be required to provide, in an annual 
report that will be publicly available, a list of Medicare's 
national coverage determinations made in the previous year and 
include information on how to learn more about such 
determinations.

                             EFFECTIVE DATE

    Upon enactment.

Clarifications and Instructions to the Secretary

    First, the Committee is pleased that the Secretary has 
published a notice of proposed rulemaking to provide Medicare 
payment for clinical psychology internship training programs 
that would not qualify under Medicare's existing provider-
operated criteria. The Committee notes that Congress has 
consistently urged the Secretary to initiate payment for the 
training of clinical psychologists since 1997. Supportive 
language has been included in conference reports accompanying 
Medicare legislation in 1999 (Report 106-479), and in 2000 
(Senate Report 106-293).
    The Committee is concerned, however, that a delay in the 
rule may mean that hospitals and institutions will reduce or 
eliminate psychology training programs and urges implementation 
of the rule as soon as possible. The Committee notes that 
clinical psychologists provide valuable and unique services to 
Medicare beneficiaries during their training. Regarding their 
training, clinical psychologists are distinguishable from other 
health care professionals in that they are the only doctoral 
level mental health professionals fully participating in 
Medicare whose clinical training is not currently reimbursed. 
In addition, their clinical internship training is entirely 
controlled, administered, supervised, evaluated, and certified 
by the hospital or institution, separately accredited, and 
distinct from any university training they receive. Clinical 
psychologists are hospital-based in the final stages of their 
training functioning in a parallel status to medical interns 
and residents, not medical nursing or health professional 
students. Where a clinical psychologist has clearly finished 
their educational curriculum and is training solely in the 
hospital setting, it is the intention of Congress that the 
hospital be reimbursed if that training is hospital-based.
    Second, Congresses original intent on BIPA section 
422(a)(2) on the dialysis composite rate has not been correctly 
interpreted by CMS. The intent was not to bar end stage renal 
disease (ESRD) composite rate exception relief for facilities 
that are not presently being paid under an exception to the 
composite rate. It is the Committee's expectation that CMS will 
evaluate ESRD composite rate exception requests submitted in 
2002 and subsequent years by new renal dialysis facilities and 
existing facilities that do not have an exception.

                TITLE IX--MEDICAID AND PUBLIC HEALTH ACT

                    Subtitle A--Medicaid Provisions

Section 901. National Bipartisan Commission on the Future of Medicaid

    (a) Establishment. This provision establishes the National 
Bipartisan Commission on the Future of Medicaid.
    (b) Duties of the Commission. The Commission will analyze 
the long-term financial condition of the Medicaid program, 
identify causes and consequences of increasing Medicaid costs, 
analyze policies to ensure the financial integrity of the 
Medicaid program and the provision of appropriate benefits 
under such a program, and make recommendations to promote 
enhanced efficiencies and for establishing the appropriate 
balance between benefits, payments, State and Federal 
contributions, and recipient cost-sharing obligations. The 
Commission will also make recommendations on the impact of 
promoting increased utilization of competitive, private 
enterprise models and the financing of prescription drug 
benefits currently covered under State Medicaid programs. The 
Commission will also analyze the impact of impending 
demographic changes on Medicaid benefits, including long term 
care, and make recommendations about how best to divide State 
and Federal responsibilities for funding these benefits.
    (c) Membership. The Commission will be composed of 17 
members. The ability to select appointees will be divided among 
the President, Senate Majority and Minority leaders, the 
Speaker of the House and the House Minority leader. The 
President, Senate Majority Leader and Speaker of the House of 
Representatives will jointly appoint the Chairman of the 
Commission. Members of the Commission must be appointed by 
December 1, 2002.
    (d) Staff and Support Services. The Chairman will appoint 
an Executive Director of the Commission, who may appoint such 
staff as is considered appropriate.
    (e) Powers of Commission. The Commission may hold hearings, 
request GAO reports, obtain CBO and CMS Actuary cost estimates, 
and obtain any information directly from any Federal agency 
that is necessary to carry out its duties.
    (f) Report. By March 1, 2004, the Commission shall submit a 
report to the President and Congress that will contain the 
recommendations, findings, and conclusions of the Commission.

Section 902. GAO Study on Medicaid Drug Payment System

    (a) Study. The Comptroller General will conduct a study on 
the reimbursements under the Medicaid program for covered 
outpatient drugs. The report shall examine the extent to which 
reimbursements for drugs exceed their acquisition cost, the 
services and resources associated with dispensing a 
prescription, any additional payments available to compensate 
for these expenses for pharmacy services, and State efforts to 
modify reimbursements for Medicaid covered drugs.
    (b) Report. The Comptroller General shall submit a report 
to Congress within 1 year of enactment, which will include 
recommendations for legislative or administrative changes 
regarding Medicaid reimbursements for outpatient prescription 
drugs.

                    Subtitle B--Internet Pharmacies

Section 911. Findings

    This provision contains findings concerning both the 
benefits of Internet prescription drug sales and the potential 
for abuse of consumers by unlawful or unscrupulous parties 
through Internet prescription drug sales.

Section 912. Amendments to the Federal Food, Drug, and Cosmetic Act

    This section requires interstate Internet sellers of 
prescription drugs to disclose important information on their 
web sites and to State licensing boards to improve the 
reliability of consumer transactions and make it easier for 
State and Federal enforcement officials to patrol for rogue 
sellers. The failure to post information or for knowingly 
making a false statement when posting information is 
prohibited.

Section 913. Public Education

    This section requires the Secretary to engage in activities 
to educate the public about the dangers of purchasing 
medications from Internet prescription drug sellers who fail to 
follow the law. The Secretary is also directed to educate the 
public about effective public and private sector consumer 
protection efforts, as appropriate.

Section 914. Study Regarding Coordination of Regulatory Activities

    Within 180 days of enactment and after consultation with 
the Attorney General, the Secretary is required to submit to 
Congress a report providing recommendations for coordinating 
(1) the activities of federal agencies regarding interstate 
Internet sellers that operate from foreign countries, and (2) 
the activities of the Federal Government with the activities of 
government of foreign countries regarding such interstate 
Internet sellers.

Section 915. Effective Date

    The sections in this subtitle shall take effect 1 year 
after enactment, except that the authority of the Secretary to 
commence rulemaking is effective on the date of enactment.

            Subtitle C--Promotion of Electronic Prescribing

Section 921. Program of Grants to Health Care Professionals to 
        Implement Electronic Prescription Drug Programs

    This section authorizes the Secretary to make grants for 
the purpose of assisting health care professionals who 
prescribe drugs and biologicals in implementing electronic 
prescription programs. Grants may only be made pursuant to a 
grant application submitted in a time, manner, and form 
approved by the Secretary. Such sums as are necessary are 
authorized to be appropriated for FY 2004 to carry out this 
section.

                 Subtitle D--Treatment of Rare Diseases

Section 931. NIH Office of Rare Diseases at National Institutes of 
        Health

    This section authorizes in statute an Office of Rare 
Diseases at the National Institutes of Health. Rare diseases 
are diseases affecting less than 200,000 individuals in the 
United States. The Director of the Office of Rare Diseases will 
serve as the principal advisor to the Director of NIH with 
respect to rare diseases, and shall serve to promote sufficient 
allocation of NIH resources to rare disease research, and 
promote and encourage the establishment of a centralized 
clearinghouse for rare disease information for the benefit of 
the public, medical professionals, patients, and families. The 
Director will prepare a biannual report that describes the 
research and education activities on rare diseases and prepare 
the NIH Director's annual report to Congress on rare disease 
research conducted by or supported through the national 
research institutes and centers. For fiscal years 2003 through 
2006, $4 million per year is authorized to be appropriated.

Section 932. Rare Disease Regional Centers of Excellence

    This section allows the Director of the Office of Rare 
Diseases at the NIH to enter into cooperative agreements with, 
and make grants to, nonprofit entities which will serve as 
regional centers of excellence supporting clinical research 
into, training in, and demonstration of diagnostic, prevention, 
control, and treatment methods for rare diseases. Support for 
regional centers of excellence may not exceed 5 years, though 
such period may be extended if the operations of such centers 
have been reviewed by an appropriate technical and scientific 
peer review group. For fiscal years 2003 through 2006, $20 
million per year is authorized to be appropriated.

             Subtitle E--Other Provisions Relating to Drugs

Section 941. Study by General Accounting Office Regarding Direct-to-
        Consumer Advertising of Prescription Drugs

    The Comptroller General is directed to conduct a study to 
determine whether DTC prescription drug advertising has 
resulted in increased utilization rates for prescription drugs 
and, if so, whether, and to what extent, increased utilization 
has resulted in increased costs to health plans, health 
insurance, or other health programs. The study will also 
determine whether DTC prescription drug advertising has 
resulted in increased consumer education and whether consumers 
and physicians are satisfied with such advertising. Last, the 
study will consider whether DTC prescription drug advertising 
has resulted in lower overall health expenditures for consumers 
and employers. The Comptroller General will submit to Congress 
a report on the findings of this study within 2 years of 
enactment.

Section 942. Certain Health Professions Programs Regarding Practice of 
        Pharmacy

    This section grants the Secretary the authority to develop 
and issue public service announcements to advertise and promote 
the pharmacist profession. The Secretary may also award grants 
to State and local governments to conduct public service 
announcements to promote the pharmacist profession. A 
demonstration project is established to expand the number of 
pharmacists who are currently eligible to participate in the 
National Health Service Corps Loan Repayment Program. It allows 
pharmacists participating in the program to provide medication 
therapy management services to assure that patients use 
medications appropriately. It also grants the Secretary the 
authority to make grants or contracts available to qualifying 
schools of pharmacy for the purpose of assisting these schools 
in acquiring and installing computer-based systems to provide 
pharmaceutical education. This section authorizes such sums as 
necessary for fiscal years 2003 through 2006.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 4954.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 4954, as amended, was ordered favorably 
reported by a roll call vote of 22 yeas to 16 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................  ........  ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........        X   .........
Mrs. Johnson...................        X   ........  .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Kleczka......  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Johnson....................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. English....................        X   ........  .........  Mrs. Thurman.....  ........        X   .........
Mr. Watkins....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Weller.....................        X   ........  .........
Mr. Hulshof....................        X   ........  .........
Mr. McInnis....................        X   ........  .........
Mr. Lewis (KY).................        X   ........  .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment to Title I by Mr. Stark on behalf of Mr. 
Rangel, to strike Title I and replace with a new Title I, was 
defeated by a roll call vote of 16 yeas to 23 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........  ........  .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title I by Mr. McDermott, which would 
require all plans to charge a $35 monthly premium, was defeated 
by a roll call vote of 17 yeas to 23 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........  ........  .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title I by Messrs. Cardin and Levin, which 
would assist high-need beneficiaries to access catastrophic 
coverage by allowing dollars spent by others (e.g., family 
members, employer coverage, etc.) to count toward the 
catastrophic cap, was defeated by a rollcall vote of 16 yeas to 
24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......  ........  ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title I by Mr. Becerra, which would provide 
beneficiaries with 20 percent co-insurance between the $250 
deductible and $2900 limit out-of-pocket spending, was defeated 
by a rollcall vote of 17 yeas to 24 nays. The vote was as 
follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title I by Mr. Tanner, which sought to 
ensure that any pharmacy that is willing to accept the 
negotiated reimbursement rates of a private drug plan should be 
allowed to participate in the plan network, was defeated by a 
rollcall vote of 18 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........  ........  .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title I by Mr. Doggett and Mrs. Thurman, 
which would require each participating manufacturers of a 
covered outpatient drug to make available such drugs at a price 
no greater than the manufacturer's average foreign price, was 
defeated by a rollcall vote of 16 yeas to 22 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......  ........  ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........  ........  .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................        X   ........  .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title II by Mr. McDermott, which would 
strike the sections that (1) create a new premium support 
program (including demonstration), (2) preempt state laws for 
Medicare+Choice plans, and (3) make changes to Medicare MSA, 
was defeated by a roll call vote of 15 yeas to 24 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title IV by Messrs. Neal and Rangel, which 
would ensure providing inpatient PPS hospitals with a full 
market basket in 2003 and permanently freeze IME at 6.5%, was 
defeated by a rollcall vote of 16 yeas to 23 nays. The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................        X   ........  .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title IV by Mr. Pomeroy, which would phase-
in the elimination of skilled nursing facility add-on, was 
defeated by a roll call vote of 15 yeas to 23 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title VI by Messrs. Jefferson and Levin, 
which would strike both the new home health co-payment, and the 
decrease in annual updates to home health agencies for year 
2003-2005, was defeated by a roll call vote of 14 yeas to 23 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........   Mr. Matsui......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment to Title VI by Mr. Levin, which would add 
several preventive-care services to Medicare's basic benefit 
package and eliminate coinsurance and deductibles for all new 
and existing preventive care services, was defeated by a roll 
call vote of 14 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........  ........  .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Coyne........  ........  ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Kleczka......        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Johnson....................  ........        X   .........  Mr. McNulty......  ........  ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Tanner.......  ........  ........  .........
Mr. Portman....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. English....................  ........        X   .........  Mrs. Thurman.....        X   ........  .........
Mr. Watkins....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Weller.....................  ........        X   .........
Mr. Hulshof....................  ........        X   .........
Mr. McInnis....................  ........        X   .........
Mr. Lewis (KY).................  ........        X   .........
Mr. Foley......................  ........        X   .........
Mr. Brady......................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. BUDGET EFFECTS OF THE BILL

               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made:
    The Committee agrees with the estimate prepared by the 
Congressional Budget Office (CBO), which is included below. The 
Committee notes that the CBO score does not include a 
discussion of the ``pharmacy cost management factor,'' which 
represents potential savings on total drug expenditures, 
reflecting changes in price, quantity and mix of drugs compared 
to what a Medicare beneficiary without drug coverage would 
otherwise spend. CBO has orally told the Committee that the 
pharmacy cost management factor for H.R. 4954 is the highest of 
any bills CBO has evaluated. The Committee believed it achieved 
this distinction by providing prescription drug plans the both 
the incentive to control costs and the tools to do so.
    In addition, the score does not mention that CBO assumes 96 
percent of Medicare seniors would have prescription drug 
coverage under this legislation. That means CBO believes the 
benefit will be offered nationwide and will be attractive to 
virtually all Medicare beneficiaries.
    CBO has agreed to provide a subsequent letter to clarify 
these issues in writing, but that letter was not available at 
the time this bill was filed.

    B. Statement Regarding New Budget Authority and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
Committee bill would result in increased federal direct 
spending by $4.1 billion in 2003 and by $337 billion over the 
2003-2012 period.

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives requiring a cost estimate 
prepared by the Congressional Budget Office (CBO), the 
following report prepared by the CBO is provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 24, 2002.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4954, the Medicare 
Modernization and Prescription Drug Act of 2002, as ordered 
reported by the Committee on Ways and Means on June 19, 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.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

H.R. 4954--Medicare Modernization and Prescription Drug Act of 2002

    Summary: H.R. 4954 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 $4.1 billion in 2003 and by $337 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. H.R. 
4954 would require the Centers for Medicare and Medicaid 
Services to modify how Medicare regulations and policies are 
developed, communicated, and enforced. It would establish a 
Medicare Benefits Administration to administer the outpatient 
drug benefit and the Medicare+Choice program, and would require 
the Social Security Administration (SSA) to determine the 
eligibility of low-income beneficiaries for the subsidy of the 
drug benefit. 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 
appropriation 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). CBOestimates 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 $46 billion over 
the 2003-2012 period.
    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 on H.R. 4954 is summarized in Table 1 and 
major components of these 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 $4.3 billion from 2003 through 
2012. Such payments would be recorded as offsetting receipts (a 
credit against direct spending).
    Medicaid pays some or all of the 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 by home health 
agencies, 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 $0.2 billion over the 2003-2012 period.

  TABLE 1.--ESTIMATED IMPACT ON DIRECT SPENDING OF H.R. 4954, THE MEDICARE MODERNIZATION AND PRESCRIPTION DRUG ACT OF 2002, AS ORDERED REPORTED BY THE
                                                      COMMITTEE ON WAYS AND MEANS ON JUNE 19, 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     22.0     35.8     40.5     45.7     51.3     57.3     64.2     72.2     389.0
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................................        *        *        *        *        *        *        *        *        *        *       0.2
                                                     ---------------------------------------------------------------------------------------------------
      Subtotal, title II............................      0.5      1.2      1.2      0.9      0.9      0.3     -0.3     -0.6     -0.6     -0.5       3.0
                                                     ===================================================================================================
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
    311  Increase for nonteaching hospitals.........      0.1      0.1      0.1        *        0        0        0        0        0        0       0.4
    Other provisions................................        *        *        *        *        *        *        *        *        *        *       0.1
                                                     ---------------------------------------------------------------------------------------------------
      Subtotal, title III...........................      0.5      1.1      1.0      0.9      0.9      1.0      1.0      1.1      1.2      1.2       9.9
                                                     ===================================================================================================
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.....      0.6      0.7      0.6      0.1        0        0        0        0        0        0       2.0
    421  Hospice consultation services..............        0        *        *        *        *        *        *        *        *        *       0.2
    Other provisions................................        *        *        *        *        *        *        0        0        0        0       0.1
                                                     ---------------------------------------------------------------------------------------------------
      Subtotal, title IV............................      1.3      1.3      0.9      0.5      0.4      0.4      0.4      0.5      0.5      0.5       6.8
                                                     ===================================================================================================
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      -7.7
    512  Ambulance..................................      0.2      0.2      0.1      0.1        *        0        0        0        0        0       0.6
    513  Therapy cap: 2 year extension of moratorium      0.4      0.5      0.1        *        *        *        *        *        *        *       1.0
    514  Hospital outpatient services...............        0      0.2      0.5      0.7      0.8      0.8      0.8      1.0      1.8      3.1       9.7
    515  Routine physical...........................        0      0.1      0.2      0.2      0.2      0.2      0.2      0.2      0.2      0.2       1.6
    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       0.5
                                                     ---------------------------------------------------------------------------------------------------
      Subtotal, title V.............................      2.2      5.4      7.2      6.1      3.1     -0.2     -2.4     -2.8     -1.5      0.8      17.8
                                                     ===================================================================================================
Title VI: Parts A and B:
    Home health provisions..........................      0.2        *     -0.3     -0.4     -0.4     -0.5     -0.6     -0.7     -0.7     -0.8      -4.1
    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............................      0.2        *     -0.2     -0.4     -0.5     -0.7     -0.8     -0.9     -1.1     -1.2      -5.7
                                                     ===================================================================================================
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..............      4.6      9.0     32.2     43.7     45.2     46.6     49.2     54.5     62.6     73.1     420.8
Premium collections.................................     -0.7     -1.6     -1.9     -1.6     -0.8      0.1      0.7      0.9      0.6        *      -4.3
                                                     ---------------------------------------------------------------------------------------------------
      Subtotal, net Medicare outlays................      4.0      7.5     30.2     42.1     44.4     46.7     49.9     55.4     63.2     73.1     416.5

                                                                    Medicaid Outlays

Title I: Medicare Prescription Drug Benefit.........        0        *     -3.8     -8.1     -8.5     -9.2    -10.1    -11.3    -12.7    -14.2     -77.9
Spending subject to upper payment limit.............      0.1      0.1      0.1        *        *        *        *        *        *        *       0.3
Medicaid payments of Medicare premiums..............      0.1      0.2      0.2      0.2      0.1        *     -0.1     -0.1     -0.1     -0.1       0.2
                                                     ---------------------------------------------------------------------------------------------------
      Subtotal, Medicaid............................      0.2      0.3     -3.5     -7.9     -8.5     -9.2    -10.2    -11.4    -12.8    -14.2     -77.4

                                                                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      -1.8

                                                            Total Changes in Direct Spending

Estimated outlays...................................      4.1      7.7     26.6     34.0     35.7     37.2     39.5     43.7     50.2     58.5    337.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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.

\2\ 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 Medicaid funds. CBO estimates that the bill would increase 
federal Medicaid spending subject to the UPL by $0.3 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 at 
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 provisions would increase 
direct spending by about $309 billion over the 2003-2012 period 
(see Table 2). Of that 10-year total, $294 billion represents 
outlays for federal payments to plans offering qualified 
prescription drug coverage and $97 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 
Medicare enrollees in Medicaid, offset, in part, by the 
reduction through 2012 in federal Medicaid payments in states--
would increase federal spending by $14 billion through 2012, 
CBO estimates.

    TABLE 2.--EFFECT ON DIRECT SPENDING OF ESTABLISHING A PRESCRIPTION DRUG BENEFIT IN MEDICARE: TITLE I OF H.R. 4954, 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      18      29      31      35      38      43      47      53      294
Spending by Medicaid and other programs on drugs for Medicare         0       0      -4      -9     -10     -11     -13     -14     -16     -18      -96
 enrollees.....................................................
Low-income subsidy.............................................       0       0       4       8      10      12      13      15      16      18       97
Other direct spending \1\......................................       0       *       *       *       1       1       2       3       3       4       14
                                                                ----------------------------------------------------------------------------------------
Total changes..................................................       0       *      18      27      32      36      41      46      51      58      309
                           Memorandum
Monthly premium................................................    n.a.    n.a.     $35     $37     $40     $44     $47     $52     $57     $62  .......
Deductible.....................................................    n.a.    n.a.    $250    $276    $303    $332    $364    $398    $434    $474  .......
--------------------------------------------------------------------------------------------------------------------------------------------------------
\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:
*=Costs 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 totals 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 costs 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 $3,800 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 $3,800 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 $35 in 2005, increasing to 
$62 in 2012.
    The Medicaid program would subsidize the drug benefit 
through two payments to plans: reimbursement of 35 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.) The bill 
would require the SSA to determine the eligibility of low-
income beneficiaries for the subsidy of the drug benefit.

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 competitive bidding, 
beginning in 2005. The bill would also 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 $3.0 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. H.R. 4954 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 currentper-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.
    H.R. 4954 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 
service furnished by hospitals in rural areas or metropolitan 
area with a population under one million, and for services 
furnished by home health agencies located in rural areas. CBO 
estimates these provisions would increase spending by $0.5 
billion in 2003 and by about $10 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 $1.3 billion in 2003 and by $6.8 billion 
over the 2003-2012 period.
    H.R. 4954 would increase the 2003 update to payment rates 
for hospital inpatient services paid under the prospective pay 
system from 0.55 percentage points below the ``market basket 
index'' measure of changes in hospital input prices go 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 accumulative cost of $2.0 
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 $17.8 billion 
over the 2003-1012 period. The provisions with the largest 
budgetary effects include changes in payments or 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 two-year delay in the implementation of caps 
on payments for certain therapy services.
    Compared to current law, CBO estimates that H.R. 4954 would 
increase payments for services paid under the physican fee 
schedule during 2003 through 2007, without outlays increasing 
by $1.6 billion in 2003 and by $21.3 billion though 2007. 
However, the bill would reduce payments for these 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 charge 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. H.R. 4954 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 association services, 
when furnished within six months of when a beneficiary first 
enrolls in Medicare. The bill would waive cost sharing for 
those services. Beneficiaries already enrolled in Medicare 
would not be eligible for this benefit. CBO estimates this 
provision would cost $1.6 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 $0.2 billion in 2003 and would 
reduce spending by $5.7 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). H.R. 4954 would eliminate the reduction, but would 
provide for smaller annual updates to payment rates in 
subsequent years. In addition, the bill would impose cost 
sharing on beneficiaries of 1.5 percent of the average per-
episode payment amount. CBO estimates those provisions would 
increase federal spending by $0.2 billion in 2003 and reduce 
spending by $4.1 billion over the 2003-2012 period.
    Under current law, a limit on subsidies for GME programs--
at 140 percent of the adjusted national average per-resident 
amount--would 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

    H.R. 4954 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. CBO estimates that title VII 
would have no effect on direct spending.

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   26,000   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 $64 billion over the 2003-2012 
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 $46 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 fully eligible for both Medicare and Medicaid. CBO 
estimates that savings to states from these provisions would 
total about $58 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 the eligibility of 
individuals for premium and cost-sharing assistance under the 
Medicare drug benefit. (Medicare beneficiaries may also apply 
for these benefits through the Social Security Administration.) 
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. Because states may alter their programmatic 
and financial responsibilities to offset the costs of this new 
requirement, it would not be an intergovernmental mandate 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 
supplemental (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 joint 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 on 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.

 V. OTHER MATTERS REQUIRED TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

          A. Committee Oversight Findings and Recommendations

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
need for this legislation was confirmed by the oversight 
hearings of the Subcommittee on Health. The hearings were as 
follows:
    The Subcommittee on Health held a series of hearings on 
Medicare Reform during the 107th Congress to examine the 
implications of different proposals aimed at helping seniors 
gain more affordable access to prescription drugs. A list of 
these hearings may be found in this report in Section I. 
Introduction, Part C. Legislative History (Page 4).

         B. Summary of General Performance Goals and Objectives

    In compliance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
primary purpose of H.R. 4954 is to create a prescription drug 
benefit into the Medicare program while modernizing other 
aspects of the program.

                 C. Constitutional Authority Statement

    In compliance with clause 3(d)(1) of rule XIII of the Rules 
of the House of Representatives, relating to constitutional 
Authority, the Committee states that the Committee's action in 
reporting the bill is derived from Article I of the 
Constitution, Section 8 (``The Congress shall have power to lay 
and collect taxes, duties, imposts, and excises, to pay the 
debts and to provide for * * * the General Welfare of the 
United States * * *'').

         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)  * * *

           *       *       *       *       *       *       *

       APPOINTMENT OF ADVISORY COUNCIL AND OTHER ADVISORY GROUPS

  Sec. 1114. (a)  * * *

           *       *       *       *       *       *       *

  [(i)(1) Any advisory committee appointed under subsection (f 
) to advise the Secretary on matters relating to the 
interpretation, application, or implementation of section 
1862(a)(1) shall assure the full participation of a nonvoting 
member in the deliberations of the advisory committee, and 
shall provide such nonvoting member access to all information 
and data made available to voting members of the advisory 
committee, other than information that--
          [(A) is exempt from disclosure pursuant to subsection 
        (a) of section 552 of title 5, United States Code, by 
        reason of subsection (b)(4) of such section (relating 
        to trade secrets); or
          [(B) the Secretary determines would present a 
        conflict of interest relating to such nonvoting member.
  [(2) If an advisory committee described in paragraph (1) 
organizes into panels of experts according to types of items or 
services considered by the advisory committee, any such panel 
of experts may report any recommendation with respect to such 
items or services directly to the Secretary without the prior 
approval of the advisory committee or an executive committee 
thereof.]

           *       *       *       *       *       *       *

  EXCLUSION OF CERTAIN INDIVIDUALS AND ENTITIES FROM PARTICIPATION IN 
                MEDICARE AND STATE HEALTH CARE PROGRAMS

  Sec. 1128. (a) * * *

           *       *       *       *       *       *       *

  (c) Notice, Effective Date, and Period of Exclusion.--(1) * * 
*

           *       *       *       *       *       *       *

  (3)(A) * * *
  (B) [Subject to subparagraph (G), in the case of an exclusion 
under subsection (a), the minimum period of exclusion shall be 
not less than five years, except that, upon the request of a 
State, the Secretary may waive the exclusion under subsection 
(a)(1) in the case of an individual or entity that is the sole 
community physician or sole source of essential specialized 
services in a community.] Subject to subparagraph (G), in the 
case of an exclusion under subsection (a), the minimum period 
of exclusion shall be not less than five years, except that, 
upon the request of the administrator of a Federal health care 
program (as defined in section 1128B(f)) who determines that 
the exclusion would impose a hardship on individuals entitled 
to benefits under part A of title XVIII or enrolled under part 
B of such title, or both, the Secretary may waive the exclusion 
under subsection (a)(1), (a)(3), or (a)(4) with respect to that 
program in the case of an individual or entity that is the sole 
community physician or sole source of essential specialized 
services in a community. The Secretary's decision whether to 
waive the exclusion shall not be reviewable.

           *       *       *       *       *       *       *

   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[.];
          (G) the waiver or reduction of any cost-sharing 
        imposed under part D of title XVIII; and
                  (H) any remuneration between a public or 
                nonprofit private health center entity 
                described under clause (i) or (ii) of section 
                1905(l)(2)(B) and any individual or entity 
                providing goods, items, services, donations or 
                loans, or a combination thereof, to such health 
                center entity pursuant to a contract, lease, 
                grant, loan, or other agreement, if such 
                agreement contributes to the ability of the 
                health center entity to maintain or increase 
                the availability, or enhance the quality, of 
                services provided to a medically underserved 
                population served by the health center entity.

           *       *       *       *       *       *       *

   Part B--Peer Review of the Utilization and Quality of Health Care 
                                Services

                 FUNCTIONS OF PEER REVIEW ORGANIZATIONS

  Sec. 1154. (a) * * *

           *       *       *       *       *       *       *

  (e)(1)  * * *
  [(5) In any review conducted under paragraph (2) or (3), the 
organization shall solicit the views of the patient involved 
(or the patient's representative).]

           *       *       *       *       *       *       *

        TITLE XVIII--HEALTH INSURANCE FOR THE AGED AND DISABLED

     NOTICE OF MEDICARE BENEFITS; MEDICARE AND MEDIGAP INFORMATION

  Sec. 1804. (a) * * *
  (b) The Secretary shall provide information via a toll-free 
telephone number on the programs under this title. The 
Secretary shall provide, through the toll-free number 1-800-
MEDICARE, for a means by which individuals seeking information 
about, or assistance with, such programs who phone such toll-
free number are transferred (without charge) to appropriate 
entities for the provision of such information or assistance. 
Such toll-free number shall be the toll-free number listed for 
general information and assistance in the annual notice under 
subsection (a) instead of the listing of numbers of individual 
contractors.

           *       *       *       *       *       *       *

                  MEDICARE PAYMENT ADVISORY COMMISSION

  Sec. 1805. (a) * * *
  (b) Duties.--
          (1) * * *
          (2) Specific topics to be reviewed.--
                  (A) * * *
                  (B) Original medicare fee-for-service 
                system.--Specifically, the Commission shall 
                review payment policies under parts A and B, 
                including--
                          (i) the factors affecting 
                        expenditures for the efficient 
                        provision of services in different 
                        sectors, including the process for 
                        updating hospital, skilled nursing 
                        facility, physician, and other fees,

           *       *       *       *       *       *       *

          (8) Examination of budget consequences.--Before 
        making any recommendations, the Commission shall 
        examine the budget consequences of such 
        recommendations, directly or through consultation with 
        appropriate expert entities.

           *       *       *       *       *       *       *

      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.

                    MEDICARE BENEFITS ADMINISTRATION

  Sec. 1808. (a) Establishment.--There is established within 
the Department of Health and Human Services an agency to be 
known as the Medicare Benefits Administration.
  (b) Administrator; Deputy Administrator; Chief Actuary.--
          (1) Administrator.--
                  (A) In general.--The Medicare Benefits 
                Administration shall be headed by an 
                administrator to be known as the ``Medicare 
                Benefits Administrator'' (in this section 
                referred to as the ``Administrator'') who shall 
                be appointed by the President, by and with the 
                advice and consent of the Senate. The 
                Administrator shall be in direct line of 
                authority to the Secretary.
                  (B) Compensation.--The Administrator shall be 
                paid at the rate of basic pay payable for level 
                III of the Executive Schedule under section 
                5314 of title 5, United States Code.
                  (C) Term of office.--The Administrator shall 
                be appointed for a term of 5 years. In any case 
                in which a successor does not take office at 
                the end of an Administrator's term of office, 
                that Administrator may continue in office until 
                the entry upon office of such a successor. An 
                Administrator appointed to a term of office 
                after the commencement of such term may serve 
                under such appointment only for the remainder 
                of such term.
                  (D) General authority.--The Administrator 
                shall be responsible for the exercise of all 
                powers and the discharge of all duties of the 
                Administration, and shall have authority and 
                control over all personnel and activities 
                thereof.
                  (E) Rulemaking authority.--The Administrator 
                may prescribe such rules and regulations as the 
                Administrator determines necessary or 
                appropriate to carry out the functions of the 
                Administration. The regulations prescribed by 
                the Administrator shall be subject to the 
                rulemaking procedures established under section 
                553 of title 5, United States Code.
                  (F) Authority to establish organizational 
                units.--The Administrator may establish, alter, 
                consolidate, or discontinue such organizational 
                units or components within the Administration 
                as the Administrator considers necessary or 
                appropriate, except as specified in this 
                section.
                  (G) Authority to delegate.--The Administrator 
                may assign duties, and delegate, or authorize 
                successive redelegations of, authority to act 
                and to render decisions, to such officers and 
                employees of the Administration as the 
                Administrator may find necessary. Within the 
                limitations of such delegations, redelegations, 
                or assignments, all official acts and decisions 
                of such officers and employees shall have the 
                same force and effect as though performed or 
                rendered by the Administrator.
          (2) Deputy administrator.--
                  (A) In general.--There shall be a Deputy 
                Administrator of the Medicare Benefits 
                Administration who shall be appointed by the 
                President, by and with the advice and consent 
                of the Senate.
                  (B) Compensation.--The Deputy Administrator 
                shall be paid at the rate of basic pay payable 
                for level IV of the Executive Schedule under 
                section 5315 of title 5, United States Code.
                  (C) Term of office.--The Deputy Administrator 
                shall be appointed for a term of 5 years. In 
                any case in which a successor does not take 
                office at the end of a Deputy Administrator's 
                term of office, such Deputy Administrator may 
                continue in office until the entry upon office 
                of such a successor. A Deputy Administrator 
                appointed to a term of office after the 
                commencement of such term may serve under such 
                appointment only for the remainder of such 
                term.
                  (D) Duties.--The Deputy Administrator shall 
                perform such duties and exercise such powers as 
                the Administrator shall from time to time 
                assign or delegate. The Deputy Administrator 
                shall be Acting Administrator of the 
                Administration during the absence or disability 
                of the Administrator and, unless the President 
                designates another officer of the Government as 
                Acting Administrator, in the event of a vacancy 
                in the office of the Administrator.
          (3) Chief actuary.--
                  (A) In general.--There is established in the 
                Administration the position of Chief Actuary. 
                The Chief Actuary shall be appointed by, and in 
                direct line of authority to, the Administrator 
                of such Administration. The Chief Actuary shall 
                be appointed from among individuals who have 
                demonstrated, by their education and 
                experience, superior expertise in the actuarial 
                sciences. The Chief Actuary may be removed only 
                for cause.
                  (B) Compensation.--The Chief Actuary shall be 
                compensated at the highest rate of basic pay 
                for the Senior Executive Service under section 
                5382(b) of title 5, United States Code.
                  (C) Duties.--The Chief Actuary shall exercise 
                such duties as are appropriate for the office 
                of the Chief Actuary and in accordance with 
                professional standards of actuarial 
                independence.
          (4) Secretarial coordination of program 
        administration.--The Secretary shall ensure appropriate 
        coordination between the Administrator and the 
        Administrator of the Centers for Medicare & Medicaid 
        Services in carrying out the programs under this title.
  (c) Duties; Administrative Provisions.--
          (1) Duties.--
                  (A) General duties.--The Administrator shall 
                carry out parts C and D, including--
                          (i) negotiating, entering into, and 
                        enforcing, contracts with plans for the 
                        offering of Medicare+Choice plans under 
                        part C, including the offering of 
                        qualified prescription drug coverage 
                        under such plans; and
                          (ii) negotiating, entering into, and 
                        enforcing, contracts with PDP sponsors 
                        for the offering of prescription drug 
                        plans under part D.
                  (B) Other duties.--The Administrator shall 
                carry out any duty provided for under part C or 
                part D, including demonstration projects 
                carried out in part or in whole under such 
                parts, the programs of all-inclusive care for 
                the elderly (PACE program) under section 1894, 
                the social health maintenance organization 
                (SHMO) demonstration projects (referred to in 
                section 4104(c) of the Balanced Budget Act of 
                1997), and 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).
                  (C) Prescription drug card.--The 
                Administrator shall carry out section 1807 
                (relating to the medicare prescription drug 
                discount card endorsement program).
                  (D) Noninterference.--In carrying out its 
                duties with respect to the provision of 
                qualified prescription drug coverage to 
                beneficiaries under this title, the 
                Administrator may not--
                          (i) require a particular formulary or 
                        institute a price structure for the 
                        reimbursement of covered outpatient 
                        drugs;
                          (ii) interfere in any way with 
                        negotiations between PDP sponsors and 
                        Medicare+Choice organizations and drug 
                        manufacturers, wholesalers, or other 
                        suppliers of covered outpatient drugs; 
                        and
                          (iii) otherwise interfere with the 
                        competitive nature of providing such 
                        coverage through such sponsors and 
                        organizations.
                  (E) Annual reports.--Not later March 31 of 
                each year, the Administrator shall submit to 
                Congress and the President a report on the 
                administration of parts C and D during the 
                previous fiscal year.
          (2) Staff.--
                  (A) In general.--The Administrator, with the 
                approval of the Secretary, may employ, without 
                regard to chapter 31 of title 5, United States 
                Code, other than sections 3110 and 3112, such 
                officers and employees as are necessary to 
                administer the activities to be carried out 
                through the Medicare Benefits Administration. 
                The Administrator shall employ staff with 
                appropriate and necessary expertise in 
                negotiating contracts in the private sector.
                  (B) Flexibility with respect to 
                compensation.--
                          (i) In general.--The staff of the 
                        Medicare Benefits Administration shall, 
                        subject to clause (ii), be paid without 
                        regard to the provisions of chapter 51 
                        (other than section 5101) and chapter 
                        53 (other than section 5301) of such 
                        title (relating to classification and 
                        schedule pay rates).
                          (ii) Maximum rate.--In no case may 
                        the rate of compensation determined 
                        under clause (i) exceed the rate of 
                        basic pay payable for level IV of the 
                        Executive Schedule under section 5315 
                        of title 5, United States Code.
                  (C) Limitation on full-time equivalent 
                staffing for current cms functions being 
                transferred.--The Administrator may not employ 
                under this paragraph a number of full-time 
                equivalent employees, to carry out functions 
                that were previously conducted by the Centers 
                for Medicare & Medicaid Services and that are 
                conducted by the Administrator by reason of 
                this section, that exceeds the number of such 
                full-time equivalent employees authorized to be 
                employed by the Centers for Medicare & Medicaid 
                Services to conduct such functions as of the 
                date of the enactment of this Act.
          (3) Redelegation of certain functions of the centers 
        for medicare & medicaid services.--
                  (A) In general.--The Secretary, the 
                Administrator, and the Administrator of the 
                Centers for Medicare & Medicaid Services shall 
                establish an appropriate transition of 
                responsibility in order to redelegate the 
                administration of part C from the Secretary and 
                the Administrator of the Centers for Medicare & 
                Medicaid Services to the Administrator as is 
                appropriate to carry out the purposes of this 
                section.
                  (B) Transfer of data and information.--The 
                Secretary shall ensure that the Administrator 
                of the Centers for Medicare & Medicaid Services 
                transfers to the Administrator of the Medicare 
                Benefits Administration such information and 
                data in the possession of the Administrator of 
                the Centers for Medicare & Medicaid Services as 
                the Administrator of the Medicare Benefits 
                Administration requires to carry out the duties 
                described in paragraph (1).
                  (C) Construction.--Insofar as a 
                responsibility of the Secretary or the 
                Administrator of the Centers for Medicare & 
                Medicaid Services is redelegated to the 
                Administrator under this section, any reference 
                to the Secretary or the Administrator of the 
                Centers for Medicare & Medicaid Services in 
                this title or title XI with respect to such 
                responsibility is deemed to be a reference to 
                the Administrator.
  (d) Office of Beneficiary Assistance.--
          (1) Establishment.--The Secretary shall establish 
        within the Medicare Benefits Administration an Office 
        of Beneficiary Assistance to coordinate functions 
        relating to outreach and education of medicare 
        beneficiaries under this title, including the functions 
        described in paragraph (2). The Office shall be 
        separate operating division within the Administration.
          (2) Dissemination of information on benefits and 
        appeals rights.--
                  (A) Dissemination of benefits information.--
                The Office of Beneficiary Assistance shall 
                disseminate, directly or through contract, to 
                medicare beneficiaries, by mail, by posting on 
                the Internet site of the Medicare Benefits 
                Administration and through a toll-free 
                telephone number, information with respect to 
                the following:
                          (i) Benefits, and limitations on 
                        payment (including cost-sharing, stop-
                        loss provisions, and formulary 
                        restrictions) under parts C and D.
                          (ii) Benefits, and limitations on 
                        payment under parts A and B, including 
                        information on medicare supplemental 
                        policies under section 1882.
                Such information shall be presented in a manner 
                so that medicare beneficiaries may compare 
                benefits under parts A, B, D, and medicare 
                supplemental policies with benefits under 
                Medicare+Choice plans under part C.
                  (B) Dissemination of appeals rights 
                information.--The Office of Beneficiary 
                Assistance shall disseminate to medicare 
                beneficiaries in the manner provided under 
                subparagraph (A) a description of procedural 
                rights (including grievance and appeals 
                procedures) of beneficiaries under the original 
                medicare fee-for-service program under parts A 
                and B, the Medicare+Choice program under part 
                C, and the Voluntary Prescription Drug Benefit 
                Program under part D.
  (e) Medicare Policy Advisory Board.--
          (1) Establishment.--There is established within the 
        Medicare Benefits Administration the Medicare Policy 
        Advisory Board (in this section referred to the 
        ``Board''). The Board shall advise, consult with, and 
        make recommendations to the Administrator of the 
        Medicare Benefits Administration with respect to the 
        administration of parts C and D, including the review 
        of payment policies under such parts.
          (2) Reports.--
                  (A) In general.--With respect to matters of 
                the administration of parts C and D, the Board 
                shall submit to Congress and to the 
                Administrator of the Medicare Benefits 
                Administration such reports as the Board 
                determines appropriate. Each such report may 
                contain such recommendations as the Board 
                determines appropriate for legislative or 
                administrative changes to improve the 
                administration of such parts, including the 
                topics described in subparagraph (B). Each such 
                report shall be published in the Federal 
                Register.
                  (B) Topics described.--Reports required under 
                subparagraph (A) may include the following 
                topics:
                          (i) Fostering competition.--
                        Recommendations or proposals to 
                        increase competition under parts C and 
                        D for services furnished to medicare 
                        beneficiaries.
                          (ii) Education and enrollment.--
                        Recommendations for the improvement to 
                        efforts to provide medicare 
                        beneficiaries information and education 
                        on the program under this title, and 
                        specifically parts C and D, and the 
                        program for enrollment under the title.
                          (iii) Implementation of risk-
                        adjustment.--Evaluation of the 
                        implementation under section 
                        1853(a)(3)(C) of the risk adjustment 
                        methodology to payment rates under that 
                        section to Medicare+Choice 
                        organizations offering Medicare+Choice 
                        plans that accounts for variations in 
                        per capita costs based on health status 
                        and other demographic factors.
                          (iv) Disease management programs.--
                        Recommendations on the incorporation of 
                        disease management programs under parts 
                        C and D.
                          (v) Rural access.--Recommendations to 
                        improve competition and access to plans 
                        under parts C and D in rural areas.
                  (C) Maintaining independence of board.--The 
                Board shall directly submit to Congress reports 
                required under subparagraph (A). No officer or 
                agency of the United States may require the 
                Board to submit to any officer or agency of the 
                United States for approval, comments, or 
                review, prior to the submission to Congress of 
                such reports.
          (3) Duty of administrator of medicare benefits 
        administration.--With respect to any report submitted 
        by the Board under paragraph (2)(A), not later than 90 
        days after the report is submitted, the Administrator 
        of the Medicare Benefits Administration shall submit to 
        Congress and the President an analysis of 
        recommendations made by the Board in such report. Each 
        such analysis shall be published in the Federal 
        Register.
          (4) Membership.--
                  (A) Appointment.--Subject to the succeeding 
                provisions of this paragraph, the Board shall 
                consist of seven members to be appointed as 
                follows:
                          (i) Three members shall be appointed 
                        by the President.
                          (ii) Two members shall be appointed 
                        by the Speaker of the House of 
                        Representatives, with the advice of the 
                        chairmen and the ranking minority 
                        members of the Committees on Ways and 
                        Means and on Energy and Commerce of the 
                        House of Representatives.
                          (iii) Two members shall be appointed 
                        by the President pro tempore of the 
                        Senate with the advice of the chairman 
                        and the ranking minority member of the 
                        Senate Committee on Finance.
                  (B) Qualifications.--The members shall be 
                chosen on the basis of their integrity, 
                impartiality, and good judgment, and shall be 
                individuals who are, by reason of their 
                education and experience in health care 
                benefits management, exceptionally qualified to 
                perform the duties of members of the Board.
                  (C) Prohibition on inclusion of federal 
                employees.--No officer or employee of the 
                United States may serve as a member of the 
                Board.
          (5) Compensation.--Members of the Board shall 
        receive, for each day (including travel time) they are 
        engaged in the performance of the functions of the 
        board, compensation at rates not to exceed the daily 
        equivalent to the annual rate in effect for level IV of 
        the Executive Schedule under section 5315 of title 5, 
        United States Code.
          (6) Terms of office.--
                  (A) In general.--The term of office of 
                members of the Board shall be 3 years.
                  (B) Terms of initial appointees.--As 
                designated by the President at the time of 
                appointment, of the members first appointed--
                          (i) one shall be appointed for a term 
                        of 1 year;
                          (ii) three shall be appointed for 
                        terms of 2 years; and
                          (iii) three shall be appointed for 
                        terms of 3 years.
                  (C) Reappointments.--Any person appointed as 
                a member of the Board may not serve for more 
                than 8 years.
                  (D) Vacancy.--Any member appointed to fill a 
                vacancy occurring before the expiration of the 
                term for which the member's predecessor was 
                appointed shall be appointed only for the 
                remainder of that term. A member may serve 
                after the expiration of that member's term 
                until a successor has taken office. A vacancy 
                in the Board shall be filled in the manner in 
                which the original appointment was made.
          (7) Chair.--The Chair of the Board shall be elected 
        by the members. The term of office of the Chair shall 
        be 3 years.
          (8) Meetings.--The Board shall meet at the call of 
        the Chair, but in no event less than three times during 
        each fiscal year.
          (9) Director and staff.--
                  (A) Appointment of director.--The Board shall 
                have a Director who shall be appointed by the 
                Chair.
                  (B) In general.--With the approval of the 
                Board, the Director may appoint, without regard 
                to chapter 31 of title 5, United States Code, 
                such additional personnel as the Director 
                considers appropriate.
                  (C) Flexibility with respect to 
                compensation.--
                          (i) In general.--The Director and 
                        staff of the Board shall, subject to 
                        clause (ii), be paid without regard to 
                        the provisions of chapter 51 and 
                        chapter 53 of such title (relating to 
                        classification and schedule pay rates).
                          (ii) Maximum rate.--In no case may 
                        the rate of compensation determined 
                        under clause (i) exceed the rate of 
                        basic pay payable for level IV of the 
                        Executive Schedule under section 5315 
                        of title 5, United States Code.
                  (D) Assistance from the administrator of the 
                medicare benefits administration.--The 
                Administrator of the Medicare Benefits 
                Administration shall make available to the 
                Board such information and other assistance as 
                it may require to carry out its functions.
          (10) Contract authority.--The Board may contract with 
        and compensate government and private agencies or 
        persons to carry out its duties under this subsection, 
        without regard to section 3709 of the Revised Statutes 
        (41 U.S.C. 5).
  (f) Funding.--There is authorized to be appropriated, in 
appropriate part from the Federal Hospital Insurance Trust Fund 
and from the Federal Supplementary Medical Insurance Trust Fund 
(including the Medicare Prescription Drug Account), such sums 
as are necessary to carry out this section.

                     MEDICARE BENEFICIARY OMBUDSMAN

  Sec. 1809. (a) In General.--The Secretary shall appoint 
within the Department of Health and Human Services a Medicare 
Beneficiary Ombudsman who shall have expertise and experience 
in the fields of health care and education of (and assistance 
to) individuals entitled to benefits under this title.
  (b) Duties.--The Medicare Beneficiary Ombudsman shall--
          (1) receive complaints, grievances, and requests for 
        information submitted by individuals entitled to 
        benefits under part A or enrolled under part B, or 
        both, with respect to any aspect of the medicare 
        program;
          (2) provide assistance with respect to complaints, 
        grievances, and requests referred to in paragraph (1), 
        including--
                  (A) assistance in collecting relevant 
                information for such individuals, to seek an 
                appeal of a decision or determination made by a 
                fiscal intermediary, carrier, Medicare+Choice 
                organization, or the Secretary; and
                  (B) assistance to such individuals with any 
                problems arising from disenrollment from a 
                Medicare+Choice plan under part C; and
          (3) submit annual reports to Congress and the 
        Secretary that describe the activities of the Office 
        and that include such recommendations for improvement 
        in the administration of this title as the Ombudsman 
        determines appropriate.
The Ombudsman shall not serve as an advocate for any increases 
in payments or new coverage of services, but may identify 
issues and problems in payment or coverage policies.
  (c) Working with Health Insurance Counseling Programs.--To 
the extent possible, the Ombudsman shall work with health 
insurance counseling programs (receiving funding under section 
4360 of Omnibus Budget Reconciliation Act of 1990) to 
facilitate the provision of information to individuals entitled 
to benefits under part A or enrolled under part B, or both 
regarding Medicare+Choice plans and changes to those plans. 
Nothing in this subsection shall preclude further collaboration 
between the Ombudsman and such programs.

     Part A--Hospital Insurance Benefits for the Aged and Disabled

                           SCOPE OF BENEFITS

  Sec. 1812. (a) The benefits provided to an individual by the 
insurance program under this part shall consist of entitlement 
to have payment made on his behalf or, in the case of payments 
referred to in section 1814(d)(2) to him (subject to the 
provisions of this part) for--
          (1) * * *

           *       *       *       *       *       *       *

          (3) for  individuals not enrolled in part B, home 
        health services, and for individuals so enrolled, post-
        institutional home health services furnished during a 
        home health spell of illness for up to 100 visits 
        during such spell of illness; [and]
          (4) in lieu of certain other benefits, hospice care 
        with respect to the individual during up to two periods 
        of 90 days each and an unlimited number of subsequent 
        periods of 60 days each with respect to which the 
        individual makes an election under subsection 
        (d)(1)[.]; and
          (5) for individuals who are terminally ill, have not 
        made an election under subsection (d)(1), and have not 
        previously received services under this paragraph, 
        services that are furnished by a physician who is 
        either the medical director or an employee of a hospice 
        program and that consist of--
                  (A) an evaluation of the individual's need 
                for pain and symptom management;
                  (B) counseling the individual with respect to 
                end-of-life issues and care options; and
                  (C) advising the individual regarding 
                advanced care planning.

           *       *       *       *       *       *       *

                      DEDUCTIBLES AND COINSURANCE

  Sec. 1813. (a)(1) * * *

           *       *       *       *       *       *       *

  (5)(A)(i) Subject to clause (ii), the amount payable for home 
health services furnished to the individual under this title 
for each episode of care beginning in a year (beginning with 
2003) shall be reduced by a copayment equal to the copayment 
amount specified in subparagraph (B)(ii) such year.
  (ii) The copayment under clause (i) shall not apply--
          (I) in the case of an individual who has been 
        determined to be a qualified medicare beneficiary (as 
        defined in section 1905(p)(1)) or otherwise to be 
        entitled to medical assistance under section 
        1902(a)(10)(A) or 1902(a)(10)(C); and
          (II) in the case of an episode of care which consists 
        of 4 or fewer visits.
  (B)(i) The Secretary shall estimate, before the beginning of 
each year (beginning with 2003), the national average payment 
under this title per episode for home health services projected 
for the year involved.
  (ii) For each year the copayment amount under this clause is 
equal to 1.5 percent of the national average payment estimated 
for the year involved under clause (i). Any amount determined 
under the preceding sentence which is not a multiple of $5 
shall be rounded to the nearest multiple of $5.
  (iii) There shall be no administrative or judicial review 
under section 1869, 1878, or otherwise of the estimation of 
average payment under clause (i).

           *       *       *       *       *       *       *

         CONDITIONS OF AND LIMITATIONS ON PAYMENT FOR SERVICES

               Requirement of Requests and Certifications

  Sec. 1814. (a) * * *

           *       *       *       *       *       *       *

                        Payment for Hospice Care

  (i)(1)(A) * * *

           *       *       *       *       *       *       *

  (D) With respect to hospice care furnished in a frontier area 
on or after January 1, 2003, and before January 1, 2008, the 
payment rates otherwise established for such care shall be 
increased by 10 percent. For purposes of this subparagraph, the 
term `frontier area' means a county in which the population 
density is less than 7 persons per square mile.

           *       *       *       *       *       *       *

  (4) The amount paid to a hospice program with respect to the 
services under section 1812(a)(5) for which payment may be made 
under this part shall be equal to an amount equivalent to the 
amount established for an office or other outpatient visit for 
evaluation and management associated with presenting problems 
of moderate severity under the fee schedule established under 
section 1848(b), other than the portion of such amount 
attributable to the practice expense component.
  (5) In the case of hospice care provided by a hospice program 
under arrangements under section 1861(dd)(5)(D) made by another 
hospice program, the hospice program that made the arrangements 
shall bill and be paid for the hospice care.

           *       *       *       *       *       *       *

                    PAYMENT TO PROVIDERS OF SERVICES

  Sec. 1815. (a) * * *

           *       *       *       *       *       *       *

  (e)(1) * * *
  (2) The Secretary shall provide (or continue to provide) for 
payment on a periodic interim payment basis (under the 
standards established under section 405.454(j) of title 42, 
Code of Federal Regulations, as in effect on October 1, 1986) 
with respect to--
          (A) * * *

           *       *       *       *       *       *       *

          (C) extended care services; [and]
          (D) hospice care; and
          (E) inpatient critical access hospital services;
if the provider of such services elects to receive, and 
qualifies for, such payments.

[USE OF PUBLIC AGENCIES OR PRIVATE ORGANIZATIONS TO FACILITATE PAYMENT 
                       TO PROVIDERS OF SERVICES]

          PROVISIONS RELATING TO THE ADMINISTRATION OF PART A

  Sec. 1816. [(a) If any group or association of providers of 
services wishes to have payments under this part to such 
providers made through a national, State, or other public or 
private agency or organization and nominates such agency or 
organization for this purpose, the Secretary is authorized to 
enter into an agreement with such agency or organization 
providing for the determination by such agency or organization 
(subject to the provisions of section 1878 and to such review 
by the Secretary as may be provided for by the agreement) of 
the amount of the payments required pursuant to this part to be 
made to such providers (and to providers assigned to such 
agency or organization under subsection (e)), and for the 
making of such payments by such agency or organization to such 
providers (and to providers assigned to such agency or 
organization under subsection (e)). Such agreement may also 
include provision for the agency or organization to do all or 
any part of the following: (1) to provide consultative services 
to institutions or agencies to enable them to establish and 
maintain fiscal records necessary for purposes of this part and 
otherwise to qualify as hospitals, extended care facilities, or 
home health agencies, and (2) with respect to the providers of 
services which are to receive payments through it (A) to serve 
as a center for, and communicate to providers, any information 
or instructions furnished to it by the Secretary, and serve as 
a channel of communication from providers to the Secretary; (B) 
to make such audits of the records of providers as may be 
necessary to insure that proper payments are made under this 
part; and (C) to perform such other functions as are necessary 
to carry out this subsection. As used in this title and part B 
of title XI, the term ``fiscal intermediary'' means an agency 
or organization with a contract under this section.
  [(b) The Secretary shall not enter into or renew an agreement 
with any agency or organization under this section unless--
          [(1) he finds--
                  [(A) after applying the standards, criteria, 
                and procedures developed under subsection (f), 
                that to do so is consistent with the effective 
                and efficient administration of this part, and
                  [(B) that such agency or organization is 
                willing and able to assist the providers to 
                which payments are made through it under this 
                part in the application of safeguards against 
                unnecessary utilization of services furnished 
                by them to individuals entitled to hospital 
                insurance benefits under section 226, and the 
                agreement provides for such assistance; and
          [(2) such agency or organization agrees--
                  [(A) to furnish to the Secretary such of the 
                information acquired by it in carrying out its 
                agreement under this section, and
                  [(B) to provide the Secretary with access to 
                all such data, information, and claims 
                processing operations,
        as the Secretary may find necessary in performing his 
        functions under this part.]
  (a) The administration of this part shall be conducted 
through contracts with medicare administrative contractors 
under section 1874A.
  (c)[(1) An agreement with any agency or organization under 
this section may contain such terms and conditions as the 
Secretary finds necessary or appropriate, may provide for 
advances of funds to the agency or organization for the making 
of payments by it under subsection (a), and shall provide for 
payment of so much of the cost of administration of the agency 
or organization as is determined by the Secretary to be 
necessary and proper for carrying out the functions covered by 
the agreement. The Secretary shall provide that in determining 
the necessary and proper cost of administration, the Secretary 
shall, with respect to each agreement, take into account the 
amount that is reasonable and adequate to meet the costs which 
must be incurred by an efficiently and economically operated 
agency or organization in carrying out the terms of its 
agreement. The Secretary shall cause to have published in the 
Federal Register, by not later than September 1 before each 
fiscal year, data, standards, and methodology to be used to 
establish budgets for fiscal intermediaries under this section 
for that fiscal year, and shall cause to be published in the 
Federal Register for public comment, at least 90 days before 
such data, standards, and methodology are published, the data, 
standards, and methodology proposed to be used. The Secretary 
may not require, as a condition of entering into or renewing an 
agreement under this section or under section 1871, that a 
fiscal intermediary match data obtained other than in its 
activities under this part with data used in the administration 
of this part for purposes of identifying situations in which 
the provisions of section 1862(b) may apply.]
  (2)(A) Each [agreement under this section] contract under 
section 1874A that provides for making payments under this part 
shall provide that payment shall be issued, mailed, or 
otherwise transmitted with respect to not less than 95 percent 
of all claims submitted under this title--
          (i)  * * *

           *       *       *       *       *       *       *

  (3)(A) Each [agreement under this section] contract under 
section 1874A that provides for making payments under this part 
shall provide that no payment shall be issued, mailed, or 
otherwise transmitted with respect to any claim submitted under 
this title within the applicable number of calendar days after 
the date on which the claim is received.

           *       *       *       *       *       *       *

  [(d) If the nomination of an agency or organization as 
provided in this section is made by a group or association of 
providers of services, it shall not be binding on members of 
the group or association which notify the Secretary of their 
election to that effect. Any provider may, upon such notice as 
may be specified in the agreement under this section with an 
agency or organization, withdraw its nomination to receive 
payments through such agency or organization. Any provider 
which has withdrawn its nomination, and any provider which has 
not made a nomination, may elect to receive payments from any 
agency or organization which has entered into an agreement with 
the Secretary under this section if the Secretary and such 
agency or organization agree to it.
  [(e)(1) Notwithstanding subsections (a) and (d), the 
Secretary, after taking into consideration any preferences of 
providers of services, may assign or reassign any provider of 
services to any agency or organization which has entered into 
an agreement with him under this section, if he determines, 
after applying the standards, criteria, and procedures 
developed under subsection (f), that such assignment or 
reassignment would result in the more effective and efficient 
administration of this part.
  [(2) Notwithstanding subsections (a) and (d), the Secretary 
may (subject to the provisions of paragraph (4)) designate a 
national or regional agency or organization which has entered 
into an agreement with him under this section to perform 
functions under the agreement with respect to a class of 
providers of services in the Nation or region (as the case may 
be), if he determines, after applying the standards, criteria, 
and procedures developed under subsection (f), that such 
designation would result in more effective and efficient 
administration of this part.
  [(3)(A) Before the Secretary makes an assignment or 
reassignment under paragraph (1) of a provider of services to 
other than the agency or organization nominated by the 
provider, he shall furnish (i) the provider and such agency or 
organization with a full explanation of the reasons for his 
determination as to the efficiency and effectiveness of the 
agency or organization to perform the functions required under 
this part with respect to the provider, and (ii) such agency or 
organization with opportunity for a hearing, and such 
determination shall be subject to judicial review in accordance 
with chapter 7 of title 5, United States Code.
  [(B) Before the Secretary makes a designation under paragraph 
(2) with respect to a class of providers of services, he shall 
furnish (i) such providers and the agencies and organizations 
adversely affected by such designation with a full explanation 
of the reasons for his determination as to the efficiency and 
effectiveness of such agencies and organizations to perform the 
functions required under this part with respect to such 
providers, and (ii) the agencies and organizations adversely 
affected by such designation with opportunity for a hearing, 
and such determination shall be subject to judicial review in 
accordance with chapter 7 of title 5, United States Code.
  [(4) Notwithstanding subsections (a) and (d) and paragraphs 
(1), (2), and (3) of this subsection, the Secretary shall 
designate regional agencies or organizations which have entered 
into an agreement with him under this section to perform 
functions under such agreement with respect to home health 
agencies (as defined in section 1861(o)) in the region, except 
that in assigning such agencies to such designated regional 
agencies or organizations the Secretary shall assign a home 
health agency which is a subdivision of a hospital (and such 
agency and hospital are affiliated or under common control) 
only if, after applying such criteria relating to 
administrative efficiency and effectiveness as he shall 
promulgate, he determines that such assignment would result in 
the more effective and efficient administration of this title. 
By not later than July 1, 1987, the Secretary shall limit the 
number of such regional agencies or organizations to not more 
than ten.
  [(5) Notwithstanding any other provision of this title, the 
Secretary shall designate the agency or organization which has 
entered into an agreement under this section to perform 
functions under such an agreement with respect to each hospice 
program, except that with respect to a hospice program which is 
a subdivision of a provider of services (and such hospice 
program and provider of services are under common control) due 
regard shall be given to the agency or organization which 
performs the functions under this section for the provider of 
services.
  [(f)(1) In order to determine whether the Secretary should 
enter into, renew, or terminate an agreement under this section 
with an agency or organization, whether the Secretary should 
assign or reassign a provider of services to an agency or 
organization, and whether the Secretary should designate an 
agency or organization to perform services with respect to a 
class of providers of services, the Secretary shall develop 
standards, criteria, and procedures to evaluate such agency's 
or organization's (A) overall performance of claims processing 
(including the agency's or organization's success in recovering 
payments made under this title for services for which payment 
has been or could be made under a primary plan (as defined in 
section 1862(b)(2)(A))) and other related functions required to 
be performed by such an agency or organization under an 
agreement entered into under this section, and (B) performance 
of such functions with respect to specific providers of 
services, and the Secretary shall establish standards and 
criteria with respect to the efficient and effective 
administration of this part. No agency or organization shall be 
found under such standards and criteria not to be efficient or 
effective or to be less efficient or effective solely on the 
ground that the agency or organization serves only providers 
located in a single State.
  [(2) The standards and criteria established under paragraph 
(1) shall include--
          [(A) with respect to claims for services furnished 
        under this part by any provider of services other than 
        a hospital--
                  [(i) whether such agency or organization is 
                able to process 75 percent of reconsiderations 
                within 60 days (except in the case of fiscal 
                year 1989, 66 percent of reconsiderations) and 
                90 percent of reconsiderations within 90 days, 
                and
                  [(ii) the extent to which such agency's or 
                organization's determinations are reversed on 
                appeal; and
          [(B) with respect to applications for an exemption 
        from or exception or adjustment to the target amount 
        applicable under section 1886(b) to a hospital that is 
        not a subsection (d) hospital (as defined in section 
        1886(d)(1)(B))--
                  [(i) if such agency or organization receives 
                a completed application, whether such agency or 
                organization is able to process such 
                application not later than 75 days after the 
                application is filed, and
                  [(ii) if such agency or organization receives 
                an incomplete application, whether such agency 
                or organization is able to return the 
                application with instructions on how to 
                complete the application not later than 60 days 
                after the application is filed.
  [(g) An agreement with the Secretary under this section may 
be terminated--
          [(1) by the agency or organization which entered into 
        such agreement at such time and upon such notice to the 
        Secretary, to the public, and to the providers as may 
        be provided in regulations, or
          [(2) by the Secretary at such time and upon such 
        notice to the agency or organization, to the providers 
        which have nominated it for purposes of this section, 
        and to the public, as may be provided in regulations, 
        but only if he finds, after applying the standards, 
        criteria, and procedures developed under subsection (f) 
        and after reasonable notice and opportunity for hearing 
        to the agency or organization, that (A) the agency or 
        organization has failed substantially to carry out the 
        agreement, or (B) the continuation of some or all of 
        the functions provided for in the agreement with the 
        agency or organization is disadvantageous or is 
        inconsistent with the efficient administration of this 
        part.
  [(h) An agreement with an agency or organization under this 
section may require any of its officers or employees certifying 
payments or disbursing funds pursuant to the agreement, or 
otherwise participating in carrying out the agreement, to give 
surety bond to the United States in such amount as the 
Secretary may deem appropriate.
  [(i)(1) No individual designated pursuant to an agreement 
under this section as a certifying officer shall, in the 
absence of gross negligence or intent to defraud the United 
States, be liable with respect to any payments certified by him 
under this section.
  [(2) No disbursing officer shall, in the absence of gross 
negligence or intent to defraud the United States, be liable 
with respect to any payment by him under this section if it was 
based upon a voucher signed by a certifying officer designated 
as provided in paragraph (1) of this subsection.
  [(3) No such agency or organization shall be liable to the 
United States for any payments referred to in paragraph (1) or 
(2).]
  (j) [An agreement with an agency or organization under this 
section] A contract with a medicare administrative contractor 
under section 1874A with respect to the administration of this 
part shall require that, with respect to a claim for home 
health services, extended care services, or post-hospital 
extended care services submitted by a provider to [such agency 
or organization] such medicare administrative contractor that 
is denied, [such agency or organization] such medicare 
administrative contractor--
          (1) * * *

           *       *       *       *       *       *       *

  (k) [An agreement with an agency or organization under this 
section] A contract with a medicare administrative contractor 
under section 1874A with respect to the administration of this 
part shall require that [such agency or organization] such 
medicare administrative contractor submit an annual report to 
the Secretary describing the steps taken to recover payments 
made for items or services for which payment has been or could 
be made under a primary plan (as defined in section 
1862(b)(2)(A)).
  [(l) No agency or organization may carry out (or receive 
payment for carrying out) any activity pursuant to an agreement 
under this section to the extent that the activity is carried 
out pursuant to a contract under the Medicare Integrity Program 
under section 1893.]

                 FEDERAL HOSPITAL INSURANCE TRUST FUND

  Sec. 1817. (a) * * *
  (b) With respect to the Trust Fund, there is hereby created a 
body to be known as the Board of Trustees of the Trust Fund 
(hereinafter in this section referred to as the ``Board of 
Trustees'') composed of the Commissioner of Social Security, 
the Secretary of the Treasury, the Secretary of Labor, [and the 
Secretary of Health and Human Services, all ex officio,] the 
Secretary of Health and Human Services, and the Administrator 
of the Medicare Benefits Administration, all ex officio, and of 
two members of the public (both of whom may not be from the 
same political party), who shall be nominated by the President 
for a term of four years and subject to confirmation by the 
Senate. A member of the Board of Trustees serving as a member 
of the public and nominated and confirmed to fill a vacancy 
occurring during a term shall be nominated and confirmed only 
for the remainder of such term. An individual nominated and 
confirmed as a member of the public may serve in such position 
after the expiration of such member's term until the earlier of 
the time at which the member's successor takes office or the 
time at which a report of the Board is first issued under 
paragraph (2) after the expiration of the member's term. The 
Secretary of the Treasury shall be the Managing Trustee of the 
Board of Trustees (hereinafter in this section referred to as 
the ``Managing Trustee''). The Administrator of the Health Care 
Financing Administration shall serve as the Secretary of the 
Board of Trustees. The Board of Trustees shall meet not less 
frequently than once each calendar year. It shall be the duty 
of the Board of Trustees to--
          (1)  * * *

           *       *       *       *       *       *       *

              MEDICARE RURAL HOSPITAL FLEXIBILITY PROGRAM

  Sec. 1820. (a) * * *

           *       *       *       *       *       *       *

  (c) Medicare Rural Hospital Flexibility Program Described.--
          (1) * * *
          (2) State designation of facilities.--
                  (A) * * *
                  (B) Criteria for designation as critical 
                access hospital.--A State may designate a 
                facility as a critical access hospital if the 
                facility--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) provides subject to paragraph 
                        (3) not more than 15 (or, in the case 
                        of a facility under an agreement 
                        described in subsection (f), 25) acute 
                        care inpatient beds (meeting such 
                        standards as the Secretary may 
                        establish) for providing inpatient care 
                        for a period that does not exceed, as 
                        determined on an annual, average basis, 
                        96 hours per patient;

           *       *       *       *       *       *       *

          (3) Increase in maximum number of beds for hospitals 
        with strong seasonal census fluctuations.--
                  (A) In general.--In the case of a hospital 
                that demonstrates that it meets the standards 
                established under subparagraph (B), the bed 
                limitations otherwise applicable under 
                paragraph (2)(B)(iii) and subsection (f) shall 
                be increased by 5 beds.
                  (B) Standards.--The Secretary shall specify 
                standards for determining whether a critical 
                access hospital has sufficiently strong 
                seasonal variations in patient admissions to 
                justify the increase in bed limitation provided 
                under subparagraph (A).

           *       *       *       *       *       *       *

  (f) Permitting Maintenance of Swing Beds.--Nothing in this 
section shall be construed to prohibit a State from designating 
or the Secretary from certifying a facility as a critical 
access hospital solely because, at the time the facility 
applies to the State for designation as a critical access 
hospital, there is in effect an agreement between the facility 
and the Secretary under section 1883 under which the facility's 
inpatient hospital facilities are used for the provision of 
extended care services, so long as the total number of beds 
that may be used at any time for the furnishing of either such 
services or acute care inpatient services does not exceed 25 
beds and the number of beds used at any time for acute care 
inpatient services does not exceed 15 beds. For purposes of the 
previous sentence, any bed of a unit of the facility that is 
licensed as a distinct-part skilled nursing facility at the 
time the facility applies to the State for designation as a 
critical access hospital shall not be counted. The limitations 
in numbers of beds under the first sentence are subject to 
adjustment under subsection (c)(3).

           *       *       *       *       *       *       *

  (j) Authorization of Appropriations.--There are authorized to 
be appropriated from the Federal Hospital Insurance Trust Fund 
for making grants to all States under subsection (g), 
$25,000,000 in each of the fiscal years 1998 through [2002] 
2007.

           *       *       *       *       *       *       *

   Part B--Supplementary Medical Insurance Benefits for the Aged and 
Disabled

           *       *       *       *       *       *       *

                          PAYMENT OF BENEFITS

  Sec. 1833. (a) Except as provided in section 1876, and 
subject to the succeeding provisions of this section, there 
shall be paid from the Federal Supplementary Medical Insurance 
Trust Fund, in the case of each individual who is covered under 
the insurance program established by this part and incurs 
expenses for services with respect to which benefits are 
payable under this part, amounts equal to--
          (1) in the case of services described in section 
        1832(a)(1)--80 percent of the reasonable charges for 
        the services; except that (A) an organization which 
        provides medical and other health services (or arranges 
        for their availability) on a prepayment basis (and 
        either is sponsored by a union or employer, or does not 
        provide, or arrange for the provision of, any inpatient 
        hospital services) may elect to be paid 80 percent of 
        the reasonable cost of services for which payment may 
        be made under this part on behalf of individuals 
        enrolled in such organization in lieu of 80 percent of 
        the reasonable charges for such services if the 
        organization undertakes to charge such individuals no 
        more than 20 percent of such reasonable cost plus any 
        amounts payable by them as a result of subsection (b), 
        (B) with respect to items and services described in 
        section 1861(s)(10)(A), the amounts paid shall be 100 
        percent of the reasonable charges for such items and 
        services, (C) with respect to expenses incurred for 
        those physicians' services for which payment may be 
        made under this part that are described in section 
        1862(a)(4), the amounts paid shall be subject to such 
        limitations as may be prescribed by regulations, (D) 
        with respect to clinical diagnostic laboratory tests 
        for which payment is made under this part (i) on the 
        basis of a fee schedule under subsection (h)(1) or 
        section 1834(d)(1), the amount paid shall be equal to 
        80 percent (or 100 percent, in the case of such tests 
        for which payment is made on an assignment-related 
        basis) of the lesser of the amount determined under 
        such fee schedule, the limitation amount for that test 
        determined under subsection (h)(4)(B), or the amount of 
        the charges billed for the tests, or (ii) on the basis 
        of a negotiated rate established under subsection 
        (h)(6), the amount paid shall be equal to 100 percent 
        of such negotiated rate, (E) with respect to services 
        furnished to individuals who have been determined to 
        have end stage renal disease, the amounts paid shall be 
        determined subject to the provisions of section 1881, 
        (F) with respect to clinical social worker services 
        under section 1861(s)(2)(N), the amounts paid shall be 
        80 percent of the lesser of (i) the actual charge for 
        the services or (ii) 75 percent of the amount 
        determined for payment of a psychologist under clause 
        (L), (H) with respect to services of a certified 
        registered nurse anesthetist under section 1861(s)(11), 
        the amounts paid shall be 80 percent of the least of 
        the actual charge, the prevailing charge that would be 
        recognized (or, for services furnished on or after 
        January 1, 1992, the fee schedule amount provided under 
        section 1848) if the services had been performed by an 
        anesthesiologist, or the fee schedule for such services 
        established by the Secretary in accordance with 
        subsection (l), (I) with respect to covered items 
        (described in section 1834(a)(13)), the amounts paid 
        shall be the amounts described in section 1834(a)(1), 
        and (J) with respect to expenses incurred for 
        radiologist services (as defined in section 
        1834(b)(6)), subject to section 1848, the amounts paid 
        shall be 80 percent of the lesser of the actual charge 
        for the services or the amount provided under the fee 
        schedule established under section 1834(b), (K) with 
        respect to certified nurse-midwife services under 
        section 1861(s)(2)(L), the amounts paid shall be 80 
        percent of the lesser of the actual charge for the 
        services or the amount determined by a fee schedule 
        established by the Secretary for the purposes of this 
        subparagraph (but in no event shall such fee schedule 
        exceed 65 percent of the prevailing charge that would 
        be allowed for the same service performed by a 
        physician, or, for services furnished on or after 
        January 1, 1992, 65 percent of the fee schedule amount 
        provided under section 1848 for the same service 
        performed by a physician), (L) with respect to 
        qualified psychologist services under section 
        1861(s)(2)(M), the amounts paid shall be 80 percent of 
        the lesser of the actual charge for the services or the 
        amount determined by a fee schedule established by the 
        Secretary for the purposes of this subparagraph, (M) 
        with respect to prosthetic devices and orthotics and 
        prosthetics (as defined in section 1834(h)(4)), the 
        amounts paid shall be the amounts described in section 
        1834(h)(1), (N) with respect to expenses incurred for 
        physicians' services (as defined in section 
        1848(j)(3)), the amounts paid shall be 80 percent (or 
        100 percent in the case of an initial preventive 
        physical examination, as defined in section 1861(ww)) 
        of the payment basis determined under section 
        1848(a)(1), (O) with respect to services described in 
        section 1861(s)(2)(K) (relating to services furnished 
        by physician assistants, nurse practitioners, or clinic 
        nurse specialists), the amounts paid shall be equal to 
        80 percent (or 100 percent in the case of an initial 
        preventive physical examination, as defined in section 
        1861(ww)) of (i) the lesser of the actual charge or 85 
        percent of the fee schedule amount provided under 
        section 1848, or (ii) in the case of services as an 
        assistant at surgery, the lesser of the actual charge 
        or 85 percent of the amount that would otherwise be 
        recognized if performed by a physician who is serving 
        as an assistant at surgery, (P) with respect to 
        surgical dressings, the amounts paid shall be the 
        amounts determined under section 1834(i), (Q) with 
        respect to items or services for which fee schedules 
        are established pursuant to section 1842(s), the 
        amounts paid shall be 80 percent of the lesser of the 
        actual charge or the fee schedule established in such 
        section, (R) with respect to ambulance services, (i) 
        the amounts paid shall be 80 percent of the lesser of 
        the actual charge for the services or the amount 
        determined by a fee schedule established by the 
        Secretary under section 1834(l) and (ii) with respect 
        to ambulance services described in section 1834(l)(8), 
        the amounts paid shall be the amounts determined under 
        section 1834(g) for outpatient critical access hospital 
        services, (S) with respect to drugs and biologicals not 
        paid on a cost or prospective payment basis as 
        otherwise provided in this part (other than items and 
        services described in subparagraph (B)), the amounts 
        paid shall be 80 percent of the lesser of the actual 
        charge or the payment amount established in section 
        1842(o), (T) with respect to medical nutrition therapy 
        services (as defined in section 1861(vv)), the amount 
        paid shall be 80 percent of the lesser of the actual 
        charge for the services or 85 percent of the amount 
        determined under the fee schedule established under 
        section 1848(b) for the same services if furnished by a 
        physician, and (U) with respect to facility fees 
        described in section 1834(m)(2)(B), the amounts paid 
        shall be 80 percent of the lesser of the actual charge 
        or the amounts specified in such section;
          (2) in the case of services described in section 
        1832(a)(2) (except those services described in 
        subparagraphs (C), (D), (E), (F), (G), (H), and (I) of 
        such section and unless otherwise specified in section 
        1881)--
                  (A) with respect to home health services 
                (other than a covered osteoporosis drug) (as 
                defined in section 1861(kk)), the amount 
                determined under the prospective payment system 
                under section 1895 less the copayment amount 
                applicable under section 1813(a)(5);
  (b) Before applying subsection (a) with respect to expenses 
incurred by an individual during any calendar year, the total 
amount of the expenses incurred by such individual during such 
year (which would, except for this subsection, constitute 
incurred expenses from which benefits payable under subsection 
(a) are determinable) shall be reduced by a deductible of $75 
for calendar years before 1991 and $100 for 1991 and subsequent 
years; except that (1) such total amount shall not include 
expenses incurred for items and services described in section 
1861(s)(10)(A), (2) such deductible shall not apply with 
respect to home health services (other than a covered 
osteoporosis drug (as defined in section 1861(kk))), (3) such 
deductible shall not apply with respect to clinical diagnostic 
laboratory tests for which payment is made under this part (A) 
under subsection (a)(1)(D)(i) or (a)(2)(D)(i) on an assignment-
related basis, or to a provider having an agreement under 
section 1866, or (B) on the basis of a negotiated rate 
determined under subsection (h)(6), (4) such deductible shall 
not apply to Federally qualified health center services, (5) 
such deductible shall not apply with respect to screening 
mammography (as described in section 1861(jj)), [and] (6) such 
deductible shall not apply with respect to screening pap smear 
and screening pelvic exam (as described in section 1861(nn)), 
and (7) such deductible shall not apply with respect to an 
initial preventive physical examination (as defined in section 
1861(ww)). The total amount of the expenses incurred by an 
individual as determined under the preceding sentence shall, 
after the reduction specified in such sentence, be further 
reduced by an amount equal to the expenses incurred for the 
first three pints of whole blood (or equivalent quantities of 
packed red blood cells, as defined under regulations) furnished 
to the individual during the calendar year, except that such 
deductible for such blood shall in accordance with regulations 
be appropriately reduced to the extent that there has been a 
replacement of such blood (or equivalent quantities of packed 
red blood cells, as so defined); and for such purposes blood 
(or equivalent quantities of packed red blood cells, as so 
defined) furnished such individual shall be deemed replaced 
when the institution or other person furnishing such blood (or 
such equivalent quantities of packed red blood cells, as so 
defined) is given one pint of blood for each pint of blood (or 
equivalent quantities of packed red blood cells, as so defined) 
furnished such individual with respect to which a deduction is 
made under this sentence. The deductible under the previous 
sentence for blood or blood cells furnished an individual in a 
year shall be reduced to the extent that a deductible has been 
imposed under section 1813(a)(2) to blood or blood cells 
furnished the individual in the year.
  (g)(1) * * *

           *       *       *       *       *       *       *

  (4) This subsection shall not apply to expenses incurred with 
respect to services furnished during 2000, 2001, [and 2002] 
2002, 2003, and 2004.
  (h)(1) * * *

           *       *       *       *       *       *       *

  (8)(A) The Secretary shall establish by regulation procedures 
for determining the basis for, and amount of, payment under 
this subsection for any clinical diagnostic laboratory test 
with respect to which a new or substantially revised HCPCS code 
is assigned on or after January 1, 2004 (in this paragraph 
referred to as `new tests').
  (B) Determinations under subparagraph (A) shall be made only 
after the Secretary--
          (i) makes available to the public (through an 
        Internet site and other appropriate mechanisms) a list 
        that includes any such test for which establishment of 
        a payment amount under this subsection is being 
        considered for a year;
          (ii) on the same day such list is made available, 
        causes to have published in the Federal Register notice 
        of a meeting to receive comments and recommendations 
        (and data on which recommendations are based) from the 
        public on the appropriate basis under this subsection 
        for establishing payment amounts for the tests on such 
        list;
          (iii) not less than 30 days after publication of such 
        notice convenes a meeting, that includes 
        representatives of officials of the Centers for 
        Medicare & Medicaid Services involved in determining 
        payment amounts, to receive such comments and 
        recommendations (and data on which the recommendations 
        are based);
          (iv) taking into account the comments and 
        recommendations (and accompanying data) received at 
        such meeting, develops and makes available to the 
        public (through an Internet site and other appropriate 
        mechanisms) a list of proposed determinations with 
        respect to the appropriate basis for establishing a 
        payment amount under this subsection for each such 
        code, together with an explanation of the reasons for 
        each such determination, the data on which the 
        determinations are based, and a request for public 
        written comments on the proposed determination; and
          (v) taking into account the comments received during 
        the public comment period, develops and makes available 
        to the public (through an Internet site and other 
        appropriate mechanisms) a list of final determinations 
        of the payment amounts for such tests under this 
        subsection, together with the rationale for each such 
        determination, the data on which the determinations are 
        based, and responses to comments and suggestions 
        received from the public.
  (C) Under the procedures established pursuant to subparagraph 
(A), the Secretary shall--
          (i) set forth the criteria for making determinations 
        under subparagraph (A); and
          (ii) make available to the public the data (other 
        than proprietary data) considered in making such 
        determinations.
  (D) The Secretary may convene such further public meetings to 
receive public comments on payment amounts for new tests under 
this subsection as the Secretary deems appropriate.
  (E) For purposes of this paragraph:
          (i) The term ``HCPCS'' refers to the Health Care 
        Procedure Coding System.
          (ii) A code shall be considered to be ``substantially 
        revised'' if there is a substantive change to the 
        definition of the test or procedure to which the code 
        applies (such as a new analyte or a new methodology for 
        measuring an existing analyte-specific test).

           *       *       *       *       *       *       *

  (t) Prospective Payment System for Hospital Outpatient 
Department Services.--
          (1) Amount of payment.--
                  (A)  * * *
                  (B) Definition of covered opd services.--For 
                purposes of this subsection, the term ``covered 
                OPD services''--
                          (i)  * * *

           *       *       *       *       *       *       *

                          (iv) does not include any therapy 
                        services described in subsection (a)(8) 
                        or ambulance services, for which 
                        payment is made under a fee schedule 
                        described in section 1834(k) or section 
                        1834(l) and does not include screening 
                        mammography (as defined in section 
                        1861(jj)) and unilateral and bilateral 
                        diagnostic mammography.

           *       *       *       *       *       *       *

          (6) Transitional pass-through for additional costs of 
        innovative medical devices, drugs, and biologicals.--
                  (A) In general.--The Secretary shall provide 
                for an additional payment under this paragraph 
                for any of the following that are provided as 
                part of a covered OPD service (or group of 
                services):
                          (i) * * *
                          (ii) Current cancer therapy drugs and 
                        biologicals and brachytherapy.--A drug 
                        or biological that is used in cancer 
                        therapy, including (but not limited to) 
                        a chemotherapeutic agent, an 
                        antiemetic, a hematopoietic growth 
                        factor, a colony stimulating factor, a 
                        biological response modifier, a 
                        bisphosphonate, and a device of 
                        brachytherapy [or temperature monitored 
                        cryoablation], if payment for such 
                        drug, biological, or device as an 
                        outpatient hospital service under this 
                        part was being made on such first date.

           *       *       *       *       *       *       *

          (8) Copayment amount.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Limitation on copayment amount.--
                          (i) * * *
                          (ii) To specified percentage.--The 
                        Secretary shall reduce the national 
                        unadjusted copayment amount for a 
                        covered OPD service (or group of such 
                        services) furnished in a year in a 
                        manner so that the effective copayment 
                        rate (determined on a national 
                        unadjusted basis) for that service in 
                        the year does not exceed the following 
                        percentage:
                                  (I) * * *

           *       *       *       *       *       *       *

                                  [(III) For procedures 
                                performed in 2004, 50 percent.
                                  [(IV) For procedures 
                                performed in 2005, 45 percent.
                                  [(V) For procedures performed 
                                in 2006 and thereafter, 40 
                                percent.]
                                  (III) For procedures 
                                performed in 2004, 45 percent.
                                  (IV) For procedures performed 
                                in 2005, 40 percent.
                                  (V) For procedures performed 
                                in 2006, 2007, 2008 and 2009, 
                                35 percent.
                                  (VI) For procedures performed 
                                in 2010, 30 percent.
                                  (VII) For procedures 
                                performed in 2011, 25 percent.
                                  (VIII) For procedures 
                                performed in 2012 and 
                                thereafter, 20 percent.

           *       *       *       *       *       *       *

        SPECIAL PAYMENT RULES FOR PARTICULAR ITEMS AND SERVICES

  Sec. 1834. (a) * * *

           *       *       *       *       *       *       *

  (g) Payment for Outpatient Critical Access Hospital 
Services.--
          (1) * * *
          (2) Election of cost-based hospital outpatient 
        service payment plus fee schedule for professional 
        services.--A critical access hospital may elect to be 
        paid for outpatient critical access hospital services 
        amounts equal to the sum of the following, less the 
        amount that such hospital may charge as described in 
        section 1866(a)(2)(A):
                  (A)  * * *
                  (B) Fee schedule for professional services.--
                With respect to professional services otherwise 
                included within outpatient critical access 
                hospital services, 115 percent of such amounts 
                as would otherwise be paid under this part if 
                such services were not included in outpatient 
                critical access hospital services.
        The Secretary may not require, as a condition for 
        applying subparagraph (B) with respect to a critical 
        access hospital, that each physician providing 
        professional services in the hospital must assign 
        billing rights with respect to such services, except 
        that such subparagraph shall not apply to those 
        physicians who have not assigned such billing rights.

           *       *       *       *       *       *       *

  (l) Establishment of Fee Schedule for Ambulance Services.--
          (1) * * *
          (2) Considerations.--In establishing such fee 
        schedule, the Secretary shall--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) phase in the application of the payment 
                rates under the fee schedule in an efficient 
                and fair manner consistent with paragraph (10), 
                except that such phase-in shall provide for 
                full payment of any national mileage rate for 
                ambulance services provided by suppliers that 
                are paid by carriers in any of the 50 States 
                where payment by a carrier for such services 
                for all such suppliers in such State did not, 
                prior to the implementation of the fee 
                schedule, include a separate amount for all 
                mileage within the county from which the 
                beneficiary is transported.

           *       *       *       *       *       *       *

          [(8)] (9) Transitional assistance for rural 
        providers.--In the case of ground ambulance services 
        furnished on or after July 1, 2001, and before January 
        1, 2004, for which the transportation originates in a 
        rural area (as defined in section 1886(d)(2)(D)) or in 
        a rural census tract of a metropolitan statistical area 
        (as determined under the most recent modification of 
        the Goldsmith Modification, originally published in the 
        Federal Register on February 27, 1992 (57 Fed. Reg. 
        6725)), the fee schedule established under this 
        subsection shall provide that, with respect to the 
        payment rate for mileage for a trip above 17 miles, and 
        up to 50 miles, the rate otherwise established shall be 
        increased by not less than \1/2\ of the additional 
        payment per mile established for the first 17 miles of 
        such a trip originating in a rural area.
          (10) Phase-in providing floor using blend of fee 
        schedule and regional fee schedules.--In carrying out 
        the phase-in under paragraph (2)(E) for each level of 
        service furnished in a year before January 1, 2007, the 
        portion of the payment amount that is based on the fee 
        schedule shall not be less than the following blended 
        rate of the fee schedule under paragraph (1) and of a 
        regional fee schedule for the region involved:
                  (A) For 2003, the blended rate shall be based 
                20 percent on the fee schedule under paragraph 
                (1) and 80 percent on the regional fee 
                schedule.
                  (B) For 2004, the blended rate shall be based 
                40 percent on the fee schedule under paragraph 
                (1) and 60 percent on the regional fee 
                schedule.
                  (C) For 2005, the blended rate shall be based 
                60 percent on the fee schedule under paragraph 
                (1) and 40 percent on the regional fee 
                schedule.
                  (D) For 2006, the blended rate shall be based 
                80 percent on the fee schedule under paragraph 
                (1) and 20 percent on the regional fee 
                schedule.
        For purposes of this paragraph, the Secretary shall 
        establish a regional fee schedule for each of the 9 
        Census divisions using the methodology (used in 
        establishing the fee schedule under paragraph (1)) to 
        calculate a regional conversion factor and a regional 
        mileage payment rate and using the same payment 
        adjustments and the same relative value units as used 
        in the fee schedule under such paragraph.
          (11) Adjustment in payment for certain long trips.--
        In the case of ground ambulance services furnished on 
        or after January 1, 2003, and before January 1, 2008, 
        regardless of where the transportation originates, the 
        fee schedule established under this subsection shall 
        provide that, with respect to the payment rate for 
        mileage for a trip above 50 miles the per mile rate 
        otherwise established shall be increased by \1/4\ of 
        the payment per mile otherwise applicable to such 
        miles.

           *       *       *       *       *       *       *

                          AMOUNTS OF PREMIUMS

  Sec. 1839. (a)(1)  * * *
  (2) The monthly premium of each individual enrolled under 
this part for each month after December 1983 shall be the 
amount determined under paragraph (3), adjusted as required in 
accordance with subsections (b), (c), and (f )[, and to reflect 
80 percent of any reduction elected under section 1854(f 
)(1)(E).].

           *       *       *       *       *       *       *

  (b) In the case of an individual whose coverage period began 
pursuant to an enrollment after his initial enrollment period 
(determined pursuant to subsection (c) or (d) of section 1837) 
and not pursuant to a special enrollment period under section 
1837(i)(4), the monthly premium determined under subsection (a) 
shall be increased by 10 percent of the monthly premium so 
determined for each full 12 months (in the same continuous 
period of eligibility) in which he could have been but was not 
enrolled. For purposes of the preceding sentence, there shall 
be taken into account (1) the months which elapsed between the 
close of his initial enrollment period and the close of the 
enrollment period in which he enrolled, plus (in the case of an 
individual who reenrolls) (2) the months which elapsed between 
the date of termination of a previous coverage period and the 
close of the enrollment period in which he reenrolled, but 
there shall not be taken into account months for which the 
individual can demonstrate that the individual was enrolled in 
a group health plan described in section 1862(b)(1)(A)(v) by 
reason of the individual's (or the individual's spouse's) 
current employment or months during which the individual has 
not attained the age of 65 and for which the individual can 
demonstrate that the individual was enrolled in a large group 
health plan as an active individual (as those terms are defined 
in section 1862(b)(1)(B)(iii)). Any increase in an individual's 
monthly premium under the first sentence of this subsection 
with respect to a particular continuous period of eligibility 
shall not be applicable with respect to any other continuous 
period of eligibility which such individual may have. No 
increase in the premium shall be effected for a month in the 
case of an individual who is 65 years of age or older, who 
enrolls under this part during 2001, 2002, or 2003, and who 
demonstrates to the Secretary before December 31, 2003, that 
the individual is a covered beneficiary (as defined in section 
1072(5) of title 10, United States Code). The Secretary of 
Health and Human Services shall consult with the Secretary of 
Defense in identifying individuals described in the previous 
sentence.

           *       *       *       *       *       *       *

  (h)(1) In the case of an individual who resides in a 
competitive-demonstration area designated under section 
1851(k)(1) and who is not enrolled in a Medicare+Choice plan 
under part C, the monthly premium otherwise applied under this 
part (determined without regard to subsections (b) and (f) or 
any adjustment under this subsection) shall be adjusted as 
follows: If the fee-for-service area-specific non-drug bid (as 
defined in section 1853(k)(6)) for the Medicare+Choice area in 
which the individual resides for a month--
          (A) does not exceed the choice non-drug benchmark (as 
        determined under section 1853(k)(2)) for such area, the 
        amount of the premium for the individual for the month 
        shall be reduced by an amount equal to 75 percent of 
        the amount by which such benchmark exceeds such fee-
        for-service bid; or
          (B) exceeds such choice non-drug benchmark, the 
        amount of the premium for the individual for the month 
        shall be adjusted to ensure that--
                  (i) the sum of the amount of the adjusted 
                premium and the choice non-drug benchmark for 
                the area, is equal to
                  (ii) the sum of the unadjusted premium plus 
                amount of the fee-for-service area-specific 
                non-drug bid for the area.
  (2) Nothing in this subsection shall be construed as 
preventing a reduction under paragraph (1)(A) in the premium 
otherwise applicable under this part to zero or from requiring 
the provision of a rebate to the extent such premium would 
otherwise be required to be less than zero.
  (3) The adjustment in the premium under this subsection shall 
be effected in such manner as the Medicare Benefits 
Administrator determines appropriate.
  (4) In order to carry out this subsection (insofar as it is 
effected through the manner of collection of premiums under 
1840(a)), the Medicare Benefits Administrator shall transmit to 
the Commissioner of Social Security--
          (A) at the beginning of each year, the name, social 
        security account number, and the amount of the 
        adjustment (if any) under this subsection for each 
        individual enrolled under this part for each month 
        during the year; and
          (B) periodically throughout the year, information to 
        update the information previously transmitted under 
        this paragraph for the year.

           *       *       *       *       *       *       *

           FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND

  Sec. 1841. (a) * * *
  (b) With respect to the Trust Fund, there is hereby created a 
body to be known as the Board of Trustees of the Trust Fund 
(hereinafter in this section referred to as the ``Board of 
Trustees'') composed of the Commissioner of Social Security, 
Secretary of the Treasury, the Secretary of Labor, [and the 
Secretary of Health and Human Services, all ex officio,] the 
Secretary of Health and Human Services, and the Administrator 
of the Medicare Benefits Administration, all ex officio, and of 
two members of the public (both of whom may not be from the 
same political party), who shall be nominated by the President 
for a term of four years and subject to confirmation by the 
Senate. A member of the Board of Trustees serving as a member 
of the public and nominated and confirmed to fill a vacancy 
occurring during a term shall be nominated and confirmed only 
for the remainder of such term. An individual nominated and 
confirmed as a member of the public may serve in such position 
after the expiration of such member's term until the earlier of 
the time at which the member's successor takes office or the 
time at which a report of the Board is first issued under 
paragraph (2) after the expiration of the member's term. The 
Secretary of the Treasury shall be the Managing Trustee of the 
Board of Trustees (hereinafter in this section referred to as 
the ``Managing Trustee''). The Administrator of the Health Care 
Financing Administration shall serve as the Secretary of the 
Board of Trustees. The Board of Trustees shall meet not less 
frequently than once each calendar year. It shall be the duty 
of the Board of Trustees to--
          (1)  * * *

           *       *       *       *       *       *       *

            [USE OF CARRIERS FOR ADMINISTRATION OF BENEFITS]

          PROVISIONS RELATING TO THE ADMINISTRATION OF PART B

  Sec. 1842. [(a) In order to provide for the administration of 
the benefits under this part with maximum efficiency and 
convenience for individuals entitled to benefits under this 
part and for providers of services and other persons furnishing 
services to such individuals, and with a view to furthering 
coordination of the administration of the benefits under part A 
and under this part, the Secretary is authorized to enter into 
contracts with carriers, including carriers with which 
agreements under section 1816 are in effect, which will perform 
some or all of the following functions (or, to the extent 
provided in such contracts, will secure performance thereof by 
other organizations); and, with respect to any of the following 
functions which involve payments for physicians' services on a 
reasonable charge basis, the Secretary shall to the extent 
possible enter into such contracts:
          [(1)(A) make determinations of the rates and amounts 
        of payments required pursuant to this part to be made 
        to providers of services and other persons on a 
        reasonable cost or reasonable charge basis (as may be 
        applicable);
          [(B) receive, disburse, and account for funds in 
        making such payments; and
          [(C) make such audits of the records of providers of 
        services as may be necessary to assure that proper 
        payments are made under this part;
          [(2)(A) determine compliance with the requirements of 
        section 1861(k) as to utilization review; and
          [(B) assist providers of services and other persons 
        who furnish services for which payment may be made 
        under this part in the development of procedures 
        relating to utilization practices, make studies of the 
        effectiveness of such procedures and methods for their 
        improvement, assist in the application of safeguards 
        against unnecessary utilization of services furnished 
        by providers of services and other persons to 
        individuals entitled to benefits under this part, and 
        provide procedures for and assist in arranging, where 
        necessary, the establishment of groups outside 
        hospitals (meeting the requirements of section 
        1861(k)(2)) to make reviews of utilization;
          [(3) serve as a channel of communication of 
        information relating to the administration of this 
        part; and
          [(4) otherwise assist, in such manner as the contract 
        may provide, in discharging administrative duties 
        necessary to carry out the purposes of this part.]
  (a) The administration of this part shall be conducted 
through contracts with medicare administrative contractors 
under section 1874A.
  (b)[(1) Contracts with carriers under subsection (a) may be 
entered into without regard to section 3709 of the Revised 
Statutes or any other provision of law requiring competitive 
bidding.]
  (2)[(A) No such contract shall be entered into with any 
carrier unless the Secretary finds that such carrier will 
perform its obligations under the contract efficiently and 
effectively and will meet such requirements as to financial 
responsibility, legal authority, and other matters as he finds 
pertinent. The Secretary shall publish in the Federal Register 
standards and criteria for the efficient and effective 
performance of contract obligations under this section, and 
opportunity shall be provided for public comment prior to 
implementation. In establishing such standards and criteria, 
the Secretary shall provide a system to measure a carrier's 
performance of responsibilities described in paragraph (3)(H), 
subsection (h), and section 1845(e)(2). The Secretary may not 
require, as a condition of entering into or renewing a contract 
under this section or under section 1871, that a carrier match 
data obtained other than in its activities under this part with 
data used in the administration of this part for purposes of 
identifying situations in which section 1862(b) may apply.
  [(B) The Secretary shall establish standards for evaluating 
carriers' performance of reviews of initial carrier 
determinations and of fair hearings under paragraph (3)(C), 
under which a carrier is expected--
          [(i) to complete such reviews, within 45 days after 
        the date of a request by an individual enrolled under 
        this part for such a review, in 95 percent of such 
        requests, and
          [(ii) to make a final determination, within 120 days 
        after the date of receipt of a request by an individual 
        enrolled under this part for a fair hearing under 
        paragraph (3)(C), in 90 percent of such cases.]
  (C) In the case of residents of nursing facilities who 
receive services described in clause (i) or (ii) of section 
1861(s)(2)(K) performed by a member of a team, the Secretary 
shall instruct [carriers] medicare administrative contractors 
to develop mechanisms which permit routine payment under this 
part for up to 1.5 visits per month per resident. In the 
previous sentence, the term ``team'' refers to a physician and 
includes a physician assistant acting under the supervision of 
the physician or a nurse practitioner working in collaboration 
with that physician, or both.
  [(D) In addition to any other standards and criteria 
established by the Secretary for evaluating carrier performance 
under this paragraph relating to avoiding erroneous payments, 
the carrier shall be subject to standards and criteria relating 
to the carrier's success in recovering payments made under this 
part for items or services for which payment has been or could 
be made under a primary plan (as defined in section 
1862(b)(2)(A)).
  [(E) With respect to the payment of claims for home health 
services under this part that, but for the amendments made by 
section 4611 of the Balanced Budget Act of 1997, would be 
payable under part A instead of under this part, the Secretary 
shall continue administration of such claims through fiscal 
intermediaries under section 1816.]
  (3) [Each such contract shall provide that the carrier] The 
Secretary--
          (A) [will] shall take such action as may be necessary 
        to assure that, where payment under this part for a 
        service is on a cost basis, the cost is reasonable cost 
        (as determined under section 1861(v));
          (B) [will] shall take such action as may be necessary 
        to assure that, where payment under this part for a 
        service is on a charge basis, such charge will be 
        reasonable and not higher than the charge applicable, 
        for a comparable service and under comparable 
        circumstances, [to the policyholders and subscribers of 
        the carrier] to the policyholders and subscribers of 
        the medicare administrative contractor, and such 
        payment will (except as otherwise provided in section 
        1870(f)) be made--
                  (i)  * * *

           *       *       *       *       *       *       *

          [(C) will establish and maintain procedures pursuant 
        to which an individual enrolled under this part will be 
        granted an opportunity for a fair hearing by the 
        carrier, in any case where the amount in controversy is 
        at least $100, but less than $500, when requests for 
        payment under this part with respect to services 
        furnished him are denied or are not acted upon with 
        reasonable promptness or when the amount of such 
        payment is in controversy;
          [(D) will furnish to the Secretary such timely 
        information and reports as he may find necessary in 
        performing his functions under this part;
          [(E) will maintain such records and afford such 
        access thereto as the Secretary finds necessary to 
        assure the correctness and verification of the 
        information and reports under subparagraph (D) and 
        otherwise to carry out the purposes of this part;]
          (F) [will] shall take such action as may be necessary 
        to assure that where payment under this part for a 
        service rendered is on a charge basis, such payment 
        shall be determined on the basis of the charge that is 
        determined in accordance with this section on the basis 
        of customary and prevailing charge levels in effect at 
        the time the service was rendered or, in the case of 
        services rendered more than 12 months before the year 
        in which the bill is submitted or request for payment 
        is made, on the basis of such levels in effect for the 
        12-month period preceding such year;
          (G) [will] shall, for a service that is furnished 
        with respect to an individual enrolled under this part, 
        that is not paid on an assignment-related basis, and 
        that is subject to a limiting charge under section 
        1848(g)--
                  (i)  * * *

           *       *       *       *       *       *       *

          (H) [if it makes determinations or payments with 
        respect to physicians' services, will] shall 
        implement--
                  (i) programs to recruit and retain physicians 
                as participating physicians in the area served 
                by the [carrier] medicare administrative 
                contractor, including educational and outreach 
                activities and the use of professional 
                relations personnel to handle billing and other 
                problems relating to payment of claims of 
                participating physicians; and

           *       *       *       *       *       *       *

          [(I) will submit annual reports to the Secretary 
        describing the steps taken to recover payments made 
        under this part for items or services for which payment 
        has been or could be made under a primary plan (as 
        defined in section 1862(b)(2)(A)); and]
          (L) [will] shall monitor and profile physicians' 
        billing patterns within each area or locality and 
        provide comparative data to physicians whose 
        utilization patterns vary significantly from other 
        physicians in the same payment area or locality[;].
[and shall contain such other terms and conditions not 
inconsistent with this section as the Secretary may find 
necessary or appropriate.] In determining the reasonable charge 
for services for purposes of this paragraph, there shall be 
taken into consideration the customary charges for similar 
services generally made by the physician or other person 
furnishing such services, as well as the prevailing charges in 
the locality for similar services. No charge may be determined 
to be reasonable in the case of bills submitted or requests for 
payment made under this part after December 31, 1970, if it 
exceeds the higher of (i) the prevailing charge recognized by 
the carrier and found acceptable by the Secretary for similar 
services in the same locality in administering this part on 
December 31, 1970, or (ii) the prevailing charge level that, on 
the basis of statistical data and methodology acceptable to the 
Secretary, would cover 75 percent of the customary charges made 
for similar services in the same locality during the 12-month 
period ending on the June 30 last preceding the start of the 
calendar year in which the service is rendered. In the case of 
physicians' services the prevailing charge level determined for 
purposes of clause (ii) of the preceding sentence for any 
twelve-month period (beginning after June 30, 1973) specified 
in clause (ii) of such sentence may not exceed (in the 
aggregate) the level determined under such clause for the 
fiscal year ending June 30, 1973, or (with respect to 
physicians' services furnished in a year after 1987) the level 
determined under this sentence (or under any other provision of 
law affecting the prevailing charge level) for the previous 
year except to the extent that the Secretary finds, on the 
basis of appropriate economic index data, that such higher 
level is justified by year-to-year economic changes. With 
respect to power-operated wheelchairs for which payment may be 
made in accordance with section 1861(s)(6), charges determined 
to be reasonable may not exceed the lowest charge at which 
power-operated wheelchairs are available in the locality. In 
the case of medical services, supplies, and equipment 
(including equipment servicing) that, in the judgment of the 
Secretary, do not generally vary significantly in quality from 
one supplier to another, the charges incurred after December 
31, 1972, determined to be reasonable may not exceed the lowest 
charge levels at which such services, supplies, and equipment 
are widely and consistently available in a locality except to 
the extent and under the circumstances specified by the 
Secretary. The requirement in subparagraph (B) that a bill be 
submitted or request for payment be made by the close of the 
following calendar year shall not apply if (I) failure to 
submit the bill or request the payment by the close of such 
year is due to the error or misrepresentation of an officer, 
employee, fiscal intermediary, carrier, medicare administrative 
contractor, or agent of the Department of Health and Human 
Services performing functions under this title and acting 
within the scope of his or its authority, and (II) the bill is 
submitted or the payment is requested promptly after such error 
or misrepresentation is eliminated or corrected. 
Notwithstanding the provisions of the third and fourth 
sentences preceding this sentence, the prevailing charge level 
in the case of a physician service in a particular locality 
determined pursuant to such third and fourth sentences for any 
calendar year after 1974 shall, if lower than the prevailing 
charge level for the fiscal year ending June 30, 1975, in the 
case of a similar physician service in the same locality by 
reason of the application of economic index data, be raised to 
such prevailing charge level for the fiscal year ending June 
30, 1975, and shall remain at such prevailing charge level 
until the prevailing charge for a year (as adjusted by economic 
index data) equals or exceeds such prevailing charge level. The 
amount of any charges for outpatient services which shall be 
considered reasonable shall be subject to the limitations 
established by regulations issued by the Secretary pursuant to 
section 1861(v)(1)(K), and in determining the reasonable charge 
for such services, the Secretary may limit such reasonable 
charge to a percentage of the amount of the prevailing charge 
for similar services furnished in a physician's office, taking 
into account the extent to which overhead costs associated with 
such outpatient services have been included in the reasonable 
cost or charge of the facility.

           *       *       *       *       *       *       *

  [(5) Each contract under this section shall be for a term of 
at least one year, and may be made automatically renewable from 
term to term in the absence of notice by either party of 
intention to terminate at the end of the current term; except 
that the Secretary may terminate any such contract at any time 
(after such reasonable notice and opportunity for hearing to 
the carrier involved as he may provide in regulations) if he 
finds that the carrier has failed substantially to carry out 
the contract or is carrying out the contract in a manner 
inconsistent with the efficient and effective administration of 
the insurance program established by this part.]
  (6) No payment under this part for a service provided to any 
individual shall (except as provided in section 1870) be made 
to anyone other than such individual or (pursuant to an 
assignment described in subparagraph (B)(ii) of paragraph (3)) 
the physician or other person who provided the service, except 
that (A) payment may be made (i) to the employer of such 
physician or other person if such physician or other person is 
required as a condition of his employment to turn over his fee 
for such service to his employer, or (ii) (where the service 
was provided in a hospital, critical access hospital, clinic, 
or other facility) to the facility in which the service was 
provided if there is a contractual arrangement between such 
physician or other person and such facility under which such 
facility submits the bill for such service, (B) payment may be 
made to an entity (i) which provides coverage of the services 
under a health benefits plan, but only to the extent that 
payment is not made under this part, (ii) which has paid the 
person who provided the service an amount (including the amount 
payable under this part) which that person has accepted as 
payment in full for the service, and (iii) to which the 
individual has agreed in writing that payment may be made under 
this part, (C) in the case of services described in clause (i) 
of section 1861(s)(2)(K), payment shall be made to either (i) 
the employer of the physician assistant involved, or (ii) with 
respect to a physician assistant who was the owner of a rural 
health clinic (as described in section 1861(aa)(2)) for a 
continuous period beginning prior to the date of the enactment 
of the Balanced Budget Act of 1997 and ending on the date that 
the Secretary determines such rural health clinic no longer 
meets the requirements of section 1861(aa)(2), payment may be 
made directly to the physician assistant, (D) payment may be 
made to a physician for physicians' services (and services 
furnished incident to such services) furnished by a second 
physician to patients of the first physician if (i) the first 
physician is unavailable to provide the services; (ii) the 
services are furnished pursuant to an arrangement between the 
two physicians that (I) is informal and reciprocal, or (II) 
involves per diem or other fee-for-time compensation for such 
services; (iii) the services are not provided by the second 
physician over a continuous period of more than 60 days; and 
(iv) the claim form submitted to the [carrier] medicare 
administrative contractor for such services includes the second 
physician's unique identifier (provided under the system 
established under subsection (r)) and indicates that the claim 
meets the requirements of this subparagraph for payment to the 
first physician, (E) in the case of an item or service (other 
than services described in section 1888(e)(2)(A)(ii)) furnished 
by, or under arrangements made by, a skilled nursing facility 
to an individual who (at the time the item or service is 
furnished) is a resident of a skilled nursing facility, payment 
shall be made to the facility, (F) in the case of home health 
services (including medical supplies described in section 
1861(m)(5), but excluding durable medical equipment to the 
extent provided for in such section) furnished to an individual 
who (at the time the item or service is furnished) is under a 
plan of care of a home health agency, payment shall be made to 
the agency (without regard to whether or not the item or 
service was furnished by the agency, by others under 
arrangement with them made by the agency, or when any other 
contracting or consulting arrangement, or otherwise), and (G) 
in the case of services in a hospital or clinic to which 
section 1880(e) applies, payment shall be made to such hospital 
or clinic. No payment which under the preceding sentence may be 
made directly to the physician or other person providing the 
service involved (pursuant to an assignment described in 
subparagraph (B)(ii) of paragraph (3)) shall be made to anyone 
else under a reassignment or power of attorney (except to an 
employer or facility as described in clause (A) of such 
sentence); but nothing in this subsection shall be construed 
(i) to prevent the making of such a payment in accordance with 
an assignment from the individual to whom the service was 
provided or a reassignment from the physician or other person 
providing such service if such assignment or reassignment is 
made to a governmental agency or entity or is established by or 
pursuant to the order of a court of competent jurisdiction, or 
(ii) to preclude an agent of the physician or other person 
providing the service from receiving any such payment if (but 
only if) such agent does so pursuant to an agency agreement 
under which the compensation to be paid to the agent for his 
services for or in connection with the billing or collection of 
payments due such physician or other person under this title is 
unrelated (directly or indirectly) to the amount of such 
payments or the billings therefor, and is not dependent upon 
the actual collection of any such payment. For purposes of 
subparagraph (C) of the first sentence of this paragraph, an 
employment relationship may include any independent contractor 
arrangement, and employer status shall be determined in 
accordance with the law of the State in which the services 
described in such clause are performed.
  (7)(A) In the case of physicians' services furnished to a 
patient in a hospital with a teaching program approved as 
specified in section 1861(b)(6) but which does not meet the 
conditions described in section 1861(b)(7), [the carrier] the 
Secretary shall not provide (except on the basis described in 
subparagraph (C)) for payment for such services under this 
part--
          (i)  * * *

           *       *       *       *       *       *       *

  (B) The customary charge for such services in a hospital 
shall be determined in accordance with regulations issued by 
the Secretary and taking into account the following factors:
          (i) In the case of a physician who is not a teaching 
        physician (as defined by the Secretary), [the carrier] 
        the Secretary shall take into account the amounts the 
        physician charges for similar services in the 
        physician's practice outside the teaching setting.
          (ii) In the case of a teaching physician, if the 
        hospital, its physicians, or other appropriate billing 
        entity has established one or more schedules of charges 
        which are collected for medical and surgical services, 
        [the carrier] the Secretary shall base payment under 
        this title on the greatest of--
                  (I)  * * *

           *       *       *       *       *       *       *

  (C) In the case of physicians' services furnished to a 
patient in a hospital with a teaching program approved as 
specified in section 1861(b)(6) but which does not meet the 
conditions described in section 1861(b)(7), if the conditions 
described in subclauses (I) and (II) of subparagraph (A)(i) are 
met and if the physician elects payment to be determined under 
this subparagraph, [the carrier] the Secretary shall provide 
for payment for such services under this part on the basis of 
regulations of the Secretary governing reimbursement for the 
services of hospital-based physicians (and not on any other 
basis).

           *       *       *       *       *       *       *

  (c)[(1) Any contract entered into with a carrier under this 
section shall provide for advances of funds to the carrier for 
the making of payments by it under this part, and shall provide 
for payment of the cost of administration of the carrier, as 
determined by the Secretary to be necessary and proper for 
carrying out the functions covered by the contract. The 
Secretary shall provide that in determining a carrier's 
necessary and proper cost of administration, the Secretary 
shall, with respect to each contract, take into account the 
amount that is reasonable and adequate to meet the costs which 
must be incurred by an efficiently and economically operated 
carrier in carrying out the terms of its contract. The 
Secretary shall cause to have published in the Federal 
Register, by not later than September 1 before each fiscal 
year, data, standards, and methodology to be used to establish 
budgets for carriers under this section for that fiscal year, 
and shall cause to be published in the Federal Register for 
public comment, at least 90 days before such data, standards, 
and methodology are published, the data, standards, and 
methodology proposed to be used.]
  (2)(A) Each [contract under this section which provides for 
the disbursement of funds, as described in subsection 
(a)(1)(B),] contract under section 1874A that provides for 
making payments under this part shall provide that payment 
shall be issued, mailed, or otherwise transmitted with respect 
to not less than 95 percent of all claims submitted under this 
part--
          (i)  * * *

           *       *       *       *       *       *       *

  (3)(A) Each contract under this section which provides for 
the disbursement of funds, as described in [subsection 
(a)(1)(B)] section 1874A(a)(3)(B), shall provide that no 
payment shall be issued, mailed, or otherwise transmitted with 
respect to any claim submitted under this title within the 
applicable number of calendar days after the date on which the 
claim is received.
  (4) Neither a [carrier] medicare administrative contractor 
nor the Secretary may impose a fee under this title--
          (A)  * * *

           *       *       *       *       *       *       *

  [(5) Each contract under this section which provides for the 
disbursement of funds, as described in subsection (a)(1)(B), 
shall require the carrier to meet criteria developed by the 
Secretary to measure the timeliness of carrier responses to 
requests for payment of items described in section 
1834(a)(15)(C).
  [(6) No carrier may carry out (or receive payment for 
carrying out) any activity pursuant to a contract under this 
subsection to the extent that the activity is carried out 
pursuant to a contract under the Medicare Integrity Program 
under section 1893. The previous sentence shall not apply with 
respect to the activity described in section 1893(b)(5) 
(relating to prior authorization of certain items of durable 
medical equipment under section 1834(a)(15)).
  [(d) Any contract with a carrier under this section may 
require such carrier or any of its officers or employees 
certifying payments or disbursing funds pursuant to the 
contract, or otherwise participating in carrying out the 
contract, to give surety bond to the United States in such 
amount as the Secretary may deem appropriate.
  [(e)(1) No individual designated pursuant to a contract under 
this section as a certifying officer shall, in the absence of 
gross negligence or intent to defraud the United States, be 
liable with respect to any payments certified by him under this 
section.
  [(2) No disbursing officer shall, in the absence of gross 
negligence or intent to defraud the United States, be liable 
with respect to any payment by him under this section if it was 
based upon a voucher signed by a certifying officer designated 
as provided in paragraph (1) of this subsection.
  [(3) No such carrier shall be liable to the United States for 
any payments referred to in paragraph (1) or (2).
  [(f) For purposes of this part, the term ``carrier'' means--
          [(1) with respect to providers of services and other 
        persons, a voluntary association, corporation, 
        partnership, or other nongovernmental organization 
        which is lawfully engaged in providing, paying for, or 
        reimbursing the cost of, health services under group 
        insurance policies or contracts, medical or hospital 
        service agreements, membership or subscription 
        contracts, or similar group arrangements, in 
        consideration of premiums or other periodic charges 
        payable to the carrier, including a health benefits 
        plan duly sponsored or underwritten by an employee 
        organization; and
          [(2) with respect to providers of services only, any 
        agency or organization (not described in paragraph (1)) 
        with which an agreement is in effect under section 
        1816.]
  (g) The Railroad Retirement Board shall, in accordance with 
such regulations as the Secretary may prescribe, contract with 
a [carrier or carriers] medicare administrative contractor or 
contractors to perform the functions set out in this section 
with respect to individuals entitled to benefits as qualified 
railroad retirement beneficiaries pursuant to section 226(a) of 
this Act and section 7(d) of the Railroad Retirement Act of 
1974.
  (h)(1) * * *
  (2) [Each carrier having an agreement with the Secretary 
under subsection (a)] The Secretary shall maintain a toll-free 
telephone number or numbers at which individuals enrolled under 
this part may obtain the names, addresses, specialty, and 
telephone numbers of participating physicians and suppliers and 
may request a copy of an appropriate directory published under 
paragraph (4). [Each such carrier] The Secretary shall, without 
charge, mail a copy of such directory upon such a request.
  (3)(A) In any case in which [a carrier having an agreement 
with the Secretary under subsection (a)] medicare 
administrative contractor having a contract under section 1874A 
that provides for making payments under this part is able to 
develop a system for the electronic transmission to [such 
carrier] such contractor of bills for services, such carrier 
shall establish direct lines for the electronic receipt of 
claims from participating physicians and suppliers.
  (B) The Secretary shall establish a procedure whereby an 
individual enrolled under this part may assign, in an 
appropriate manner on the form claiming a benefit under this 
part for an item or service furnished by a participating 
physician or supplier, the individual's rights of payment under 
a medicare supplemental policy (described in section 
1882(g)(1)) in which the individual is enrolled. In the case 
such an assignment is properly executed and a payment 
determination is made by [a carrier] a medicare administrative 
contractor with a contract under this section, [the carrier] 
the contractor shall transmit to the private entity issuing the 
medicare supplemental policy notice of such fact and shall 
include an explanation of benefits and any additional 
information that the Secretary may determine to be appropriate 
in order to enable the entity to decide whether (and the amount 
of) any payment is due under the policy. The Secretary may 
enter into agreements for the transmittal of such information 
to entities electronically. The Secretary shall impose user 
fees for the transmittal of information under this subparagraph 
by [a carrier] a medicare administrative contractor, whether 
electronically or otherwise, and such user fees shall be 
collected and retained by [the carrier] the contractor.

           *       *       *       *       *       *       *

  (5)(A) The Secretary shall promptly notify individuals 
enrolled under this part through an annual mailing of the 
participation program under this subsection and the publication 
and availability of the directories and shall make the 
appropriate area directory or directories available in each 
district and branch office of the Social Security 
Administration, in the offices of [carriers] medicare 
administrative contractors, and to senior citizen 
organizations.
  (B) The annual notice provided under subparagraph (A) shall 
include--
          (i) * * *
          (iii) an explanation of the assistance offered by 
        [carriers] medicare administrative contractors in 
        obtaining the names of participating physicians and 
        suppliers, and

           *       *       *       *       *       *       *

  (l)(1)(A) Subject to subparagraph (C), if--
          (i) * * *

           *       *       *       *       *       *       *

          (iii)(I) a [carrier] medicare administrative 
        contractor determines under this part or a peer review 
        organization determines under part B of title XI that 
        payment may not be made by reason of section 1862(a)(1) 
        because a service otherwise covered under this title is 
        not reasonable and necessary under the standards 
        described in that section or (II) payment under this 
        title for such services is denied under section 
        1154(a)(2) by reason of a determination under section 
        1154(a)(1)(B), and

           *       *       *       *       *       *       *

  (2) Each [carrier] medicare administrative contractor with a 
contract in effect under this section with respect to 
physicians and each peer review organization with a contract 
under part B of title XI shall send any notice of denial of 
payment for physicians' services based on section 1862(a)(1) 
and for which payment is not requested on an assignment-related 
basis to the physician and the individual involved.

           *       *       *       *       *       *       *

  (p)(1) * * *

           *       *       *       *       *       *       *

  (3) In the case of a request for payment for an item or 
service furnished by a physician not submitted on an 
assignment-related basis and which does not include the code 
(or codes) required under paragraph (1)--
          (A) if the physician knowingly and willfully fails to 
        provide the code (or codes) promptly upon request of 
        the Secretary or a [carrier] medicare administrative 
        contractor, the physician may be subject to a civil 
        money penalty in an amount not to exceed $2,000, and

           *       *       *       *       *       *       *

  (q)(1)(A) The Secretary, in consultation with groups 
representing physicians who furnish anesthesia services, shall 
establish by regulation a relative value guide for use in all 
[carrier] localities in making payment for physician anesthesia 
services furnished under this part. Such guide shall be 
designed so as to result in expenditures under this title for 
such services in an amount that would not exceed the amount of 
such expenditures which would otherwise occur.

           *       *       *       *       *       *       *

   APPROPRIATIONS TO COVER GOVERNMENT CONTRIBUTIONS AND CONTINGENCY 
                                RESERVE

  Sec. 1844. (a) * * *

           *       *       *       *       *       *       *

  (c) The Secretary shall determine the Government contribution 
under subparagraphs (A) and (B) of subsection (a)(1) without 
regard to any premium reduction resulting from an election 
under section 1854(f )(1)(E) and without regard to any premium 
adjustment effected under section 1839(h).

           *       *       *       *       *       *       *

[SEC. 1847. DEMONSTRATION PROJECTS FOR COMPETITIVE ACQUISITION OF ITEMS 
                    AND SERVICES.

  [(a) Establishment of Demonstration Project Bidding Areas.--
          [(1) In general.--The Secretary shall implement not 
        more than 5 demonstration projects under which 
        competitive acquisition areas are established for 
        contract award purposes for the furnishing under this 
        part of the items and services described in subsection 
        (d).
          [(2) Project requirements.--Each demonstration 
        project under paragraph (1)--
                  [(A) shall include such group of items and 
                services as the Secretary may prescribe,
                  [(B) shall be conducted in not more than 3 
                competitive acquisition areas, and
                  [(C) shall be operated over a 3-year period.
          [(3) Criteria for establishment of competitive 
        acquisition areas.--Each competitive acquisition area 
        established under a demonstration project implemented 
        under paragraph (1)--
                  [(A) shall be, or shall be within, a 
                metropolitan statistical area (as defined by 
                the Secretary of Commerce), and
                  [(B) shall be chosen based on the 
                availability and accessibility of entities able 
                to furnish items and services, and the probable 
                savings to be realized by the use of 
                competitive bidding in the furnishing of items 
                and services in such area.
  [(b) Awarding of Contracts in Areas.--
          [(1) In general.--The Secretary shall conduct a 
        competition among individuals and entities supplying 
        items and services described in subsection (c) for each 
        competitive acquisition area established under a 
        demonstration project implemented under subsection (a).
          [(2) Conditions for awarding contract.--The Secretary 
        may not award a contract to any entity under the 
        competition conducted pursuant to paragraph (1) to 
        furnish an item or service unless the Secretary finds 
        that the entity meets quality standards specified by 
        the Secretary and that the total amounts to be paid 
        under the contract are expected to be less than the 
        total amounts that would otherwise be paid.
          [(3) Contents of contract.--A contract entered into 
        with an entity under the competition conducted pursuant 
        to paragraph (1) is subject to terms and conditions 
        that the Secretary may specify.
          [(4) Limit on number of contractors.--The Secretary 
        may limit the number of contractors in a competitive 
        acquisition area to the number needed to meet projected 
        demand for items and services covered under the 
        contracts.
  [(c) Expansion of Projects.--
          [(1) Evaluations.--The Secretary shall evaluate the 
        impact of the implementation of the demonstration 
        projects on medicare program payments, access, 
        diversity of product selection, and quality. The 
        Secretary shall make annual reports to the Committees 
        on Ways and Means and Commerce of the House of 
        Representatives and the Committee on Finance of the 
        Senate on the results of the evaluation described in 
        the preceding sentence and a final report not later 
        than 6 months after the termination date specified in 
        subsection (e).
          [(2) Expansion.--If the Secretary determines from the 
        evaluations under paragraph (1) that there is clear 
        evidence that any demonstration project--
                  [(A) results in a decrease in Federal 
                expenditures under this title, and
                  [(B) does not reduce program access, 
                diversity of product selection, and quality 
                under this title,
        the Secretary may expand the project to additional 
        competitive acquisition areas.
  [(d) Services described.--The items and services to which 
this section applies are all items and services covered under 
this part (except for physicians' services as defined in 
section 1861(s)(1)) that the Secretary may specify. At least 
one demonstration project shall include oxygen and oxygen 
equipment.
  [(e) Termination.--Notwithstanding any other provision of 
this section, all projects under this section shall terminate 
not later than December 31, 2002.]

         COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES

  Sec. 1847. (a) Establishment of Competitive Acquisition 
Programs.--
          (1) Implementation of programs.--
                  (A) In general.--The Secretary shall 
                establish and implement programs under which 
                competitive acquisition areas are established 
                throughout the United States for contract award 
                purposes for the furnishing under this part of 
                competitively priced items and services 
                (described in paragraph (2)) for which payment 
                is made under this part. Such areas may differ 
                for different items and services.
                  (B) Phased-in implementation.--The programs 
                shall be phased-in among competitive 
                acquisition areas over a period of not longer 
                than 3 years in a manner so that the 
                competition under the programs occurs in--
                          (i) at least \1/3\ of such areas in 
                        2004; and
                          (ii) at least \2/3\ of such areas in 
                        2005.
                  (C) Waiver of certain provisions.--In 
                carrying out the programs, the Secretary may 
                waive such provisions of the Federal 
                Acquisition Regulation as are necessary for the 
                efficient implementation of this section, other 
                than provisions relating to confidentiality of 
                information and such other provisions as the 
                Secretary determines appropriate.
          (2) Items and services described.--The items and 
        services referred to in paragraph (1) are the 
        following:
                  (A) Durable medical equipment and inhalation 
                drugs used in connection with durable medical 
                equipment.--Covered items (as defined in 
                section 1834(a)(13)) for which payment is 
                otherwise made under section 1834(a), other 
                than items used in infusion, and inhalation 
                drugs used in conjunction with durable medical 
                equipment.
                  (B) Off-the-shelf orthotics.--Orthotics 
                (described in section 1861(s)(9)) for which 
                payment is otherwise made under section 1834(h) 
                which require minimal self-adjustment for 
                appropriate use and does not require expertise 
                in trimming, bending, molding, assembling, or 
                customizing to fit to the patient.
          (3) Exemption authority.--In carrying out the 
        programs under this section, the Secretary may exempt--
                  (A) areas that are not competitive due to low 
                population density; and
                  (B) items and services for which the 
                application of competitive acquisition is not 
                likely to result in significant savings.
  (b) Program Requirements.--
          (1) In general.--The Secretary shall conduct a 
        competition among entities supplying items and services 
        described in subsection (a)(2) for each competitive 
        acquisition area in which the program is implemented 
        under subsection (a) with respect to such items and 
        services.
          (2) Conditions for awarding contract.--
                  (A) In general.--The Secretary may not award 
                a contract to any entity under the competition 
                conducted in an competitive acquisition area 
                pursuant to paragraph (1) to furnish such items 
                or services unless the Secretary finds all of 
                the following:
                          (i) The entity meets quality and 
                        financial standards specified by the 
                        Secretary or developed by accreditation 
                        entities or organizations recognized by 
                        the Secretary.
                          (ii) The total amounts to be paid 
                        under the contract (including costs 
                        associated with the administration of 
                        the contract) are expected to be less 
                        than the total amounts that would 
                        otherwise be paid.
                          (iii) Beneficiary access to a choice 
                        of multiple suppliers in the area is 
                        maintained.
                          (iv) Beneficiary liability is limited 
                        to the applicable percentage of 
                        contract award price.
                  (B) Quality standards.--The quality standards 
                specified under subparagraph (A)(i) shall not 
                be less than the quality standards that would 
                otherwise apply if this section did not apply 
                and shall include consumer services standards. 
                The Secretary shall consult with an expert 
                outside advisory panel composed of an 
                appropriate selection of representatives of 
                physicians, practitioners, and suppliers to 
                review (and advise the Secretary concerning) 
                such quality standards.
          (3) Contents of contract.--
                  (A) In general.--A contract entered into with 
                an entity under the competition conducted 
                pursuant to paragraph (1) is subject to terms 
                and conditions that the Secretary may specify.
                  (B) Term of contracts.--The Secretary shall 
                rebid contracts under this section not less 
                often than once every 3 years.
          (4) Limit on number of contractors.--
                  (A) In general.--The Secretary may limit the 
                number of contractors in a competitive 
                acquisition area to the number needed to meet 
                projected demand for items and services covered 
                under the contracts. In awarding contracts, the 
                Secretary shall take into account the ability 
                of bidding entities to furnish items or 
                services in sufficient quantities to meet the 
                anticipated needs of beneficiaries for such 
                items or services in the geographic area 
                covered under the contract on a timely basis.
                  (B) Multiple winners.--The Secretary shall 
                award contracts to more than one entity 
                submitting a bid in each area for an item or 
                service.
          (5) Participating contractors.--Payment shall not be 
        made for items and services described in subsection 
        (a)(2) furnished by a contractor and for which 
        competition is conducted under this section unless--
                  (A) the contractor has submitted a bid for 
                such items and services under this section; and
                  (B) the Secretary has awarded a contract to 
                the contractor for such items and services 
                under this section.
          (6) Authority to contract for education, outreach and 
        complaint services.--The Secretary may enter into a 
        contract with an appropriate entity to address 
        complaints from beneficiaries who receive items and 
        services from an entity with a contract under this 
        section and to conduct appropriate education of and 
        outreach to such beneficiaries with respect to the 
        program.
  (c) Annual Reports.--The Secretary shall submit to Congress 
an annual management report on the programs under this section. 
Each such report shall include information on savings, 
reductions in cost-sharing, access to items and services, and 
beneficiary satisfaction.
  (d) Demonstration Project for Clinical Laboratory Services.--
          (1) In general.--The Secretary shall conduct a 
        demonstration project on the application of competitive 
        acquisition under this section to clinical diagnostic 
        laboratory tests--
                  (A) for which payment is otherwise made under 
                section 1833(h) or 1834(d)(1) (relating to 
                colorectal cancer screening tests); and
                  (B) which are furnished without a face-to-
                face encounter between the individual and the 
                hospital or physician ordering the tests.
          (2) Terms and conditions.--Such project shall be 
        under the same conditions as are applicable to items 
        and services described in subsection (a)(2).
          (3) Report.--The Secretary shall submit to Congress--
                  (A) an initial report on the project not 
                later than December 31, 2004; and
                  (B) such progress and final reports on the 
                project after such date as the Secretary 
                determines appropriate.

           *       *       *       *       *       *       *

                    PAYMENT FOR PHYSICIANS' SERVICES

  Sec. 1848. (a) * * *

           *       *       *       *       *       *       *

  (d) Conversion Factors.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Update for years beginning with 2001.--
                  (A) * * *
                  (B) Update adjustment factor.--For purposes 
                of subparagraph (A)(ii), subject to 
                subparagraph (D) and paragraph (6), the 
                ``update adjustment factor'' for a year is 
                equal (as estimated by the Secretary) to the 
                sum of the following:
                          (i)  * * *

           *       *       *       *       *       *       *

                  (F) Transitional adjustment designed to 
                provide for budget neutrality.--Under this 
                subparagraph the Secretary shall provide for an 
                adjustment to the update under [subparagraph 
                (A)--
                          [(i) for each of 2001, 2002, 2003, 
                        and 2004, of -0.2 percent; and
                          [(ii) for 2005 of +0.8 percent.] 
                        subparagraph (A), for each of 2001 and 
                        2002, of -0.2 percent.
          (5) Update for 2003.--The update to the single 
        conversion factor established in paragraph (1)(C) for 
        2003 is 2 percent.
          (6) Special rules for update for 2004 and 2005.--The 
        following rules apply in determining the update 
        adjustment factors under paragraph (4)(B) for 2004 and 
        2005:
                  (A) Use of 2002 data in determining allowable 
                costs.--
                          (i) The reference in clause (ii)(I) 
                        of such paragraph to April 1, 1996, is 
                        deemed to be a reference to January 1, 
                        2002.
                          (ii) The allowed expenditures for 
                        2002 is deemed to be equal to the 
                        actual expenditures for physicians' 
                        services furnished during 2002, as 
                        estimated by the Secretary.
                  (B) 1 percentage point increase in gdp under 
                sgr.--The annual average percentage growth in 
                real gross domestic product per capita under 
                subsection (f)(2)(C) for each of 2003, 2004, 
                and 2005 is deemed to be increased by 1 
                percentage point.

           *       *       *       *       *       *       *

  (f) Sustainable Growth Rate.--
          (1) * * *
          (2) Specification of growth rate.--The sustainable 
        growth rate for all physicians' services for a fiscal 
        year (beginning with fiscal year 1998 and ending with 
        fiscal year 2000) and a year beginning with 2000 shall 
        be equal to the product of--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) 1 plus the Secretary's estimate of the 
                [projected] annual average percentage growth in 
                real gross domestic product per capita (divided 
                by 100) [from the previous applicable period to 
                the applicable period involved] during the 10-
                year period ending with the applicable period 
                involved, and

           *       *       *       *       *       *       *

  (j) Definitions.--In this section:
          (1) * * *

           *       *       *       *       *       *       *

          (3) Physicians' services.--The term ``physicians' 
        services'' includes items and services described in 
        paragraphs (1), (2)(A), (2)(D), (2)(G), (2)(P) (with 
        respect to services described in subparagraphs (A) and 
        (C) of section 1861(oo)(2)), (2)(R) (with respect to 
        services described in suparagraphs (B), (C), and (D) of 
        section 1861(pp)(1)), (2)(S), (2)(W), (3), (4), (13), 
        (14) (with respect to services described in section 
        1861(nn)(2)), and (15) of section 1861(s) (other than 
        clinical diagnostic laboratory tests and, except for 
        purposes of subsection (a)(3), (g), and (h) such other 
        items and services as the Secretary may specify).

           *       *       *       *       *       *       *

                    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.
          (2) Types of medicare+choice plans that may be 
        available.--A Medicare+Choice plan may be any of the 
        following types of plans of health insurance:
                  (A) Coordinated care plans.--Coordinated care 
                plans which provide health care services, 
                including but not limited to health maintenance 
                organization plans (with or without point of 
                service options), plans offered by provider-
                sponsored organizations (as defined in section 
                1855(d)), and preferred provider organization 
                plans. Specialized Medicare+Choice plans for 
                special needs beneficiaries (as defined in 
                section 1859(b)(4)) may be any type of 
                coordinated care plan.

           *       *       *       *       *       *       *

  (b) Special Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Coverage under msa plans [on a demonstration 
        basis].--
                  (A) In general.--[An individual is not 
                eligible to enroll in an MSA plan under this 
                part--
                          [(i) on or after January 1, 2003, 
                        unless the enrollment is the 
                        continuation of such an enrollment in 
                        effect as of such date; or
                          [(ii) as of any date if the number of 
                        such individuals so enrolled as of such 
                        date has reached 390,000.]
                Under rules established by the Secretary, an 
                individual is not eligible to enroll (or 
                continue enrollment) in an MSA plan for a year 
                unless the individual provides assurances 
                satisfactory to the Secretary that the 
                individual will reside in the United States for 
                at least 183 days during the year.

           *       *       *       *       *       *       *

                  (C) Reports.--The Secretary shall submit to 
                Congress periodic reports on the numbers of 
                individuals enrolled in such plans and on the 
                evaluation being conducted under subparagraph 
                (B). [The Secretary shall submit such a report, 
                by not later than March 1, 2002, on whether the 
                time limitation under subparagraph (A)(i) 
                should be extended or removed and whether to 
                change the numerical limitation under 
                subparagraph (A)(ii).]

           *       *       *       *       *       *       *

  (d) Providing Information To Promote Informed Choice.--
          (1) * * *
          (2) Provision of notice.--
                  (A) Open season notification.--At least 15 
                days before the beginning of each annual, 
                coordinated election period (as defined in 
                subsection (e)(3)(B)), the Secretary shall mail 
                to each Medicare+Choice eligible individual 
                residing in an area the following:
                          (i) General information.--The general 
                        information described in paragraph (3).
                          (ii) List of plans and comparison of 
                        plan options.--A list identifying the 
                        Medicare+Choice plans that are (or will 
                        be) available to residents of the area 
                        and information described in paragraph 
                        (4) concerning such plans to the extent 
                        such information is available at the 
                        time of preparation of materials for 
                        the mailing. Such information shall be 
                        presented in a comparative form.

           *       *       *       *       *       *       *

  (e) Coverage Election Periods.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Annual, coordinated election period.--
                  (A) * * *
                  (B) Annual, coordinated election period.--For 
                purposes of this section, the term ``annual, 
                coordinated election period'' means, with 
                respect to a year before 2003 [and after 2005, 
                the month of November before such year and with 
                respect to 2003, 2004, and 2005], the month of 
                November before such year and with respect to 
                2003 and any subsequent year, the period 
                beginning on November 15 and ending on December 
                31 of the year before such year.

           *       *       *       *       *       *       *

          (5) Special rules for msa plans.--Notwithstanding the 
        preceding provisions of this subsection, an 
        individual--
                  (A) may elect an MSA plan only during--
                          (i) an initial open enrollment period 
                        described in paragraph (1), or
                          (ii) an annual, coordinated election 
                        period described in paragraph (3)(B)[, 
                        or];
                          [(iii) the month of November 1998;]

           *       *       *       *       *       *       *

  (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.

           *       *       *       *       *       *       *

  (h) Approval of Marketing Material and Application Forms.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Prohibition of certain marketing practices.--Each 
        Medicare+Choice organization shall conform to fair 
        marketing standards, in relation to Medicare+Choice 
        plans offered under this part, included in the 
        standards established under section 1856. Such 
        standards--
                  (A) shall not permit a Medicare+Choice 
                organization to provide for cash or other 
                monetary rebates as an inducement for 
                enrollment or otherwise except as provided 
                under section 1854(b)(1)(C), and

           *       *       *       *       *       *       *

  (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.

                  BENEFITS AND BENEFICIARY PROTECTIONS

  Sec. 1852. (a) Basic Benefits.--
          (1) * * *
          (2) Satisfaction of requirement.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Election of uniform coverage [policy] 
                determination.--In the case of a 
                Medicare+Choice organization that offers a 
                Medicare+Choice plan in an area in which more 
                than one local coverage [policy] determination 
                is applied with respect to different parts of 
                the area, the organization may elect to have 
                the local coverage [policy] determination for 
                the part of the area that is most beneficial to 
                Medicare+Choice enrollees (as identified by the 
                Secretary) apply with respect to all 
                Medicare+Choice enrollees enrolled in the plan.

           *       *       *       *       *       *       *

          [(5) National coverage determinations and legislative 
        changes in benefits.--If there is a national coverage 
        determination or legislative change in benefits 
        required to be provided under this part made in the 
        period beginning on the date of an announcement under 
        section 1853(b) and ending on the date of the next 
        announcement under such section and the Secretary 
        projects that the determination will result in a 
        significant change in the costs to a Medicare+Choice 
        organization of providing the benefits that are the 
        subject of such national coverage determination and 
        that such change in costs was not incorporated in the 
        determination of the annual Medicare+Choice capitation 
        rate under section 1853 included in the announcement 
        made at the beginning of such period, then, unless 
        otherwise required by law--
                  [(A) such determination or legislative change 
                in benefits shall not apply to contracts under 
                this part until the first contract year that 
                begins after the end of such period, and
                  [(B) if such coverage determination or 
                legislative change provides for coverage of 
                additional benefits or coverage under 
                additional circumstances, section 1851(i)(1) 
                shall not apply to payment for such additional 
                benefits or benefits provided under such 
                additional circumstances until the first 
                contract year that begins after the end of such 
                period.
        The projection under the previous sentence shall be 
        based on an analysis by the Chief Actuary of the Health 
        Care Financing Administration of the actuarial costs 
        associated with the coverage determination or 
        legislative change in benefits.]
          (5) Prospective implementation of national coverage 
        determinations.--The Secretary shall only implement a 
        national coverage determination that will result in a 
        significant change in the costs to a Medicare+Choice 
        organization in a prospective manner that applies to 
        announcements made under section 1853(b) after the date 
        of the implementation of the determination.
  (b) Antidiscrimination.--
          (1) Beneficiaries.--
                  (A) In general.--A Medicare+Choice 
                organization may not deny, limit, or condition 
                the coverage or provision of benefits under 
                this part, for individuals permitted to be 
                enrolled with the organization under this part, 
                based on any health status-related factor 
                described in section 2702(a)(1) of the Public 
                Health Service Act. The Administrator shall not 
                approve a plan of an organization if the 
                Administrator determines that the benefits are 
                designed to substantially discourage enrollment 
                by certain Medicare+Choice eligible individuals 
                with the organization.

           *       *       *       *       *       *       *

  (c) Disclosure Requirements.--
          (1) Detailed description of plan provisions.--A 
        Medicare+Choice organization shall disclose, in clear, 
        accurate, and standardized form to each enrollee with a 
        Medicare+Choice plan offered by the organization under 
        this part at the time of enrollment and at least 
        annually thereafter, the following information 
        regarding such plan:
                  (A) * * *

           *       *       *       *       *       *       *

                  (I) Quality assurance program.--A description 
                of the organization's quality assurance program 
                under subsection (e) if required under such 
                section.

           *       *       *       *       *       *       *

  (e) Quality Assurance Program.--
          (1) In general.--Each Medicare+Choice organization 
        must have arrangements, consistent with any regulation, 
        for an ongoing quality assurance program for health 
        care services it provides to individuals enrolled with 
        Medicare+Choice plans (other than MSA plans) of the 
        organization.

           *       *       *       *       *       *       *

  (k) Treatment of Services Furnished by Certain Providers.--
          (1) In general.--Except as provided in paragraph (2), 
        a physician or other entity (other than a provider of 
        services) that does not have a contract establishing 
        payment amounts for services furnished to an individual 
        enrolled under this part with a Medicare+Choice 
        organization described in section 1851(a)(2)(A) or with 
        an organization offering a MSA plan shall accept as 
        payment in full for covered services under this title 
        that are furnished to such an individual the amounts 
        that the physician or other entity could collect if the 
        individual were not so enrolled. Any penalty or other 
        provision of law that applies to such a payment with 
        respect to an individual entitled to benefits under 
        this title (but not enrolled with a Medicare+Choice 
        organization under this part) also applies with respect 
        to an individual so enrolled.

           *       *       *       *       *       *       *

               PAYMENTS TO MEDICARE+CHOICE ORGANIZATIONS

  Sec. 1853. (a) Payments to Organizations.--
          (1) Monthly payments.--
                  (A) In general.--Under a contract under 
                section 1857 and subject to subsections (e), 
                (g), and (i) and section 1859(e)(4), the 
                Secretary shall make monthly payments under 
                this section in advance to each Medicare+Choice 
                organization, with respect to coverage of an 
                individual under this part in a Medicare+Choice 
                payment area for a month, [in an amount equal 
                to \1/12\ of the annual Medicare+Choice 
                capitation rate (as calculated under subsection 
                (c)) with respect to that individual for that 
                area, reduced by the amount of any reduction 
                elected under section 1854(f )(1)(E) and 
                adjusted for such risk factors as age, 
                disability status, gender, institutional 
                status, and such other factors as the Secretary 
                determines to be appropriate, so as to ensure 
                actuarial equivalence. The Secretary may add 
                to, modify, or substitute for such factors, if 
                such changes will improve the determination of 
                actuarial equivalence.] in an amount determined 
                as follows:
                          (i) Payment before 2005.--For years 
                        before 2005, the payment amount shall 
                        be equal to \1/12\ of the annual 
                        Medicare+Choice capitation rate (as 
                        calculated under subsection (c)) with 
                        respect to that individual for that 
                        area, reduced by the amount of any 
                        reduction elected under section 1854(f 
                        )(1)(E) and adjusted under clause 
                        (iii).
                          (ii) Payment for statutory non-drug 
                        benefits beginning with 2005.--For 
                        years beginning with 2005--
                                  (I) Plans with bids below 
                                benchmark.--In the case of a 
                                plan for which there are 
                                average per capita monthly 
                                savings described in section 
                                1854(b)(3)(C) (or, in the case 
                                of a competitive-demonstration 
                                area, described in section 
                                1854(b)(4)), the payment under 
                                this subsection is equal to the 
                                unadjusted non-drug monthly bid 
                                amount (or, in the case of a 
                                competitive-demonstration area, 
                                the choice non-drug benchmark 
                                amount), adjusted under clause 
                                (iii), plus the amount of the 
                                monthly rebate computed under 
                                section 1854(b)(1)(C)(i) for 
                                that plan and year.
                                  (II) Plans with bids at or 
                                above benchmark.--In the case 
                                of a plan for which there are 
                                no average per capita monthly 
                                savings described in section 
                                1854(b)(3)(C) (or, in the case 
                                of a competitive-demonstration 
                                area, described in section 
                                1854(b)(4)), the payment amount 
                                under this subsection is equal 
                                to the fee-for-service area-
                                specific non-drug benchmark 
                                amount, adjusted under clause 
                                (iii).
                          (iii) Demographic adjustment, 
                        including adjustment for health 
                        status.--The Administrator shall adjust 
                        the payment amount under clause (i), 
                        the unadjusted non-drug monthly bid 
                        amount under clause (ii)(I), and the 
                        fee-for-service area-specific non-drug 
                        benchmark amount under clause (ii)(II) 
                        for such risk factors as age, 
                        disability status, gender, 
                        institutional status, and such other 
                        factors as the Administrator determines 
                        to be appropriate, including adjustment 
                        for health status under paragraph (3), 
                        so as to ensure actuarial equivalence. 
                        The Administrator may add to, modify, 
                        or substitute for such adjustment 
                        factors if such changes will improve 
                        the determination of actuarial 
                        equivalence.
                          (iv) Reference to subsidy payment for 
                        statutory drug benefits.--In the case 
                        in which an enrollee is enrolled under 
                        part D, the Medicare+Choice 
                        organization also is entitled to a 
                        subsidy payment amount under section 
                        1860H.

           *       *       *       *       *       *       *

  (b) Annual Announcement of Payment Rates.--
          (1) Annual announcement.--The Secretary shall 
        annually determine, and shall announce (in a manner 
        intended to provide notice to interested parties) for 
        years before 2004 [and after 2005 not later than March 
        1 before the calendar year concerned and for 2004 and 
        2005] not later than March 1 before the calendar year 
        concerned and for 2004 and each subsequent year not 
        later than the second Monday in May before [the 
        respective calendar year--
                  [(A) the annual Medicare+Choice capitation 
                rate for each Medicare+Choice payment area for 
                the year, and
                  [(B) the risk and other factors to be used in 
                adjusting such rates under subsection (a)(1)(A) 
                for payments for months in that year.] the 
                calendar year concerned with respect to each 
                Medicare+Choice payment area, the following:
                  (A) Pre-competition information.--For years 
                before 2005, the following:
                          (i) Medicare+choice capitation 
                        rates.--The annual Medicare+Choice 
                        capitation rate for each 
                        Medicare+Choice payment area for the 
                        year.
                          (ii) Adjustment factors.--The risk 
                        and other factors to be used in 
                        adjusting such rates under subsection 
                        (a)(1)(A) for payments for months in 
                        that year.
                  (B) Competition information.--For years 
                beginning with 2005, the following:
                          (i) Benchmarks.--The fee-for-service 
                        area-specific non-drug benchmark under 
                        section 1853(j) and, if applicable, the 
                        choice non-drug benchmark under section 
                        1853(k)(2), for the year involved and, 
                        if applicable, the national fee-for-
                        service market share percentage.
                          (ii) Adjustment factors.--The 
                        adjustment factors applied under 
                        section 1853(a)(1)(A)(iii) (relating to 
                        demographic adjustment), section 
                        1853(a)(1)(B) (relating to adjustment 
                        for end-stage renal disease), and 
                        section 1853(a)(3) (relating to health 
                        status adjustment).
                          (iii) Projected fee-for-service 
                        bid.--In the case of a competitive 
                        area, the projected fee-for-service 
                        area-specific non-drug bid (as 
                        determined under subsection (k)(6)) for 
                        the area.
                          (iv) Individuals.--The number of 
                        individuals counted under subsection 
                        (k)(4)(B) and enrolled in each 
                        Medicare+Choice plan in the area.

           *       *       *       *       *       *       *

          (3) Explanation of assumptions.--In each announcement 
        made under paragraph (1), the Secretary shall include 
        an explanation of the assumptions and changes in 
        methodology used in the announcement [in sufficient 
        detail so that Medicare+Choice organizations can 
        compute monthly adjusted Medicare+Choice capitation 
        rates for individuals in each Medicare+Choice payment 
        area which is in whole or in part within the service 
        area of such an organization].
  (c) Calculation of Annual Medicare+Choice Capitation Rates.--
          (1) In general.--For purposes of this part, subject 
        to paragraphs (6)(C) and (7), each annual 
        Medicare+Choice capitation rate, for a Medicare+Choice 
        payment area for a contract year consisting of a 
        calendar year, is equal to the largest of the amounts 
        specified in the following subparagraph (A), (B), [or 
        (C)] (C), or (D):
                  (A) Blended capitation rate.--The sum of--
                          (i) * * *

           *       *       *       *       *       *       *

                multiplied (for a year before 2003) by the 
                budget neutrality adjustment factor determined 
                under paragraph (5).

           *       *       *       *       *       *       *

                  (C) Minimum percentage increase.--
                          (i) * * *

           *       *       *       *       *       *       *

                          [(iv) For 2002 and each succeeding 
                        year, 102 percent of the annual 
                        Medicare+Choice capitation rate under 
                        this paragraph for the area for the 
                        previous year.]
                          (iv) For 2002, 102 percent of the 
                        annual Medicare+Choice capitation rate 
                        under this paragraph for the area for 
                        2001.
                          (v) For 2003 and 2004, 103 percent of 
                        the annual Medicare+Choice capitation 
                        rate under this paragraph for the area 
                        for the previous year.
                          (vi) For 2005 and each succeeding 
                        year, 102 percent of the annual 
                        Medicare+Choice capitation rate under 
                        this paragraph for the area for the 
                        previous year.
                  (D) Based on 100 percent of fee-for-service 
                costs.--
                          (i) In general.--For 2003 and 2004, 
                        the adjusted average per capita cost 
                        for the year involved, determined under 
                        section 1876(a)(4) for the 
                        Medicare+Choice payment area for 
                        services covered under parts A and B 
                        for individuals entitled to benefits 
                        under part A and enrolled under part B 
                        who are not enrolled in a 
                        Medicare+Choice plan under this part 
                        for the year, but adjusted to exclude 
                        costs attributable to payments under 
                        section 1886(h).
                          (ii) Inclusion of costs of va and dod 
                        military facility services to medicare-
                        eligible beneficiaries.--In determining 
                        the adjusted average per capita cost 
                        under clause (i) for a year, such cost 
                        shall be adjusted to include the 
                        Secretary's estimate, on a per capita 
                        basis, of the amount of additional 
                        payments that would have been made in 
                        the area involved under this title if 
                        individuals entitled to benefits under 
                        this title had not received services 
                        from facilities of the Department of 
                        Veterans Affairs or the Department of 
                        Defense.

           *       *       *       *       *       *       *

          (3) Annual area-specific medicare+choice capitation 
        rate.--
                  (A) In general.--For purposes of paragraph 
                (1)(A), subject to [subparagraph (B)] 
                subparagraphs (B) and (E), the annual area-
                specific Medicare+Choice capitation rate for a 
                Medicare+Choice payment area--
                          (i) * * *

           *       *       *       *       *       *       *

                  (E) Inclusion of costs of dod and va military 
                facility services to medicare-eligible 
                beneficiaries.--In determining the area-
                specific Medicare+Choice capitation rate under 
                subparagraph (A) for a year (beginning with 
                2003), the annual per capita rate of payment 
                for 1997 determined under section 1876(a)(1)(C) 
                shall be adjusted to include in the rate the 
                Secretary's estimate, on a per capita basis, of 
                the amount of additional payments that would 
                have been made in the area involved under this 
                title if individuals entitled to benefits under 
                this title had not received services from 
                facilities of the Department of Defense or the 
                Department of Veterans Affairs.
          (4) Input-price-adjusted annual national 
        medicare+choice capitation rate.--
                  (A) * * *
                  (B) National standardized annual 
                medicare+choice capitation rate.--In 
                subparagraph (A)(i), the ``national 
                standardized annual Medicare+Choice capitation 
                rate'' for a year is equal to--
                          (i) the sum (for all Medicare+Choice 
                        payment areas) of the product of--
                                  (I) the annual area-specific 
                                Medicare+Choice capitation rate 
                                for that year for the area 
                                under paragraph (3), and
                                  (II) the average number of 
                                medicare beneficiaries who 
                                (with respect to determinations 
                                for 2003 and for 2004) are 
                                enrolled in a Medicare+Choice 
                                plan residing in that area in 
                                the year, multiplied by the 
                                average of the risk factor 
                                weights used to adjust payments 
                                under subsection (a)(1)(A) for 
                                such beneficiaries in such 
                                area; divided by

           *       *       *       *       *       *       *

          (5) Payment adjustment budget neutrality factor.--For 
        purposes of paragraph (1)(A), for each year (before 
        2003), the Secretary shall determine a budget 
        neutrality adjustment factor so that the aggregate of 
        the payments under this part (other than those 
        attributable to subsections (a)(3)(C)(iii) and (i)) 
        shall equal the aggregate payments that would have been 
        made under this part if payment were based entirely on 
        area-specific capitation rates.
  (d) Medicare+Choice Payment Area Defined.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Geographic adjustment.--
                  (A) In general.--Upon written request of the 
                chief executive officer of a State for a 
                contract year (beginning after 1998) made by 
                not later than February 1 of the previous year, 
                the Secretary shall make a geographic 
                adjustment to a Medicare+Choice payment area in 
                the State otherwise determined under paragraph 
                (1)--
                          [(i) to a single statewide 
                        Medicare+Choice payment area,]
                          (i) to a single statewide 
                        Medicare+Choice payment area,

           *       *       *       *       *       *       *

                  [(B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Secretary shall initially 
                (and annually thereafter) adjust the payment 
                rates otherwise established under this section 
                for Medicare+Choice payment areas in the State 
                in a manner so that the aggregate of the 
                payments under this section in the State shall 
                not exceed the aggregate payments that would 
                have been made under this section for 
                Medicare+Choice payment areas in the State in 
                the absence of the adjustment under this 
                paragraph.]
                  (B) Budget neutrality adjustment.--In the 
                case of a State requesting an adjustment under 
                this paragraph, the Medicare Benefits 
                Administrator shall initially (and annually 
                thereafter) adjust the payment rates otherwise 
                established under this section for 
                Medicare+Choice payment areas in the State in a 
                manner so that the aggregate of the payments 
                under this section in the State shall not 
                exceed the aggregate payments that would have 
                been made under this section for 
                Medicare+Choice payment areas in the State in 
                the absence of the adjustment under this 
                paragraph.

           *       *       *       *       *       *       *

  (j) Computation of Fee-for-Service Area-Specific Non-Drug 
Benchmark Amount.--For purposes of this part, the term ``fee-
for-service area-specific non-drug benchmark amount'' means, 
with respect to a Medicare+Choice payment area for a month in a 
year, an amount equal to the greater of the following (but in 
no case less than \1/12\ of the rate computed under subsection 
(c)(1), without regard to subparagraph (A), for the year):
          (1) Based on 100 percent of fee-for-service costs in 
        the area.--An amount equal to \1/12\ of 100 percent 
        (for 2005 through 2007, or 95 percent for 2008 and 
        years thereafter) of the adjusted average per capita 
        cost for the year involved, determined under section 
        1876(a)(4) for the Medicare+Choice payment area, for 
        the area and the year involved, for services covered 
        under parts A and B for individuals entitled to 
        benefits under part A and enrolled under part B who are 
        not enrolled in a Medicare+Choice plan under this part 
        for the year, and adjusted to exclude from such cost 
        the amount the Medicare Benefits Administrator 
        estimates is payable for costs described in subclauses 
        (I) and (II) of subsection (c)(3)(C)(i) for the year 
        involved and also adjusted in the manner described in 
        subsection (c)(1)(D)(ii) (relating to inclusion of 
        costs of VA and DOD military facility services to 
        medicare-eligible beneficiaries).
          (2) Minimum monthly amount.--The minimum amount 
        specified in this paragraph is the amount specified in 
        subsection (c)(1)(B)(iv) for the year involved.
  (k) Establishment of Competitive Demonstration Program.--
          (1) Designation of competitive-demonstration areas as 
        part of program.--
                  (A) In general.--For purposes of this part, 
                the Administrator shall establish a 
                demonstration program under which the 
                Administrator designates Medicare+Choice areas 
                as competitive-demonstration areas consistent 
                with the following limitations:
                          (i) Limitation on number of areas 
                        that may be designated.--The 
                        Administrator may not designate more 
                        than 4 areas as competitive-
                        demonstration areas.
                          (ii) Limitation on period of 
                        designation of any area.--The 
                        Administrator may not designate any 
                        area as a competitive-demonstration 
                        area for a period of more than 2 years.
                The Administrator has the discretion to decide 
                whether or not to designate as a competitive-
                demonstration area an area that qualifies for 
                such designation.
                  (B) Qualifications for designation.--For 
                purposes of this title, a Medicare+Choice area 
                (which is a metropolitan statistical area or 
                other area with a substantial number of 
                Medicare+Choice enrollees) may not be 
                designated as a ``competitive-demonstration 
                area'' for a 2-year period beginning with a 
                year unless the Administrator determines, by 
                such date before the beginning of the year as 
                the Administrator determines appropriate, 
                that--
                          (i) there will be offered during the 
                        open enrollment period under this part 
                        before the beginning of the year at 
                        least 2 Medicare+Choice plans (in 
                        addition to the fee-for-service program 
                        under parts A and B), each offered by a 
                        different Medicare+Choice organization; 
                        and
                          (ii) during March of the previous 
                        year at least 50 percent of the number 
                        of Medicare+Choice eligible individuals 
                        who reside in the area were enrolled in 
                        a Medicare+Choice plan.
          (2) Choice non-drug benchmark amount.--For purposes 
        of this part, the term ``choice non-drug benchmark 
        amount'' means, with respect to a Medicare+Choice 
        payment area for a month in a year, the sum of the 2 
        components described in paragraph (3) for the area and 
        year. The Administrator shall compute such benchmark 
        amount for each competitive-demonstration area before 
        the beginning of each annual, coordinated election 
        period under section 1851(e)(3)(B) for each year 
        (beginning with 2005) in which it is designated as such 
        an area.
          (3) 2 components.--For purposes of paragraph (2), the 
        2 components described in this paragraph for an area 
        and a year are the following:
                  (A) Fee-for-service component weighted by 
                national fee-for-service market share.--The 
                product of the following:
                          (i) National fee-for-service market 
                        share.--The national fee-for-service 
                        market share percentage (determined 
                        under paragraph (5)) for the year.
                          (ii) Fee-for-service area-specific 
                        non-drug bid.--The fee-for-service 
                        area-specific non-drug bid (as defined 
                        in paragraph (6)) for the area and 
                        year.
                  (B) M+C component weighted by national 
                medicare+choice market share.--The product of 
                the following:
                          (i) National medicare+choice market 
                        share.--1 minus the national fee-for-
                        service market share percentage for the 
                        year.
                          (ii) Weighted average of plan bids in 
                        area.--The weighted average of the plan 
                        bids for the area and year (as 
                        determined under paragraph (4)(A)).
          (4) Determination of weighted average bids for an 
        area.--
                  (A) In general.--For purposes of paragraph 
                (3)(B)(ii), the weighted average of plan bids 
                for an area and a year is the sum of the 
                following products for Medicare+Choice plans 
                described in subparagraph (C) in the area and 
                year:
                          (i) Proportion of each plan's 
                        enrollees in the area.--The number of 
                        individuals described in subparagraph 
                        (B), divided by the total number of 
                        such individuals for all 
                        Medicare+Choice plans described in 
                        subparagraph (C) for that area and 
                        year.
                          (ii) Monthly non-drug bid amount.--
                        The unadjusted non-drug monthly bid 
                        amount.
                  (B) Counting of individuals.--The 
                Administrator shall count, for each 
                Medicare+Choice plan described in subparagraph 
                (C) for an area and year, the number of 
                individuals who reside in the area and who were 
                enrolled under such plan under this part during 
                March of the previous year.
                  (C) Exclusion of plans not offered in 
                previous year.--For an area and year, the 
                Medicare+Choice plans described in this 
                subparagraph are plans that are offered in the 
                area and year and were offered in the area in 
                March of the previous year.
          (5) Computation of national fee-for-service market 
        share percentage.--The Administrator shall determine, 
        for a year, the proportion (in this subsection referred 
        to as the ``national fee-for-service market share 
        percentage'') of Medicare+Choice eligible individuals 
        who during March of the previous year were not enrolled 
        in a Medicare+Choice plan.
          (6) Fee-for-service area-specific non-drug bid.--For 
        purposes of this part, the term ``fee-for-service area-
        specific non-drug bid'' means, for an area and year, 
        the amount described in section 1853(j)(1) for the area 
        and year, except that any reference to a percent of 
        less than 100 percent shall be deemed a reference to 
        100 percent.

                       PREMIUMS AND BID AMOUNTS.

  Sec. 1854. (a) Submission of Proposed Premiums and Bid 
Amounts and Related Information.--
          (1) In general.--Not later than the second Monday in 
        September of 2002, 2003, and 2004 (or July 1 of each 
        other year), each Medicare+Choice organization shall 
        submit to the Secretary, in a form and manner specified 
        by the Secretary and for each Medicare+Choice plan for 
        the service area (or segment of such an area if 
        permitted under subsection (h)) in which it intends to 
        be offered in the following year--
                  [(A)] (A)(i) if the following year is before 
                2005, the information described in paragraph 
                (2), (3), or (4) for the type of plan involved 
                or (ii) if the following year is 2005 or later, 
                the information described in paragraph (6)(A); 
                and

           *       *       *       *       *       *       *

          (5) Review.--
                  (A) In general.--Subject to subparagraph (B), 
                the Secretary shall review the adjusted 
                community rates, the amounts of the basic and 
                supplemental premiums, and values filed under 
                paragraphs (2), (3), and (4) of this subsection 
                and shall approve or disapprove such rates, 
                amounts, and values so submitted. The Chief 
                Actuary of the Health Care Financing 
                Administration shall review the actuarial 
                assumptions and data used by the 
                Medicare+Choice organization with respect to 
                such rates, amounts, and values so submitted to 
                determine the appropriateness of such 
                assumptions and data.

           *       *       *       *       *       *       *

          (6) Submission of bid amounts by medicare+choice 
        organizations.--
                  (A) Information to be submitted.--The 
                information described in this subparagraph is 
                as follows:
                          (i) The monthly aggregate bid amount 
                        for provision of all items and services 
                        under this part and the actuarial basis 
                        for determining such amount.
                          (ii) The proportions of such bid 
                        amount that are attributable to--
                                  (I) the provision of 
                                statutory non-drug benefits 
                                (such portion referred to in 
                                this part as the ``unadjusted 
                                non-drug monthly bid amount'');
                                  (II) the provision of 
                                statutory prescription drug 
                                benefits; and
                                  (III) the provision of non-
                                statutory benefits;
                        and the actuarial basis for determining 
                        such proportions.
                          (iii) Such additional information as 
                        the Administrator may require to verify 
                        the actuarial bases described in 
                        clauses (i) and (ii).
                  (B) Statutory benefits defined.--For purposes 
                of this part:
                          (i) The term ``statutory non-drug 
                        benefits'' means benefits under parts A 
                        and B.
                          (ii) The term ``statutory 
                        prescription drug benefits'' means 
                        benefits under part D.
                          (iii) The term ``statutory benefits'' 
                        means statutory prescription drug 
                        benefits and statutory non-drug 
                        benefits.
                  (C) Acceptance and negotiation of bid 
                amounts.--The Administrator has the authority 
                to negotiate regarding monthly bid amounts 
                submitted under subparagraph (A) (and the 
                proportion described in subparagraph (A)(ii)). 
                The Administrator may reject such a bid amount 
                or proportion if the Administrator determines 
                that such amount or proportion is not supported 
                by the actuarial bases provided under 
                subparagraph (A).
  (b) Monthly Premium Charged.--
          (1) In general.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Beneficiary rebate rule.--
                          (i) Requirement for non-competitive-
                        demonstration areas.--In the case of a 
                        Medicare+Choice payment area that is 
                        not a competitive-demonstration area 
                        designated under section 1853(k)(1), 
                        the Medicare+Choice plan shall provide 
                        to the enrollee a monthly rebate equal 
                        to 75 percent of the average per capita 
                        savings (if any) described in paragraph 
                        (3) applicable to the plan and year 
                        involved.
                          (ii) Requirement for competitive-
                        demonstration areas.--In the case of a 
                        Medicare+Choice payment area that is 
                        designated as a competitive-
                        demonstration area under section 
                        1853(k)(1), if there are average per 
                        capita monthly savings described in 
                        paragraph (4) for a Medicare+Choice 
                        plan and year, the Medicare+Choice plan 
                        shall provide to the enrollee a monthly 
                        rebate equal to 75 percent of such 
                        savings.
                          (iii) Form of rebate.--A rebate 
                        required under this subparagraph shall 
                        be provided--
                                  (I) through the crediting of 
                                the amount of the rebate 
                                towards the Medicare+Choice 
                                monthly supplementary 
                                beneficiary premium or the 
                                premium imposed for 
                                prescription drug coverage 
                                under part D;
                                  (II) through a direct monthly 
                                payment (through electronic 
                                funds transfer or otherwise); 
                                or
                                  (III) through other means 
                                approved by the Medicare 
                                Benefits Administrator,
                        or any combination thereof.
          (2) Premium terminology defined.--For purposes of 
        this part:
                  [(A) The Medicare+Choice monthly basic 
                beneficiary premium.--The term 
                ``Medicare+Choice monthly basic beneficiary 
                premium'' means, with respect to a 
                Medicare+Choice plan, the amount authorized to 
                be charged under subsection (e)(1) for the 
                plan, or, in the case of a Medicare+Choice 
                private fee-for-service plan, the amount filed 
                under subsection (a)(4)(A)(ii).
                  [(B) Medicare+Choice monthly supplemental 
                beneficiary premium.--The term 
                ``Medicare+Choice monthly supplemental 
                beneficiary premium'' means, with respect to a 
                Medicare+Choice plan, the amount authorized to 
                be charged under subsection (e)(2) for the plan 
                or, in the case of a MSA plan or 
                Medicare+Choice private fee-for-service plan, 
                the amount filed under paragraph (3)(B) or 
                (4)(B) of subsection (a).]
                  (A) Medicare+Choice monthly basic beneficiary 
                premium.--The term ``Medicare+Choice monthly 
                basic beneficiary premium'' means, with respect 
                to a Medicare+Choice plan--
                          (i) described in section 
                        1853(a)(1)(A)(ii)(I) (relating to plans 
                        providing rebates), zero; or
                          (ii) described in section 
                        1853(a)(1)(A)(ii)(II), the amount (if 
                        any) by which the unadjusted non-drug 
                        monthly bid amount exceeds the fee-for-
                        service area-specific non-drug 
                        benchmark amount.
                  (B) Medicare+Choice monthly supplemental 
                beneficiary premium.--The term 
                ``Medicare+Choice monthly supplemental 
                beneficiary premium'' means, with respect to a 
                Medicare+Choice plan, the portion of the 
                aggregate monthly bid amount submitted under 
                clause (i) of subsection (a)(6)(A) for the year 
                that is attributable under such section to the 
                provision of nonstatutory benefits.
          (3) Computation of average per capita monthly 
        savings.--For purposes of paragraph (1)(C)(i), the 
        average per capita monthly savings referred to in such 
        paragraph for a Medicare+Choice plan and year is 
        computed as follows:
                  (A) Determination of state-wide average risk 
                adjustment.--
                          (i) In general.--The Medicare 
                        Benefits Administrator shall determine, 
                        at the same time rates are promulgated 
                        under section 1853(b)(1) (beginning 
                        with 2005), for each State the average 
                        of the risk adjustment factors to be 
                        applied to enrollees under section 
                        1853(a)(1)(A) in that State. In the 
                        case of a State in which a 
                        Medicare+Choice plan was offered in the 
                        previous year, the Administrator may 
                        compute such average based upon risk 
                        adjustment factors applied in that 
                        State in a previous year.
                          (ii) Treatment of new states.--In the 
                        case of a State in which no 
                        Medicare+Choice plan was offered in the 
                        previous year, the Administrator shall 
                        estimate such average. In making such 
                        estimate, the Administrator may use 
                        average risk adjustment factors applied 
                        to comparable States or applied on a 
                        national basis.
                  (B) Determination of risk adjusted benchmark 
                and risk-adjusted bid.--For each 
                Medicare+Choice plan offered in a State, the 
                Administrator shall--
                          (i) adjust the fee-for-service area-
                        specific non-drug benchmark amount by 
                        the applicable average risk adjustment 
                        factor computed under subparagraph (A); 
                        and
                          (ii) adjust the unadjusted non-drug 
                        monthly bid amount by such applicable 
                        average risk adjustment factor.
                  (C) Determination of average per capita 
                monthly savings.--The average per capita 
                monthly savings described in this subparagraph 
                is equal to the amount (if any) by which--
                          (i) the risk-adjusted benchmark 
                        amount computed under subparagraph 
                        (B)(i), exceeds
                          (ii) the risk-adjusted bid computed 
                        under subparagraph (B)(ii).
                  (D) Authority to determine risk adjustment 
                for areas other than states.--The Administrator 
                may provide for the determination and 
                application of risk adjustment factors under 
                this paragraph on the basis of areas other than 
                States.
          (4) Computation of average per capita monthly savings 
        for competitive-demonstration areas.--For purposes of 
        paragraph (1)(C)(ii), the average per capita monthly 
        savings referred to in such paragraph for a 
        Medicare+Choice plan and year shall be computed in the 
        same manner as the average per capita monthly savings 
        is computed under paragraph (3) except that the 
        reference to the fee-for-service area-specific non-drug 
        benchmark amount in paragraph (3)(B)(i) (or to the 
        benchmark amount as adjusted under paragraph (3)(C)(i)) 
        is deemed to be a reference to the choice non-drug 
        benchmark amount (or such amount as adjusted in the 
        manner described in paragraph (3)(B)(i)).
  [(c) Uniform Premium.--The Medicare+Choice monthly basic and 
supplemental beneficiary premium, the Medicare+Choice monthly 
MSA premium charged under subsection (b) of a Medicare+Choice 
organization under this part may not vary among individuals 
enrolled in the plan.]
  (c) Uniform Bid Amounts.--The Medicare+Choice monthly bid 
amount submitted under subsection (a)(6) of a Medicare+Choice 
organization under this part may not vary among individuals 
enrolled in the plan.
  (d) Terms and Conditions of Imposing Premiums.--Each 
Medicare+Choice organization shall permit the payment of 
Medicare+Choice monthly basic and supplemental beneficiary 
premiums on a monthly basis, may terminate election of 
individuals for a Medicare+Choice plan for failure to make 
premium payments only in accordance with section 
1851(g)(3)(B)(i), and may not provide, except as provided under 
subsection (b)(1)(C) and subsection (b)(1)(D), for cash or 
other monetary rebates as an inducement for enrollment or 
otherwise.
  [(e) Limitation on Enrollee Liability.--
          [(1) For basic and additional benefits.--In no event 
        may--
                  [(A) the Medicare+Choice monthly basic 
                beneficiary premium (multiplied by 12) and the 
                actuarial value of the deductibles, 
                coinsurance, and copayments applicable on 
                average to individuals enrolled under this part 
                with a Medicare+Choice plan described in 
                section 1851(a)(2)(A) of an organization with 
                respect to required benefits described in 
                section 1852(a)(1)(A) and additional benefits 
                (if any) required under subsection (f)(1)(A) 
                for a year, exceed
                  [(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be 
                applicable on average to individuals entitled 
                to benefits under part A and enrolled under 
                part B if they were not members of a 
                Medicare+Choice organization for the year.
          [(2) For supplemental benefits.--If the 
        Medicare+Choice organization provides to its members 
        enrolled under this part in a Medicare+Choice plan 
        described in section 1851(a)(2)(A) with respect to 
        supplemental benefits described in section 1852(a)(3), 
        the sum of the Medicare+Choice monthly supplemental 
        beneficiary premium (multiplied by 12) charged and the 
        actuarial value of its deductibles, coinsurance, and 
        copayments charged with respect to such benefits may 
        not exceed the adjusted community rate for such 
        benefits (as defined in subsection (f)(3)).
          [(3) Determination on other basis.--If the Secretary 
        determines that adequate data are not available to 
        determine the actuarial value under paragraph (1)(A) or 
        (2), the Secretary may determine such amount with 
        respect to all individuals in same geographic area, the 
        State, or in the United States, eligible to enroll in 
        the Medicare+Choice plan involved under this part or on 
        the basis of other appropriate data.
          [(4) Special rule for private fee-for-service 
        plans.--With respect to a Medicare+Choice private fee-
        for-service plan (other than a plan that is an MSA 
        plan), in no event may--
                  [(A) the actuarial value of the deductibles, 
                coinsurance, and copayments applicable on 
                average to individuals enrolled under this part 
                with such a plan of an organization with 
                respect to required benefits described in 
                section 1852(a)(1), exceed
                  [(B) the actuarial value of the deductibles, 
                coinsurance, and copayments that would be 
                applicable on average to individuals entitled 
                to benefits under part A and enrolled under 
                part B if they were not members of a 
                Medicare+Choice organization for the year.
  [(f) Requirement for Additional Benefits.--
          [(1) Requirement.--
                  [(A) In general.--Each Medicare+Choice 
                organization (in relation to a Medicare+Choice 
                plan, other than an MSA plan, it offers) shall 
                provide that if there is an excess amount (as 
                defined in subparagraph (B)) for the plan for a 
                contract year, subject to the succeeding 
                provisions of this subsection, the organization 
                shall provide to individuals such additional 
                benefits (as the organization may specify) in a 
                value which the Secretary determines is at 
                least equal to the adjusted excess amount (as 
                defined in subparagraph (C)).
                  [(B) Excess amount.--For purposes of this 
                paragraph, the ``excess amount'', for an 
                organization for a plan, is the amount (if any) 
                by which--
                          [(i) the average of the capitation 
                        payments made to the organization under 
                        section 1853 for the plan at the 
                        beginning of contract year, exceeds
                          [(ii) the actuarial value of the 
                        required benefits described in section 
                        1852(a)(1)(A) under the plan for 
                        individuals under this part, as 
                        determined based upon an adjusted 
                        community rate described in paragraph 
                        (3) (as reduced for the actuarial value 
                        of the coinsurance, copayments, and 
                        deductibles under parts A and B).
                  [(C) Adjusted excess amount.--For purposes of 
                this paragraph, the ``adjusted excess amount'', 
                for an organization for a plan, is the excess 
                amount reduced to reflect any amount withheld 
                and reserved for the organization for the year 
                under paragraph (2).
                  [(D) Uniform application.--This paragraph 
                shall be applied uniformly for all enrollees 
                for a plan.
                  [(E) Premium reductions.--
                          [(i) In general.--Subject to clause 
                        (ii), as part of providing any 
                        additional benefits required under 
                        subparagraph (A), a Medicare+Choice 
                        organization may elect a reduction in 
                        its payments under section 
                        1853(a)(1)(A) with respect to a 
                        Medicare+Choice plan and the Secretary 
                        shall apply such reduction to reduce 
                        the premium under section 1839 of each 
                        enrollee in such plan as provided in 
                        section 1840(i).
                          [(ii) Amount of reduction.--The 
                        amount of the reduction under clause 
                        (i) with respect to any enrollee in a 
                        Medicare+Choice plan--
                                  [(I) may not exceed 125 
                                percent of the premium 
                                described under section 
                                1839(a)(3); and
                                  [(II) shall apply uniformly 
                                to each enrollee of the 
                                Medicare+Choice plan to which 
                                such reduction applies.
                  [(F) Construction.--Nothing in this 
                subsection shall be construed as preventing a 
                Medicare+Choice organization from providing 
                supplemental benefits (described in section 
                1852(a)(3)) that are in addition to the health 
                care benefits otherwise required to be provided 
                under this paragraph and from imposing a 
                premium for such supplemental benefits.
          [(2) Stabilization fund.--A Medicare+Choice 
        organization may provide that a part of the value of an 
        excess amount described in paragraph (1) be withheld 
        and reserved in the Federal Hospital Insurance Trust 
        Fund and in the Federal Supplementary Medical Insurance 
        Trust Fund (in such proportions as the Secretary 
        determines to be appropriate) by the Secretary for 
        subsequent annual contract periods, to the extent 
        required to stabilize and prevent undue fluctuations in 
        the additional benefits offered in those subsequent 
        periods by the organization in accordance with such 
        paragraph. Any of such value of the amount reserved 
        which is not provided as additional benefits described 
        in paragraph (1)(A) to individuals electing the 
        Medicare+Choice plan of the organization in accordance 
        with such paragraph prior to the end of such periods, 
        shall revert for the use of such trust funds.
          [(3) Adjusted community rate.--For purposes of this 
        subsection, subject to paragraph (4), the term 
        ``adjusted community rate'' for a service or services 
        means, at the election of a Medicare+Choice 
        organization, either--
                  [(A) the rate of payment for that service or 
                services which the Secretary annually 
                determines would apply to an individual 
                electing a Medicare+Choice plan under this part 
                if the rate of payment were determined under a 
                ``community rating system'' (as defined in 
                section 1302(8) of the Public Health Service 
                Act, other than subparagraph (C)), or
                  [(B) such portion of the weighted aggregate 
                premium, which the Secretary annually estimates 
                would apply to such an individual, as the 
                Secretary annually estimates is attributable to 
                that service or services,
        but adjusted for differences between the utilization 
        characteristics of the individuals electing coverage 
        under this part and the utilization characteristics of 
        the other enrollees with the plan (or, if the Secretary 
        finds that adequate data are not available to adjust 
        for those differences, the differences between the 
        utilization characteristics of individuals selecting 
        other Medicare+Choice coverage, or Medicare+Choice 
        eligible individuals in the area, in the State, or in 
        the United States, eligible to elect Medicare+Choice 
        coverage under this part and the utilization 
        characteristics of the rest of the population in the 
        area, in the State, or in the United States, 
        respectively).
          [(4) Determination based on insufficient data.--For 
        purposes of this subsection, if the Secretary finds 
        that there is insufficient enrollment experience to 
        determine an average of the capitation payments to be 
        made under this part at the beginning of a contract 
        period or to determine (in the case of a newly operated 
        provider-sponsored organization or other new 
        organization) the adjusted community rate for the 
        organization, the Secretary may determine such an 
        average based on the enrollment experience of other 
        contracts entered into under this part and may 
        determine such a rate using data in the general 
        commercial marketplace.]

           *       *       *       *       *       *       *

                       ESTABLISHMENT OF STANDARDS

  Sec. 1856. (a) * * *
  (b) Establishment of Other Standards.--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Relation to state laws.--
                  [(A) In general.--The standards established 
                under this subsection shall supersede any State 
                law or regulation (including standards 
                described in subparagraph (B)) with respect to 
                Medicare+Choice plans which are offered by 
                Medicare+Choice organizations under this part 
                to the extent such law or regulation is 
                inconsistent with such standards.
                  [(B) Standards specifically superseded.--
                State standards relating to the following are 
                superseded under this paragraph:
                          [(i) Benefit requirements (including 
                        cost-sharing requirements).
                          [(ii) Requirements relating to 
                        inclusion or treatment of providers.
                          [(iii) Coverage determinations 
                        (including related appeals and 
                        grievance processes).
                          [(iv) Requirements relating to 
                        marketing materials and summaries and 
                        schedules of benefits regarding a 
                        Medicare+Choice plan.]
          (3) Relation to state laws.--The standards 
        established under this subsection shall supersede any 
        State law or regulation (other than State licensing 
        laws or State laws relating to plan solvency) with 
        respect to Medicare+Choice plans which are offered by 
        Medicare+Choice organizations under this part.

           *       *       *       *       *       *       *

                 DEFINITIONS; MISCELLANEOUS PROVISIONS

  Sec. 1859. (a) * * *
  (b) Definitions Relating to Medicare+Choice Plans.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Specialized medicare+choice plans for special 
        needs beneficiaries.--
                  (A) In general.--The term ``specialized 
                Medicare+Choice plan for special needs 
                beneficiaries'' means a Medicare+Choice plan 
                that exclusively serves special needs 
                beneficiaries (as defined in subparagraph (B)).
                  (B) Special needs beneficiary.--The term 
                ``special needs beneficiary'' means a 
                Medicare+Choice eligible individual who--
                          (i) is institutionalized (as defined 
                        by the Secretary);
                          (ii) is entitled to medical 
                        assistance under a State plan under 
                        title XIX; or
                          (iii) meets such requirements as the 
                        Secretary may determine would benefit 
                        from enrollment in such a specialized 
                        Medicare+Choice plan described in 
                        subparagraph (A) for individuals with 
                        severe or disabling chronic conditions.

           *       *       *       *       *       *       *

  (f) Restriction on Enrollment for Specialized Medicare+Choice 
Plans for Special Needs Beneficiaries.--In the case of a 
specialized Medicare+Choice plan (as defined in subsection 
(b)(4)), notwithstanding any other provision of this part and 
in accordance with regulations of the Secretary and for periods 
before January 1, 2007, the plan may restrict the enrollment of 
individuals under the plan to individuals who are within one or 
more classes of special needs beneficiaries.

          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--
                  (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 $3,800; 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, under section 1860G, or 
                        under title XIX and the individual is 
                        not reimbursed (through insurance or 
                        otherwise) by another person 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) that the following requirements are met and the 
plan applies for, and receives, the approval of the 
Administrator for such benefit design:
          (1) Assuring at least actuarially equivalent 
        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-Rated 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 January 1, 2005.
                  (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 at beneficiary's option of withholding from 
        social security payment and use of electronic funds 
        transfer mechanism.--In accordance with regulations, a 
        PDP sponsor shall permit each enrollee, at the 
        enrollee's option, to make payment of premiums through 
        withholding from benefit payments in the manner 
        provided under section 1840 with respect to monthly 
        premiums under section 1839. In the case in which an 
        enrollee does not elect such option, a PDP sponsor may, 
        in accordance with regulations, encourage enrollees to 
        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. 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 175 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) or by the Social Security 
                Administration. 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. There are authorized to be 
                appropriated to the Social Security 
                Administration such sums as may be necessary 
                for the determination of eligibility under this 
                subparagraph.
                  (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 65 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 35 percent of the total 
        payments made by a qualifying entity for standard 
        coverage 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; 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)(1)(B) 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).
          (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) * * *

           *       *       *       *       *       *       *

                                Supplier

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

           *       *       *       *       *       *       *

                   Medical and Other Health Services

  (s) The term ``medical and other health services'' means any 
of the following items or services:
          (1) * * *
          (2)(A) * * *

           *       *       *       *       *       *       *

          (U) screening for glaucoma (as defined in subsection 
        (uu)) for individuals determined to be at high risk for 
        glaucoma, individuals with a family history of glaucoma 
        and individuals with diabetes; [and]
          (V) medical nutrition therapy services (as defined in 
        subsection (vv)(1)) in the case of a beneficiary with 
        diabetes or a renal disease who--
                  (i) * * *

           *       *       *       *       *       *       *

                  (iii) meets such other criteria determined by 
                the Secretary after consideration of protocols 
                established by dietitian or nutrition 
                professional organizations;
                  (W) an initial preventive physical 
                examination (as defined in subsection (ww)); 
                and
                  (X) cholesterol and other blood lipid 
                screening tests (as defined in subsection 
                (XX));

           *       *       *       *       *       *       *

                     Hospice Care; Hospice Program

  (dd)(1) * * *
  (2) The term ``hospice program'' means a public agency or 
private organization (or a subdivision thereof) which--
          (A)(i) is primarily engaged in providing the care and 
        services described in paragraph (1) and makes such 
        services available (as needed) on a 24-hour basis and 
        which also provides bereavement counseling for the 
        immediate family of terminally ill individuals and 
        services described in section 1812(a)(5),

           *       *       *       *       *       *       *

  (5)(A) * * *

           *       *       *       *       *       *       *

  (D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high patient 
loads, staffing shortages due to illness or other events, or 
temporary travel of a patient outside a hospice program's 
service area, a hospice program may enter into arrangements 
with another hospice program for the provision by that other 
program of services described in paragraph (2)(A)(ii)(I). The 
provisions of paragraph (2)(A)(ii)(II) shall apply with respect 
to the services provided under such arrangements.

           *       *       *       *       *       *       *

                Initial Preventive Physical Examination

  (ww) The term ``initial preventive physical examination'' 
means physicians' services consisting of a physical examination 
with the goal of health promotion and disease detection and 
includes items and services specified by the Secretary in 
regulations.

            Cholesterol and Other Blood Lipid Screening Test

  (xx)(1) The term ``cholesterol and other blood lipid 
screening test'' means diagnostic testing of cholesterol and 
other lipid levels of the blood for the purpose of early 
detection of abnormal cholesterol and other lipid levels.
  (2) The Secretary shall establish standards, in consultation 
with appropriate organizations, regarding the frequency and 
type of cholesterol and other blood lipid screening tests, 
except that such frequency may not be more often than once 
every 2 years.

        EXCLUSIONS FROM COVERAGE AND MEDICARE AS SECONDARY PAYER

  Sec. 1862. (a) Notwithstanding any other provision of this 
title, no payment may be made under part A or part B for any 
expenses incurred for items or services--
          (1)(A) * * *

           *       *       *       *       *       *       *

          (H) in the case of colorectal cancer screening tests, 
        which are performed more frequently than is covered 
        under section 1834(d), [and]
          (I) the frequency and duration of home health 
        services which are in excess of normative guidelines 
        that the Secretary shall establish by regulation[;],
          (J) in the case of an initial preventive physical 
        examination, which is performed not later than 6 months 
        after the date the individual's first coverage period 
        begins under part B; and
          (K) in the case of a cholesterol and other blood 
        lipid screening test (as defined in section 
        1861(xx)(1)), which is performed more frequently than 
        is covered under section 1861(xx)(2).

           *       *       *       *       *       *       *

          (7) where such expenses are for routine physical 
        checkups, eyeglasses (other than eyewear described in 
        section 1861(s)(8)) or eye examinations for the purpose 
        of prescribing, fitting, or changing eyeglasses, 
        procedures performed (during the course of any eye 
        examination) to determine the refractive state of the 
        eyes, hearing aids or examinations therefor, or 
        immunizations (except as otherwise allowed under 
        section 1861(s)(10) and subparagraph (B), (F), (G), [or 
        (H)] (H), or (J) of paragraph (1));

           *       *       *       *       *       *       *

Paragraph (7) shall not apply to Federally qualified health 
center services described in section 1861(aa)(3)(B). In making 
a national coverage determination (as defined in paragraph 
(1)(B) of section 1869(f )) the Secretary shall ensure that the 
public is afforded notice and opportunity to comment prior to 
implementation by the Secretary of the determination; meetings 
of advisory committees [established under section 1114(f )] 
with respect to the determination are made on the record; in 
making the determination, the Secretary has considered 
applicable information (including clinical experience and 
medical, technical, and scientific evidence) with respect to 
the subject matter of the determination; and in the 
determination, provide a clear statement of the basis for the 
determination (including responses to comments received from 
the public), the assumptions underlying that basis, and make 
available to the public the data (other than proprietary data) 
considered in making the determination.

           *       *       *       *       *       *       *

  (d) For purposes of subsection (a)(1)(A), in the case of any 
item or service that is required to be provided pursuant to 
section 1867 to an individual who is entitled to benefits under 
this title, determinations as to whether the item or service is 
reasonable and necessary shall be made on the basis of the 
information available to the treating physician or practitioner 
(including the patient's presenting symptoms or complaint) at 
the time the item or service was ordered or furnished by the 
physician or practitioner (and not on the patient's principal 
diagnosis). When making such determinations with respect to 
such an item or service, the Secretary shall not consider the 
frequency with which the item or service was provided to the 
patient before or after the time of the admission or visit.

           *       *       *       *       *       *       *

  (h)(1) Subject to paragraph (2), a group health plan (as 
defined in subsection (a)(1)(A)(v)) providing supplemental or 
secondary coverage to individuals also entitled to services 
under this title shall not require a medicare claims 
determination under this title for dental benefits specifically 
excluded under subsection (a)(12) as a condition of making a 
claims determination for such benefits under the group health 
plan.
  (2) A group health plan may require a claims determination 
under this title in cases involving or appearing to involve 
inpatient dental hospital services or dental services expressly 
covered under this title pursuant to actions taken by the 
Secretary.

           *       *       *       *       *       *       *

  [(i)] (j)(1) Any advisory committee appointed [under 
subsection (f )] to advise the Secretary on matters relating to 
the interpretation, application, or implementation of [section 
1862(a)(1)] subsection (a)(1) shall assure the full 
participation of a nonvoting member in the deliberations of the 
advisory committee, and shall provide such nonvoting member 
access to all information and data made available to voting 
members of the advisory committee, other than information 
that--
          (A) is exempt from disclosure pursuant to subsection 
        (a) of section 552 of title 5, United States Code, by 
        reason of subsection (b)(4) of such section (relating 
        to trade secrets); or
          (B) the Secretary determines would present a conflict 
        of interest relating to such nonvoting member.
  (2) If an advisory committee described in paragraph (1) 
organizes into panels of experts according to types of items or 
services considered by the advisory committee, any such panel 
of experts may report any recommendation with respect to such 
items or services directly to the Secretary without the prior 
approval of the advisory committee or an executive committee 
thereof.

           *       *       *       *       *       *       *

      AGREEMENTS WITH PROVIDERS OF SERVICES; ENROLLMENT PROCESSES

  Sec. 1866. (a)(1) Any provider of services (except a fund 
designated for purposes of section 1814(g) and section 1835(e)) 
shall be qualified to participate under this title and shall be 
eligible for payments under this title if it files with the 
Secretary an agreement--
          (A) * * *

           *       *       *       *       *       *       *

          (R) to contract only with a health care clearinghouse 
        (as defined in section 1171) that meets each standard 
        and implementation specification adopted or established 
        under part C of title XI on or after the date on which 
        the health care clearinghouse is required to comply 
        with the standard or specification, [and]
          (S) in the case of a hospital that has a financial 
        interest (as specified by the Secretary in regulations) 
        in an entity to which individuals are referred as 
        described in section 1861(ee)(2)(H)(ii), or in which 
        such an entity has such a financial interest, or in 
        which another entity has such a financial interest 
        (directly or indirectly) with such hospital and such an 
        entity, to maintain and disclose to the Secretary (in a 
        form and manner specified by the Secretary) information 
        on--
                  (i) * * *

           *       *       *       *       *       *       *

                  (iii) the percentage of such individuals who 
                received such services from such provider (or 
                another such provider)[.], and
          (T) in the case of hospitals that are not otherwise 
        subject to the Occupational Safety and Health Act of 
        1970, to comply with the Bloodborne Pathogens standard 
        under section 1910.1030 of title 29 of the Code of 
        Federal Regulations (or as subsequently redesignated).
In the case of a hospital which has an agreement in effect with 
an organization described in subparagraph (F), which 
organization's contract with the Secretary under part B of 
title XI is terminated on or after October 1, 1984, the 
hospital shall not be determined to be out of compliance with 
the requirement of such subparagraph during the six month 
period beginning on the date of the termination of that 
contract.
  (2)(A) A provider of services may charge such individual or 
other person (i) the amount of any deduction [or coinsurance], 
coinsurance, or copayment amount imposed pursuant to section 
1813(a)(1), (a)(3), [or (a)(4)] (a)(4), or (a)(5), section 
1833(b), or section 1861(y)(3) with respect to such items and 
services (not in excess of the amount customarily charged for 
such items and services by such provider), and (ii) an amount 
equal to 20 per centum of the reasonable charges for such items 
and services (not in excess of 20 per centum of the amount 
customarily charged for such items and services by such 
provider) for which payment is made under part B or which are 
durable medical equipment furnished as home health services 
(but in the case of items and services furnished to individuals 
with end-stage renal disease, an amount equal to 20 percent of 
the estimated amounts for such items and services calculated on 
the basis established by the Secretary). In the case of items 
and services described in section 1833(c), clause (ii) of the 
preceding sentence shall be applied by substituting for 20 
percent the proportion which is appropriate under such section. 
A provider of services may not impose a charge under clause 
(ii) of the first sentence of this subparagraph with respect to 
items and services described in section 1861(s)(10)(A) and with 
respect to clinical diagnostic laboratory tests for which 
payment is made under part B. Notwithstanding the first 
sentence of this subparagraph, a home health agency may charge 
such an individual or person, with respect to covered items 
subject to payment under section 1834(a), the amount of any 
deduction imposed under section 1833(b) and 20 percent of the 
payment basis described in section 1834(a)(1)(B). In the case 
of items and services for which payment is made under part B 
under the prospective payment system established under section 
1833(t), clause (ii) of the first sentence shall be applied by 
substituting for 20 percent of the reasonable charge, the 
applicable copayment amount established under section 
1833(t)(5). In the case of services described in section 
1833(a)(8) or section 1833(a)(9) for which payment is made 
under part B under section 1834(k), clause (ii) of the first 
sentence shall be applied by substituting for 20 percent of the 
reasonable charge for such services 20 percent of the lesser of 
the actual charge or the applicable fee schedule amount (as 
defined in such section) for such services.

           *       *       *       *       *       *       *

  (b)(1) * * *

           *       *       *       *       *       *       *

  (4)(A) A hospital that fails to comply with the requirement 
of subsection (a)(1)(T) (relating to the Bloodborne Pathogens 
standard) is subject to a civil money penalty in an amount 
described in subparagraph (B), but is not subject to 
termination of an agreement under this section.
  (B) The amount referred to in subparagraph (A) is an amount 
that is similar to the amount of civil penalties that may be 
imposed under section 17 of the Occupational Safety and Health 
Act of 1970 for a violation of the Bloodborne Pathogens 
standard referred to in subsection (a)(1)(T) by a hospital that 
is subject to the provisions of such Act.
  (C) A civil money penalty under this paragraph shall be 
imposed and collected in the same manner as civil money 
penalties under subsection (a) of section 1128A are imposed and 
collected under that section.

           *       *       *       *       *       *       *

  (h)(1)(A) Except as provided in paragraph (2), an institution 
or agency dissatisfied with a determination by the Secretary 
that it is not a provider of services or with a determination 
described in subsection (b)(2) shall be entitled to a hearing 
thereon by the Secretary (after reasonable notice) to the same 
extent as is provided in section 205(b), and to judicial review 
of the Secretary's final decision after such hearing as is 
provided in section 205(g), except that, in so applying such 
sections and in applying section 205(l) thereto, any reference 
therein to the Commissioner of Social Security or the Social 
Security Administration shall be considered a reference to the 
Secretary or the Department of Health and Human Services, 
respectively.
  (B) An institution or agency described in subparagraph (A) 
that has filed for a hearing under subparagraph (A) shall have 
expedited access to judicial review under this subparagraph in 
the same manner as providers of services, suppliers, and 
individuals entitled to benefits under part A or enrolled under 
part B, or both, may obtain expedited access to judicial review 
under the process established under section 1869(b)(2). Nothing 
in this subparagraph shall be construed to affect the 
application of any remedy imposed under section 1819 during the 
pendency of an appeal under this subparagraph.

           *       *       *       *       *       *       *

  (j) Enrollment Process for Providers of Services and 
Suppliers.--
          (1) Enrollment process.--
                  (A) In general.--The Secretary shall 
                establish by regulation a process for the 
                enrollment of providers of services and 
                suppliers under this title.
                  (B) Deadlines.--The Secretary shall establish 
                by regulation procedures under which there are 
                deadlines for actions on applications for 
                enrollment (and, if applicable, renewal of 
                enrollment). The Secretary shall monitor the 
                performance of medicare administrative 
                contractors in meeting the deadlines 
                established under this subparagraph.
                  (C) Consultation before changing provider 
                enrollment forms.--The Secretary shall consult 
                with providers of services and suppliers before 
                making changes in the provider enrollment forms 
                required of such providers and suppliers to be 
                eligible to submit claims for which payment may 
                be made under this title.
          (2) Hearing rights in cases of denial or non-
        renewal.--A provider of services or supplier whose 
        application to enroll (or, if applicable, to renew 
        enrollment) under this title is denied may have a 
        hearing and judicial review of such denial under the 
        procedures that apply under subsection (h)(1)(A) to a 
        provider of services that is dissatisfied with a 
        determination by the Secretary.

           *       *       *       *       *       *       *

EXAMINATION AND TREATMENT FOR EMERGENCY MEDICAL CONDITIONS AND WOMEN IN 
                                 LABOR

  Sec. 1867. (a) * * *

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  (d) Enforcement.--
          (1) * * *

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          (3) Consultation with peer review organizations.--In 
        considering allegations of violations of the 
        requirements of this section in imposing sanctions 
        under paragraph (1) or in terminating a hospital's 
        participation under this title, the Secretary shall 
        request the appropriate utilization and quality control 
        peer review organization (with a contract under part B 
        of title XI) to assess whether the individual involved 
        had an emergency medical condition which had not been 
        stabilized, and provide a report on its findings. 
        Except in the case in which a delay would jeopardize 
        the health or safety of individuals, the Secretary 
        shall request such a review before effecting a sanction 
        under paragraph (1) and shall provide a period of at 
        least 60 days for such review. Except in the case in 
        which a delay would jeopardize the health or safety of 
        individuals, the Secretary shall also request such a 
        review before making a compliance determination as part 
        of the process of terminating a hospital's 
        participation under this title for violations related 
        to the appropriateness of a medical screening 
        examination, stabilizing treatment, or an appropriate 
        transfer as required by this section, and shall provide 
        a period of 5 days for such review. The Secretary shall 
        provide a copy of the organization's report to the 
        hospital or physician consistent with confidentiality 
        requirements imposed on the organization under such 
        part B.
          (4) Notice upon closing an investigation.--The 
        Secretary shall establish a procedure to notify 
        hospitals and physicians when an investigation under 
        this section is closed.

  PRACTICING PHYSICIANS ADVISORY COUNCIL; MEDICARE PROVIDER OMBUDSMAN

  Sec. 1868. (a) Practicing Physicians Advisory Council.--(1) 
The Secretary shall appoint, based upon nominations submitted 
by medical organizations representing physicians, a Practicing 
Physicians Advisory Council (in this [section] subsection 
referred to as the ``Council'') to be composed of 15 
physicians, each of whom has submitted at least 250 claims for 
physicians' services under this title in the previous year. At 
least 11 of the members of the Council shall be physicians 
described in section 1861(r)(1) and the members of the Council 
shall include both participating and nonparticipating 
physicians and physicians practicing in rural areas and 
underserved urban areas.
  [(b)] (2) The Council shall meet once during each calendar 
quarter to discuss certain proposed changes in regulations and 
carrier manual instructions related to physician services 
identified by the Secretary. To the extent feasible and 
consistent with statutory deadlines, such consultation shall 
occur before the publication of such proposed changes.
  [(c)] (3) Members of the Council shall be entitled to receive 
reimbursement of expenses and per diem in lieu of subsistence 
in the same manner as other members of advisory councils 
appointed by the Secretary are provided such reimbursement and 
per diem under this title.
  (b) Medicare Provider Ombudsman.--The Secretary shall appoint 
within the Department of Health and Human Services a Medicare 
Provider Ombudsman. The Ombudsman shall--
          (1) provide assistance, on a confidential basis, to 
        providers of services and suppliers with respect to 
        complaints, grievances, and requests for information 
        concerning the programs under this title (including 
        provisions of title XI insofar as they relate to this 
        title and are not administered by the Office of the 
        Inspector General of the Department of Health and Human 
        Services) and in the resolution of unclear or 
        conflicting guidance given by the Secretary and 
        medicare contractors to such providers of services and 
        suppliers regarding such programs and provisions and 
        requirements under this title and such provisions; and
          (2) submit recommendations to the Secretary for 
        improvement in the administration of this title and 
        such provisions, including--
                  (A) recommendations to respond to recurring 
                patterns of confusion in this title and such 
                provisions (including recommendations regarding 
                suspending imposition of sanctions where there 
                is widespread confusion in program 
                administration), and
                  (B) recommendations to provide for an 
                appropriate and consistent response (including 
                not providing for audits) in cases of self-
                identified overpayments by providers of 
                services and suppliers.
The Ombudsman shall not serve as an advocate for any increases 
in payments or new coverage of services, but may identify 
issues and problems in payment or coverage policies.
  (c) Council for Technology and Innovation.--
          (1) Establishment.--The Secretary shall establish a 
        Council for Technology and Innovation within the 
        Centers for Medicare & Medicaid Services (in this 
        section referred to as ``CMS'').
          (2) Composition.--The Council shall be composed of 
        senior CMS staff and clinicians and shall be chaired by 
        the Executive Coordinator for Technology and Innovation 
        (appointed or designated under paragraph (4)).
          (3) Duties.--The Council shall coordinate the 
        activities of coverage, coding, and payment processes 
        under this title with respect to new technologies and 
        procedures, including new drug therapies, and shall 
        coordinate the exchange of information on new 
        technologies between CMS and other entities that make 
        similar decisions.
          (4) Executive coordinator for technology and 
        innovation.--The Secretary shall appoint (or designate) 
        a noncareer appointee (as defined in section 3132(a)(7) 
        of title 5, United States Code) who shall serve as the 
        Executive Coordinator for Technology and Innovation. 
        Such executive coordinator shall report to the 
        Administrator of CMS, shall chair the Council, shall 
        oversee the execution of its duties, and shall serve as 
        a single point of contact for outside groups and 
        entities regarding the coverage, coding, and payment 
        processes under this title.

                        DETERMINATIONS; APPEALS

  Sec. 1869. (a) Initial Determinations.--
          (1) * * *

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          (4) Requirements of notice of determinations and 
        redeterminations.--A written notice of a determination 
        on an initial determination or on a redetermination, 
        insofar as such determination or redetermination 
        results in a denial of a claim for benefits, shall 
        include--
                  (A) the specific reasons for the 
                determination, including--
                          (i) upon request, the provision of 
                        the policy, manual, or regulation used 
                        in making the determination; and
                          (ii) as appropriate in the case of a 
                        redetermination, a summary of the 
                        clinical or scientific evidence used in 
                        making the determination;
                  (B) the procedures for obtaining additional 
                information concerning the determination or 
                redetermination; and
                  (C) notification of the right to seek a 
                redetermination or otherwise appeal the 
                determination and instructions on how to 
                initiate such a redetermination or appeal under 
                this section.
        The written notice on a redetermination shall be 
        provided in printed form and written in a manner 
        calculated to be understood by the individual entitled 
        to benefits under part A or enrolled under part B, or 
        both.
  (b) Appeal Rights.--
          (1) In general.--
                  (A) Reconsideration of initial 
                determination.--Subject to subparagraph (D), 
                any individual dissatisfied with any initial 
                determination under subsection (a)(1) shall be 
                entitled to reconsideration of the 
                determination, and, subject to subparagraphs 
                (D) and (E), a hearing thereon by the Secretary 
                to the same extent as is provided in section 
                205(b) and, subject to paragraph (2), to 
                judicial review of the Secretary's final 
                decision after such hearing as is provided in 
                section 205(g). For purposes of the preceding 
                sentence, any reference to the ``Commissioner 
                of Social Security'' or the ``Social Security 
                Administration'' in subsection (g) or (l) of 
                section 205 shall be considered a reference to 
                the ``Secretary'' or the ``Department of Health 
                and Human Services'', respectively.

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                  (F) Expedited [proceedings.--
                          [(i) Expedited determination] 
                        determinations and reconsiderations.--
                        In the case of an individual who has 
                        received notice from a provider of 
                        services that such provider plans--
                          [(I)] (i) to terminate services 
                        provided to an individual and a 
                        physician certifies that failure to 
                        continue the provision of such services 
                        is likely to place the individual's 
                        health at significant risk, or
                          [(II)] (ii) to discharge the 
                        individual from the provider of 
                        services,
                        the individual may request, in writing 
                        or orally, an expedited determination 
                        or an expedited reconsideration of an 
                        initial determination made under 
                        subsection (a)(1), as the case may be, 
                        and the Secretary shall provide such 
                        expedited determination or expedited 
                        reconsideration.
                          [(ii) Expedited hearing.--In a 
                        hearing by the Secretary under this 
                        section, in which the moving party 
                        alleges that no material issues of fact 
                        are in dispute, the Secretary shall 
                        make an expedited determination as to 
                        whether any such facts are in dispute 
                        and, if not, shall render a decision 
                        expeditiously.]

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          (2) Expedited access to judicial review.--
                  (A) In general.--The Secretary shall 
                establish a process under which a provider of 
                services or supplier that furnishes an item or 
                service or an individual entitled to benefits 
                under part A or enrolled under part B, or both, 
                who has filed an appeal under paragraph (1) may 
                obtain access to judicial review when a review 
                panel (described in subparagraph (D)), on its 
                own motion or at the request of the appellant, 
                determines that no entity in the administrative 
                appeals process has the authority to decide the 
                question of law or regulation relevant to the 
                matters in controversy and that there is no 
                material issue of fact in dispute. The 
                appellant may make such request only once with 
                respect to a question of law or regulation in a 
                case of an appeal.
                  (B) Prompt determinations.--If, after or 
                coincident with appropriately filing a request 
                for an administrative hearing, the appellant 
                requests a determination by the appropriate 
                review panel that no review panel has the 
                authority to decide the question of law or 
                regulations relevant to the matters in 
                controversy and that there is no material issue 
                of fact in dispute and if such request is 
                accompanied by the documents and materials as 
                the appropriate review panel shall require for 
                purposes of making such determination, such 
                review panel shall make a determination on the 
                request in writing within 60 days after the 
                date such review panel receives the request and 
                such accompanying documents and materials. Such 
                a determination by such review panel shall be 
                considered a final decision and not subject to 
                review by the Secretary.
                  (C) Access to judicial review.--
                          (i) In general.--If the appropriate 
                        review panel--
                                  (I) determines that there are 
                                no material issues of fact in 
                                dispute and that the only issue 
                                is one of law or regulation 
                                that no review panel has the 
                                authority to decide; or
                                  (II) fails to make such 
                                determination within the period 
                                provided under subparagraph 
                                (B);
                        then the appellant may bring a civil 
                        action as described in this 
                        subparagraph.
                          (ii) Deadline for filing.--Such 
                        action shall be filed, in the case 
                        described in--
                                  (I) clause (i)(I), within 60 
                                days of date of the 
                                determination described in such 
                                subparagraph; or
                                  (II) clause (i)(II), within 
                                60 days of the end of the 
                                period provided under 
                                subparagraph (B) for the 
                                determination.
                          (iii) Venue.--Such action shall be 
                        brought in the district court of the 
                        United States for the judicial district 
                        in which the appellant is located (or, 
                        in the case of an action brought 
                        jointly by more than one applicant, the 
                        judicial district in which the greatest 
                        number of applicants are located) or in 
                        the district court for the District of 
                        Columbia.
                          (iv) Interest on amounts in 
                        controversy.--Where a provider of 
                        services or supplier seeks judicial 
                        review pursuant to this paragraph, the 
                        amount in controversy shall be subject 
                        to annual interest beginning on the 
                        first day of the first month beginning 
                        after the 60-day period as determined 
                        pursuant to clause (ii) and equal to 
                        the rate of interest on obligations 
                        issued for purchase by the Federal 
                        Hospital Insurance Trust Fund and by 
                        the Federal Supplementary Medical 
                        Insurance Trust Fund for the month in 
                        which the civil action authorized under 
                        this paragraph is commenced, to be 
                        awarded by the reviewing court in favor 
                        of the prevailing party. No interest 
                        awarded pursuant to the preceding 
                        sentence shall be deemed income or cost 
                        for the purposes of determining 
                        reimbursement due providers of services 
                        or suppliers under this Act.
                  (D) Review panels.--For purposes of this 
                subsection, a ``review panel'' is a panel 
                consisting of 3 members (who shall be 
                administrative law judges, members of the 
                Departmental Appeals Board, or qualified 
                individuals associated with a qualified 
                independent contractor (as defined in 
                subsection (c)(2)) or with another independent 
                entity) designated by the Secretary for 
                purposes of making determinations under this 
                paragraph.
          (3) Requiring full and early presentation of evidence 
        by providers.--A provider of services or supplier may 
        not introduce evidence in any appeal under this section 
        that was not presented at the reconsideration conducted 
        by the qualified independent contractor under 
        subsection (c), unless there is good cause which 
        precluded the introduction of such evidence at or 
        before that reconsideration.

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  (c) Conduct of Reconsiderations by Independent Contractors.--
          (1) * * *

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          (3) Requirements.--Any qualified independent 
        contractor entering into a contract with the Secretary 
        under this subsection shall meet all of the following 
        requirements:
                  (A) In general.--The qualified independent 
                contractor shall perform such duties and 
                functions and assume such responsibilities as 
                may be required by the Secretary to carry out 
                the provisions of this subsection, and shall 
                have [sufficient training and expertise in 
                medical science and legal matters] sufficient 
                medical, legal, and other expertise (including 
                knowledge of the program under this title) and 
                sufficient staffing to make reconsiderations 
                under this subsection.
                  (B) Reconsiderations.--
                          (i) In general.--The qualified 
                        independent contractor shall review 
                        initial determinations. Where an 
                        initial determination is made with 
                        respect to whether an item or service 
                        is reasonable and necessary for the 
                        diagnosis or treatment of illness or 
                        injury (under section 1862(a)(1)(A)), 
                        such review shall include consideration 
                        of the facts and circumstances of the 
                        initial determination by a panel of 
                        physicians or other appropriate health 
                        care professionals and any decisions 
                        with respect to the reconsideration 
                        shall be based on applicable 
                        information, including clinical 
                        experience (including the medical 
                        records of the individual involved) and 
                        medical, technical, and scientific 
                        evidence.

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                  [(D) Limitation on individual reviewing 
                determinations.--
                          [(i) Physicians and health care 
                        professional.--No physician or health 
                        care professional under the employ of a 
                        qualified independent contractor may 
                        review--
                                  [(I) determinations regarding 
                                health care services furnished 
                                to a patient if the physician 
                                or health care professional was 
                                directly responsible for 
                                furnishing such services; or
                                  [(II) determinations 
                                regarding health care services 
                                provided in or by an 
                                institution, organization, or 
                                agency, if the physician or any 
                                member of the family of the 
                                physician or health care 
                                professional has, directly or 
                                indirectly, a significant 
                                financial interest in such 
                                institution, organization, or 
                                agency.
                          [(ii) Family described.--For purposes 
                        of this paragraph, the family of a 
                        physician or health care professional 
                        includes the spouse (other than a 
                        spouse who is legally separated from 
                        the physician or health care 
                        professional under a decree of divorce 
                        or separate maintenance), children 
                        (including stepchildren and legally 
                        adopted children), grandchildren, 
                        parents, and grandparents of the 
                        physician or health care professional.]
                  (D) Qualifications for reviewers.--The 
                requirements of subsection (g) shall be met 
                (relating to qualifications of reviewing 
                professionals).
                  (E) Explanation of decision.--Any decision 
                with respect to a reconsideration of a 
                qualified independent contractor shall be in 
                writing, be written in a manner calculated to 
                be understood by the individual entitled to 
                benefits under part A or enrolled under part B, 
                or both, and shall include (to the extent 
                appropriate) and shall include a detailed 
                explanation of the decision as well as a 
                discussion of the pertinent facts and 
                applicable regulations applied in making such 
                decision, and a notification of the right to 
                appeal such determination and instructions on 
                how to initiate such appeal under this section 
                and in the case of a determination of whether 
                an item or service is reasonable and necessary 
                for the diagnosis or treatment of illness or 
                injury (under section 1862(a)(1)(A)) an 
                explanation of the medical and scientific 
                rationale for the decision.

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                  (I) Data collection.--
                          (i) * * *
                          (ii) Type of data collected.--Each 
                        qualified independent contractor shall 
                        keep accurate records of each decision 
                        made, consistent with standards 
                        established by the Secretary for such 
                        purpose. Such records shall be 
                        maintained in an electronic database in 
                        a manner that provides for 
                        identification of the following:
                                  (I) * * *

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                                  (III) Situations suggesting 
                                the need for changes in 
                                national or local coverage 
                                [policy] determination.
                                  (IV) Situations suggesting 
                                the need for changes in local 
                                [medical review policies] 
                                coverage determinations.
                  (J) Hearings by the secretary.--The qualified 
                independent contractor shall (i) [prepare] 
                submit such information as is required for an 
                appeal of a decision of the contractor [with 
                respect to a reconsideration to the Secretary 
                for a hearing, including as necessary, 
                explanations of issues involved in the decision 
                and relevant policies], and (ii) participate in 
                such hearings as required by the Secretary.
                  (K) Independence requirements.--
                          (i) In general.--Subject to clause 
                        (ii), a qualified independent 
                        contractor shall not conduct any 
                        activities in a case unless the 
                        entity--
                                  (I) is not a related party 
                                (as defined in subsection 
                                (g)(5));
                                  (II) does not have a material 
                                familial, financial, or 
                                professional relationship with 
                                such a party in relation to 
                                such case; and
                                  (III) does not otherwise have 
                                a conflict of interest with 
                                such a party.
                          (ii) Exception for reasonable 
                        compensation.--Nothing in clause (i) 
                        shall be construed to prohibit receipt 
                        by a qualified independent contractor 
                        of compensation from the Secretary for 
                        the conduct of activities under this 
                        section if the compensation is provided 
                        consistent with clause (iii).
                          (iii) Limitations on entity 
                        compensation.--Compensation provided by 
                        the Secretary to a qualified 
                        independent contractor in connection 
                        with reviews under this section shall 
                        not be contingent on any decision 
                        rendered by the contractor or by any 
                        reviewing professional.

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  (d) Deadlines for Hearings by the Secretary; Notice.--
          (1) * * *

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          (4) Notice.--Notice of the decision of an 
        administrative law judge shall be in writing in a 
        manner calculated to be understood by the individual 
        entitled to benefits under part A or enrolled under 
        part B, or both, and shall include--
                  (A) the specific reasons for the 
                determination (including, to the extent 
                appropriate, a summary of the clinical or 
                scientific evidence used in making the 
                determination);
                  (B) the procedures for obtaining additional 
                information concerning the decision; and
                  (C) notification of the right to appeal the 
                decision and instructions on how to initiate 
                such an appeal under this section.

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  (f ) Review of Coverage Determinations.--
          (1) * * *
          (2) Local coverage determination.--
                  (A) In general.--Review of any local coverage 
                determination shall be subject to the following 
                limitations:
                          (i) Upon the filing of a complaint by 
                        an aggrieved party, such a 
                        determination shall be reviewed by an 
                        administrative law judge [of the Social 
                        Security Administration]. The 
                        administrative law judge--
                                  (I) * * *

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          (4) Pending national coverage determinations.--
                  (A) In general.--In the event the Secretary 
                has not issued a national coverage or 
                noncoverage determination with respect to a 
                particular type or class of items or services, 
                an aggrieved person (as described in paragraph 
                (5)) may submit to the Secretary a request to 
                make such a determination with respect to such 
                items or services. By not later than the end of 
                the 90-day period beginning on the date the 
                Secretary receives such a request 
                (notwithstanding the receipt by the Secretary 
                of new evidence (if any) during such 90-day 
                period), the Secretary shall take one of the 
                following actions:
                          (i) * * *

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                          (iv) Issue a notice that states that 
                        the Secretary has not completed a 
                        review of the request for a national 
                        coverage determination and that 
                        includes an identification of the 
                        remaining steps in the Secretary's 
                        review process and a deadline by which 
                        the Secretary will complete the review 
                        and take an action described in 
                        [subclause (I), (II), or (III)] clause 
                        (i), (ii), or (iii).
                  (B) Deemed action by the secretary.--In the 
                case of an action described in [clause (i)(IV)] 
                subparagraph (A)(iv), if the Secretary fails to 
                take an action referred to in such clause by 
                the deadline specified by the Secretary under 
                such clause, then the Secretary is deemed to 
                have taken an action described in [clause 
                (i)(III)] subparagraph (A)(iii) as of the 
                deadline.
                  (C) Explanation of determination.--When 
                issuing a determination under [clause (i)] 
                subparagraph (A), the Secretary shall include 
                an explanation of the basis for the 
                determination. An action taken under clause (i) 
                (other than [subclause (IV)] clause (iv)) is 
                deemed to be a national coverage determination 
                for purposes of review under [subparagraph (A)] 
                paragraph (1)(A).

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  (g) Qualifications of Reviewers.--
          (1) In general.--In reviewing determinations under 
        this section, a qualified independent contractor shall 
        assure that--
                  (A) each individual conducting a review shall 
                meet the qualifications of paragraph (2);
                  (B) compensation provided by the contractor 
                to each such reviewer is consistent with 
                paragraph (3); and
                  (C) in the case of a review by a panel 
                described in subsection (c)(3)(B) composed of 
                physicians or other health care professionals 
                (each in this subsection referred to as a 
                ``reviewing professional''), each reviewing 
                professional meets the qualifications described 
                in paragraph (4) and, where a claim is 
                regarding the furnishing of treatment by a 
                physician (allopathic or osteopathic) or the 
                provision of items or services by a physician 
                (allopathic or osteopathic), each reviewing 
                professional shall be a physician (allopathic 
                or osteopathic).
          (2) Independence.--
                  (A) In general.--Subject to subparagraph (B), 
                each individual conducting a review in a case 
                shall--
                          (i) not be a related party (as 
                        defined in paragraph (5));
                          (ii) not have a material familial, 
                        financial, or professional relationship 
                        with such a party in the case under 
                        review; and
                          (iii) not otherwise have a conflict 
                        of interest with such a party.
                  (B) Exception.--Nothing in subparagraph (A) 
                shall be construed to--
                          (i) prohibit an individual, solely on 
                        the basis of a participation agreement 
                        with a fiscal intermediary, carrier, or 
                        other contractor, from serving as a 
                        reviewing professional if--
                                  (I) the individual is not 
                                involved in the provision of 
                                items or services in the case 
                                under review;
                                  (II) the fact of such an 
                                agreement is disclosed to the 
                                Secretary and the individual 
                                entitled to benefits under part 
                                A or enrolled under part B, or 
                                both, (or authorized 
                                representative) and neither 
                                party objects; and
                                  (III) the individual is not 
                                an employee of the 
                                intermediary, carrier, or 
                                contractor and does not provide 
                                services exclusively or 
                                primarily to or on behalf of 
                                such intermediary, carrier, or 
                                contractor;
                          (ii) prohibit an individual who has 
                        staff privileges at the institution 
                        where the treatment involved takes 
                        place from serving as a reviewer merely 
                        on the basis of having such staff 
                        privileges if the existence of such 
                        privileges is disclosed to the 
                        Secretary and such individual (or 
                        authorized representative), and neither 
                        party objects; or
                          (iii) prohibit receipt of 
                        compensation by a reviewing 
                        professional from a contractor if the 
                        compensation is provided consistent 
                        with paragraph (3).
                For purposes of this paragraph, the term 
                ``participation agreement'' means an agreement 
                relating to the provision of health care 
                services by the individual and does not include 
                the provision of services as a reviewer under 
                this subsection.
          (3) Limitations on reviewer compensation.--
        Compensation provided by a qualified independent 
        contractor to a reviewer in connection with a review 
        under this section shall not be contingent on the 
        decision rendered by the reviewer.
          (4) Licensure and expertise.--Each reviewing 
        professional shall be--
                  (A) a physician (allopathic or osteopathic) 
                who is appropriately credentialed or licensed 
                in one or more States to deliver health care 
                services and has medical expertise in the field 
                of practice that is appropriate for the items 
                or services at issue; or
                  (B) a health care professional who is legally 
                authorized in one or more States (in accordance 
                with State law or the State regulatory 
                mechanism provided by State law) to furnish the 
                health care items or services at issue and has 
                medical expertise in the field of practice that 
                is appropriate for such items or services.
          (5) Related party defined.--For purposes of this 
        section, the term ``related party'' means, with respect 
        to a case under this title involving a specific 
        individual entitled to benefits under part A or 
        enrolled under part B, or both, any of the following:
                  (A) The Secretary, the medicare 
                administrative contractor involved, or any 
                fiduciary, officer, director, or employee of 
                the Department of Health and Human Services, or 
                of such contractor.
                  (B) The individual (or authorized 
                representative).
                  (C) The health care professional that 
                provides the items or services involved in the 
                case.
                  (D) The institution at which the items or 
                services (or treatment) involved in the case 
                are provided.
                  (E) The manufacturer of any drug or other 
                item that is included in the items or services 
                involved in the case.
                  (F) Any other party determined under any 
                regulations to have a substantial interest in 
                the case involved.
  (h) Prior Determination Process for Certain Items and 
Services.--
          (1) Establishment of process.--
                  (A) In general.--With respect to a medicare 
                administrative contractor that has a contract 
                under section 1874A that provides for making 
                payments under this title with respect to 
                eligible items and services described in 
                subparagraph (C), the Secretary shall establish 
                a prior determination process that meets the 
                requirements of this subsection and that shall 
                be applied by such contractor in the case of 
                eligible requesters.
                  (B) Eligible requester.--For purposes of this 
                subsection, each of the following shall be an 
                eligible requester:
                          (i) A physician, but only with 
                        respect to eligible items and services 
                        for which the physician may be paid 
                        directly.
                          (ii) An individual entitled to 
                        benefits under this title, but only 
                        with respect to an item or service for 
                        which the individual receives, from the 
                        physician who may be paid directly for 
                        the item or service, an advance 
                        beneficiary notice under section 
                        1879(a) that payment may not be made 
                        (or may no longer be made) for the item 
                        or service under this title.
                  (C) Eligible items and services.--For 
                purposes of this subsection and subject to 
                paragraph (2), eligible items and services are 
                items and services which are physicians' 
                services (as defined in paragraph (4)(A) of 
                section 1848(f) for purposes of calculating the 
                sustainable growth rate under such section).
          (2) Secretarial flexibility.--The Secretary shall 
        establish by regulation reasonable limits on the 
        categories of eligible items and services for which a 
        prior determination of coverage may be requested under 
        this subsection. In establishing such limits, the 
        Secretary may consider the dollar amount involved with 
        respect to the item or service, administrative costs 
        and burdens, and other relevant factors.
          (3) Request for prior determination.--
                  (A) In general.--Subject to paragraph (2), 
                under the process established under this 
                subsection an eligible requester may submit to 
                the contractor a request for a determination, 
                before the furnishing of an eligible item or 
                service involved as to whether the item or 
                service is covered under this title consistent 
                with the applicable requirements of section 
                1862(a)(1)(A) (relating to medical necessity).
                  (B) Accompanying documentation.--The 
                Secretary may require that the request be 
                accompanied by a description of the item or 
                service, supporting documentation relating to 
                the medical necessity for the item or service, 
                and any other appropriate documentation. In the 
                case of a request submitted by an eligible 
                requester who is described in paragraph 
                (1)(B)(ii), the Secretary may require that the 
                request also be accompanied by a copy of the 
                advance beneficiary notice involved.
          (4) Response to request.--
                  (A) In general.--Under such process, the 
                contractor shall provide the eligible requester 
                with written notice of a determination as to 
                whether--
                          (i) the item or service is so 
                        covered;
                          (ii) the item or service is not so 
                        covered; or
                          (iii) the contractor lacks sufficient 
                        information to make a coverage 
                        determination.
                If the contractor makes the determination 
                described in clause (iii), the contractor shall 
                include in the notice a description of the 
                additional information required to make the 
                coverage determination.
                  (B) Deadline to respond.--Such notice shall 
                be provided within the same time period as the 
                time period applicable to the contractor 
                providing notice of initial determinations on a 
                claim for benefits under subsection (a)(2)(A).
                  (C) Informing beneficiary in case of 
                physician request.--In the case of a request in 
                which an eligible requester is not the 
                individual described in paragraph (1)(B)(ii), 
                the process shall provide that the individual 
                to whom the item or service is proposed to be 
                furnished shall be informed of any 
                determination described in clause (ii) 
                (relating to a determination of non-coverage) 
                and the right (referred to in paragraph (6)(B)) 
                to obtain the item or service and have a claim 
                submitted for the item or service.
          (5) Effect of determinations.--
                  (A) Binding nature of positive 
                determination.--If the contractor makes the 
                determination described in paragraph (4)(A)(i), 
                such determination shall be binding on the 
                contractor in the absence of fraud or evidence 
                of misrepresentation of facts presented to the 
                contractor.
                  (B) Notice and right to redetermination in 
                case of a denial.--
                          (i) In general.--If the contractor 
                        makes the determination described in 
                        paragraph (4)(A)(ii)--
                                  (I) the eligible requester 
                                has the right to a 
                                redetermination by the 
                                contractor on the determination 
                                that the item or service is not 
                                so covered; and
                                  (II) the contractor shall 
                                include in notice under 
                                paragraph (4)(A) a brief 
                                explanation of the basis for 
                                the determination, including on 
                                what national or local coverage 
                                or noncoverage determination 
                                (if any) the determination is 
                                based, and the right to such a 
                                redetermination.
                          (ii) Deadline for redeterminations.--
                        The contractor shall complete and 
                        provide notice of such redetermination 
                        within the same time period as the time 
                        period applicable to the contractor 
                        providing notice of redeterminations 
                        relating to a claim for benefits under 
                        subsection (a)(3)(C)(ii).
          (6) Limitation on further review.--
                  (A) In general.--Contractor determinations 
                described in paragraph (4)(A)(ii) or 
                (4)(A)(iii) (and redeterminations made under 
                paragraph (5)(B)), relating to pre-service 
                claims are not subject to further 
                administrative appeal or judicial review under 
                this section or otherwise.
                  (B) Decision not to seek prior determination 
                or negative determination does not impact right 
                to obtain services, seek reimbursement, or 
                appeal rights.--Nothing in this subsection 
                shall be construed as affecting the right of an 
                individual who--
                          (i) decides not to seek a prior 
                        determination under this subsection 
                        with respect to items or services; or
                          (ii) seeks such a determination and 
                        has received a determination described 
                        in paragraph (4)(A)(ii),
                from receiving (and submitting a claim for) 
                such items services and from obtaining 
                administrative or judicial review respecting 
                such claim under the other applicable 
                provisions of this section. Failure to seek a 
                prior determination under this subsection with 
                respect to items and services shall not be 
                taken into account in such administrative or 
                judicial review.
                  (C) No prior determination after receipt of 
                services.--Once an individual is provided items 
                and services, there shall be no prior 
                determination under this subsection with 
                respect to such items or services.

           *       *       *       *       *       *       *

                              REGULATIONS

  Sec. 1871. (a)(1) * * *

           *       *       *       *       *       *       *

  (3)(A) The Secretary, in consultation with the Director of 
the Office of Management and Budget, shall establish and 
publish a regular timeline for the publication of final 
regulations based on the previous publication of a proposed 
regulation or an interim final regulation.
  (B) Such timeline may vary among different regulations based 
on differences in the complexity of the regulation, the number 
and scope of comments received, and other relevant factors, but 
shall not be longer than 3 years except under exceptional 
circumstances. If the Secretary intends to vary such timeline 
with respect to the publication of a final regulation, the 
Secretary shall cause to have published in the Federal Register 
notice of the different timeline by not later than the timeline 
previously established with respect to such regulation. Such 
notice shall include a brief explanation of the justification 
for such variation.
  (C) In the case of interim final regulations, upon the 
expiration of the regular timeline established under this 
paragraph for the publication of a final regulation after 
opportunity for public comment, the interim final regulation 
shall not continue in effect unless the Secretary publishes (at 
the end of the regular timeline and, if applicable, at the end 
of each succeeding 1-year period) a notice of continuation of 
the regulation that includes an explanation of why the regular 
timeline (and any subsequent 1-year extension) was not complied 
with. If such a notice is published, the regular timeline (or 
such timeline as previously extended under this paragraph) for 
publication of the final regulation shall be treated as having 
been extended for 1 additional year.
  (D) The Secretary shall annually submit to Congress a report 
that describes the instances in which the Secretary failed to 
publish a final regulation within the applicable regular 
timeline under this paragraph and that provides an explanation 
for such failures.
  (4) If the Secretary publishes notice of proposed rulemaking 
relating to a regulation (including an interim final 
regulation), insofar as such final regulation includes a 
provision that is not a logical outgrowth of such notice of 
proposed rulemaking, that provision shall be treated as a 
proposed regulation and shall not take effect until there is 
the further opportunity for public comment and a publication of 
the provision again as a final regulation.

           *       *       *       *       *       *       *

  (d)(1) Subject to paragraph (2), the Secretary shall issue 
proposed or final (including interim final) regulations to 
carry out this title only on one business day of every month.
  (2) The Secretary may issue a proposed or final regulation 
described in paragraph (1) on any other day than the day 
described in paragraph (1) if the Secretary--
          (A) finds that issuance of such regulation on another 
        day is necessary to comply with requirements under law; 
        or
          (B) finds that with respect to that regulation the 
        limitation of issuance on the date described in 
        paragraph (1) is contrary to the public interest.
If the Secretary makes a finding under this paragraph, the 
Secretary shall include such finding, and brief statement of 
the reasons for such finding, in the issuance of such 
regulation.
  (3) The Secretary shall coordinate issuance of new 
regulations described in paragraph (1) relating to a category 
of provider of services or suppliers based on an analysis of 
the collective impact of regulatory changes on that category of 
providers or suppliers.
  (e)(1)(A) A substantive change in regulations, manual 
instructions, interpretative rules, statements of policy, or 
guidelines of general applicability under this title shall not 
be applied (by extrapolation or otherwise) retroactively to 
items and services furnished before the effective date of the 
change, unless the Secretary determines that--
          (i) such retroactive application is necessary to 
        comply with statutory requirements; or
          (ii) failure to apply the change retroactively would 
        be contrary to the public interest.
  (B)(i) Except as provided in clause (ii), a substantive 
change referred to in subparagraph (A) shall not become 
effective before the end of the 30-day period that begins on 
the date that the Secretary has issued or published, as the 
case may be, the substantive change.
  (ii) The Secretary may provide for such a substantive change 
to take effect on a date that precedes the end of the 30-day 
period under clause (i) if the Secretary finds that waiver of 
such 30-day period is necessary to comply with statutory 
requirements or that the application of such 30-day period is 
contrary to the public interest. If the Secretary provides for 
an earlier effective date pursuant to this clause, the 
Secretary shall include in the issuance or publication of the 
substantive change a finding described in the first sentence, 
and a brief statement of the reasons for such finding.
  (C) No action shall be taken against a provider of services 
or supplier with respect to noncompliance with such a 
substantive change for items and services furnished before the 
effective date of such a change.
  (2)(A) If--
          (i) a provider of services or supplier follows the 
        written guidance (which may be transmitted 
        electronically) provided by the Secretary or by a 
        medicare contractor (as defined in section 1889(g)) 
        acting within the scope of the contractor's contract 
        authority, with respect to the furnishing of items or 
        services and submission of a claim for benefits for 
        such items or services with respect to such provider or 
        supplier;
          (ii) the Secretary determines that the provider of 
        services or supplier has accurately presented the 
        circumstances relating to such items, services, and 
        claim to the contractor in writing; and
          (iii) the guidance was in error;
the provider of services or supplier shall not be subject to 
any sanction (including any penalty or requirement for 
repayment of any amount) if the provider of services or 
supplier reasonably relied on such guidance.
  (B) Subparagraph (A) shall not be construed as preventing the 
recoupment or repayment (without any additional penalty) 
relating to an overpayment insofar as the overpayment was 
solely the result of a clerical or technical operational error.
  (f)(1) Not later than 2 years after the date of the enactment 
of this subsection, and every 2 years thereafter, the Secretary 
shall submit to Congress a report with respect to the 
administration of this title and areas of inconsistency or 
conflict among the various provisions under law and regulation.
  (2) In preparing a report under paragraph (1), the Secretary 
shall collect--
          (A) information from individuals entitled to benefits 
        under part A or enrolled under part B, or both, 
        providers of services, and suppliers and from the 
        Medicare Beneficiary Ombudsman and the Medicare 
        Provider Ombudsman with respect to such areas of 
        inconsistency and conflict; and
          (B) information from medicare contractors that tracks 
        the nature of written and telephone inquiries.
  (3) A report under paragraph (1) shall include a description 
of efforts by the Secretary to reduce such inconsistency or 
conflicts, and recommendations for legislation or 
administrative action that the Secretary determines appropriate 
to further reduce such inconsistency or conflicts.

           *       *       *       *       *       *       *

           CONTRACTS WITH MEDICARE ADMINISTRATIVE CONTRACTORS

  Sec. 1874A. (a) Authority.--
          (1) Authority to enter into contracts.--The Secretary 
        may enter into contracts with any eligible entity to 
        serve as a medicare administrative contractor with 
        respect to the performance of any or all of the 
        functions described in paragraph (4) or parts of those 
        functions (or, to the extent provided in a contract, to 
        secure performance thereof by other entities).
          (2) Eligibility of entities.--An entity is eligible 
        to enter into a contract with respect to the 
        performance of a particular function described in 
        paragraph (4) only if--
                  (A) the entity has demonstrated capability to 
                carry out such function;
                  (B) the entity complies with such conflict of 
                interest standards as are generally applicable 
                to Federal acquisition and procurement;
                  (C) the entity has sufficient assets to 
                financially support the performance of such 
                function; and
                  (D) the entity meets such other requirements 
                as the Secretary may impose.
          (3) Medicare administrative contractor defined.--For 
        purposes of this title and title XI--
                  (A) In general.--The term ``medicare 
                administrative contractor'' means an agency, 
                organization, or other person with a contract 
                under this section.
                  (B) Appropriate medicare administrative 
                contractor.--With respect to the performance of 
                a particular function in relation to an 
                individual entitled to benefits under part A or 
                enrolled under part B, or both, a specific 
                provider of services or supplier (or class of 
                such providers of services or suppliers), the 
                ``appropriate'' medicare administrative 
                contractor is the medicare administrative 
                contractor that has a contract under this 
                section with respect to the performance of that 
                function in relation to that individual, 
                provider of services or supplier or class of 
                provider of services or supplier.
          (4) Functions described.--The functions referred to 
        in paragraphs (1) and (2) are payment functions, 
        provider services functions, and functions relating to 
        services furnished to individuals entitled to benefits 
        under part A or enrolled under part B, or both, as 
        follows:
                  (A) Determination of payment amounts.--
                Determining (subject to the provisions of 
                section 1878 and to such review by the 
                Secretary as may be provided for by the 
                contracts) the amount of the payments required 
                pursuant to this title to be made to providers 
                of services, suppliers and individuals.
                  (B) Making payments.--Making payments 
                described in subparagraph (A) (including 
                receipt, disbursement, and accounting for funds 
                in making such payments).
                  (C) Beneficiary education and assistance.--
                Providing education and outreach to individuals 
                entitled to benefits under part A or enrolled 
                under part B, or both, and providing assistance 
                to those individuals with specific issues, 
                concerns or problems.
                  (D) Provider consultative services.--
                Providing consultative services to 
                institutions, agencies, and other persons to 
                enable them to establish and maintain fiscal 
                records necessary for purposes of this title 
                and otherwise to qualify as providers of 
                services or suppliers.
                  (E) Communication with providers.--
                Communicating to providers of services and 
                suppliers any information or instructions 
                furnished to the medicare administrative 
                contractor by the Secretary, and facilitating 
                communication between such providers and 
                suppliers and the Secretary.
                  (F) Provider education and technical 
                assistance.--Performing the functions relating 
                to provider education, training, and technical 
                assistance.
                  (G) Additional functions.--Performing such 
                other functions as are necessary to carry out 
                the purposes of this title.
          (5) Relationship to mip contracts.--
                  (A) Nonduplication of duties.--In entering 
                into contracts under this section, the 
                Secretary shall assure that functions of 
                medicare administrative contractors in carrying 
                out activities under parts A and B do not 
                duplicate activities carried out under the 
                Medicare Integrity Program under section 1893. 
                The previous sentence shall not apply with 
                respect to the activity described in section 
                1893(b)(5) (relating to prior authorization of 
                certain items of durable medical equipment 
                under section 1834(a)(15)).
                  (B) Construction.--An entity shall not be 
                treated as a medicare administrative contractor 
                merely by reason of having entered into a 
                contract with the Secretary under section 1893.
          (6) Application of federal acquisition regulation.--
        Except to the extent inconsistent with a specific 
        requirement of this title, the Federal Acquisition 
        Regulation applies to contracts under this title.
  (b) Contracting Requirements.--
          (1) Use of competitive procedures.--
                  (A) In general.--Except as provided in laws 
                with general applicability to Federal 
                acquisition and procurement or in subparagraph 
                (B), the Secretary shall use competitive 
                procedures when entering into contracts with 
                medicare administrative contractors under this 
                section, taking into account performance 
                quality as well as price and other factors.
                  (B) Renewal of contracts.--The Secretary may 
                renew a contract with a medicare administrative 
                contractor under this section from term to term 
                without regard to section 5 of title 41, United 
                States Code, or any other provision of law 
                requiring competition, if the medicare 
                administrative contractor has met or exceeded 
                the performance requirements applicable with 
                respect to the contract and contractor, except 
                that the Secretary shall provide for the 
                application of competitive procedures under 
                such a contract not less frequently than once 
                every five years.
                  (C) Transfer of functions.--The Secretary may 
                transfer functions among medicare 
                administrative contractors consistent with the 
                provisions of this paragraph. The Secretary 
                shall ensure that performance quality is 
                considered in such transfers. The Secretary 
                shall provide public notice (whether in the 
                Federal Register or otherwise) of any such 
                transfer (including a description of the 
                functions so transferred, a description of the 
                providers of services and suppliers affected by 
                such transfer, and contact information for the 
                contractors involved).
                  (D) Incentives for quality.--The Secretary 
                shall provide incentives for medicare 
                administrative contractors to provide quality 
                service and to promote efficiency.
          (2) Compliance with requirements.--No contract under 
        this section shall be entered into with any medicare 
        administrative contractor unless the Secretary finds 
        that such medicare administrative contractor will 
        perform its obligations under the contract efficiently 
        and effectively and will meet such requirements as to 
        financial responsibility, legal authority, quality of 
        services provided, and other matters as the Secretary 
        finds pertinent.
          (3) Performance requirements.--
                  (A) Development of specific performance 
                requirements.--In developing contract 
                performance requirements, the Secretary shall 
                develop performance requirements applicable to 
                functions described in subsection (a)(4).
                  (B) Consultation.-- In developing such 
                requirements, the Secretary may consult with 
                providers of services and suppliers, 
                organizations representing individuals entitled 
                to benefits under part A or enrolled under part 
                B, or both, and organizations and agencies 
                performing functions necessary to carry out the 
                purposes of this section with respect to such 
                performance requirements.
                  (C) Inclusion in contracts.--All contractor 
                performance requirements shall be set forth in 
                the contract between the Secretary and the 
                appropriate medicare administrative contractor. 
                Such performance requirements--
                          (i) shall reflect the performance 
                        requirements developed under 
                        subparagraph (A), but may include 
                        additional performance requirements;
                          (ii) shall be used for evaluating 
                        contractor performance under the 
                        contract; and
                          (iii) shall be consistent with the 
                        written statement of work provided 
                        under the contract.
          (4) Information requirements.--The Secretary shall 
        not enter into a contract with a medicare 
        administrative contractor under this section unless the 
        contractor agrees--
                  (A) to furnish to the Secretary such timely 
                information and reports as the Secretary may 
                find necessary in performing his functions 
                under this title; and
                  (B) to maintain such records and afford such 
                access thereto as the Secretary finds necessary 
                to assure the correctness and verification of 
                the information and reports under subparagraph 
                (A) and otherwise to carry out the purposes of 
                this title.
          (5) Surety bond.--A contract with a medicare 
        administrative contractor under this section may 
        require the medicare administrative contractor, and any 
        of its officers or employees certifying payments or 
        disbursing funds pursuant to the contract, or otherwise 
        participating in carrying out the contract, to give 
        surety bond to the United States in such amount as the 
        Secretary may deem appropriate.
  (c) Terms and Conditions.--
          (1) In general.--A contract with any medicare 
        administrative contractor under this section may 
        contain such terms and conditions as the Secretary 
        finds necessary or appropriate and may provide for 
        advances of funds to the medicare administrative 
        contractor for the making of payments by it under 
        subsection (a)(4)(B).
          (2) Prohibition on mandates for certain data 
        collection.--The Secretary may not require, as a 
        condition of entering into, or renewing, a contract 
        under this section, that the medicare administrative 
        contractor match data obtained other than in its 
        activities under this title with data used in the 
        administration of this title for purposes of 
        identifying situations in which the provisions of 
        section 1862(b) may apply.
  (d) Limitation on Liability of Medicare Administrative 
Contractors and Certain Officers.--
          (1) Certifying officer.--No individual designated 
        pursuant to a contract under this section as a 
        certifying officer shall, in the absence of gross 
        negligence or intent to defraud the United States, be 
        liable with respect to any payments certified by the 
        individual under this section.
          (2) Disbursing officer.--No disbursing officer shall, 
        in the absence of gross negligence or intent to defraud 
        the United States, be liable with respect to any 
        payment by such officer under this section if it was 
        based upon an authorization (which meets the applicable 
        requirements for such internal controls established by 
        the Comptroller General) of a certifying officer 
        designated as provided in paragraph (1) of this 
        subsection.
          (3) Liability of medicare administrative 
        contractor.--No medicare administrative contractor 
        shall be liable to the United States for a payment by a 
        certifying or disbursing officer unless in connection 
        with such payment or in the supervision of or selection 
        of such officer the medicare administrative contractor 
        acted with gross negligence.
          (4) Indemnification by secretary.--
                  (A) In general.--Subject to subparagraphs (B) 
                and (D), in the case of a medicare 
                administrative contractor (or a person who is a 
                director, officer, or employee of such a 
                contractor or who is engaged by the contractor 
                to participate directly in the claims 
                administration process) who is made a party to 
                any judicial or administrative proceeding 
                arising from or relating directly to the claims 
                administration process under this title, the 
                Secretary may, to the extent the Secretary 
                determines to be appropriate and as specified 
                in the contract with the contractor, indemnify 
                the contractor and such persons.
                  (B) Conditions.--The Secretary may not 
                provide indemnification under subparagraph (A) 
                insofar as the liability for such costs arises 
                directly from conduct that is determined by the 
                judicial proceeding or by the Secretary to be 
                criminal in nature, fraudulent, or grossly 
                negligent. If indemnification is provided by 
                the Secretary with respect to a contractor 
                before a determination that such costs arose 
                directly from such conduct, the contractor 
                shall reimburse the Secretary for costs of 
                indemnification.
                  (C) Scope of indemnification.--
                Indemnification by the Secretary under 
                subparagraph (A) may include payment of 
                judgments, settlements (subject to subparagraph 
                (D)), awards, and costs (including reasonable 
                legal expenses).
                  (D) Written approval for settlements.--A 
                contractor or other person described in 
                subparagraph (A) may not propose to negotiate a 
                settlement or compromise of a proceeding 
                described in such subparagraph without the 
                prior written approval of the Secretary to 
                negotiate such settlement or compromise. Any 
                indemnification under subparagraph (A) with 
                respect to amounts paid under a settlement or 
                compromise of a proceeding described in such 
                subparagraph are conditioned upon prior written 
                approval by the Secretary of the final 
                settlement or compromise.
                  (E) Construction.--Nothing in this paragraph 
                shall be construed--
                          (i) to change any common law immunity 
                        that may be available to a medicare 
                        administrative contractor or person 
                        described in subparagraph (A); or
                          (ii) to permit the payment of costs 
                        not otherwise allowable, reasonable, or 
                        allocable under the Federal Acquisition 
                        Regulations.
  (e) Requirements for Information Security.--
          (1) Development of information security program.--A 
        medicare administrative contractor that performs the 
        functions referred to in subparagraphs (A) and (B) of 
        subsection (a)(4) (relating to determining and making 
        payments) shall implement a contractor-wide information 
        security program to provide information security for 
        the operation and assets of the contractor with respect 
        to such functions under this title. An information 
        security program under this paragraph shall meet the 
        requirements for information security programs imposed 
        on Federal agencies under section 3534(b)(2) of title 
        44, United States Code (other than requirements under 
        subparagraphs (B)(ii), (F)(iii), and (F)(iv) of such 
        section).
          (2) Independent audits.--
                  (A) Performance of annual evaluations.--Each 
                year a medicare administrative contractor that 
                performs the functions referred to in 
                subparagraphs (A) and (B) of subsection (a)(4) 
                (relating to determining and making payments) 
                shall undergo an evaluation of the information 
                security of the contractor with respect to such 
                functions under this title. The evaluation 
                shall--
                          (i) be performed by an entity that 
                        meets such requirements for 
                        independence as the Inspector General 
                        of the Department of Health and Human 
                        Services may establish; and
                          (ii) test the effectiveness of 
                        information security control techniques 
                        for an appropriate subset of the 
                        contractor's information systems (as 
                        defined in section 3502(8) of title 44, 
                        United States Code) relating to such 
                        functions under this title and an 
                        assessment of compliance with the 
                        requirements of this subsection and 
                        related information security policies, 
                        procedures, standards and guidelines.
                  (B) Deadline for initial evaluation.--
                          (i) New contractors.--In the case of 
                        a medicare administrative contractor 
                        covered by this subsection that has not 
                        previously performed the functions 
                        referred to in subparagraphs (A) and 
                        (B) of subsection (a)(4) (relating to 
                        determining and making payments) as a 
                        fiscal intermediary or carrier under 
                        section 1816 or 1842, the first 
                        independent evaluation conducted 
                        pursuant subparagraph (A) shall be 
                        completed prior to commencing such 
                        functions.
                          (ii) Other contractors.--In the case 
                        of a medicare administrative contractor 
                        covered by this subsection that is not 
                        described in clause (i), the first 
                        independent evaluation conducted 
                        pursuant subparagraph (A) shall be 
                        completed within 1 year after the date 
                        the contractor commences functions 
                        referred to in clause (i) under this 
                        section.
                  (C) Reports on evaluations.--
                          (i) To the inspector general.--The 
                        results of independent evaluations 
                        under subparagraph (A) shall be 
                        submitted promptly to the Inspector 
                        General of the Department of Health and 
                        Human Services.
                          (ii) To congress.--The Inspector 
                        General of Department of Health and 
                        Human Services shall submit to Congress 
                        annual reports on the results of such 
                        evaluations.
  (f) Incentives To Improve Contractor Performance in Provider 
Education and Outreach.--In order to give medicare 
administrative contractors an incentive to implement effective 
education and outreach programs for providers of services and 
suppliers, the Secretary shall develop and implement a 
methodology to measure the specific claims payment error rates 
of such contractors in the processing or reviewing of medicare 
claims.
  (g) Communications with Beneficiaries, Providers of Services 
and Suppliers.--
          (1) Communication strategy.--The Secretary shall 
        develop a strategy for communications with individuals 
        entitled to benefits under part A or enrolled under 
        part B, or both, and with providers of services and 
        suppliers under this title.
          (2) Response to written inquiries.--Each medicare 
        administrative contractor shall, for those providers of 
        services and suppliers which submit claims to the 
        contractor for claims processing and for those 
        individuals entitled to benefits under part A or 
        enrolled under part B, or both, with respect to whom 
        claims are submitted for claims processing, provide 
        general written responses (which may be through 
        electronic transmission) in a clear, concise, and 
        accurate manner to inquiries of providers of services, 
        suppliers and individuals entitled to benefits under 
        part A or enrolled under part B, or both, concerning 
        the programs under this title within 45 business days 
        of the date of receipt of such inquiries.
          (3) Response to toll-free lines.--The Secretary shall 
        ensure that each medicare administrative contractor 
        shall provide, for those providers of services and 
        suppliers which submit claims to the contractor for 
        claims processing and for those individuals entitled to 
        benefits under part A or enrolled under part B, or 
        both, with respect to whom claims are submitted for 
        claims processing, a toll-free telephone number at 
        which such individuals, providers of services and 
        suppliers may obtain information regarding billing, 
        coding, claims, coverage, and other appropriate 
        information under this title.
          (4) Monitoring of contractor responses.--
                  (A) In general.--Each medicare administrative 
                contractor shall, consistent with standards 
                developed by the Secretary under subparagraph 
                (B)--
                          (i) maintain a system for identifying 
                        who provides the information referred 
                        to in paragraphs (2) and (3); and
                          (ii) monitor the accuracy, 
                        consistency, and timeliness of the 
                        information so provided.
                  (B) Development of standards.--
                          (i) In general.--The Secretary shall 
                        establish and make public standards to 
                        monitor the accuracy, consistency, and 
                        timeliness of the information provided 
                        in response to written and telephone 
                        inquiries under this subsection. Such 
                        standards shall be consistent with the 
                        performance requirements established 
                        under subsection (b)(3).
                          (ii) Evaluation.--In conducting 
                        evaluations of individual medicare 
                        administrative contractors, the 
                        Secretary shall take into account the 
                        results of the monitoring conducted 
                        under subparagraph (A) taking into 
                        account as performance requirements the 
                        standards established under clause (i). 
                        The Secretary shall, in consultation 
                        with organizations representing 
                        providers of services, suppliers, and 
                        individuals entitled to benefits under 
                        part A or enrolled under part B, or 
                        both, establish standards relating to 
                        the accuracy, consistency, and 
                        timeliness of the information so 
                        provided.
                  (C) Direct monitoring.--Nothing in this 
                paragraph shall be construed as preventing the 
                Secretary from directly monitoring the 
                accuracy, consistency, and timeliness of the 
                information so provided.
  (h) Conduct of Prepayment Review.--
          (1) Conduct of random prepayment review.--
                  (A) In general.--A medicare administrative 
                contractor may conduct random prepayment review 
                only to develop a contractor-wide or program-
                wide claims payment error rates or under such 
                additional circumstances as may be provided 
                under regulations, developed in consultation 
                with providers of services and suppliers.
                  (B) Use of standard protocols when conducting 
                prepayment reviews.--When a medicare 
                administrative contractor conducts a random 
                prepayment review, the contractor may conduct 
                such review only in accordance with a standard 
                protocol for random prepayment audits developed 
                by the Secretary.
                  (C) Construction.--Nothing in this paragraph 
                shall be construed as preventing the denial of 
                payments for claims actually reviewed under a 
                random prepayment review.
                  (D) Random prepayment review.--For purposes 
                of this subsection, the term ``random 
                prepayment review'' means a demand for the 
                production of records or documentation absent 
                cause with respect to a claim.
          (2) Limitations on non-random prepayment review.--
                  (A) Limitations on initiation of non-random 
                prepayment review.--A medicare administrative 
                contractor may not initiate non-random 
                prepayment review of a provider of services or 
                supplier based on the initial identification by 
                that provider of services or supplier of an 
                improper billing practice unless there is a 
                likelihood of sustained or high level of 
                payment error (as defined in subsection 
                (i)(3)(A)).
                  (B) Termination of non-random prepayment 
                review.--The Secretary shall issue regulations 
                relating to the termination, including 
                termination dates, of non-random prepayment 
                review. Such regulations may vary such a 
                termination date based upon the differences in 
                the circumstances triggering prepayment review.

           *       *       *       *       *       *       *

 PAYMENTS TO HEALTH MAINTENANCE ORGANIZATIONS AND COMPETITIVE MEDICAL 
                                 PLANS

  Sec. 1876. (a) * * *

           *       *       *       *       *       *       *

  (h)(1) * * *

           *       *       *       *       *       *       *

  (5)(A) * * *

           *       *       *       *       *       *       *

  (C)(i) The Secretary may not extend or renew a reasonable 
cost reimbursement contract under this subsection for any 
period beyond December 31, 2004, except (subject to clause 
(ii)) in the case of a contract for an area which is not 
covered in the service area of 1 or more coordinated care 
Medicare+Choice plans under part C.
  (ii) In the case in which--
          (I) a reasonable cost reimbursement contract includes 
        an area in its service area as of a date that is after 
        December 31, 2003;
          (II) such area is no longer included in such service 
        area after such date by reason of the operation of 
        clause (i) because of the inclusion of such area within 
        the service area of a Medicare+Choice plan; and
          (III) all Medicare+Choice plans subsequently 
        terminate coverage in such area;
such reasonable cost reimbursement contract may be extended and 
renewed to cover such area (so long as it is not included in 
the service area of any Medicare+Choice plan).

           *       *       *       *       *       *       *

         MEDICARE COVERAGE FOR END STAGE RENAL DISEASE PATIENTS

  Sec. 1881. (a) * * *
  (b)(1) * * *

           *       *       *       *       *       *       *

  (7) The Secretary shall provide by regulation for a method 
(or methods) for determining prospectively the amounts of 
payments to be made for dialysis services furnished by 
providers of services and renal dialysis facilities to 
individuals in a facility and to such individuals at home. Such 
method (or methods) shall provide for the prospective 
determination of a rate (or rates) for each mode of care based 
on a single composite weighted formula (which takes into 
account the mix of patients who receive dialysis services at a 
facility or at home and the relative costs of providing such 
services in such settings) for hospital-based facilities and 
such a single composite weighted formula for other renal 
dialysis facilities, or based on such other method or 
combination of methods which differentiate between hospital-
based facilities and other renal dialysis facilities and which 
the Secretary determines, after detailed analysis, will more 
effectively encourage the more efficient delivery of dialysis 
services and will provide greater incentives for increased use 
of home dialysis than through the single composite weighted 
formulas. The amount of a payment made under any method other 
than a method based on a single composite weighted formula may 
not exceed the amount (or, in the case of continuous cycling 
peritoneal dialysis, 130 percent of the amount) of the median 
payment that would have been made under the formula for 
hospital-based facilities. [The Secretary] Subject to section 
422(a)(2) of the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000, the Secretary shall 
provide for such exceptions to such methods as may be warranted 
by unusual circumstances (including the special circumstances 
of sole facilities located in isolated, rural areas and of 
pediatric facilities). Each application for such an exception 
shall be deemed to be approved unless the Secretary disapproves 
it by not later than 60 working days after the date the 
application is filed. The Secretary may provide that such 
method will serve in lieu of any target reimbursement rate that 
would otherwise be established under paragraph (6). The 
Secretary shall reduce the amount of each composite rate 
payment under this paragraph for each treatment by 50 cents 
(subject to such adjustments as may be required to reflect 
modes of dialysis other than hemodialysis) and provide for 
payment of such amount to the organizations (designated under 
subsection (c)(1)(A)) for such organizations' necessary and 
proper administrative costs incurred in carrying out the 
responsibilities described in subsection (c)(2). The Secretary 
shall provide that amounts paid under the previous sentence 
shall be distributed to the organizations described in 
subsection (c)(1)(A) to ensure equitable treatment of all such 
network organizations. The Secretary in distributing any such 
payments to network organizations shall take into account--
          (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 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.

           *       *       *       *       *       *       *

          PAYMENT TO HOSPITALS FOR INPATIENT HOSPITAL SERVICES

  Sec. 1886. (a) * * *
  (b)(1) * * *

           *       *       *       *       *       *       *

  (3)(A) * * *
  (B)(i) For purposes of subsection (d) and subsection (j) for 
discharges occurring during a fiscal year, the ``applicable 
percentage increase'' shall be--
          (I) * * *

           *       *       *       *       *       *       *

          [(XVIII) for fiscal year 2003, the market basket 
        percentage increase minus 0.55 percentage points for 
        hospitals in all areas, and]
          (XVIII) for fiscal year 2003, the market basket 
        percentage increase for sole community hospitals and 
        such increase minus 0.25 percentage points for other 
        hospitals, and

           *       *       *       *       *       *       *

  (d)(1) * * *

           *       *       *       *       *       *       *

  (3) The Secretary shall determine a national adjusted DRG 
prospective payment rate, for each inpatient hospital discharge 
in a fiscal year after fiscal year 1984 involving inpatient 
hospital services of a subsection (d) hospital in the United 
States, and shall determine a regional adjusted DRG prospective 
payment rate for such discharges in each region for which 
payment may be made under part A of this title. Each such rate 
shall be determined for hospitals located in large urban, other 
urban, or rural areas within the United States and within each 
such region, respectively, as follows:
          (A) Updating previous standardized amounts.--(i) * * 
        *

           *       *       *       *       *       *       *

          [(iv) For discharges] (iv)(I) Subject to the 
        succeeding provisions of this clause, for discharges 
        occurring in a fiscal year beginning on or after 
        October 1, 1995, the Secretary shall compute an average 
        standardized amount for hospitals located in a large 
        urban area and for hospitals located in other areas 
        within the United States and within each region equal 
        to the respective average standardized amount computed 
        for the previous fiscal year under this subparagraph 
        increased by the applicable percentage increase under 
        subsection (b)(3)(B)(i) with respect to hospitals 
        located in the respective areas for the fiscal year 
        involved.
          (II) For discharges occurring during fiscal year 
        2003, the average standardized amount for hospitals 
        located other than in a large urban area shall be 
        increased by \1/2\ of the difference between the 
        average standardized amount determined under subclause 
        (I) for hospitals located in large urban areas for such 
        fiscal year and such amount determined (without regard 
        to this subclause) for other hospitals for such fiscal 
        year.
          (III) For discharges occurring in a fiscal year 
        beginning with fiscal year 2004, the Secretary shall 
        compute an average standardized amount for hospitals 
        located in any area within the United States and within 
        each region equal to the average standardized amount 
        computed for the previous fiscal year under this 
        subparagraph for hospitals located in a large urban 
        area (or, beginning with fiscal year 2005, for 
        hospitals located in any area) increased by the 
        applicable percentage increase under subsection 
        (b)(3)(B)(i).

           *       *       *       *       *       *       *

  (5)(A) * * *
  (B) The Secretary shall provide for an additional payment 
amount for subsection (d) hospitals with indirect costs of 
medical education, in an amount computed in the same manner as 
the adjustment for such costs under regulations (in effect as 
of January 1, 1983) under subsection (a)(2), except as follows:
          (i) * * *
          (ii) For purposes of clause (i)(II), the indirect 
        teaching adjustment factor is equal to c  
        (((1+r) to the nth power) - 1), where ``r'' is the 
        ratio of the hospital's full-time equivalent interns 
        and residents to beds and ``n'' equals .405. For 
        discharges occurring--
                  (I) * * *

           *       *       *       *       *       *       *

                  (VI) during fiscal year 2002, ``c'' is equal 
                to 1.6; [and]
                  (VII) during fiscal year 2003, ``c'' is equal 
                to 1.47;
                  (VIII) during fiscal year 2004, ``c'' is 
                equal to 1.45; and
                  [(VII)] (IX) on or after October 1, [2002] 
                2004, ``c'' is equal to 1.35.

           *       *       *       *       *       *       *

          (v) In determining the adjustment with respect to a 
        hospital for discharges occurring on or after October 
        1, 1997, the total number of full-time equivalent 
        interns and residents in the fields of allopathic and 
        osteopathic medicine in either a hospital or 
        nonhospital setting may not exceed the number (or, 130 
        percent of such number in the case of a hospital 
        located in a rural area) of such full-time equivalent 
        interns and residents in the hospital with respect to 
        the hospital's most recent cost reporting period ending 
        on or before December 31, 1996. Rules similar to the 
        rules of subsection (h)(4)(F)(ii) shall apply for 
        purposes of this clause. The provisions of clause (i) 
        of subparagraph (I) of subsection (h)(4) shall apply 
        with respect to the first sentence of this clause in 
        the same manner as it applies with respect to 
        subparagraph (F) of such subsection, but the provisions 
        of clause (ii) of such subparagraph shall not apply.

           *       *       *       *       *       *       *

  (F)(i) * * *

           *       *       *       *       *       *       *

  (iv) The disproportionate share adjustment percentage for a 
cost reporting period for a hospital that is not described in 
clause (i)(II) and that--
          (I) * * *
          (II) is located in an urban area and has less than 
        100 beds, is equal to 5 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (xiii);
          (III) is located in a rural area and is not described 
        in subclause (IV) or (V) or in the second sentence of 
        clause (v), is equal to 4 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (xii);
          (IV) is located in a rural area, is classified as a 
        rural referral center under subparagraph (C), and is 
        classified as a sole community hospital under 
        subparagraph (D), is equal to 10 percent or, if 
        greater, the percent determined in accordance with the 
        applicable formula described in clause (viii) or, 
        subject to clause (xiv) and for discharges occurring on 
        or after April 1, 2001, the greater of the percentages 
        determined under clause (x) or (xi);
          (V) is located in a rural area, is classified as a 
        rural referral center under subparagraph (C), and is 
        not classified as a sole community hospital under 
        subparagraph (D), is equal to the percent determined in 
        accordance with the applicable formula described in 
        clause (viii) or, subject to clause (xiv) and for 
        discharges occurring on or after April 1, 2001, is 
        equal to the percent determined in accordance with 
        clause (xi); or
          (VI) is located in a rural area, is classified as a 
        sole community hospital under subparagraph (D), and is 
        not classified as a rural referral center under 
        subparagraph (C), is 10 percent or, subject to clause 
        (xiv) and for discharges occurring on or after April 1, 
        2001, is equal to the percent determined in accordance 
        with clause (x).

           *       *       *       *       *       *       *

  (viii) [The formula] Subject to clause (xiv), the formula 
used to determine the disproportionate share adjustment 
percentage for a cost reporting period for a hospital described 
in clause (iv)(IV) or (iv)(V) is the percentage determined in 
accordance with the following formula:(P-30)(.6) + 4.0, where 
``P'' is the hospital's disproportionate patient percentage (as 
defined in clause (vi)).

           *       *       *       *       *       *       *

  (x) [For purposes] Subject to clause (xiv), for purposes of 
clause (iv)(VI) (relating to sole community hospitals), in the 
case of a hospital for a cost reporting period with a 
disproportionate patient percentage (as defined in clause (vi)) 
that--
          (I) * * *

           *       *       *       *       *       *       *

  (xi) [For purposes] Subject to clause (xiv), for purposes of 
clause (iv)(V) (relating to rural referral centers), in the 
case of a hospital for a cost reporting period with a 
disproportionate patient percentage (as defined in clause (vi)) 
that--
          (I) * * *

           *       *       *       *       *       *       *

  (xii) [For purposes] Subject to clause (xiv), for purposes of 
clause (iv)(III) (relating to small rural hospitals generally), 
in the case of a hospital for a cost reporting period with a 
disproportionate patient percentage (as defined in clause (vi)) 
that--
          (I) * * *

           *       *       *       *       *       *       *

  (xiii) [For purposes] Subject to clause (xiv), for purposes 
of clause (iv)(II) (relating to urban hospitals with less than 
100 beds), in the case of a hospital for a cost reporting 
period with a disproportionate patient percentage (as defined 
in clause (vi)) that--
          (I) * * *

           *       *       *       *       *       *       *

  (xiv)(I) In the case of discharges in a fiscal year beginning 
on or after October 1, 2002, subject to subclause (II), there 
shall be substituted for the disproportionate share adjustment 
percentage otherwise determined under clause (iv) (other than 
subclause (I)) or under clause (viii), (x), (xi), (xii), or 
(xiii), the old blend proportion (specified under subclause 
(III)) of the disproportionate share adjustment percentage 
otherwise determined under the respective clause and 100 
percent minus such old blend proportion of the disproportionate 
share adjustment percentage determined under clause (vii) 
(relating to large, urban hospitals).
  (II) Under subclause (I), the disproportionate share 
adjustment percentage shall not exceed 10 percent for a 
hospital that is not classified as a rural referral center 
under subparagraph (C).
  (III) For purposes of subclause (I), the old blend proportion 
for fiscal year 2003 is 80 percent, for each subsequent year 
(through 2006) is the old blend proportion under this subclause 
for the previous year minus 20 percentage points, and for each 
year beginning with 2007 is 0 percent.

           *       *       *       *       *       *       *

  (K)(i) Effective for discharges beginning on or after October 
1, 2001, the Secretary shall establish a mechanism to recognize 
the costs of new medical services and technologies under the 
payment system established under this subsection. Such 
mechanism shall be established after notice and opportunity for 
public comment (in the publications required by subsection 
(e)(5) for a fiscal year or otherwise). Such mechanism shall be 
modified to meet the requirements of clause (viii).
  (ii) The mechanism established pursuant to clause (i) shall--
          (I) apply to a new medical service or technology if, 
        based on the estimated costs incurred with respect to 
        discharges involving such service or technology, the 
        DRG prospective payment rate otherwise applicable to 
        such discharges under this subsection is inadequate 
        (applying a threshold specified by the Secretary that 
        is the lesser of 50 percent of the national average 
        standardized amount for operating costs of inpatient 
        hospital services for all hospitals and all diagnosis-
        related groups or one standard deviation for the 
        diagnosis-related group involved);

           *       *       *       *       *       *       *

          (III) subject to paragraph (4)(C)(iii), provide for 
        additional payment to be made under this subsection 
        with respect to discharges involving a new medical 
        service or technology described in subclause (I) that 
        occur during the period described in subclause (II) in 
        an amount that adequately reflects the estimated 
        average cost of such service or technology (based on 
        the marginal rate applied to costs under subparagraph 
        (A)); and

           *       *       *       *       *       *       *

  (vi)(I) For purposes of this subparagraph and subparagraph 
(L), a medical service or technology will be considered a ``new 
medical service or technology'' if the service or technology 
meets criteria established by the Secretary after notice and an 
opportunity for public comment.
  (II) Under such criteria, a service or technology shall not 
be denied treatment as a new service or technology on the basis 
of the period of time in which the service or technology has 
been in use if such period ends before the end of the 2-to-3-
year period that begins on the effective date of implementation 
of a code under ICD-9-CM (or a successor coding methodology) 
that enables the identification of a significant sample of 
specific discharges in which the service or technology has been 
used.
  (III) The Secretary shall by regulation provide for further 
clarification of the criteria applied to determine whether a 
new service or technology represents an advance in medical 
technology that substantially improves the diagnosis or 
treatment of beneficiaries. Under such criteria, in determining 
whether a new service or technology represents an advance in 
medical technology that substantially improves the diagnosis or 
treatment of beneficiaries, the Secretary shall deem a service 
or technology as meeting such requirement if the service or 
technology is a drug or biological that is designated under 
section 506 or 526 of the Federal Food, Drug, and Cosmetic Act, 
approved under section 314.510 or 601.41 of title 21, Code of 
Federal Regulations, or designated for priority review when the 
marketing application for such drug or biological was filed or 
is a medical device for which an exemption has been granted 
under section 520(m) of such Act, or for which priority review 
has been provided under section 515(d)(5) of such Act.
  (vii) Under the mechanism under this subparagraph, the 
Secretary shall provide for the addition of new diagnosis and 
procedure codes in April 1 of each year, but the addition of 
such codes shall not require the Secretary to adjust the 
payment (or diagnosis-related group classification) under this 
subsection until the fiscal year that begins after such date.
  (viii) The mechanism established pursuant to clause (i) shall 
be adjusted to provide, before publication of a proposed rule, 
for public input regarding whether a new service or technology 
not described in the second sentence of clause (vi)(III) 
represents an advance in medical technology that substantially 
improves the diagnosis or treatment of beneficiaries as 
follows:
          (I) The Secretary shall make public and periodically 
        update a list of all the services and technologies for 
        which an application for additional payment under this 
        subparagraph is pending.
          (II) The Secretary shall accept comments, 
        recommendations, and data from the public regarding 
        whether the service or technology represents a 
        substantial improvement.
          (III) The Secretary shall provide for a meeting at 
        which organizations representing hospitals, physicians, 
        medicare beneficiaries, manufacturers, and any other 
        interested party may present comments, recommendations, 
        and data to the clinical staff of the Centers for 
        Medicare & Medicaid Services before publication of a 
        notice of proposed rulemaking regarding whether service 
        or technology represents a substantial improvement.
  (ix) Before establishing any add-on payment under this 
subparagraph with respect to a new technology, the Secretary 
shall seek to identify one or more diagnosis-related groups 
associated with such technology, based on similar clinical or 
anatomical characteristics and the cost of the technology. 
Within such groups the Secretary shall assign an eligible new 
technology into a diagnosis-related group where the average 
costs of care most closely approximate the costs of care of 
using the new technology. In such case, no add-on payment under 
this subparagraph shall be made with respect to such new 
technology and this clause shall not affect the application of 
paragraph (4)(C)(iii).

           *       *       *       *       *       *       *

  (9)(A) Notwithstanding section 1814(b) but subject to the 
provisions of section 1813, the amount of the payment with 
respect to the operating costs of inpatient hospital services 
of a subsection (d) Puerto Rico hospital for inpatient hospital 
discharges is equal to the sum of--
          (i) [for discharges beginning on or after October 1, 
        1997, 50 percent (and for discharges between October 1, 
        1987, and September 30, 1997, 75 percent)] the 
        applicable Puerto Rico percentage (specified in 
        subparagraph (E)) of the Puerto Rico adjusted DRG 
        prospective payment rate (determined under subparagraph 
        (B) or (C)) for such discharges, and
          (ii) [for discharges beginning in a fiscal year 
        beginning on or after October 1, 1997, 50 percent (and 
        for discharges between October 1, 1987, and September 
        30, 1997, 25 percent)] the applicable Federal 
        percentage (specified in subparagraph (E)) of the 
        discharge-weighted average of--
                  (I) * * *

           *       *       *       *       *       *       *

  (E) For purposes of subparagraph (A), for discharges 
occurring--
          (i) between October 1, 1987, and September 30, 1997, 
        the applicable Puerto Rico percentage is 75 percent and 
        the applicable Federal percentage is 25 percent;
          (ii) on or after October 1, 1997, and before October 
        1, 2003, the applicable Puerto Rico percentage is 50 
        percent and the applicable Federal percentage is 50 
        percent;
          (iii) during fiscal year 2004, the applicable Puerto 
        Rico percentage is 45 percent and the applicable 
        Federal percentage is 55 percent;
          (iv) during fiscal year 2005, the applicable Puerto 
        Rico percentage is 40 percent and the applicable 
        Federal percentage is 60 percent;
          (v) during fiscal year 2006, the applicable Puerto 
        Rico percentage is 35 percent and the applicable 
        Federal percentage is 65 percent;
          (vi) during fiscal year 2007, the applicable Puerto 
        Rico percentage is 30 percent and the applicable 
        Federal percentage is 70 percent; and
          (vii) on or after October 1, 2007, the applicable 
        Puerto Rico percentage is 25 percent and the applicable 
        Federal percentage is 75 percent.

           *       *       *       *       *       *       *

  (h) Payments for Direct Graduate Medical Education Costs.--
          (1) * * *
          (2) Determination of hospital-specific approved fte 
        resident amounts.--The Secretary shall determine, for 
        each hospital with an approved medical residency 
        training program, an approved FTE resident amount for 
        each cost reporting period beginning on or after July 
        1, 1985, as follows:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Amount for subsequent cost reporting 
                periods.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iv) Adjustment in rate of increase 
                        for hospitals with fte approved amount 
                        above 140 percent of locality adjusted 
                        national average per resident amount.--
                                  (I) Freeze for fiscal years 
                                2001 [and 2002] through 2012.--
                                For a cost reporting period 
                                beginning [during fiscal year 
                                2001 or fiscal year 2002] 
                                during the period beginning 
                                with fiscal year 2001 and 
                                ending with fiscal year 2012, 
                                if the approved FTE resident 
                                amount for a hospital for the 
                                preceding cost reporting period 
                                exceeds 140 percent of the 
                                locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital and period, 
                                [subject to subclause (III),] 
                                the approved FTE resident 
                                amount for the period involved 
                                shall be the same as the 
                                approved FTE resident amount 
                                for the hospital for such 
                                preceding cost reporting 
                                period.
                                  [(II) 2 percent decrease in 
                                update for fiscal years 2003, 
                                2004, and 2005.--For a cost 
                                reporting period beginning 
                                during fiscal year 2003, fiscal 
                                year 2004, or fiscal year 2005, 
                                if the approved FTE resident 
                                amount for a hospital for the 
                                preceding cost reporting period 
                                exceeds 140 percent of the 
                                locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital and preceding 
                                period, the approved FTE 
                                resident amount for the period 
                                involved shall be updated in 
                                the manner described in 
                                subparagraph (D)(i) except 
                                that, subject to subclause 
                                (III), the consumer price index 
                                applied for a 12-month period 
                                shall be reduced (but not below 
                                zero) by 2 percentage points.]
                                  [(III)] (II) No adjustment 
                                below 140 percent.--In no case 
                                shall subclause (I) [or (II)] 
                                reduce an approved FTE resident 
                                amount for a hospital for a 
                                cost reporting period below 140 
                                percent of the locality 
                                adjusted national average per 
                                resident amount computed under 
                                subparagraph (E) for such 
                                hospital and period.

           *       *       *       *       *       *       *

          (4) Determination of full-time-equivalent 
        residents.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) Limitation on number of residents in 
                allopathic and osteopathic medicine.--
                          (i) In general.--Such rules shall 
                        provide that for purposes of a cost 
                        reporting period beginning on or after 
                        October 1, 1997, subject to 
                        subparagraph (I), the total number of 
                        full-time equivalent residents before 
                        application of weighting factors (as 
                        determined under this paragraph) with 
                        respect to a hospital's approved 
                        medical residency training program in 
                        the fields of allopathic medicine and 
                        osteopathic medicine may not exceed the 
                        number (or, 130 percent of such number 
                        in the case of a hospital located in a 
                        rural area) of such full-time 
                        equivalent residents for the hospital's 
                        most recent cost reporting period 
                        ending on or before December 31, 1996.

           *       *       *       *       *       *       *

                  (H) Special rules for application of 
                subparagraphs (f) and (g).--
                          (i) New facilities.--The Secretary 
                        shall, consistent with the principles 
                        of subparagraphs (F) and (G), subject 
                        to subparagraph (I), prescribe rules 
                        for the application of such 
                        subparagraphs in the case of medical 
                        residency training programs established 
                        on or after January 1, 1995. In 
                        promulgating such rules for purposes of 
                        subparagraph (F), the Secretary shall 
                        give special consideration to 
                        facilities that meet the needs of 
                        underserved rural areas.

           *       *       *       *       *       *       *

                  (I) Redistribution of unused resident 
                positions.--
                          (i) Reduction in limit based on 
                        unused positions.--
                                  (I) In general.--If a 
                                hospital's resident level (as 
                                defined in clause (iii)(I)) is 
                                less than the otherwise 
                                applicable resident limit (as 
                                defined in clause (iii)(II)) 
                                for each of the reference 
                                periods (as defined in 
                                subclause (II)), effective for 
                                cost reporting periods 
                                beginning on or after January 
                                1, 2003, the otherwise 
                                applicable resident limit shall 
                                be reduced by 75 percent of the 
                                difference between such limit 
                                and the reference resident 
                                level specified in subclause 
                                (III) (or subclause (IV) if 
                                applicable).
                                  (II) Reference periods 
                                defined.--In this clause, the 
                                term ``reference periods'' 
                                means, for a hospital, the 3 
                                most recent consecutive cost 
                                reporting periods of the 
                                hospital for which cost reports 
                                have been settled (or, if not, 
                                submitted) on or before 
                                September 30, 2001.
                                  (III) Reference resident 
                                level.--Subject to subclause 
                                (IV), the reference resident 
                                level specified in this 
                                subclause for a hospital is the 
                                highest resident level for the 
                                hospital during any of the 
                                reference periods.
                                  (IV) Adjustment process.--
                                Upon the timely request of a 
                                hospital, the Secretary may 
                                adjust the reference resident 
                                level for a hospital to be the 
                                resident level for the hospital 
                                for the cost reporting period 
                                that includes July 1, 2002.
                          (ii) Redistribution.--
                                  (I) In general.--The 
                                Secretary is authorized to 
                                increase the otherwise 
                                applicable resident limits for 
                                hospitals by an aggregate 
                                number estimated by the 
                                Secretary that does not exceed 
                                the aggregate reduction in such 
                                limits attributable to clause 
                                (i) (without taking into 
                                account any adjustment under 
                                subclause (IV) of such clause).
                                  (II) Effective date.--No 
                                increase under subclause (I) 
                                shall be permitted or taken 
                                into account for a hospital for 
                                any portion of a cost reporting 
                                period that occurs before July 
                                1, 2003, or before the date of 
                                the hospital's application for 
                                an increase under this clause. 
                                No such increase shall be 
                                permitted for a hospital unless 
                                the hospital has applied to the 
                                Secretary for such increase by 
                                December 31, 2004.
                                  (III) Considerations in 
                                redistribution.--In determining 
                                for which hospitals the 
                                increase in the otherwise 
                                applicable resident limit is 
                                provided under subclause (I), 
                                the Secretary shall take into 
                                account the need for such an 
                                increase by specialty and 
                                location involved, consistent 
                                with subclause (IV).
                                  (IV) Priority for rural and 
                                small urban areas.--In 
                                determining for which hospitals 
                                and residency training programs 
                                an increase in the otherwise 
                                applicable resident limit is 
                                provided under subclause (I), 
                                the Secretary shall first 
                                distribute the increase to 
                                programs of hospitals located 
                                in rural areas or in urban 
                                areas that are not large urban 
                                areas (as defined for purposes 
                                of subsection (d)) on a first-
                                come-first-served basis (as 
                                determined by the Secretary) 
                                based on a demonstration that 
                                the hospital will fill the 
                                positions made available under 
                                this clause and not to exceed 
                                an increase of 25 full-time 
                                equivalent positions with 
                                respect to any hospital.
                                  (V) Application of locality 
                                adjusted national average per 
                                resident amount.--With respect 
                                to additional residency 
                                positions in a hospital 
                                attributable to the increase 
                                provided under this clause, 
                                notwithstanding any other 
                                provision of this subsection, 
                                the approved FTE resident 
                                amount is deemed to be equal to 
                                the locality adjusted national 
                                average per resident amount 
                                computed under subparagraph (E) 
                                for that hospital.
                                  (VI) Construction.--Nothing 
                                in this clause shall be 
                                construed as permitting the 
                                redistribution of reductions in 
                                residency positions 
                                attributable to voluntary 
                                reduction programs under 
                                paragraph (6) or as affecting 
                                the ability of a hospital to 
                                establish new medical residency 
                                training programs under 
                                subparagraph (H).
                          (iii) Resident level and limit 
                        defined.--In this subparagraph:
                                  (I) Resident level.--The term 
                                ``resident level'' means, with 
                                respect to a hospital, the 
                                total number of full-time 
                                equivalent residents, before 
                                the application of weighting 
                                factors (as determined under 
                                this paragraph), in the fields 
                                of allopathic and osteopathic 
                                medicine for the hospital.
                                  (II) Otherwise applicable 
                                resident limit.--The term 
                                ``otherwise applicable resident 
                                limit'' means, with respect to 
                                a hospital, the limit otherwise 
                                applicable under subparagraphs 
                                (F)(i) and (H) on the resident 
                                level for the hospital 
                                determined without regard to 
                                this subparagraph.

    PAYMENT TO SKILLED NURSING FACILITIES FOR ROUTINE SERVICE COSTS

  Sec. 1888. (a) * * *

           *       *       *       *       *       *       *

  (e) Prospective Payment.--
          (1) * * *

           *       *       *       *       *       *       *

          [(12) Payment rule for certain facilities.--
                  [(A) In general.--In the case of a qualified 
                acute skilled nursing facility described in 
                subparagraph (B), the per diem amount of 
                payment shall be determined by applying the 
                non-Federal percentage and Federal percentage 
                specified in paragraph (2)(C)(ii).
                  [(B) Facility described.--For purposes of 
                subparagraph (A), a qualified acute skilled 
                nursing facility is a facility that--
                          [(i) was certified by the Secretary 
                        as a skilled nursing facility eligible 
                        to furnish services under this title 
                        before July 1, 1992;
                          [(ii) is a hospital-based facility; 
                        and
                          [(iii) for the cost reporting period 
                        beginning in fiscal year 1998, the 
                        facility had more than 60 percent of 
                        total patient days comprised of 
                        patients who are described in 
                        subparagraph (C).
                  [(C) Description of patients.--For purposes 
                of subparagraph (B), a patient described in 
                this subparagraph is an individual who--
                          [(i) is entitled to benefits under 
                        part A; and
                          [(ii) is immuno-compromised secondary 
                        to an infectious disease, with specific 
                        diagnoses as specified by the 
                        Secretary.]
          (12) Adjustment for residents with aids.--
                  (A) In general.--Subject to subparagraph (B), 
                in the case of a resident of a skilled nursing 
                facility who is afflicted with acquired immune 
                deficiency syndrome (AIDS), the per diem amount 
                of payment otherwise applicable shall be 
                increased by 128 percent to reflect increased 
                costs associated with such residents.
                  (B) Sunset.--Subparagraph (A) shall not apply 
                on and after such date as the Secretary 
                certifies that there is an appropriate 
                adjustment in the case mix under paragraph 
                (4)(G)(i) to compensate for the increased costs 
                associated with residents described in such 
                subparagraph.

              PROVIDER EDUCATION AND TECHNICAL ASSISTANCE

  Sec. 1889. (a) Coordination of Education Funding.--The 
Secretary shall coordinate the educational activities provided 
through medicare contractors (as defined in subsection (g), 
including under section 1893) in order to maximize the 
effectiveness of Federal education efforts for providers of 
services and suppliers.
  (b) Enhanced Education and Training.--
          (1) Additional resources.--There are authorized to be 
        appropriated to the Secretary (in appropriate part from 
        the Federal Hospital Insurance Trust Fund and the 
        Federal Supplementary Medical Insurance Trust Fund) 
        $25,000,000 for each of fiscal years 2004 and 2005 and 
        such sums as may be necessary for succeeding fiscal 
        years.
          (2) Use.--The funds made available under paragraph 
        (1) shall be used to increase the conduct by medicare 
        contractors of education and training of providers of 
        services and suppliers regarding billing, coding, and 
        other appropriate items and may also be used to improve 
        the accuracy, consistency, and timeliness of contractor 
        responses.
  (c) Tailoring Education and Training Activities for Small 
Providers or Suppliers.--
          (1) In general.--Insofar as a medicare contractor 
        conducts education and training activities, it shall 
        tailor such activities to meet the special needs of 
        small providers of services or suppliers (as defined in 
        paragraph (2)).
          (2) Small provider of services or supplier.--In this 
        subsection, the term ``small provider of services or 
        supplier'' means--
                  (A) a provider of services with fewer than 25 
                full-time-equivalent employees; or
                  (B) a supplier with fewer than 10 full-time-
                equivalent employees.
  (d) Internet Sites; FAQs.--The Secretary, and each medicare 
contractor insofar as it provides services (including claims 
processing) for providers of services or suppliers, shall 
maintain an Internet site which--
          (1) provides answers in an easily accessible format 
        to frequently asked questions, and
          (2) includes other published materials of the 
        contractor,
that relate to providers of services and suppliers under the 
programs under this title (and title XI insofar as it relates 
to such programs).
  (e) Encouragement of Participation in Education Program 
Activities.--A medicare contractor may not use a record of 
attendance at (or failure to attend) educational activities or 
other information gathered during an educational program 
conducted under this section or otherwise by the Secretary to 
select or track providers of services or suppliers for the 
purpose of conducting any type of audit or prepayment review.
  (f) Construction.--Nothing in this section or section 1893(g) 
shall be construed as providing for disclosure by a medicare 
contractor of information that would compromise pending law 
enforcement activities or reveal findings of law enforcement-
related audits.
  (g) Definitions.--For purposes of this section, the term 
``medicare contractor'' includes the following:
          (1) A medicare administrative contractor with a 
        contract under section 1874A, including a fiscal 
        intermediary with a contract under section 1816 and a 
        carrier with a contract under section 1842.
          (2) An eligible entity with a contract under section 
        1893.
Such term does not include, with respect to activities of a 
specific provider of services or supplier an entity that has no 
authority under this title or title IX with respect to such 
activities and such provider of services or supplier.

           *       *       *       *       *       *       *

                       MEDICARE INTEGRITY PROGRAM

  Sec. 1893. (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

              PROSPECTIVE PAYMENT FOR HOME HEALTH SERVICES

  Sec. 1895. (a) * * *
  (b) System of Prospective Payment for Home Health Services.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Payment basis.--
                  [(A) Initial basis.--
                          [(i) In general.--Under such system 
                        the Secretary shall provide for 
                        computation of a standard prospective 
                        payment amount (or amounts) as follows:
                                  [(I) Such amount (or amounts) 
                                shall initially be based on the 
                                most current audited cost 
                                report data available to the 
                                Secretary and shall be computed 
                                in a manner so that the total 
                                amounts payable under the 
                                system for the 12-month period 
                                beginning on the date the 
                                Secretary implements the system 
                                shall be equal to the total 
                                amount that would have been 
                                made if the system had not been 
                                in effect.
                                  [(II) For the 12-month period 
                                beginning after the period 
                                described in subclause (I), 
                                such amount (or amounts) shall 
                                be equal to the amount (or 
                                amounts) determined under 
                                subclause (I), updated under 
                                subparagraph (B).
                                  [(III) For periods beginning 
                                after the period described in 
                                subclause (II), such amount (or 
                                amounts) shall be equal to the 
                                amount (or amounts) that would 
                                have been determined under 
                                subclause (I) that would have 
                                been made for fiscal year 2001 
                                if the system had not been in 
                                effect and if section 
                                1861(v)(1)(L)(ix) had not been 
                                enacted but if the reduction in 
                                limits described in clause (ii) 
                                had been in effect, updated 
                                under subparagraph (B).
                        Each such amount shall be standardized 
                        in a manner that eliminates the effect 
                        of variations in relative case mix and 
                        area wage adjustments among different 
                        home health agencies in a budget 
                        neutral manner consistent with the case 
                        mix and wage level adjustments provided 
                        under paragraph (4)(A). Under the 
                        system, the Secretary may recognize 
                        regional differences or differences 
                        based upon whether or not the services 
                        or agency are in an urbanized area.
                          [(ii) Reduction.--The reduction 
                        described in this clause is a reduction 
                        by 15 percent in the cost limits and 
                        per beneficiary limits described in 
                        section 1861(v)(1)(L), as those limits 
                        are in effect on September 30, 2000.]
                  (A) Initial basis.--Under such system the 
                Secretary shall provide for computation of a 
                standard prospective payment amount (or 
                amounts) as follows:
                          (i) Such amount (or amounts) shall 
                        initially be based on the most current 
                        audited cost report data available to 
                        the Secretary and shall be computed in 
                        a manner so that the total amounts 
                        payable under the system for fiscal 
                        year 2001 shall be equal to the total 
                        amount that would have been made if the 
                        system had not been in effect and if 
                        section 1861(v)(1)(L)(ix) had not been 
                        enacted.
                          (ii) For fiscal year 2002 and for the 
                        first quarter of fiscal year 2003, such 
                        amount (or amounts) shall be equal to 
                        the amount (or amounts) determined 
                        under this paragraph for the previous 
                        fiscal year, updated under subparagraph 
                        (B).
                          (iii) For 2003, such amount (or 
                        amounts) shall be equal to the amount 
                        (or amounts) determined under this 
                        paragraph for fiscal year 2002, updated 
                        under subparagraph (B) for 2003.
                          (iv) For 2004 and each subsequent 
                        year, such amount (or amounts) shall be 
                        equal to the amount (or amounts) 
                        determined under this paragraph for the 
                        previous year, updated under 
                        subparagraph (B).
                Each such amount shall be standardized in a 
                manner that eliminates the effect of variations 
                in relative case mix and area wage adjustments 
                among different home health agencies in a 
                budget neutral manner consistent with the case 
                mix and wage level adjustments provided under 
                paragraph (4)(A). Under the system, the 
                Secretary may recognize regional differences or 
                differences based upon whether or not the 
                services or agency are in an urbanized area.
                  (B) Annual update.--
                          (i) In general.--The standard 
                        prospective payment amount (or amounts) 
                        shall be adjusted for [each fiscal year 
                        (beginning with fiscal year 2002)] 
                        fiscal year 2002 and for each 
                        subsequent year (beginning with 2003) 
                        in a prospective manner specified by 
                        the Secretary by the home health 
                        applicable increase percentage (as 
                        defined in clause (ii)) applicable to 
                        the fiscal year or year involved.
                          (ii) Home health applicable increase 
                        percentage.--For purposes of this 
                        subparagraph, the term ``home health 
                        applicable increase percentage'' means, 
                        with respect to--
                                  (I) [each of fiscal years 
                                2002 and 2003] fiscal year 
                                2002, the home health market 
                                basket percentage increase (as 
                                defined in clause (iii)) minus 
                                1.1 percentage points;
                                  (II) 2003, [the home health 
                                market basket percentage 
                                increase (as defined in clause 
                                (iii)) minus 1.1 percentage 
                                points] 2.0 percentage points; 
                                [or]
                                  (III) 2004, 1.1 percentage 
                                points;
                                  (IV) 2005, 2.7 percentage 
                                points; or
                                  [(II)] (V) any subsequent 
                                [fiscal] year, the home health 
                                market basket percentage 
                                increase.
                          (iii) Home health market basket 
                        percentage increase.--For purposes of 
                        this subsection, the term ``home health 
                        market basket percentage increase'' 
                        means, with respect to a fiscal year or 
                        year, a percentage (estimated by the 
                        Secretary before the beginning of the 
                        fiscal year or year) determined and 
                        applied with respect to the mix of 
                        goods and services included in home 
                        health services in the same manner as 
                        the market basket percentage increase 
                        under section 1886(b)(3)(B)(iii) is 
                        determined and applied to the mix of 
                        goods and services comprising inpatient 
                        hospital services for the fiscal year 
                        or year.
                          (iv) Adjustment for case mix 
                        changes.--Insofar as the Secretary 
                        determines that the adjustments under 
                        paragraph (4)(A)(i) for a previous 
                        fiscal year or year (or estimates that 
                        such adjustments for a future fiscal 
                        year or year) did (or are likely to) 
                        result in a change in aggregate 
                        payments under this subsection during 
                        the fiscal year or year that are a 
                        result of changes in the coding or 
                        classification of different units of 
                        services that do not reflect real 
                        changes in case mix, the Secretary may 
                        adjust the standard prospective payment 
                        amount (or amounts) under paragraph (3) 
                        for subsequent fiscal years or years so 
                        as to eliminate the effect of such 
                        coding or classification changes.

           *       *       *       *       *       *       *

          (5) Outliers.--The Secretary may provide for an 
        addition or adjustment to the payment amount otherwise 
        made in the case of outliers because of unusual 
        variations in the type or amount of medically necessary 
        care. The total amount of the additional payments or 
        payment adjustments made under this paragraph with 
        respect to a fiscal year or year may not exceed [5] 3 
        percent of the total payments projected or estimated to 
        be made based on the prospective payment system under 
        this subsection in that year.

           *       *       *       *       *       *       *

      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).
Notwithstanding paragraph (5), if on January 1, 1965, and on 
the date on which a State submits its plan for approval under 
this title, the State agency which administered or supervised 
the administration of the plan of such State approved under 
title X (or title XVI, insofar as it relates to the blind) was 
different from the State agency which administered or 
supervised the administration of the State plan approved under 
title I (or title XVI, insofar as it relates to the aged), the 
State agency which administered or supervised the 
administration of such plan approved under title X (or title 
XVI, insofar as it relates to the blind) may be designated to 
administer or supervise the administration of the portion of 
the State plan for medical assistance which relates to blind 
individuals and a different State agency may be established or 
designated to administer or supervise the administration of the 
rest of the State plan for medical assistance; and in such case 
the part of the plan which each such agency administers, or the 
administration of which each such agency supervises, shall be 
regarded as a separate plan for purposes of this title (except 
for purposes of paragraph (10)). The provisions of paragraphs 
(9)(A), (31), and (33) and of section 1903(i)(4) shall not 
apply to a religious nonmedical health care institution (as 
defined in section 1861(ss)(1)).
  For purposes of paragraph (10) any individual who, for the 
month of August 1972, was eligible for or receiving aid or 
assistance under a State plan approved under title I, X, XIV, 
or XVI, or part A of title IV and who for such month was 
entitled to monthly insurance benefits under title II shall for 
purposes of this title only be deemed to be eligible for 
financial aid or assistance for any month thereafter if such 
individual would have been eligible for financial aid or 
assistance for such month had the increase in monthly insurance 
benefits under title II resulting from enactment of Public Law 
92-336 not been applicable to such individual.
  The requirement of clause (A) of paragraph (37) with respect 
to a State plan may be waived by the Secretary if he finds that 
the State has exercised good faith in trying to meet such 
requirement. For purposes of this title, any child who meets 
the requirements of paragraph (1) or (2) of section 473(b) 
shall be deemed to be a dependent child as defined in section 
406 and shall be deemed to be a recipient of aid to families 
with dependent children under part A of title IV in the State 
where such child resides. Notwithstanding paragraph (10)(B) or 
any other provision of this subsection, a State plan shall 
provide medical assistance with respect to an alien who is not 
lawfully admitted for permanent residence or otherwise 
permanently residing in the United States under color of law 
only in accordance with section 1903(v).

           *       *       *       *       *       *       *

                           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

           *       *       *       *       *       *       *

   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) * * *

           *       *       *       *       *       *       *

                              ----------                              

     SECTION 4018 OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1987

SEC. 4018. SPECIAL RULES.

  (a) * * *
  (b) Extension of Waivers for Social Health Maintenance 
Organizations.--
          (1) The Secretary of Health and Human Services shall 
        extend without interruption, through [the date that is 
        30 months after the date that the Secretary submits to 
        Congress the report described in section 4014(c) of the 
        Balanced Budget Act of 1997] December 31, 2004, the 
        approval of waivers granted under subsection (a) of 
        section 2355 of the Deficit Reduction Act of 1984 for 
        the demonstration project described in subsection (b) 
        of that section, subject to the terms and conditions 
        (other than duration of the project) established under 
        that section (as amended by paragraph (2) of this 
        subsection).

           *       *       *       *       *       *       *

                              ----------                              

 SECTION 9215 OF THE CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 
                                  1985

SEC. 9215. EXTENSION OF CERTAIN MEDICARE MUNICIPAL HEALTH SERVICES 
                    DEMONSTRATION PROJECTS.

  (a) The Secretary of Health and Human Services shall extend 
through December 31, 1997, approval of four municipal health 
services demonstration projects (located in Baltimore, 
Cincinnati, Milwaukee, and San Jose) authorized under section 
402(a) of the Social Security Amendments of 1967. The Secretary 
shall submit a report to Congress on the waiver program with 
respect to the quality of health care, beneficiary costs, costs 
to the medicaid program and other payers, access to care, 
outcomes, beneficiary satisfaction, utilization differences 
among the different populations served by the projects, and 
such other factors as may be appropriate. Subject to subsection 
(c), the Secretary may further extend such demonstration 
projects through [December 31, 2004, but only with respect to 
individuals who received at least one service during the period 
beginning on January 1, 1996, and ending on the date of the 
enactment of the Balanced Budget Act of 1997.] December 31, 
2009, but only with respect to individuals who reside in the 
city in which the project is operated and so long as the total 
number of individuals participating in the project does not 
exceed the number of such individuals participating as of 
January 1, 1996.

           *       *       *       *       *       *       *

                              ----------                              

 MEDICARE, MEDICAID, AND SCHIP BENEFITS IMPROVEMENT AND PROTECTION ACT 
                             OF 2000 (BIPA)

           *       *       *       *       *       *       *

                TITLE III--PROVISIONS RELATING TO PART A

           *       *       *       *       *       *       *

Subtitle B--Adjustments to PPS Payments for Skilled Nursing Facilities

           *       *       *       *       *       *       *

SEC. 312. INCREASE IN NURSING COMPONENT OF PPS FEDERAL RATE.

  (a) In General.--The Secretary of Health and Human Services 
shall increase by 16.66 percent the nursing component of the 
case-mix adjusted Federal prospective payment rate specified in 
Tables 3 and 4 of the final rule published in the Federal 
Register by the Health Care Financing Administration on July 
31, 2000 (65 Fed. Reg. 46770) and as subsequently updated, 
effective for services furnished on or after April 1, 2001, and 
before October 1, 2002. The Secretary of Health and Human 
Services shall increase by 12, 10, and 8 percent the nursing 
component of the case-mix adjusted Federal prospective payment 
rate specified in Tables 3 and 4 of the final rule published in 
the Federal Register by the Health Care Financing 
Administration on July 31, 2000 (65 Fed. Reg. 46770) and as 
subsequently updated under section 1888(e)(4)(E)(ii) of the 
Social Security Act (42 U.S.C. 1395yy(e)(4)(E)(ii)), effective 
for services furnished during fiscal years 2003, 2004, and 
2005, respectively.

           *       *       *       *       *       *       *

                TITLE IV--PROVISIONS RELATING TO PART B

           *       *       *       *       *       *       *

                      Subtitle C--Other Services

           *       *       *       *       *       *       *

SEC. 422. UPDATE IN RENAL DIALYSIS COMPOSITE RATE.

  (a) Update.--
          (1) * * *
          (2) Prohibition on exceptions.--
                  (A) In general.--Subject to subparagraphs (B) 
                [and (C)], (C), and (D), the Secretary of 
                Health and Human Services may not provide for 
                an exception under section 1881(b)(7) of the 
                Social Security Act (42 U.S.C. 1395rr(b)(7)) on 
                or after December 31, 2000.
                  (B) Deadline for new applications.--[In the 
                case] Subject to subparagraph (D), in the case 
                of a facility that during 2000 did not file for 
                an exception rate under such section, the 
                facility may submit an application for an 
                exception rate by not later than July 1, 2001.

           *       *       *       *       *       *       *

                  (D) Inapplicability to pediatric 
                facilities.--Subparagraphs (A) and (B) shall 
                not apply, as of October 1, 2002, to pediatric 
                facilities that do not have an exception rate 
                described in subparagraph (C) in effect on such 
                date. For purposes of this subparagraph, the 
                term ``pediatric facility'' means a renal 
                facility at least 50 percent of whose patients 
                are individuals under 18 years of age.

           *       *       *       *       *       *       *

             TITLE V--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

           *       *       *       *       *       *       *

SEC. 508. TEMPORARY INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A 
                    RURAL AREA.

  (a) [24-Month Increase Beginning April 1, 2001] In General.--
In the case of home health services furnished in a rural area 
(as defined in section 1886(d)(2)(D) of the Social Security Act 
(42 U.S.C. 1395ww(d)(2)(D))) on or after April 1, 2001, and 
before [April 1, 2003] January 1, 2005, the Secretary of Health 
and Human Services shall increase the payment amount otherwise 
made under section 1895 of such Act (42 U.S.C. 1395fff ) for 
such services by 10 percent.

           *       *       *       *       *       *       *

                     Subtitle E--Other Provisions

           *       *       *       *       *       *       *

SEC. 542. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES UNDER 
                    MEDICARE.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Effective Date.--This section shall apply to services 
furnished during the [2-year period] 3-year period beginning on 
January 1, 2001.

           *       *       *       *       *       *       *

SEC. 547. CLARIFICATION OF APPLICATION OF TEMPORARY PAYMENT INCREASES 
                    FOR 2001.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Home Health Services.--
          (1) * * *
          (2) Temporary increase for rural home health 
        services.--The payment increase provided under section 
        508(a) for [the period beginning on April 1, 2001, and 
        ending on September 30, 2002,] a period under such 
        section shall not apply to episodes and visits ending 
        after such period, and shall not be taken into account 
        in calculating the payment amounts applicable for 
        episodes and visits occurring after such period.

           *       *       *       *       *       *       *

                              ----------                              

                   TITLE 5, UNITED STATES CODE

           *       *       *       *       *       *       *

                          PART III--EMPLOYEES

           *       *       *       *       *       *       *

                     Subpart D--Pay and Allowances

           *       *       *       *       *       *       *

                   CHAPTER 53--PAY RATES AND SYSTEMS

           *       *       *       *       *       *       *

             SUBCHAPTER II--EXECUTIVE SCHEDULE PAY RATES

           *       *       *       *       *       *       *

Sec. 5314. Positions at level III

  Level III of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Solicitor General of the United States.
          Under Secretary of Commerce, Under Secretary of 
        Commerce for Economic Affairs, Under Secretary of 
        Commerce for Export Administration and Under Secretary 
        of Commerce for Travel and Tourism.

           *       *       *       *       *       *       *

          Administrator of the Centers for Medicare & Medicaid 
        Services .
          Administrator of the Medicare Benefits 
        Administration.

Sec. 5315. Positions at level IV

  Level IV of the Executive Schedule applies to the following 
positions, for which the annual rate of basic pay shall be the 
rate determined with respect to such level under chapter 11 of 
title 2, as adjusted by section 5318 of this title:
          Deputy Administrator of General Services.

           *       *       *       *       *       *       *

          [Administrator of the Health Care Financing 
        Administration.]

           *       *       *       *       *       *       *

                              ----------                              

                 FEDERAL FOOD, DRUG, AND COSMETIC ACT

           *       *       *       *       *       *       *

               CHAPTER III--PROHIBITED ACTS AND PENALTIES

                            PROHIBITED ACTS

  Sec. 301. The following acts and the causing thereof are 
hereby prohibited:
  (a) * * *

           *       *       *       *       *       *       *

  (bb) The failure to post information required under section 
503B(b)(2) or for knowingly making a materially false statement 
when posting such information as required under such section or 
violating section 503B(b)(4).

           *       *       *       *       *       *       *

                      CHAPTER V--DRUGS AND DEVICES

                    Subchapter A--Drugs and Devices

           *       *       *       *       *       *       *

SEC. 503B. INTERNET PRESCRIPTION DRUG SALES.

  (a) Definitions.--For purposes of this section:
          (1) Consumer.--The term ``consumer'' means a person 
        (other than an entity licensed or otherwise authorized 
        under Federal or State law as a pharmacy or to dispense 
        or distribute prescription drugs) that purchases or 
        seeks to purchase prescription drugs through the 
        Internet.
          (2) Home page.--The term ``home page'' means the 
        entry point or main web page for an Internet site.
          (3) Internet.--The term ``Internet'' means 
        collectively the myriad of computer and 
        telecommunications facilities, including equipment and 
        operating software, which comprise the interconnected 
        worldwide network of networks that employ the 
        Transmission Control Protocol/Internet Protocol, or any 
        predecessor or successor protocols to such protocol, to 
        communicate information of all kinds by wire or radio, 
        including electronic mail.
          (4) Interstate internet seller.--
                  (A) In general.--The term ``interstate 
                Internet seller'' means a person whether in the 
                United States or abroad, that engages in, 
                offers to engage in, or causes the delivery or 
                sale of a prescription drug through the 
                Internet and has such drug delivered directly 
                to the consumer via the Postal Service, or any 
                private or commercial interstate carrier to a 
                consumer in the United States who is residing 
                in a State other than the State in which the 
                seller's place of business is located. This 
                definition excludes a person who only delivers 
                a prescription drug to a consumer, such as an 
                interstate carrier service.
                  (B) Exemption.--With respect to the consumer 
                involved, the term ``interstate Internet 
                seller'' does not include a person described in 
                subparagraph (A) whose place of business is 
                located within 75 miles of the consumer.
          (5) Link.--The term ``link'' means either a textual 
        or graphical marker on a web page that, when clicked 
        on, takes the consumer to another part of the Internet, 
        such as to another web page or a different area on the 
        same web page, or from an electronic message to a web 
        page.
          (6) Pharmacy.--The term ``pharmacy'' means any place 
        licensed or otherwise authorized as a pharmacy under 
        State law.
          (7) Prescriber.--The term ``prescriber'' means an 
        individual, licensed or otherwise authorized under 
        applicable Federal and State law to issue prescriptions 
        for prescription drugs.
          (8) Prescription drug.--The term ``prescription 
        drug'' means a drug under section 503(b)(1).
          (9) Valid prescription.--The term ``valid 
        prescription'' means a prescription that meets the 
        requirements of section 503(b)(1) and other applicable 
        Federal and State law.
          (10) Web site; site.--The terms ``web site'' and 
        ``site'' mean a specific location on the Internet that 
        is determined by Internet protocol numbers or by a 
        domain name.
  (b) Requirements for Interstate Internet Sellers.--
          (1) In general.--Each interstate Internet seller 
        shall comply with the requirements of this subsection 
        with respect to the sale of, or the offer to sell, 
        prescription drugs through the Internet and shall at 
        all times display on its web site information in 
        accordance with paragraph (2).
          (2) Web site disclosure information.--An interstate 
        Internet seller shall post in a visible and clear 
        manner (as determined by regulation) on the home page 
        of its web site, or on a page directly linked to such 
        home page--
                  (A) the street address of the interstate 
                Internet seller's place of business, and the 
                telephone number of such place of business;
                  (B) each State in which the interstate 
                Internet seller is licensed or otherwise 
                authorized as a pharmacy, or if the interstate 
                Internet seller is not licensed or otherwise 
                authorized by a State as a pharmacy, each State 
                in which the interstate Internet seller is 
                licensed or otherwise authorized to dispense 
                prescription drugs, and the type of State 
                license or authorization;
                  (C) in the case of an interstate Internet 
                seller that makes referrals to or solicits on 
                behalf of a prescriber, the name of each 
                prescriber, the street address of each such 
                prescriber's place of business, the telephone 
                number of such place of business, each State in 
                which each such prescriber is licensed or 
                otherwise authorized to prescribe prescription 
                drugs, and the type of such license or 
                authorization; and
                  (D) a statement that the interstate Internet 
                seller will dispense prescription drugs only 
                upon a valid prescription.
          (3) Date of posting.--Information required to be 
        posted under paragraph (2) shall be posted by an 
        interstate Internet seller--
                  (A) not later than 90 days after the 
                effective date of this section if the web site 
                of such seller is in operation as of such date; 
                or
                  (B) on the date of the first day of operation 
                of such seller's web site if such site goes 
                into operation after such date.
          (4) Qualifying statements.--An interstate Internet 
        seller shall not indicate in any manner that posting 
        disclosure information on its web site signifies that 
        the Federal Government has made any determination on 
        the legitimacy of the interstate Internet seller or its 
        business.
          (5) Disclosure to state licensing boards.--An 
        interstate Internet seller licensed or otherwise 
        authorized to dispense prescription drugs in accordance 
        with applicable State law shall notify each State 
        entity that granted such licensure or authorization 
        that it is an interstate Internet seller, the name of 
        its business, the Internet address of its business, the 
        street address of its place of business, and the 
        telephone number of such place of business.
          (6) Regulations.--The Secretary is authorized to 
        promulgate such regulations as are necessary to carry 
        out the provisions of this subsection. In issuing such 
        regulations, the Secretary--
                  (A) shall take into consideration disclosure 
                formats used by existing interstate Internet 
                seller certification programs; and
                  (B) shall in defining the term ``place of 
                business'' include provisions providing that 
                such place is a single location at which 
                employees of the business perform job 
                functions, and not a post office box or similar 
                locale.

           *       *       *       *       *       *       *

                              ----------                              

                        PUBLIC HEALTH SERVICE ACT

           *       *       *       *       *       *       *

     TITLE III--GENERAL POWERS AND DUTIES OF PUBLIC HEALTH SERVICE

           *       *       *       *       *       *       *

                      PART P--ADDITIONAL PROGRAMS

           *       *       *       *       *       *       *

SEC. 399O. GRANTS TO HEALTH CARE PROVIDERS TO IMPLEMENT ELECTRONIC 
                    PRESCRIPTION DRUG PROGRAMS.

  (a) In General.--The Secretary is authorized to make grants 
for the purpose of assisting health care providers who 
prescribe drugs and biologicals in implementing electronic 
prescription programs described in section 1860C(d)(3) of the 
Social Security Act.
  (b) Application.--No grant may be made under this section 
except pursuant to a grant application that is submitted in a 
time, manner, and form approved by the Secretary.
  (c) Authorization of Appropriations.--There are authorized to 
be appropriated for fiscal year 2004, such sums as may be 
appropriate to carry out this section.

                 TITLE IV--NATIONAL RESEARCH INSTITUTES

                 Part A--National Institutes of Health

           *       *       *       *       *       *       *

                        OFFICE OF RARE DISEASES

  Sec. 404F. (a) Establishment.--There is established within 
the Office of the Director of NIH an office to be known as the 
Office of Rare Diseases (in this section referred to as the 
``Office''), which shall be headed by a Director (in this 
section referred to as the ``Director''), appointed by the 
Director of NIH.
  (b) Duties.--
          (1) In general.--The Director of the Office shall 
        carry out the following:
                  (A) The Director shall recommend an agenda 
                for conducting and supporting research on rare 
                diseases through the national research 
                institutes and centers. The agenda shall 
                provide for a broad range of research and 
                education activities, including scientific 
                workshops and symposia to identify research 
                opportunities for rare diseases.
                  (B) The Director shall, with respect to rare 
                diseases, promote coordination and cooperation 
                among the national research institutes and 
                centers and entities whose research is 
                supported by such institutes.
                  (C) The Director, in collaboration with the 
                directors of the other relevant institutes and 
                centers of the National Institutes of Health, 
                may enter into cooperative agreements with and 
                make grants for regional centers of excellence 
                on rare diseases in accordance with section 
                404G.
                  (D) The Director shall promote the sufficient 
                allocation of the resources of the National 
                Institutes of Health for conducting and 
                supporting research on rare diseases.
                  (E) The Director shall promote and encourage 
                the establishment of a centralized 
                clearinghouse for rare and genetic disease 
                information that will provide understandable 
                information about these diseases to the public, 
                medical professionals, patients and families.
                  (F) The Director shall biennially prepare a 
                report that describes the research and 
                education activities on rare diseases being 
                conducted or supported through the national 
                research institutes and centers, and that 
                identifies particular projects or types of 
                projects that should in the future be conducted 
                or supported by the national research 
                institutes and centers or other entities in the 
                field of research on rare diseases.
                  (G) The Director shall prepare the NIH 
                Director's annual report to Congress on rare 
                disease research conducted by or supported 
                through the national research institutes and 
                centers.
          (2) Principal advisor regarding orphan diseases.--
        With respect to rare diseases, the Director shall serve 
        as the principal advisor to the Director of NIH and 
        shall provide advice to other relevant agencies. The 
        Director shall provide liaison with national and 
        international patient, health and scientific 
        organizations concerned with rare diseases.
  (c) Definition.--For purposes of this section, the term 
``rare disease'' means any disease or condition that affects 
less than 200,000 persons in the United States.
  (d) Authorization of Appropriations.--For the purpose of 
carrying out this section, there are authorized to be 
appropriated such sums as already have been appropriated for 
fiscal year 2002, and $4,000,000 for each of the fiscal years 
2003 through 2006.

              RARE DISEASE REGIONAL CENTERS OF EXCELLENCE

  Sec. 404G. (a) Cooperative Agreements and Grants.--
          (1) In general.--The Director of the Office of Rare 
        Diseases (in this section referred to as the 
        ``Director''), in collaboration with the directors of 
        the other relevant institutes and centers of the 
        National Institutes of Health, may enter into 
        cooperative agreements with and make grants to public 
        or private nonprofit entities to pay all or part of the 
        cost of planning, establishing, or strengthening, and 
        providing basic operating support for regional centers 
        of excellence for clinical research into, training in, 
        and demonstration of diagnostic, prevention, control, 
        and treatment methods for rare diseases.
          (2) Policies.--A cooperative agreement or grant under 
        paragraph (1) shall be entered into in accordance with 
        policies established by the Director of NIH.
  (b) Coordination With Other Institutes.--The Director shall 
coordinate the activities under this section with similar 
activities conducted by other national research institutes, 
centers and agencies of the National Institutes of Health and 
by the Food and Drug Administration to the extent that such 
institutes, centers and agencies have responsibilities that are 
related to rare diseases.
  (c) Uses for Federal Payments Under Cooperative Agreements or 
Grants.--Federal payments made under a cooperative agreement or 
grant under subsection (a) may be used for--
          (1) staffing, administrative, and other basic 
        operating costs, including such patient care costs as 
        are required for research;
          (2) clinical training, including training for allied 
        health professionals, continuing education for health 
        professionals and allied health professions personnel, 
        and information programs for the public with respect to 
        rare diseases; and
          (3) clinical research and demonstration programs.
  (d) Period of Support; Additional Periods.--Support of a 
center under subsection (a) may be for a period of not to 
exceed 5 years. Such period may be extended by the Director for 
additional periods of not more than 5 years if the operations 
of such center have been reviewed by an appropriate technical 
and scientific peer review group established by the Director 
and if such group has recommended to the Director that such 
period should be extended.
  (e) Authorization of Appropriations.--For the purpose of 
carrying out this section, there are authorized to be 
appropriated such sums as already have been appropriated for 
fiscal year 2002, and $20,000,000 for each of the fiscal years 
2003 through 2006.

           *       *       *       *       *       *       *

                TITLE VII--HEALTH PROFESSIONS EDUCATION

           *       *       *       *       *       *       *

        PART E--HEALTH PROFESSIONS AND PUBLIC HEALTH WORKFORCE

           *       *       *       *       *       *       *

                Subpart 3--Pharmacist Workforce Programs

SEC. 771. PUBLIC SERVICE ANNOUNCEMENTS.

  (a) Public Service Announcements.--
          (1) In general.--The Secretary shall develop and 
        issue public service announcements that advertise and 
        promote the pharmacist profession, highlight the 
        advantages and rewards of being a pharmacist, and 
        encourage individuals to enter the pharmacist 
        profession.
          (2) Method.--The public service announcements 
        described in subsection (a) shall be broadcast through 
        appropriate media outlets, including television or 
        radio, in a manner intended to reach as wide and 
        diverse an audience as possible.
  (b) State and Local Public Service Announcements.--
          (1) In general.--The Secretary shall award grants to 
        entities to support State and local advertising 
        campaigns through appropriate media outlets to promote 
        the pharmacist profession, highlight the advantages and 
        rewards of being a pharmacist, and encourage 
        individuals to enter the pharmacist profession.
          (2) Use of funds.--An entity that receives a grant 
        under subsection (a) shall use funds received through 
        such grant to acquire local television and radio time, 
        place advertisements in local newspapers, and post 
        information on billboards or on the Internet, in order 
        to--
                  (A) advertise and promote the pharmacist 
                profession;
                  (B) promote pharmacist education programs;
                  (C) inform the public of public assistance 
                regarding such education programs;
                  (D) highlight individuals in the community 
                that are presently practicing as pharmacists to 
                recruit new pharmacists; and
                  (E) provide any other information to recruit 
                individuals for the pharmacist profession.
          (3) Method.--The campaigns described in subsection 
        (a) shall be broadcast on television or radio, placed 
        in newspapers as advertisements, or posted on 
        billboards or the Internet, in a manner intended to 
        reach as wide and diverse an audience as possible.

SEC. 772. DEMONSTRATION PROJECT.

  (a) In General.--The Secretary shall establish a 
demonstration project to enhance the participation of 
individuals who are pharmacists in the National Health Service 
Corps Loan Repayment Program described in section 338B.
  (b) Services.--Services that may be provided by pharmacists 
pursuant to the demonstration project established under this 
section include medication therapy management services to 
assure that medications are used appropriately by patients, to 
enhance patients' understanding of the appropriate use of 
medications, to increase patients' adherence to prescription 
medication regimens, to reduce the risk of adverse events 
associated with medications, and to reduce the need for other 
costly medical services through better management of medication 
therapy. Such services may include case management, disease 
management, drug therapy management, patient training and 
education, counseling, drug therapy problem resolution, 
medication administration, the provision of special packaging, 
or other services that enhance the use of prescription 
medications.
  (c) Procedure.--The Secretary may not provide assistance to 
an individual under this section unless the individual agrees 
to comply with all requirements described in sections 338B and 
338D.
  (d) Limitations.--The demonstration project described in this 
section shall provide for the participation of--
          (1) individuals to provide services in rural and 
        urban areas; and
          (2) enough individuals to allow the Secretary to 
        properly analyze the effectiveness of such project.
  (e) Designations.--The demonstration project described in 
this section, and any pharmacists who are selected to 
participate in such project, shall not be considered by the 
Secretary in the designation of a health professional shortage 
area under section 332 during fiscal years 2003 through 2005.
  (f) Rule of Construction.--This section shall not be 
construed to require any State to participate in the project 
described in this section.
  (g) Report.--The Secretary shall prepare and submit a report 
on the project to--
          (1) the Committee on Health, Education, Labor, and 
        Pensions of the Senate;
          (2) the Subcommittee on Labor, Health and Human 
        Services, and Education of the Committee on 
        Appropriations of the Senate;
          (3) the Committee on Energy and Commerce of the House 
        of Representatives; and
          (4) the Subcommittee on Labor, Health and Human 
               Services, and Education of the Committee on 
        Appropriations of the House of Representatives.

SEC. 773. INFORMATION TECHNOLOGY.

  (a) Grants and Contracts.--The Secretary may make awards of 
grants or contracts to qualifying schools of pharmacy for the 
purpose of assisting such schools in acquiring and installing 
computer-based systems to provide pharmaceutical education. 
Education provided through such systems may be graduate 
education, professional education, or continuing education. The 
computer-based systems may be designed to provide on-site 
education, or education at remote sites (commonly referred to 
as distance learning), or both.
  (b) Qualifying School of Pharmacy.--For purposes of this 
section, the term ``qualifying school of pharmacy'' means a 
school of pharmacy (as defined in section 799B) that requires 
students to serve in a clinical rotation in which pharmacist 
services are part of the curriculum.

SEC. 774. AUTHORIZATION OF APPROPRIATIONS.

  For the purpose of carrying out this subpart, there are 
authorized to be appropriated such sums as may be necessary for 
each of the fiscal years 2003 through 2006.

                            DISSENTING VIEWS

    The bill ordered reported from this Committee solely by its 
Republican Members is a political placebo designed to provide 
political cover to politicians instead of prescription drug 
coverage to Medicare beneficiaries. This legislation is little 
more than a $310 billion give-away to the private insurance 
industry and pharmaceutical companies.
    The Republican bill 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 between 2005--the first year of the 
Republican drug benefit proposal--and 2012. Yet the $310 
billion Committee-passed bill covers only 19 percent 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 claim that they can't afford to do more. They 
criticize our proposal for costing too much. Don't be fooled. 
It's a matter of priorities. Last year, they squandered the 
surplus on tax breaks for the wealthy, and they're at it again 
this year. In 2012 alone, the tax cut would cost $229 billion--
more than three times the amount that Republican are willing to 
dedicate to prescription drugs.
    The Republican drug proposal is nothing more than an empty 
promise and campaign rhetoric. It doesn't guarantee any 
specific benefit. It gives private plans free reign to charge 
beneficiaries whatever they want for premiums. It has a gaping 
hole in coverage that would force approximately half of all 
beneficiaries--including millions of low-income senior citizens 
and individuals with disabilities--to pay 100 percent of their 
drug costs at a time when their needs are increasing. It uses a 
cynical, technical calculation of out-of-pocket costs that will 
prevent family members from helping beneficiaries pay for 
needed medications and discourage employers from offering wrap-
around coverage. It fails to assure access to needed 
medications by allowing private drug plans to decide which 
drugs to cover, and it allows the private drug plans to exclude 
neighborhood pharmacies.
    The Committee bill also lays the groundwork for the 
Republicans' ultimate goal to privatize Medicare. The new drug 
program relies on a risky, untested private insurance scheme 
that sets the stage for broader changes in Medicare. It moves 
Medicare+Choice to a competition-based program in 2005, and 
conducts a premium-support demonstration under which fee-for-
service premiums could rise dramatically. Finally, it creates a 
new bureaucracy to regulate the Medicare+Choice and private 
drug plans that both disadvantages the agency which oversees 
traditional fee-for-service Medicare and stacks the deck at the 
new agency in favor of the private plans.
The Democratic plan: Real choices real coverage
    By rejecting the Democratic substitute, the Committee 
missed its opportunity to provide an affordable, comprehensive 
prescription medicine 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 percent co-insurance 
until they spend $2,000, the government would pay 100 percent 
of the drug costs. This benefit minimizes beneficiary costs. 
[Chart 1]
    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% ($13,290-$15,505 for a single person) of 
poverty 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 percent 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.
    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. That's why the 
leading consumer organizations back the Democratic substitute. 
[See letters attached.]

The Republican plan: Let the buyer beware

    Under the legislation reported out of Committee, virtually 
all of the important decisions are left to the private drug 
plans--the amounts paid by beneficiaries for premiums and cost-
sharing, which specific drugs are covered, and the number and 
location of participating pharmacies. The motto of the free 
market approach in the Republican bill is caveat emptor: Let 
the buyer aware.
    Rather than pursue negotiations to define on a bipartisan 
basis the best path to provide a good Medicare drug benefit, 
the Republican majority has chosen instead to push for a 
complex plan that puts the interests of HMOs and the drug 
industry ahead of the interests of benefiaries. Its key flaws 
are:
    No guaranteed premium. Insurers can charge whatever they 
want for premiums. While Republicans claim that the premium 
will be $35, which is 40 percent 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. Under this proposal, 
premiums will vary by plan and place. In addition, the 
Republican plan does not provide any direct premium subsidies 
to beneficiaries with incomes in excess of 175 percent of 
poverty. Yet middle income seniors are finding their retirement 
security undermined by the high cost of pharmaceuticals, too.
    Subsidies to HMOs, not beneficiaries. The Republican 
legislation provides premium subsidies to insurance companies 
and HMOs, but not to beneficiaries. And nothing in the 
legislation requires the HMOs and insurers to pass on the 
subsidies to beneficiaries.
    Pay more and get less. For most seniors in the Republican 
plan, the more you spend, the less coverage you get. 
Inexplicably, 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 percent of the cost until there 
has been $1000 in drug spending. Then the co-insurance 
increases to 50 percent for spending between $1000 and $2000. 
And it increases again to 100 percent--no government 
contribution whatsoever--after $2000 in drug spending. 
Beneficiares are forced to pay all of their drug costs for 
spending between $2000 and $4900, while continuing to pay 
premiums. (NOTE: The Republican $3800 out-of-pocket cap 
translates into $4900 in spending.)
    In fact, under the Committee bill, America's senior 
citizens and individuals with disabilities will spend $4,220 to 
get $4900 worth of drugs; in contrast, under the Democratic 
plan, beneficiaries would pay just $1,360. [CHART 2]
    No standard benefit. The benefits described above are 
merely suggestions. Private plans can vary cost-sharing levers 
in both the standard coverage option and in the alternative 
coverage option. This is an invitation for plans to design 
benefits that ``cherry pick'' low-cost, healthy enrollees. It 
is 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 on consumer confusion.
    Not a real entitlement. Despite Republican claims to the 
contrary, the Republican bill is not a true Medicare 
entitlement. Under Medicare today, beneficiares 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. Instead, Republicans 
guarantee hundreds of billions of taxpayer dollars in federal 
subsidies to their friends in the private insurance and 
pharmaceutical industries.
    Limits access to specific drugs and pharmacies. Under the 
Republican plan, private plans can refuse to cover needed 
medications. The private plans decide what specific drugs are 
on their formulary; beneficiaries who need prescription drugs 
that are not on the formulary are out-of-luck. Plans are not 
required to disclose the formulatory to prospective enrollees, 
and plans are allowed to change the formulary during the year 
with ``adequate'' notice. Private plans also pick and choose 
with pharmacies are in their network. Private plans could also 
change their pharmacy networks mid-year. 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.
    Hidden hatchet. Crafted behind closed doors and without 
public hearing, the legislation has a hidden hatchet designed 
to artifically depress its aggregate cost and undermine its 
already paltry benefit. It 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 limot. 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 $3,800 limit. This means beneficiaries who pay 
for supplemental coverage or who get help from family members 
might never qualify for the catastrophic coverage. Perhaps more 
importantly, this new notion of ``true'' out-of-pocket costs 
put employers, unions, and others who provide retiree coverage 
in a bind. Employers are already steadily reducing their 
retiree benefits. [Chart 3] Unfortunately, the Republican bill 
moves in the wrong direction by providing employers with an 
incentive to either cap their retiree prescription drug 
benefits or drop them entirely. Committee counsel for the 
majority indicated in the mark-up that eliminating this gimmick 
would increase the cost of their bill by $120 billion.
    Flawed private-market model. There is no guarantee that any 
private plans will even agree to participate, as drug-only 
risk-bearing insurance plans don't currently exist. For two 
years, the insurance industry has expressed skepticism about 
the Republican plan, which relies exclusively on the 
participation of private insurers. The Health Insurance 
Association of America recently wrote to the Chairman that 
there is a ``better chance'' now than before that their 
companies will participate, but that's hardly a guarantee. That 
said, 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.
    Risk-bearing requirement is bad news for beneficiaries. 
Because the Republican plan would require the private insurers 
to be financially ``at-risk'' for the utilization of the 
benefit, the Congressional Budget Office assumes that these 
organizations will aggressively use every tool at their 
disposal to limit their financial exposure. This means they 
will deny or otherwise limit access to needed medications, set 
up very restrictive formularies, limit pharmacy networks and 
take other steps to keep claims low.
    Government ``bribe.'' To entice plans to participate, the 
Committee-reported bill authorizes the Secretary to pay 
virtually any price, provided the entity is still ``partially'' 
at-risk. Thus, the Secretary could subsidize 99.99% of the 
risk. How much more will taxpayers pay for wasted overhead? How 
much more will beneficiaries pay? Will the market be stable and 
certain? Or will private plans be able to come and go as they 
wish? Will the drug coverage be available and affordable to all 
beneficiaries? Or only to a select few?
    Medicare+Choice all over again. Even if coverage were 
offered, insurers would be likely to come in and out of the 
market, move to profitable areas and significantly modify 
benefit design from year-to-year based on the prior year's 
experience. This could easily result in the same pull-outs and 
churning seen in the Medicare+Choice plans--except that the M+C 
program affects just 14 percent of beneficiaries.

Prescription drug card: The placebo effect

    The Committee legislation authorizes the Administration's 
prescription drug discount card program, but fails to require 
the cards to provide any minimum discount. These cards are 
currently available on the market, and they are clearly not the 
answer to beneficiaries' needs. We are concerned about the 
potential that this program has to tarnish Medicare's good 
name.

The real Republican agenda: Privatization of Medicare

    This legislation takes the first steps needed to pursue the 
majority's privatization agenda. It creates a private-sector 
based drug benefit. It moves Medicare+Choice to a competition-
based system in 2005. And it creates a premium support 
demonstration program under which fee-for-service premiums 
could rise dramatically. Make no mistake: The long march to 
privatization is beginning in this bill.

Republican plan: Creates new bureaucracy, adds inefficiency and expense

    Ironically, the Committee-reported bill creates a new 
agency within the Department of Health and Human Services. The 
new Medicare Benefits Administration (MBA) would be exempt from 
normal Civil Service pay scales and the conflict of interest 
rules that govern the civil service. The MBA would regulate 
Medicare+Choice plans and the prescription drug plans, though 
the Administrator would be forbidden from ``interfering'' with 
negotiations and performing other important oversight duties. 
Predictably, this new agency is stacked in favor of the plans, 
and will drain needed resources from the Centers for Medicare 
and Medicaid Services.

A matter of priorities: Democrats support a Medicare prescription drug 
        benefit, while Republicans prefer to focus on tax breaks for 
        the wealthy

    We admit that the cost of our Medicare program expansion to 
seniors and the disabled is likely to be more than twice the 
cost of the Republican gift to drug companies and HMOs. But 
that's because we provide a much more generous benefit--e.g., 
beneficiaries save three times more under our plan [Chart 4]--
and we don't include any hidden hatchets or other gimmicks or 
gaps to shift costs elsewhere. Under the Democratic plan, what 
you see is what you get.
    We are proud to be doing more for the most vulnerable in 
our society. The Democratic Medicare prescription drug benefit 
will make a real difference in the lives of America's seniors 
and their families both by lowering drug prices and giving them 
substantial assistance in paying for them. But you simply 
cannot do a meaningful prescription drug benefit on the cheap.

Help for Medicare providers

    While we have grave concerns about the feasibility, 
advisability and scope of benefits under the Republican drug 
plan in Title I and the steps toward competitive bidding in 
Title II, we are largely supportive of the package of provider 
payment relief in Titles II, III, IV, V, and VI of the 
Committee-passed bill. We would strongly prefer to consider the 
provider-related pieces on their own merits, and not as part of 
a larger more controversial debate.

Conclusion

    Medicare's promise of health and financial security will 
not be fulfill until a prescription drug benefit is enacted. 
The Republican scheme is a prescription for failure. [Chart 5] 
Many Democratic amendments were offered in repeated attempts to 
fix its many flaws or, in some cases, simply live up to 
Republican rhetoric. All were rejected on virtually party-line 
votes.
    Seniors need and deserve stability, equity, continuity and 
predictability in their health care plans. They do not get this 
from for-profit HMOs in the M+C program. And they will not get 
it from private drug plans with variable premiums, co-insurance 
and benefits.
    Members of Congress should defeat the Republican drug hoax 
and vote for a real, defined benefit in Medicare. They should 
enact the Democratic substitute.

                                   C.B. Rangel.
                                   William J. Coyne.
                                   Ben Cardin.
                                   Jim McDermott.
                                   Jerry Kleczka.
                                   William J. Jefferson.
                                   John Tanner.
                                   Michael R. McNulty.
                                   Pete Stark.
                                   Sander M. Levin.
                                   Robert T. Matsui.
                                   John Lewis.
                                   Karen L. Thurman.
                                   Richard E. Neal.
                                   Xavier Becerra.
                                   
                                   

              ADDITIONAL VIEWS OF CONGRESSMAN EARL POMEROY

    While I have great concerns about the total cost of the 
Minority alternative prescription drug package, I firmly 
believe that it uses the best and most appropriate delivery 
mechanism--an entitlement provided directly through Medicare. 
The underlying bill, on the other hand, proposes to deliver the 
benefit through private insurance companies. The argument made 
by the Majority that this method of delivery is superior and 
will result in greater savings is not substantial and relies on 
blind faith in the insurance industry. In my eight years as 
Insurance Commissioner for the State of North Dakota, it became 
apparent that this is simply an unproven theory. One need not 
look any further than the Medicare+Choice experience in North 
Dakota as evidence. In our state, we witnessed all three plans 
that tested the market fail and ultimately pull out. Today 
there are not available M+C plans in the state because a 
market-driven approach clearly does not work for providing 
coverage to our seniors under Medicare.
    However, I am compelled to remind my colleagues that 
Congress has a critical responsibility to address the 
prescription drug needs of seniors sooner rather than later, 
and I am committed to working to keep this legislation moving 
forward. As the process continues, it is my hope that we can 
work in a bipartisan manner to correct the deficiencies in this 
bill, beginning with changing the delivery mechanism to utilize 
the proven, successful elements of the existing Medicare 
program.

                                                      Earl Pomeroy.

                                  
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