I

106TH CONGRESS

1ST SESSION H. R. 1109

To amend title XVIII of the Social Security Act to provide for coverage

of outpatient prescription drugs under part B of the Medicare Program,

and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 15, 1999

Mr. ENGEL (for himself, Mr. NADLER, Mr. OWENS, Mr. CROWLEY, Mr. RUSH,

Mr. ACKERMAN Mr. WYNN, Mr. WEINER, and Mrs. MCCARTHY of New

York) introduced the following bill; which was referred to the Committee

on Commerce, and in addition to the Committee on Ways and Means,

for a period to be subsequently determined by the Speaker, in each case

for consideration of such provisions as fall within the jurisdiction of the

committee concerned

A BILL

To amend title XVIII of the Social Security Act to provide

for coverage of outpatient prescription drugs under part

B of the Medicare Program, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Medicare Outpatient

5 Prescription Drug Coverage Act of 1999’’.
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1 SEC. 2. MEDICARE COVERAGE OF OUTPATIENT PRESCRIP2 TION DRUGS.

3 (a) DESCRIPTION OF COVERED OUTPATIENT

4 DRUGS.—

5 (1) COVERAGE.—Section 1861(s)(2)(J) of the

6 Social Security Act (42 U.S.C. 1395x(s)(2)(J)) is

7 amended to read as follows:

8 ‘‘(J) covered outpatient drugs;’’.

9 (2) DRUGS DESCRIBED.—Section 1861(t) of

10 such Act (42 U.S.C. 1395x(t)) is amended—

11 (A) in the heading, by adding at the end

12 the following: ‘‘; Covered Outpatient Drugs’’;

13 (B) in paragraph (1)—

14 (i) by striking ‘‘paragraph (2)’’ and

15 inserting ‘‘the succeeding paragraphs of

16 this subsection’’, and

17 (ii) by striking the period at the end

18 and inserting ‘‘, but only if used for a

19 medically accepted indication (as described

20 in paragraph (4)).’’; and

21 (C) by striking paragraph (2) and inserting the

22 following:

23 ‘‘(2) Subject to paragraph (3), the term ‘covered out24 patient drug’ means—

25 ‘‘(A) a drug which may be dispensed only upon

26 prescription and—
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1 ‘‘(i) which is approved for safety and effec2 tiveness as a prescription drug under section

3 505 or 507 of the Federal Food, Drug, and

4 Cosmetic Act or which is approved under sec5 tion 505(j) of such Act;

6 ‘‘(ii)(I) which was commercially used or

7 sold in the United States before the date of the

8 enactment of the Drug Amendments of 1962 or

9 which is identical, similar, or related (within the

10 meaning of section 310.6(b)(1) of title 21 of the

11 Code of Federal Regulations) to such a drug,

12 and (II) which has not been the subject of a

13 final determination by the Secretary that it is

14 a ‘new drug’ (within the meaning of section

15 201(p) of the Federal Food, Drug, and Cos16 metic Act) or an action brought by the Sec17 retary under section 301, 302(a), or 304(a) of

18 such Act to enforce section 502(f) or 505(a) of

19 such Act; or

20 ‘‘(iii)(I) which is described in section

21 107(c)(3) of the Drug Amendments of 1962

22 and for which the Secretary has determined

23 there is a compelling justification for its med24 ical need, or is identical, similar, or related

25 (within the meaning of section 310.6(b)(1) of
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1 title 21 of the Code of Federal Regulations) to

2 such a drug, and (II) for which the Secretary

3 has not issued a notice of an opportunity for a

4 hearing under section 505(e) of the Federal

5 Food, Drug, and Cosmetic Act on a proposed

6 order of the Secretary to withdraw approval of

7 an application for such drug under such section

8 because the Secretary has determined that the

9 drug is less than effective for all conditions of

10 use prescribed, recommended, or suggested in

11 its labeling;

12 ‘‘(B) a biological product which—

13 ‘‘(i) may only be dispensed upon prescrip14 tion,

15 ‘‘(ii) is licensed under section 351 of the

16 Public Health Service Act, and

17 ‘‘(iii) is produced at an establishment li18 censed under such section to produce such

19 product; and

20 ‘‘(C) insulin certified under section 506 of the

21 Federal Food, Drug, and Cosmetic Act.

22 ‘‘(3) The term ‘covered outpatient drug’ does not

23 include—

24 ‘‘(A) any drug, biological product, or insulin

25 when furnished as part of, or as incident to, a diag-
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1 nostic service or any other item or service for which

2 payment may be made under this title (other than

3 physicians’ services or services which would be physi4 cians’ services if furnished by a physician); or

5 ‘‘(B) any drug that is intravenously adminis6 tered in a home setting.

7 ‘‘(4) For purposes of paragraph (2), the term ‘medi8 cally accepted indication’, with respect to the use of an

9 outpatient drug, includes—

10 ‘‘(A) any use which has been approved by the

11 Food and Drug Administration for the drug, and

12 ‘‘(B) any other use of the drug, unless the Sec13 retary determines that such use is not medically ap14 propriate.’’.

15 (3) CONFORMING AMENDMENTS REPEALING

16 SEPARATE COVERAGE OF CERTAIN DRUGS AND

17 PRODUCTS.—(A) Effective January 1, 2001, section

18 1861(s)(2) of such Act (42 U.S.C. 1395x(s)(2)) is

19 amended—

20 (i) in each of subparagraphs (A) and (B),

21 by striking ‘‘(including drugs’’ and all that fol22 lows through ‘‘self-administered)’’;

23 (ii) by striking subparagraphs (G), (I),

24 (O), (Q), and (T);
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1 (iii) by adding ‘‘and’’ at the end of sub2 paragraph (R); and

3 (iv) by striking ‘‘; and’’ at the end of sub4 paragraph (S) and inserting a period.

5 (B) Effective January 1, 2001, section 1861 of

6 such Act (42 U.S.C. 1395x) is amended by striking

7 the subsection (kk).

8 (C) Effective January 1, 2001, section 1881(b)

9 of such Act (42 U.S.C. 1395rr(b)) is amended—

10 (i) in the first sentence of paragraph (1)—

11 (I) by striking ‘‘, (B)’’ and inserting

12 ‘‘, and (B)’’; and

13 (II) by striking ‘‘, and (C)’’ and all

14 that follows and inserting a period; and

15 (ii) in paragraph (11)—

16 (I) by striking ‘‘(11)(A)’’ and insert17 ing ‘‘(11)’’; and

18 (II) by striking subparagraphs (B)

19 and (C).

20 (b) DEDUCTIBLE AND PAYMENT AMOUNTS.—(1)

21 Section 1833(a)(1) of such Act (42 U.S.C. 1395l(a)(1)),

22 as amended by section 2(c)(1), is amended—

23 (A) by striking ‘‘and (S)’’ and inserting ‘‘(S)’’;

24 and
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1 (B) by striking the semicolon at the end and in2 serting the following ‘‘, and (T) with respect to ex3 penses incurred for covered outpatient drugs, the

4 amounts paid shall be the amounts determined

5 under section 1834(e)(2);’’.

6 (2) Section 1833(a)(2) of such Act (42 U.S.C.

7 1395l(a)(2)) is amended by inserting ‘‘(other than covered

8 outpatient drugs)’’ after ‘‘(2) in the case of services’’.

9 (3) Section 1833(b) of such Act (42 U.S.C. 1395l(b))

10 is amended—

11 (A) in clause (1), by inserting ‘‘or for covered

12 outpatient drugs’’ after ‘‘1861(s)(10)(A)’’, and

13 (B) in clause (2), by inserting ‘‘or with respect

14 to covered outpatient drugs’’ after ‘‘1861(kk))’’.

15 (4) Section 1834 of such Act (42 U.S.C. 1395m) is

16 amended by inserting after subsection (d) the following

17 new subsection:

18 ‘‘(e) PAYMENT FOR COVERED OUTPATIENT

19 DRUGS.—

20 ‘‘(1) DEDUCTIBLE.—

21 ‘‘(A) APPLICATION.—

22 ‘‘(i) IN GENERAL.—Except as pro23 vided in clauses (ii) and (iii), payment

24 shall be made under paragraph (2) only

25 with respect to expenses incurred by an in-
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1 dividual for covered outpatient drugs dur2 ing a calendar year on or after such date

3 in the year as the Secretary determines

4 that the individual has incurred expenses

5 in the year for covered outpatient drugs

6 (during a period in which the individual is

7 entitled to benefits under this part) equal

8 to the amount of the prescription drug de9 ductible specified in subparagraph (C) for

10 that year.

11 ‘‘(ii) DEDUCTIBLE NOT APPLIED TO

12 1ST YEAR IMMUNOSUPPRESSIVES.—The

13 prescription drug deductible established

14 under this paragraph shall not apply to

15 drugs described in section 1861(t)(2)(A)

16 used in immunosuppressive therapy and

17 furnished, to an individual who receives an

18 organ transplant for which payment is

19 made under this title, within 1 year after

20 the date of the transplant.

21 ‘‘(B) RESPONSE TO APPLICATION.—If the

22 system described in section 1842(u)(4) has not

23 been established and an individual applies to

24 the Secretary to establish that the individual

25 has met the requirement of subparagraph (A),
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1 the Secretary shall promptly notify the indi2 vidual (and, if the application was submitted by

3 or through a participating pharmacy, the phar4 macy) as to the date (if any) as of which the

5 individual has met such requirement.

6 ‘‘(C) PRESCRIPTION DRUG DEDUCTIBLE

7 AMOUNT.—The prescription drug deductible

8 specified in this subparagraph for—

9 ‘‘(i) 2001 is $250, and

10 ‘‘(ii) any succeeding year, is the pre11 scription drug deductible for the preceding

12 year, increased by the percentage by which

13 the monthly premium under section 1839

14 for months during the year exceeds the

15 monthly premium under such section for

16 months during the preceding year.

17 ‘‘(2) PAYMENT AMOUNT.—

18 ‘‘(A) IN GENERAL.—Subject to the pre19 scription drug deductible established under

20 paragraph (1)(A) and except as provided in

21 subparagraph (B), the amounts payable under

22 this part with respect to a covered outpatient

23 drug is equal to 80 percent of the lesser of—

24 ‘‘(i) the actual charge for the drug, or
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1 ‘‘(ii) the applicable payment limit es2 tablished under paragraph (3).

3 ‘‘(B) TREATMENT OF CERTAIN COST4 BASED PREPAID ORGANIZATIONS.—In applying

5 subparagraph (A) in the case of a

6 Medicare+Choice organization under part C, an

7 organization under a reasonable cost reimburse8 ment contract under section 1876, and in the

9 case of an organization receiving payment

10 under section 1833(a)(1)(A) and providing cov11 erage of covered outpatient drugs, the Secretary

12 shall provide for an appropriate adjustment in

13 the payment amounts otherwise made to reflect

14 the aggregate increase in payments that would

15 otherwise be made with respect to enrollees in

16 such an organization if payments were made

17 other than under such clause or such a contract

18 on an individual-by-individual basis.

19 ‘‘(3) PAYMENT LIMITS.—

20 ‘‘(A) PAYMENT LIMIT FOR NON-MULTIPLE

21 SOURCE DRUGS AND MULTIPLE-SOURCE DRUGS

22 WITH RESTRICTIVE PRESCRIPTIONS.—In the

23 case of a drug that either is not a multiple

24 source drug (as defined in paragraph (9)(A)) or

25 is a multiple source drug and has a restrictive
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1 prescription (as defined in paragraph (9)(B)),

2 the payment limit for the drug under this para3 graph for a payment calculation period is equal

4 to the lesser of—

5 ‘‘(i) the 90th percentile of the actual

6 charges (computed on a statewide basis,

7 carrier-wide basis, or other appropriate ge8 ographic area basis, as specified by the

9 Secretary) for the drug for the second pre10 vious payment calculation period, adjusted

11 (as the Secretary determines to be appro12 priate) to reflect the number of tablets (or

13 other dosage units) dispensed; or

14 ‘‘(ii) the amount of the administrative

15 allowance (established under paragraph

16 (4)) plus the product of—

17 ‘‘(I) the number of tablets (or

18 other dosage units) dispensed, and

19 ‘‘(II) the per tablet or unit aver20 age wholesale price for such drug (as

21 determined under subparagraph (C)

22 for the period for purposes of this

23 subparagraph).

24 ‘‘(B) PAYMENT LIMIT FOR MULTIPLE

25 SOURCE DRUGS WITHOUT RESTRICTIVE PRE-
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1 SCRIPTIONS.—In the case of a drug that is a

2 multiple source drug but does not have a re3 strictive prescription, the payment limit for the

4 drug under this paragraph for a payment cal5 culation period is equal to the amount of the

6 administrative allowance (established under

7 paragraph (4)) plus the product of—

8 ‘‘(i) the number of tablets (or other

9 dosage units) dispensed, and

10 ‘‘(ii) the unweighted median of the

11 per tablet or unit average wholesale prices

12 (determined under subparagraph (C) for

13 purposes of this subparagraph) for such

14 drug for the period.

15 ‘‘(C) DETERMINATION OF UNIT PRICE.—

16 ‘‘(i) IN GENERAL.—For purposes of

17 this paragraph, the Secretary shall deter18 mine, with respect to the dispensing of a

19 covered outpatient drug in a payment cal20 culation period (beginning on or after Jan21 uary 1, 2001), the per tablet or unit aver22 age wholesale price for the drug.

23 ‘‘(ii) BASIS FOR DETERMINATIONS.—

24 ‘‘(I) DETERMINATION FOR NON25 MULTIPLE-SOURCE DRUGS.—For pur-
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1 poses of subparagraph (A), such de2 termination shall be based on a bian3 nual survey conducted by the Sec4 retary of a representative sample of

5 direct sellers, wholesalers, or phar6 macies (as appropriate) of wholesale

7 (or comparable direct) prices (exclud8 ing discounts to pharmacies); except

9 that if, because of low volume of sales

10 for the drug or other appropriate rea11 sons or in the case of covered out12 patient drugs during 2001, the Sec13 retary determines that such a survey

14 is not appropriate with respect to a

15 specific drug, such determination shall

16 be based on published average whole17 sale (or comparable direct) prices for

18 the drug.

19 ‘‘(II) DETERMINATION FOR MUL20 TIPLE-SOURCE DRUGS.—For purposes

21 of subparagraph (B), the Secretary

22 may base the determination under

23 this subparagraph on the published

24 average wholesale (or comparable di25 rect) prices for the drug or on a bian-
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1 nual survey conducted by the Sec2 retary of a representative sample of

3 direct sellers, wholesalers, or phar4 macists (as appropriate) of wholesale

5 (or comparable direct) prices (exclud6 ing discounts to pharmacies).

7 ‘‘(III) COMPLIANCE WITH SUR8 VEY REQUIRED.—If a wholesaler or

9 direct seller of a covered outpatient

10 drug refuses, after being requested by

11 the Secretary, to provide the informa12 tion required in a survey under this

13 clause, or deliberately provides infor14 mation that is false, the Secretary

15 may impose a civil money penalty of

16 not to exceed $10,000 for each such

17 refusal or provision of false informa18 tion. The provisions of section 1128A

19 (other than subsections (a) and (b))

20 shall apply to civil money penalties

21 under the previous sentence in the

22 same manner as such provisions apply

23 to a penalty or proceeding under sec24 tion 1128A(a). Information gathered

25 pursuant to the survey shall not be
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1 disclosed except as the Secretary de2 termines to be necessary to carry out

3 the purposes of this part.

4 ‘‘(iii) QUANTITY AND TIMING.—Such

5 determination shall be based on the price

6 or prices for purchases in reasonable quan7 tities and shall be made for a payment cal8 culation period based on prices for the first

9 day of the first month of the previous pay10 ment calculation period.

11 ‘‘(iv) GEOGRAPHIC BASIS.—The Sec12 retary shall make such determination, and

13 calculate the payment limits under this

14 paragraph, on a national basis.

15 ‘‘(v) ADJUSTMENT FOR GEOGRAPHIC

16 VARIATIONS IN COSTS.—The Secretary

17 shall adjust the payment limits under this

18 paragraph to take account of limitations

19 on the availability of drug products and

20 variations among regions in the average

21 wholesale prices for a drug product, using

22 an appropriate index as determined by the

23 Secretary.

24 ‘‘(4) ADMINISTRATIVE ALLOWANCE FOR PUR25 POSES OF PAYMENT LIMITS.—
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1 ‘‘(A) IN GENERAL.—Except as provided in

2 subparagraph (B), for drugs dispensed in—

3 ‘‘(i) 2001, the administrative allow4 ance under this paragraph is—

5 ‘‘(I) $5.00 for drugs dispensed by

6 a participating pharmacy, or

7 ‘‘(II) $3.00 for drugs dispensed

8 by another pharmacy; or

9 ‘‘(ii) a subsequent year, the adminis10 trative allowance under this paragraph is

11 the administrative allowance under this

12 paragraph for the preceding year increased

13 by the percentage increase (if any) in the

14 implicit price deflator for gross national

15 product (as published by the Department

16 of Commerce in its ‘Survey of Current

17 Business’) over the 12-month period end18 ing with August of such preceding year.

19 Any allowance determined under the clause (ii)

20 which is not a multiple of 1 cent shall be round21 ed to the nearest multiple of 1 cent.

22 ‘‘(B) ADJUSTMENT IN ALLOWANCE FOR

23 MAIL SERVICE PHARMACIES.—The Secretary

24 may, by regulation and after consultation with

25 pharmacists, elderly groups, and private insur-
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1 ers, reduce the administrative allowances estab2 lished under subparagraph (A) for any drug

3 dispensed by a mail service pharmacy (as de4 fined by the Secretary) based on differences be5 tween such pharmacies and other pharmacies

6 with respect to operating costs and other econo7 mies.

8 ‘‘(5) ASSURING APPROPRIATE PRESCRIBING

9 AND DISPENSING PRACTICES.—

10 ‘‘(A) IN GENERAL.—The Secretary shall

11 establish a program to identify (and to educate

12 physicians and pharmacists concerning)—

13 ‘‘(i) instances or patterns of unneces14 sary or inappropriate prescribing or dis15 pensing practices for covered outpatient

16 drugs;

17 ‘‘(ii) instances or patterns of sub18 standard care with respect to such drugs;

19 and

20 ‘‘(iii) potential adverse reactions.

21 ‘‘(B) STANDARDS.—In carrying out the

22 program under subparagraph (A), the Secretary

23 shall establish for each covered outpatient drug

24 standards for the prescribing of the drug which

25 are based on accepted medical practice. In es-
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1 tablishing such standards, the Secretary shall

2 incorporate standards from such current au3 thoritative compendia as the Secretary may se4 lect; except that the Secretary may modify such

5 a standard by regulation on the basis of sci6 entific and medical information that such

7 standard is not consistent with the safe and ef8 fective use of the drug.

9 ‘‘(C) PROHIBITION OF FORMULARY.—

10 Nothing in this title (other than section

11 1862(c)) shall be construed as authorizing the

12 Secretary to exclude from coverage or to deny

13 payment—

14 ‘‘(i) for any specific covered out15 patient drug, or specific class of covered

16 outpatient drug; or

17 ‘‘(ii) for any specific use of such a

18 drug for a specific indication unless such

19 exclusion is pursuant to section 1862(a)(1)

20 based on a finding by the Secretary that

21 such use is not safe or is not effective.

22 ‘‘(6) TREATMENT OF CERTAIN PREPAID ORGA23 NIZATIONS.—

24 ‘‘(A) GENERAL RULE COUNTING PREPAID

25 PLAN EXPENSES TOWARD THE PRESCRIPTION
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1 DRUG DEDUCTIBLE.—Except as provided in

2 subparagraph (B), expenses incurred by (or on

3 behalf of) a medicare beneficiary for covered

4 outpatient drugs shall be counted (consistent

5 with subparagraph (C)) toward the prescription

6 drug deductible established under paragraph

7 (1) whether or not, at the time the expenses

8 were incurred, the beneficiary was enrolled in a

9 plan under section 1833(a)(1)(A), a

10 Medicare+Choice plan under part C, or under

11 section 1876.

12 ‘‘(B) TREATMENT OF DRUG BUY-OUT PLAN

13 EXPENSES.—In the case of a medicare bene14 ficiary enrolled in a month in a drug buy-out

15 plan (as defined in subparagraph (D))—

16 ‘‘(i) expenses incurred by the bene17 ficiary for covered outpatient drugs reim18 bursed under the plan shall not be counted

19 toward the prescription drug deductible,

20 but

21 ‘‘(ii) if the individual disenrolls from

22 the plan during the year, the beneficiary is

23 deemed to have incurred, for each month

24 of such enrollment, expenses for covered

25 outpatient drugs in an amount equal to the
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1 actuarial value (with respect to such

2 month) of the deductible for covered out3 patient drugs (as computed by the Sec4 retary for purposes of section 1876(e)(1))

5 applicable on the average to individuals in

6 the United States.

7 ‘‘(C) TREATMENT OF EXPENSES FOR COV8 ERED OUTPATIENT DRUGS INCURRED WHILE

9 ENROLLED IN A PREPAID PLAN OTHER THAN A

10 DRUG BUY-OUT PLAN.—The Secretary may not

11 enter into a contract with a Medicare+Choice

12 organization under part C, an organization

13 under section 1876, or provide for payment

14 under section 1833(a)(1)(A) with respect to an

15 organization which provides reimbursement for

16 covered outpatient drugs, with respect to a plan

17 that is not a drug buy-out plan, unless the or18 ganization provides assurances, satisfactory to

19 the Secretary, that—

20 ‘‘(i) the organization will maintain

21 and make available, for its enrollees and in

22 coordination with the appropriate carriers

23 under this part, an accounting of expenses

24 incurred by (or on behalf of) enrollees
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1 under the plan for covered outpatient

2 drugs; and

3 ‘‘(ii) the organization will take into

4 account, in any deductibles established

5 under the plan in a year with respect to

6 covered outpatient drugs under this part,

7 the amounts of expenses for covered out8 patient drugs incurred in the year by (or

9 on behalf of) the beneficiary and otherwise

10 counted toward the prescription drug de11 ductible in the year.

12 ‘‘(D) DRUG BUY-OUT PLAN DEFINED.—In

13 this paragraph, the term ‘drug buy-out plan’

14 means a plan under section 1833(a)(1)(A) or

15 offered by a Medicare+Choice organization

16 under part C, or an organization under section

17 1876 and with respect to which—

18 ‘‘(i) the amount of any deductible

19 under the plan with respect to covered out20 patient drugs under this title,

21 is less than 50 percent of—

22 ‘‘(ii) the prescription drug deductible

23 specified in paragraph (1)(C).

24 ‘‘(E) MEDICARE BENEFICIARY DEFINED.—

25 In this subsection, the term ‘Medicare bene-
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1 ficiary’ means, with respect to a month, an in2 dividual covered for benefits under this part for

3 the month.

4 ‘‘(F) TREATMENT OF PLAN CHARGES.—In

5 the case of covered outpatient drugs furnished

6 by a Medicare+Choice organization under part

7 C, an eligible organization under section

8 1876(b) or an organization described in section

9 1833(a)(1)(A) which does not impose charges

10 on covered outpatient drugs dispensed to its

11 members, for purposes of this subsection the

12 actual charges of the organization shall be the

13 organization’s standard charges to members,

14 and other individuals, not entitled to benefits

15 with respect to such drugs.

16 ‘‘(7) PHYSICIAN GUIDE.—

17 ‘‘(A) IN GENERAL.—The Secretary shall

18 develop, and update annually, an information

19 guide for physicians concerning the comparative

20 average wholesale prices of at least 500 of the

21 most commonly prescribed covered outpatient

22 drugs. Such guide shall, to the extent prac23 ticable, group covered outpatient drugs (includ24 ing multiple source drugs) in a manner useful

25 to physicians by therapeutic category or with
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1 respect to the conditions for which they are pre2 scribed. Such guide shall specify the average

3 wholesale prices on the basis of the amount of

4 the drug required for a typical daily therapeutic

5 regimen.

6 ‘‘(B) MAILING GUIDE.—The Secretary

7 shall provide for mailing, in January of each

8 year (beginning with 2001), a copy of the guide

9 developed and updated under subparagraph

10 (A)—

11 ‘‘(i) to each hospital with an agree12 ment in effect under section 1866;

13 ‘‘(ii) to each physician (as defined in

14 section 1861(r)(1)) who routinely provides

15 services under this part; and

16 ‘‘(iii) to Social Security offices, senior

17 citizen centers, and other appropriate

18 places.

19 ‘‘(8) REPORTS ON UTILIZATION AND EFFECTS

20 ON PRICES.—

21 ‘‘(A) COMPILATION OF INFORMATION.—

22 The Secretary shall compile information on—

23 ‘‘(i) manufacturers’ prices for covered

24 outpatient drugs, and on charges of phar25 macists for covered outpatient drugs, and
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1 ‘‘(ii) the use of covered outpatient

2 drugs by individuals entitled to benefits

3 under this part.

4 The information compiled under clause (i) shall

5 include a comparison of the increases in prices

6 and charges for covered outpatient drugs dur7 ing each 6 month period (beginning with Janu8 ary 1999) with the semiannual average increase

9 in such prices and charges during the 5 years

10 beginning with 1993.

11 ‘‘(B) REPORTS.—The Secretary shall sub12 mit to the Committees on Ways and Means and

13 Commerce of the House of Representatives and

14 the Committee on Finance of the Senate a re15 port, in May and November of 2000 and 2001

16 and in May of each succeeding year, providing

17 the information compiled under subparagraph

18 (A). For each such report submitted after

19 2002, the report shall include an explanation of

20 the extent to which the increases in outlays for

21 covered outpatient drugs under this part are

22 due to the factors described in subparagraphs

23 (A)(i) and (A)(ii).

24 ‘‘(9) DEFINITIONS.—In this subsection:

25 ‘‘(A) MULTIPLE SOURCE DRUG.—
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1 ‘‘(i) IN GENERAL.—The term ‘mul2 tiple source drug’ means, with respect to a

3 payment calculation period, a covered out4 patient drug for which there are 2 or more

5 drug products which—

6 ‘‘(I) are rated as therapeutically

7 equivalent (under the Food and Drug

8 Administration’s most recent publica9 tion of ‘Approved Drug Products with

10 Therapeutic Equivalence Evalua11 tions’);

12 ‘‘(II) except as provided in clause

13 (ii), are pharmaceutically equivalent

14 and bioequivalent, as defined in clause

15 (iii) and as determined by the Food

16 and Drug Administration; and

17 ‘‘(III) are sold or marketed dur18 ing the period.

19 ‘‘(ii) EXCEPTION.—Subclause (II) of

20 clause (i) shall not apply if the Food and

21 Drug Administration changes by regulation

22 (after an opportunity for public comment

23 of 90 days) the requirement that, for pur24 poses of the publication described in clause

25 (i)(I), in order for drug products to be
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1 rated as therapeutically equivalent, they

2 must be pharmaceutically equivalent and

3 bioequivalent, as defined in clause (iii).

4 ‘‘(iii) DEFINITIONS.—For purposes of

5 this subparagraph:

6 ‘‘(I) PHARMACEUTICALLY EQUIV7 ALENT.—Drug products are pharma8 ceutically equivalent if the products

9 contain identical amounts of the same

10 active drug ingredient in the same

11 dosage form and meet compendial or

12 other applicable standards of strength,

13 quality, purity, and identity.

14 ‘‘(II) BIOEQUIVALENT.—Drugs

15 are bioequivalent if they do not

16 present a known or potential bio17 equivalence problem or, if they do

18 present such a problem, are shown to

19 meet an appropriate standard of bio20 equivalence.

21 ‘‘(III) SOLD OR MARKETED.—A

22 drug is considered to be sold or mar23 keted during a period if it is listed in

24 the publications referred to in clause

25 (i)(I), unless the Secretary determines
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1 that such sale or marketing is not ac2 tually taking place.

3 ‘‘(B) RESTRICTIVE PRESCRIPTION.—A

4 drug has a ‘restrictive prescription’ only if—

5 ‘‘(i) in the case of a written prescrip6 tion, the prescription for the drug indi7 cates, in the handwriting of the physician

8 or other person prescribing the drug and

9 with an appropriate phrase (such as ‘brand

10 medically necessary’) recognized by the

11 Secretary, that the particular drug must be

12 dispensed; or

13 ‘‘(ii) in the case of a prescription

14 issued by telephone—

15 ‘‘(I) the physician or other per16 son prescribing the drug (through use

17 of such an appropriate phrase) states

18 that the particular drug must be dis19 pensed, and

20 ‘‘(II) the physician or other per21 son submits to the pharmacy involved,

22 within 30 days after the date of the

23 telephone prescription, a written con24 firmation which is in the handwriting

25 of the physician or other person pre-
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1 scribing the drug and which indicates

2 with such appropriate phrase that the

3 particular drug was required to have

4 been dispensed.

5 ‘‘(C) PAYMENT CALCULATION PERIOD.—

6 The term ‘payment calculation period’ means

7 the 6-month period beginning with January of

8 each year and the 6-month period beginning

9 with July of each year.’’.

10 (c) PARTICIPATING PHARMACIES; CIVIL MONEY

11 PENALTIES.—

12 (1) PARTICIPATING PHARMACIES.—Section

13 1842 of such Act (42 U.S.C. 1395t) is amended—

14 (A) in subsection (h)(1), by inserting be15 fore the period at the end of the second sen16 tence the following: ‘‘, except that, with respect

17 to a supplier of covered outpatient drugs, the

18 term ‘participating supplier’ means a partici19 pating pharmacy (as defined in subsection

20 (o)(1))’’;

21 (B) in subsection (h)(4), by adding at the

22 end the following: ‘‘In publishing directories

23 under this paragraph, the Secretary shall pro24 vide for separate directories (wherever appro25 priate) for participating pharmacies.’’; and
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1 (C) by inserting after subsection (t) the

2 following new subsection:

3 ‘‘(u)(1) For purposes of this section, the term ‘par4 ticipating pharmacy’ means, with respect to covered out5 patient drugs dispensed on or after January 1, 2001, an

6 entity which is authorized under a State law to dispense

7 covered outpatient drugs and which has entered into an

8 agreement with the Secretary, providing at least the fol9 lowing:

10 ‘‘(A) The entity agrees to accept payment under

11 this part on an assignment-related basis for all cov12 ered outpatient drugs dispensed to an individual en13 titled to benefits under this part (in this subsection

14 referred to as a ‘Medicare beneficiary’) during a

15 year after—

16 ‘‘(i) the Secretary has notified the entity,

17 through the electronic system described in para18 graph (4); or

19 ‘‘(ii) in the absence of such a system, the

20 entity is otherwise notified that the Secretary

21 has determined,

22 that the individual has met the prescription drug de23 ductible with respect to such drugs under section

24 1834(e)(1) for the year.

25 ‘‘(B) The entity agrees—
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1 ‘‘(i) not to refuse to dispense covered out2 patient drugs stocked by the entity to any medi3 care beneficiary; and

4 ‘‘(ii) not to charge Medicare beneficiaries

5 (regardless of whether or not the beneficiaries

6 are enrolled under a prepaid health plan, a

7 Medicare+Choice organization under part C, or

8 with eligible organization under section 1876)

9 more for such drugs than the amount it charges

10 to the general public (as determined by the Sec11 retary in regulations).

12 ‘‘(C) The entity agrees to keep patient records

13 (including records on expenses) for all covered out14 patient drugs dispensed to all medicare beneficiaries.

15 ‘‘(D) The entity agrees to submit information

16 (in a manner specified by the Secretary to be nec17 essary to administer this title) on all purchases of

18 covered outpatient drugs dispensed to medicare

19 beneficiaries.

20 ‘‘(E) The entity agrees—

21 ‘‘(i) to offer to counsel, or to offer to pro22 vide information (consistent with State law re23 specting the provision of such information) to,

24 each Medicare beneficiary on the appropriate

25 use of a drug to be dispensed and whether there
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1 are potential interactions between the drug and

2 other drugs dispensed to the beneficiary; and

3 ‘‘(ii) to advise the beneficiary on the avail4 ability (consistent with State laws respecting

5 substitution of drugs) of therapeutically equiva6 lent covered outpatient drugs.

7 ‘‘(F) The entity agrees to provide the informa8 tion requested by the Secretary in surveys under sec9 tion 1834(e)(3)(C)(ii).

10 Nothing in this paragraph shall be construed as requiring

11 a pharmacy operated by a Medicare+Choice organization

12 under part C, an eligible organization (described in section

13 1876(b)) or an organization described in section

14 1833(a)(1)(A) for the exclusive benefit of its members to

15 dispense covered outpatient drugs to individuals who are

16 not members of the organization.

17 ‘‘(2) The Secretary shall provide to each participating

18 pharmacy—

19 ‘‘(A) a distinctive emblem (suitable for display

20 to the public) indicating that the pharmacy is a par21 ticipating pharmacy; and

22 ‘‘(B) upon request, such electronic equipment

23 and technical assistance (other than the costs of ob24 taining, maintaining, or expanding telephone service)

25 as the Secretary determines may be necessary for
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•HR 1109 IH

1 the pharmacy to submit claims using the electronic

2 system established under paragraph (4).

3 ‘‘(3) The Secretary shall provide for periodic audits

4 of participating pharmacies to assure—

5 ‘‘(A) compliance with the requirements for par6 ticipation under this title; and

7 ‘‘(B) the accuracy of information submitted by

8 the pharmacies under this title.

9 ‘‘(4) The Secretary shall establish, by not later than

10 January 1, 2001, a point-of-sale electronic system for use

11 by carriers and participating pharmacies in the submission

12 of information respecting covered outpatient drugs dis13 pensed to medicare beneficiaries under this part.

14 ‘‘(5) Notwithstanding subsection (b)(3)(B), payment

15 for covered outpatient drugs may be made on the basis

16 of an assignment described in clause (ii) of that subsection

17 only to a participating pharmacy.’’.

18 (2) CIVIL MONEY PENALTIES FOR VIOLATION

19 OF PARTICIPATION AGREEMENT, FOR EXCESSIVE

20 CHARGES FOR NONPARTICIPATING PHARMACIES AND

21 FOR FAILURE TO PROVIDE SURVEY INFORMATION.—

22 Section 1128A(a) of such Act (42 U.S.C. 1320a–

23 7a(a)) is amended—
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•HR 1109 IH

1 (A) in paragraph (2)(C), by inserting ‘‘or

2 to be a participating pharmacy under section

3 1842(u)’’ after ‘‘1842(h)(1)’’;

4 (B) by striking ‘‘, or’’ at the end of para5 graph (6);

6 (C) by adding ‘‘or’’ at the end of para7 graph (7); and

8 (D) by inserting after paragraph (7) the

9 following new paragraph:

10 ‘‘(8) in the case of a participating or non11 participating pharmacy (as defined for purposes of

12 part B of title XVIII)—

13 ‘‘(A) presents or causes to be presented to

14 any person a request for payment for covered

15 outpatient drugs dispensed to an individual en16 titled to benefits under part B of title XVIII

17 and for which the amount charged by the phar18 macy is greater than the amount the pharmacy

19 charges the general public (as determined by

20 the Secretary in regulations), or

21 ‘‘(B) fails to provide the information re22 quested by the Secretary in a survey under sec23 tion 1834(e)(3)(C)(ii);’’.
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•HR 1109 IH

1 (d) LIMITATION ON LENGTH OF PRESCRIPTION.—

2 Section 1862(c) of such Act (42 U.S.C. 1395y(c)) is

3 amended—

4 (1) by redesignating subparagraphs (A) through

5 (D) of paragraph (1) as clauses (i) through (iv) re6 spectively;

7 (2) in paragraph (2)(A), by striking ‘‘paragraph

8 (1)’’ and inserting ‘‘subparagraph (A)’’;

9 (3) by redesignating subparagraphs (A) and

10 (B) of paragraph (2) as clauses (i) and (ii) respec11 tively;

12 (4) by redesignating paragraphs (1) and (2) as

13 subparagraphs (A) and (B) respectively;

14 (5) by inserting ‘‘(1)’’ after ‘‘(c)’’; and

15 (6) by adding at the end the following new

16 paragraph:

17 ‘‘(2) No payment may be made under part B for any

18 expense incurred for a covered outpatient drug if the drug

19 is dispensed in a quantity exceeding a supply of 30 days

20 or such longer period of time (not to exceed 90 days, ex21 cept in exceptional circumstances) as the Secretary may

22 authorize.’’.

23 (e) USE OF CARRIERS, FISCAL INTERMEDIARIES,

24 AND OTHER ENTITIES IN ADMINISTRATION.—
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•HR 1109 IH

1 (1) AUTHORIZING USE OF OTHER ENTITIES IN

2 ELECTRONIC CLAIMS SYSTEM.—Section 1842(f) of

3 such Act (42 U.S.C. 1395u(f)) is amended—

4 (A) by striking ‘‘and’’ at the end of para5 graph (1);

6 (B) by striking the period at the end of

7 paragraph (2) and inserting ‘‘; and’’; and

8 (C) by adding at the end the following new

9 paragraph:

10 ‘‘(3) with respect to implementation and oper11 ation (and related functions) of the electronic system

12 established under subsection (u)(4), a voluntary as13 sociation, corporation, partnership, or other non14 governmental organization, which the Secretary de15 termines to be qualified to conduct such activities.’’.

16 (2) ADDITIONAL FUNCTIONS OF CARRIERS.—

17 Section 1842(b)(3) of such Act (42 U.S.C.

18 1395u(b)(3)) is amended—

19 (A) by striking ‘‘and’’ at the end of sub20 paragraph (I);

21 (B) by redesignating subparagraph (L) as

22 subparagraph (J); and

23 (C) by inserting after subparagraph (J)

24 (as so redesignated) the following new subpara25 graphs:
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•HR 1109 IH

1 ‘‘(K) if it makes determinations or payments

2 with respect to covered outpatient drugs, will—

3 ‘‘(i) receive information transmitted under

4 the electronic system established under sub5 section (u)(4), and

6 ‘‘(ii) respond to requests by participating

7 pharmacies (and individuals entitled to benefits

8 under this part) as to whether or not such an

9 individual has met the prescription drug de10 ductible established under section

11 1834(e)(1)(A) for a year; and

12 ‘‘(L) will enter into such contracts with organi13 zations described in subsection (f)(3) as the Sec14 retary determines may be necessary to implement

15 and operate (and for related functions with respect

16 to) the electronic system established under sub17 section (u)(4) for covered outpatient drugs under

18 this part.’’.

19 (3) SPECIAL CONTRACT PROVISIONS FOR ELEC20 TRONIC CLAIMS SYSTEM.—

21 (A) PAYMENT ON OTHER THAN A COST

22 BASIS.—Section 1842(c)(1) of such Act (42

23 U.S.C. 1395u(c)(1)) is amended—

24 (i) by inserting ‘‘(A)’’ after ‘‘(c)(1)’’;
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•HR 1109 IH

1 (ii) in the first sentence, by inserting

2 ‘‘, except as provided in subparagraph

3 (B),’’ after ‘‘under this part, and’’; and

4 (iii) by adding at the end the fol5 lowing new subparagraph:

6 ‘‘(B) To the extent that a contract under this section

7 provides for implementation and operation (and related

8 functions) of the electronic system established under sub9 section (u)(4) for covered outpatient drugs, the Secretary

10 may provide for payment for such activities based on any

11 method of payment determined by the Secretary to be ap12 propriate.’’.

13 (B) APPLICATION OF DIFFERENT PER14 FORMANCE STANDARDS.—The Secretary of

15 Health and Human Services, before entering

16 into contracts under section 1842 of the Social

17 Security Act with respect to the implementation

18 and operation (and related functions) of the

19 electronic system for covered outpatient drugs,

20 shall establish standards with respect to per21 formance with respect to such activities. The

22 provisions of section 1153(e)(2) and paragraphs

23 (1) and (2) of section 1153(h) of such Act shall

24 apply to such activities in the same manner as

25 they apply to contracts with peer review organi-
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•HR 1109 IH

1 zations, instead of the requirements of the sec2 ond and third sentences of section

3 1842(b)(2)(A) of such Act.

4 (C) USE OF REGIONAL CARRIERS.—Section

5 1842(b)(2)(A) of such Act (42 U.S.C.

6 1395u(b)(2)(A)) is amended by adding at the

7 end the following new sentence: ‘‘With respect

8 to activities relating to implementation and op9 eration (and related functions) of the electronic

10 system established under subsection (u)(4), the

11 Secretary may enter into contracts with carriers

12 under this section to perform such activities on

13 a regional basis.’’.

14 (4) DELAY IN APPLICATION OF COORDINATED

15 BENEFITS WITH MEDIGAP.—The provisions of sub16 paragraph (B) of section 1842(h)(3) of the Social

17 Security Act shall not apply to covered outpatient

18 drugs (other than drugs described in section

19 1861(s)(2)(J) of such Act as of the date of the en20 actment of this Act) dispensed before January 1,

21 2002.

22 (5) BATCH PROMPT PROCESSING OF CLAIMS.—

23 Section 1842(c) of such Act (42 U.S.C. 1395u(c)),

24 is amended—
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1 (A) by redesignating paragraph (6) as

2 paragraph (7);

3 (B) in paragraphs (2)(A) and (3)(A), by

4 striking ‘‘Each’’ and inserting ‘‘Except as pro5 vided in paragraph (6), each’’; and

6 (C) by inserting after paragraph (5) the

7 following new paragraph:

8 ‘‘(6)(A) Each contract under this section which pro9 vides for the disbursement of funds, as described in sub10 section (a)(1)(B), with respect to claims for payment for

11 covered outpatient drugs shall provide for a payment cycle

12 under which each carrier will, on a monthly basis, make

13 a payment with respect to all claims which were received

14 and approved for payment in the period since the most

15 recent date on which such a payment was made with re16 spect to the participating pharmacy or individual submit17 ting the claim.

18 ‘‘(B) If payment is not issued, mailed, or otherwise

19 transmitted within 5 days of when such a payment is re20 quired to be made under subparagraph (A), interest shall

21 be paid at the rate used for purposes of section 3902(a)

22 of title 31, United States Code (relating to interest pen23 alties for failure to make prompt payments) for the period

24 beginning on the day after such 5-day period and ending

25 on the date on which payment is made.’’.
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1 (f) MODIFICATION OF HMO/CMP CONTRACTS.—

2 (1) SEPARATE ACTUARIAL DETERMINATION

3 FOR COVERED OUTPATIENT DRUG BENEFIT.—Sec4 tion 1876(e)(1) of such Act (42 U.S.C.

5 1395mm(e)(1)) is amended by adding at the end

6 thereof the following new sentence: ‘‘The preceding

7 sentence shall be applied separately with respect to

8 covered outpatient drugs.’’.

9 (2) ADDITIONAL OPTIONAL BENEFITS.—Section

10 1876(g)(3)(A) of such Act (42 U.S.C.

11 1395mm(g)(3)(A)) is amended by striking ‘‘rate’’

12 and inserting ‘‘rates’’.

13 (g) CONFORMING AMENDMENTS.—

14 (1) The first sentence of section 1866(a)(2)(A)

15 (42 U.S.C. 1395cc(a)(2)(A)) is amended—

16 (A) by inserting ‘‘1834(e),’’ after

17 ‘‘1833(b),’’; and

18 (B) by inserting ‘‘and in the case of cov19 ered outpatient drugs, applicable coinsurance

20 percent (specified in section 1834(e)(2)(C)) of

21 the lesser of the actual charges for the drugs or

22 the payment limit (established under section

23 1834(d)(3))’’ after ‘‘established by the Sec24 retary)’’.
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1 (2) Section 1903(i)(5) (42 U.S.C. 1396b(i)(5))

2 is amended by striking ‘‘section 1862(c)’’ and insert3 ing ‘‘section 1862(c)(1)’’.

4 (h) PRESCRIPTION DRUG PAYMENT REVIEW COM5 MISSION.—Part B is amended by inserting after section

6 1844 the following new section:

7 ‘‘PRESCRIPTION DRUG PAYMENT REVIEW COMMISSION

8 ‘‘SEC. 1845. (a)(1) The Director of the Congressional

9 Office of Technology Assessment (in this section referred

10 to as the ‘Director’ and the ‘Office’, respectively) shall

11 provide for the appointment of a Prescription Drug Pay12 ment Review Commission (in this section referred to as

13 the ‘Commission’), to be composed of individuals with ex14 pertise in the provision and financing of covered out15 patient drugs appointed by the Director (without regard

16 to the provisions of title 5, United States Code, governing

17 appointments in the competitive service).

18 ‘‘(2) The Commission shall consist of 11 individuals.

19 Members of the Commission shall first be appointed by

20 no later than January 1, 2000, for a term of 3 years, ex21 cept that the Director may provide initially for such short22 er terms as will ensure that (on a continuing basis) the

23 terms of no more than 4 members expire in any one year.

24 ‘‘(3) The membership of the Commission shall in25 clude recognized experts in the fields of health care eco26 nomics, medicine, pharmacology, pharmacy, and prescrip-
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1 tion drug reimbursement, as well as at least one individual

2 who is a medicare beneficiary.

3 ‘‘(b)(1) The Commission shall submit to Congress an

4 annual report no later than May 1 of each year, beginning

5 with 2001, concerning methods of determining payment

6 for covered outpatient drugs under this part.

7 ‘‘(2) Such report, in 2002 and thereafter, shall in8 clude, with respect to the previous year, information on—

9 ‘‘(A) increases in manufacturers’ prices for cov10 ered outpatient drugs and in charges of pharmacists

11 for covered outpatient drugs,

12 ‘‘(B) the level of utilization of covered out13 patient drugs by medicare beneficiaries, and

14 ‘‘(C) administrative costs relating to covered

15 outpatient drugs.

16 ‘‘(c) The following provisions of section 1805 shall

17 apply to the Commission in the same manner as they

18 apply to the Medicare Payment Advisory Commission:

19 ‘‘(1) Subsection (c)(4) (relating to compensa20 tion of members).

21 ‘‘(2) Subsection (d) (relating to staffing and ad22 ministration).

23 ‘‘(3) Subsection (e) (relating to powers of the

24 Commission generally).
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1 ‘‘(4) Subsection (f)(1) (relating to requests for

2 appropriations).

3 ‘‘(d) There are authorized to be appropriated such

4 sums as may be necessary to carry out the provisions of

5 this section. Such sums shall be payable from the Federal

6 Supplementary Medical Insurance Trust Fund.’’.

7 (i) DEVELOPMENT OF STANDARD MEDICARE CLAIMS

8 FORM.—

9 (1) The Secretary shall develop, in consultation

10 with representatives of pharmacies and other inter11 ested individuals, a standard claims form (and a

12 standard electronic claims format) to be used in re13 quests for payment for covered outpatient drugs

14 under the medicare program and other third-party

15 payors.

16 (2) Not later than October 1, 2000, the Sec17 retary shall distribute official sample copies of the

18 format developed under paragraph (1) to pharmacies

19 and other interested parties and by not later than

20 October 1, 2000, shall distribute official sample cop21 ies of the form developed under paragraph (1) to

22 pharmacies and other interested parties.

23 (j) EFFECTIVE DATES.—

24 (1) IN GENERAL.—Except as otherwise pro25 vided in this subsection, the amendments made by
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1 this section shall apply to items dispensed on or

2 after January 1, 2001.

3 (2) CARRIERS.—The amendments made by sub4 section (e) shall take effect on the date of the enact5 ment of this Act; except that the amendments made

6 by subsection (e)(5) shall take effect on January 1,

7 2002, but shall not be construed as requiring pay8 ment before February 1, 2002.

9 (3) HMO/CMP ENROLLMENTS.—The amend10 ment made by subsection (f) shall apply to enroll11 ments effected on or after January 1, 2001.

Æ