PUBLIC LAW 108–173—DEC. 8, 2003

MEDICARE PRESCRIPTION DRUG,

IMPROVEMENT, AND MODERNIZATION ACT

OF 2003

117 STAT. 2066 PUBLIC LAW 108–173—DEC. 8, 2003

Public Law 108–173

108th Congress

An Act

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 the

Medicare Program, to amend the Internal Revenue Code of 1986 to allow a

deduction to individuals for amounts contributed to health savings security accounts and health savings accounts, to provide for the disposition of unused

health benefits in cafeteria plans and flexible spending arrangements, and for

other purposes.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT;

REFERENCES TO BIPA AND SECRETARY; TABLE OF CONTENTS.

(a) SHORT TITLE.—This Act may be cited as the ‘‘Medicare

Prescription Drug, Improvement, and Modernization Act of 2003’’.

(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Except as otherwise specifically provided, whenever in division A of 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 for 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. Medicare prescription drug benefit.

Sec. 102. Medicare Advantage conforming amendments.

Sec. 103. Medicaid amendments.

Sec. 104. Medigap amendments.

Sec. 105. Additional provisions relating to medicare prescription drug discount card

and transitional assistance program.

Sec. 106. State Pharmaceutical Assistance Transition Commission.

Sec. 107. Studies and reports.

Sec. 108. Grants to physicians to implement electronic prescription drug programs.

Sec. 109. Expanding the work of medicare Quality Improvement Organizations to

include parts C and D.

Sec. 110. Conflict of interest study.

Sec. 111. Study on employment-based retiree health coverage.

42 USC 1301

note.

42 USC 1305

note.

Medicare

Prescription

Drug,

Improvement,

and

Modernization

Act of 2003.

Dec. 8, 2003

[H.R. 1]

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2067

TITLE II—MEDICARE ADVANTAGE

Subtitle A—Implementation of Medicare Advantage Program

Sec. 201. Implementation of Medicare Advantage program.

Subtitle B—Immediate Improvements

Sec. 211. Immediate improvements.

Subtitle C—Offering of Medicare Advantage (MA) Regional Plans; Medicare

Advantage Competition

Sec. 221. Establishment of MA regional plans.

Sec. 222. Competition program beginning in 2006.

Sec. 223. Effective date.

Subtitle D—Additional Reforms

Sec. 231. Specialized MA plans for special needs individuals.

Sec. 232. Avoiding duplicative State regulation.

Sec. 233. Medicare MSAs.

Sec. 234. Extension of reasonable cost contracts.

Sec. 235. Two-year extension of municipal health service demonstration projects.

Sec. 236. Payment by PACE providers for medicare and medicaid services furnished by noncontract providers.

Sec. 237. Reimbursement for federally qualified health centers providing services

under MA plans.

Sec. 238. Institute of Medicine evaluation and report on health care performance

measures.

Subtitle E—Comparative Cost Adjustment (CCA) Program

Sec. 241. Comparative Cost Adjustment (CCA) program.

TITLE III—COMBATTING WASTE, FRAUD, AND ABUSE

Sec. 301. Medicare secondary payor (MSP) provisions.

Sec. 302. Payment for durable medical equipment; competitive acquisition of certain items and services.

Sec. 303. Payment reform for covered outpatient drugs and biologicals.

Sec. 304. Extension of application of payment reform for covered outpatient drugs

and biologicals to other physician specialties.

Sec. 305. Payment for inhalation drugs.

Sec. 306. Demonstration project for use of recovery audit contractors.

Sec. 307. Pilot program for national and State background checks on direct patient

access employees of long-term care facilities or providers.

TITLE IV—RURAL PROVISIONS

Subtitle A—Provisions Relating to Part A Only

Sec. 401. Equalizing urban and rural standardized payment amounts under the

medicare inpatient hospital prospective payment system.

Sec. 402. Enhanced disproportionate share hospital (DSH) treatment for rural hospitals and urban hospitals with fewer than 100 beds.

Sec. 403. Adjustment to the medicare inpatient hospital prospective payment system wage index to revise the labor-related share of such index.

Sec. 404. More frequent update in weights used in hospital market basket.

Sec. 405. Improvements to critical access hospital program.

Sec. 406. Medicare inpatient hospital payment adjustment for low-volume hospitals.

Sec. 407. Treatment of missing cost reporting periods for sole community hospitals.

Sec. 408. Recognition of attending nurse practitioners as attending physicians to

serve hospice patients.

Sec. 409. Rural hospice demonstration project.

Sec. 410. Exclusion of certain rural health clinic and federally qualified health center services from the prospective payment system for skilled nursing facilities.

Sec. 410A. Rural community hospital demonstration program.

Subtitle B—Provisions Relating to Part B Only

Sec. 411. Two-year extension of hold harmless provisions for small rural hospitals

and sole community hospitals under the prospective payment system for

hospital outpatient department services.

Sec. 412. Establishment of floor on work geographic adjustment.

Sec. 413. Medicare incentive payment program improvements for physician scarcity.

117 STAT. 2068 PUBLIC LAW 108–173—DEC. 8, 2003

Sec. 414. Payment for rural and urban ambulance services.

Sec. 415. Providing appropriate coverage of rural air ambulance services.

Sec. 416. Treatment of certain clinical diagnostic laboratory tests furnished to hospital outpatients in certain rural areas.

Sec. 417. Extension of telemedicine demonstration project.

Sec. 418. Report on demonstration project permitting skilled nursing facilities to be

originating telehealth sites; authority to implement.

Subtitle C—Provisions Relating to Parts A and B

Sec. 421. One-year increase for home health services furnished in a rural area.

Sec. 422. Redistribution of unused resident positions.

Subtitle D—Other Provisions

Sec. 431. Providing safe harbor for certain collaborative efforts that benefit medically underserved populations.

Sec. 432. Office of Rural Health Policy improvements.

Sec. 433. MedPAC study on rural hospital payment adjustments.

Sec. 434. Frontier extended stay clinic demonstration project.

TITLE V—PROVISIONS RELATING TO PART A

Subtitle A—Inpatient Hospital Services

Sec. 501. Revision of acute care hospital payment updates.

Sec. 502. Revision of the indirect medical education (IME) adjustment percentage.

Sec. 503. Recognition of new medical technologies under inpatient hospital prospective payment system.

Sec. 504. Increase in Federal rate for hospitals in Puerto Rico.

Sec. 505. Wage index adjustment reclassification reform.

Sec. 506. Limitation on charges for inpatient hospital contract health services provided to Indians by medicare participating hospitals.

Sec. 507. Clarifications to certain exceptions to medicare limits on physician referrals.

Sec. 508. One-time appeals process for hospital wage index classification.

Subtitle B—Other Provisions

Sec. 511. Payment for covered skilled nursing facility services.

Sec. 512. Coverage of hospice consultation services.

Sec. 513. Study on portable diagnostic ultrasound services for beneficiaries in

skilled nursing facilities.

TITLE VI—PROVISIONS RELATING TO PART B

Subtitle A—Provisions Relating to Physicians’ Services

Sec. 601. Revision of updates for physicians’ services.

Sec. 602. Treatment of physicians’ services furnished in Alaska.

Sec. 603. Inclusion of podiatrists, dentists, and optometrists under private contracting authority.

Sec. 604. GAO study on access to physicians’ services.

Sec. 605. Collaborative demonstration-based review of physician practice expense

geographic adjustment data.

Sec. 606. MedPAC report on payment for physicians’ services.

Subtitle B—Preventive Services

Sec. 611. Coverage of an initial preventive physical examination.

Sec. 612. Coverage of cardiovascular screening blood tests.

Sec. 613. Coverage of diabetes screening tests.

Sec. 614. Improved payment for certain mammography services.

Subtitle C—Other Provisions

Sec. 621. Hospital outpatient department (HOPD) payment reform.

Sec. 622. Limitation of application of functional equivalence standard.

Sec. 623. Payment for renal dialysis services.

Sec. 624. Two-year moratorium on therapy caps; provisions relating to reports.

Sec. 625. Waiver of part B late enrollment penalty for certain military retirees; special enrollment period.

Sec. 626. Payment for services furnished in ambulatory surgical centers.

Sec. 627. Payment for certain shoes and inserts under the fee schedule for orthotics

and prosthetics.

Sec. 628. Payment for clinical diagnostic laboratory tests.

Sec. 629. Indexing part B deductible to inflation.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2069

Sec. 630. Five-year authorization of reimbursement for all medicare part B services

furnished by certain Indian hospitals and clinics.

Subtitle D—Additional Demonstrations, Studies, and Other Provisions

Sec. 641. Demonstration project for coverage of certain prescription drugs and

biologicals.

Sec. 642. Extension of coverage of Intravenous Immune Globulin (IVIG) for the

treatment of primary immune deficiency diseases in the home.

Sec. 643. MedPAC study of coverage of surgical first assisting services of certified

registered nurse first assistants.

Sec. 644. MedPAC study of payment for cardio-thoracic surgeons.

Sec. 645. Studies relating to vision impairments.

Sec. 646. Medicare health care quality demonstration programs.

Sec. 647. MedPAC study on direct access to physical therapy services.

Sec. 648. Demonstration project for consumer-directed chronic outpatient services.

Sec. 649. Medicare care management performance demonstration.

Sec. 650. GAO study and report on the propagation of concierge care.

Sec. 651. Demonstration of coverage of chiropractic services under medicare.

TITLE VII—PROVISIONS RELATING TO PARTS A AND B

Subtitle A—Home Health Services

Sec. 701. Update in home health services.

Sec. 702. Demonstration project to clarify the definition of homebound.

Sec. 703. Demonstration project for medical adult day care services.

Sec. 704. Temporary suspension of OASIS requirement for collection of data on

non-medicare and non-medicaid patients.

Sec. 705. MedPAC study on medicare margins of home health agencies.

Sec. 706. Coverage of religious nonmedical health care institution services furnished in the home.

Subtitle B—Graduate Medical Education

Sec. 711. Extension of update limitation on high cost programs.

Sec. 712. Exception to initial residency period for geriatric residency or fellowship

programs.

Sec. 713. Treatment of volunteer supervision.

Subtitle C—Chronic Care Improvement

Sec. 721. Voluntary chronic care improvement under traditional fee-for-service.

Sec. 722. Medicare Advantage quality improvement programs.

Sec. 723. Chronically ill medicare beneficiary research, data, demonstration strategy.

Subtitle D—Other Provisions

Sec. 731. Improvements in national and local coverage determination process to respond to changes in technology.

Sec. 732. Extension of treatment of certain physician pathology services under

medicare.

Sec. 733. Payment for pancreatic islet cell investigational transplants for medicare

beneficiaries in clinical trials.

Sec. 734. Restoration of medicare trust funds.

Sec. 735. Modifications to Medicare Payment Advisory Commission (MedPAC).

Sec. 736. Technical amendments.

TITLE VIII—COST CONTAINMENT

Subtitle A—Cost Containment

Sec. 801. Inclusion in annual report of medicare trustees of information on status

of medicare trust funds.

Sec. 802. Presidential submission of legislation.

Sec. 803. Procedures in the House of Representatives.

Sec. 804. Procedures in the Senate.

Subtitle B—Income-Related Reduction in Part B Premium Subsidy

Sec. 811. Income-related reduction in part B premium subsidy.

TITLE IX—ADMINISTRATIVE IMPROVEMENTS, REGULATORY

REDUCTION, AND CONTRACTING REFORM

Sec. 900. Administrative improvements within the Centers for Medicare & Medicaid Services (CMS).

117 STAT. 2070 PUBLIC LAW 108–173—DEC. 8, 2003

Subtitle A—Regulatory Reform

Sec. 901. Construction; definition of supplier.

Sec. 902. Issuance of regulations.

Sec. 903. Compliance with changes in regulations and policies.

Sec. 904. Reports and studies relating to regulatory reform.

Subtitle B—Contracting Reform

Sec. 911. Increased flexibility in medicare administration.

Sec. 912. Requirements for information security for medicare administrative contractors.

Subtitle C—Education and Outreach

Sec. 921. Provider education and technical assistance.

Sec. 922. Small provider technical assistance demonstration program.

Sec. 923. Medicare Beneficiary Ombudsman.

Sec. 924. Beneficiary outreach demonstration program.

Sec. 925. Inclusion of additional information in notices to beneficiaries about skilled

nursing facility benefits.

Sec. 926. Information on medicare-certified skilled nursing facilities in hospital discharge plans.

Subtitle D—Appeals and Recovery

Sec. 931. Transfer of responsibility for medicare appeals.

Sec. 932. Process for expedited access to review.

Sec. 933. Revisions to medicare appeals process.

Sec. 934. Prepayment review.

Sec. 935. Recovery of overpayments.

Sec. 936. Provider enrollment process; right of appeal.

Sec. 937. Process for correction of minor errors and omissions without pursuing appeals process.

Sec. 938. Prior determination process for certain items and services; advance beneficiary notices.

Sec. 939. Appeals by providers when there is no other party available.

Sec. 940. Revisions to appeals timeframes and amounts.

Sec. 940A. Mediation process for local coverage determinations.

Subtitle E—Miscellaneous Provisions

Sec. 941. Policy development regarding evaluation and management (E & M) documentation guidelines.

Sec. 942. Improvement in oversight of technology and coverage.

Sec. 943. Treatment of hospitals for certain services under medicare secondary

payor (MSP) provisions.

Sec. 944. EMTALA improvements.

Sec. 945. Emergency Medical Treatment and Labor Act (EMTALA) Technical Advisory Group.

Sec. 946. Authorizing use of arrangements to provide core hospice services in certain circumstances.

Sec. 947. Application of OSHA bloodborne pathogens standard to certain hospitals.

Sec. 948. BIPA-related technical amendments and corrections.

Sec. 949. Conforming authority to waive a program exclusion.

Sec. 950. Treatment of certain dental claims.

Sec. 951. Furnishing hospitals with information to compute DSH formula.

Sec. 952. Revisions to reassignment provisions.

Sec. 953. Other provisions.

TITLE X—MEDICAID AND MISCELLANEOUS PROVISIONS

Subtitle A—Medicaid Provisions

Sec. 1001. Medicaid disproportionate share hospital (DSH) payments.

Sec. 1002. Clarification of inclusion of inpatient drug prices charged to certain public hospitals in the best price exemptions for the medicaid drug rebate

program.

Sec. 1003. Extension of moratorium.

Subtitle B—Miscellaneous Provisions

Sec. 1011. Federal reimbursement of emergency health services furnished to undocumented aliens.

Sec. 1012. Commission on Systemic Interoperability.

Sec. 1013. Research on outcomes of health care items and services.

Sec. 1014. Health care that works for all Americans: Citizens Health Care Working

Group.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2071

Sec. 1015. Funding start-up administrative costs for medicare reform.

Sec. 1016. Health care infrastructure improvement program.

TITLE XI—ACCESS TO AFFORDABLE PHARMACEUTICALS

Subtitle A—Access to Affordable Pharmaceuticals

Sec. 1101. Thirty-month stay-of-effectiveness period.

Sec. 1102. Forfeiture of 180-day exclusivity period.

Sec. 1103. Bioavailability and bioequivalence.

Sec. 1104. Conforming amendments.

Subtitle B—Federal Trade Commission Review

Sec. 1111. Definitions.

Sec. 1112. Notification of agreements.

Sec. 1113. Filing deadlines.

Sec. 1114. Disclosure exemption.

Sec. 1115. Enforcement.

Sec. 1116. Rulemaking.

Sec. 1117. Savings clause.

Sec. 1118. Effective date.

Subtitle C—Importation of Prescription Drugs

Sec. 1121. Importation of prescription drugs.

Sec. 1122. Study and report on importation of drugs.

Sec. 1123. Study and report on trade in pharmaceuticals.

TITLE XII—TAX INCENTIVES FOR HEALTH AND RETIREMENT

SECURITY

Sec. 1201. Health savings accounts.

Sec. 1202. Exclusion from gross income of certain Federal subsidies for prescription

drug plans.

Sec. 1203. Exception to information reporting requirements related to certain

health arrangements.

TITLE I—MEDICARE PRESCRIPTION

DRUG BENEFIT

SEC. 101. 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

‘‘Subpart 1—Part D Eligible Individuals and Prescription Drug

Benefits

‘‘ELIGIBILITY, ENROLLMENT, AND INFORMATION

‘‘SEC. 1860D–1. (a) PROVISION OF QUALIFIED PRESCRIPTION

DRUG COVERAGE THROUGH ENROLLMENT IN PLANS.—

‘‘(1) IN GENERAL.—Subject to the succeeding provisions of

this part, each part D eligible individual (as defined in paragraph (3)(A)) is entitled to obtain qualified prescription drug

coverage (described in section 1860D–2(a)) as follows:

‘‘(A) FEE-FOR-SERVICE ENROLLEES MAY RECEIVE COVERAGE THROUGH A PRESCRIPTION DRUG PLAN.—A part D

eligible individual who is not enrolled in an MA plan may

obtain qualified prescription drug coverage through enrollment in a prescription drug plan (as defined in section

1860D–41(a)(14)).

‘‘(B) MEDICARE ADVANTAGE ENROLLEES.—

42 USC

1395w–101.

117 STAT. 2072 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(i) ENROLLEES IN A PLAN PROVIDING QUALIFIED

PRESCRIPTION DRUG COVERAGE RECEIVE COVERAGE

THROUGH THE PLAN.—A part D eligible individual who

is enrolled in an MA–PD plan obtains such coverage

through such plan.

‘‘(ii) LIMITATION ON ENROLLMENT OF MA PLAN

ENROLLEES IN PRESCRIPTION DRUG PLANS.—Except as

provided in clauses (iii) and (iv), a part D eligible

individual who is enrolled in an MA plan may not

enroll in a prescription drug plan under this part.

‘‘(iii) PRIVATE FEE-FOR-SERVICE ENROLLEES IN MA

PLANS NOT PROVIDING QUALIFIED PRESCRIPTION DRUG

COVERAGE PERMITTED TO ENROLL IN A PRESCRIPTION

DRUG PLAN.—A part D eligible individual who is

enrolled in an MA private fee-for-service plan (as

defined in section 1859(b)(2)) that does not provide

qualified prescription drug coverage may obtain qualified prescription drug coverage through enrollment in

a prescription drug plan.

‘‘(iv) ENROLLEES IN MSA PLANS PERMITTED TO

ENROLL IN A PRESCRIPTION DRUG PLAN.—A part D

eligible individual who is enrolled in an MSA plan

(as defined in section 1859(b)(3)) may obtain qualified

prescription drug coverage through enrollment in a

prescription drug plan.

‘‘(2) COVERAGE FIRST EFFECTIVE JANUARY 1, 2006.—Coverage

under prescription drug plans and MA–PD plans shall first

be effective on January 1, 2006.

‘‘(3) DEFINITIONS.—For purposes of this part:

‘‘(A) PART D ELIGIBLE INDIVIDUAL.—The term ‘part D

eligible individual’ means an individual who is entitled

to benefits under part A or enrolled under part B.

‘‘(B) MA PLAN.—The term ‘MA plan’ has the meaning

given such term in section 1859(b)(1).

‘‘(C) MA–PD PLAN.—The term ‘MA–PD plan’ means

an MA plan that provides qualified prescription drug coverage.

‘‘(b) ENROLLMENT PROCESS FOR PRESCRIPTION DRUG PLANS.—

‘‘(1) ESTABLISHMENT OF PROCESS.—

‘‘(A) IN GENERAL.—The Secretary shall establish a

process for the enrollment, disenrollment, termination, and

change of enrollment of part D eligible individuals in

prescription drug plans consistent with this subsection.

‘‘(B) APPLICATION OF MA RULES.—In establishing such

process, the Secretary shall use rules similar to (and coordinated with) the rules for enrollment, disenrollment, termination, and change of enrollment with an MA–PD plan

under the following provisions of section 1851:

‘‘(i) RESIDENCE REQUIREMENTS.—Section

1851(b)(1)(A), relating to residence requirements.

‘‘(ii) EXERCISE OF CHOICE.—Section 1851(c) (other

than paragraph (3)(A) of such section), relating to exercise of choice.

‘‘(iii) COVERAGE ELECTION PERIODS.—Subject to

paragraphs (2) and (3) of this subsection, section

1851(e) (other than subparagraphs (B) and (C) of paragraph (2) and the second sentence of paragraph (4)

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2073

of such section), relating to coverage election periods,

including initial periods, annual coordinated election

periods, special election periods, and election periods

for exceptional circumstances.

‘‘(iv) COVERAGE PERIODS.—Section 1851(f), relating

to effectiveness of elections and changes of elections.

‘‘(v) GUARANTEED ISSUE AND RENEWAL.—Section

1851(g) (other than paragraph (2) of such section and

clause (i) and the second sentence of clause (ii) of

paragraph (3)(C) of such section), relating to guaranteed issue and renewal.

‘‘(vi) MARKETING MATERIAL AND APPLICATION

FORMS.—Section 1851(h), relating to approval of marketing material and application forms.

In applying clauses (ii), (iv), and (v) of this subparagraph,

any reference to section 1851(e) shall be treated as a reference to such section as applied pursuant to clause (iii)

of this subparagraph.

‘‘(C) SPECIAL RULE.—The process established under

subparagraph (A) shall include, in the case of a part D

eligible individual who is a full-benefit dual eligible individual (as defined in section 1935(c)(6)) who has failed

to enroll in a prescription drug plan or an MA–PD plan,

for the enrollment in a prescription drug plan that has

a monthly beneficiary premium that does not exceed the

premium assistance available under section 1860D–

14(a)(1)(A)). If there is more than one such plan available,

the Secretary shall enroll such an individual on a random

basis among all such plans in the PDP region. Nothing

in the previous sentence shall prevent such an individual

from declining or changing such enrollment.

‘‘(2) INITIAL ENROLLMENT PERIOD.—

‘‘(A) PROGRAM INITIATION.—In the case of an individual

who is a part D eligible individual as of November 15,

2005, there shall be an initial enrollment period that shall

be the same as the annual, coordinated open election period

described in section 1851(e)(3)(B)(iii), as applied under

paragraph (1)(B)(iii).

‘‘(B) CONTINUING PERIODS.—In the case of an individual

who becomes a part D eligible individual after November

15, 2005, there shall be an initial enrollment period which

is the period under section 1851(e)(1), as applied under

paragraph (1)(B)(iii) of this section, as if ‘entitled to benefits

under part A or enrolled under part B’ were substituted

for ‘entitled to benefits under part A and enrolled under

part B’, but in no case shall such period end before the

period described in subparagraph (A).

‘‘(3) ADDITIONAL SPECIAL ENROLLMENT PERIODS.—The Secretary shall establish special enrollment periods, including the

following:

‘‘(A) INVOLUNTARY LOSS OF CREDITABLE PRESCRIPTION

DRUG COVERAGE.—

‘‘(i) IN GENERAL.—In the case of a part D eligible

individual who involuntarily loses creditable prescription drug coverage (as defined in section 1860D–

13(b)(4)).

117 STAT. 2074 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(ii) NOTICE.—In establishing special enrollment

periods under clause (i), the Secretary shall take into

account when the part D eligible individuals are provided notice of the loss of creditable prescription drug

coverage.

‘‘(iii) FAILURE TO PAY PREMIUM.—For purposes of

clause (i), a loss of coverage shall be treated as voluntary if the coverage is terminated because of failure

to pay a required beneficiary premium.

‘‘(iv) REDUCTION IN COVERAGE.—For purposes of

clause (i), a reduction in coverage so that the coverage

no longer meets the requirements under section

1860D–13(b)(5) (relating to actuarial equivalence) shall

be treated as an involuntary loss of coverage.

‘‘(B) ERRORS IN ENROLLMENT.—In the case described

in section 1837(h) (relating to errors in enrollment), in

the same manner as such section applies to part B.

‘‘(C) EXCEPTIONAL CIRCUMSTANCES.—In the case of part

D eligible individuals who meet such exceptional conditions

(in addition to those conditions applied under paragraph

(1)(B)(iii)) as the Secretary may provide.

‘‘(D) MEDICAID COVERAGE.—In the case of an individual

(as determined by the Secretary) who is a full-benefit dual

eligible individual (as defined in section 1935(c)(6)).

‘‘(E) DISCONTINUANCE OF MA–PD ELECTION DURING

FIRST YEAR OF ELIGIBILITY.—In the case of a part D eligible

individual who discontinues enrollment in an MA–PD plan

under the second sentence of section 1851(e)(4) at the time

of the election of coverage under such sentence under the

original medicare fee-for-service program.

‘‘(4) INFORMATION TO FACILITATE ENROLLMENT.—

‘‘(A) IN GENERAL.—Notwithstanding any other provision of law but subject to subparagraph (B), the Secretary

may provide to each PDP sponsor and MA organization

such identifying information about part D eligible individuals as the Secretary determines to be necessary to facilitate efficient marketing of prescription drug plans and

MA–PD plans to such individuals and enrollment of such

individuals in such plans.

‘‘(B) LIMITATION.—

‘‘(i) PROVISION OF INFORMATION.—The Secretary

may provide the information under subparagraph (A)

only to the extent necessary to carry out such subparagraph.

‘‘(ii) USE OF INFORMATION.—Such information provided by the Secretary to a PDP sponsor or an MA

organization may be used by such sponsor or organization only to facilitate marketing of, and enrollment

of part D eligible individuals in, prescription drug plans

and MA–PD plans.

‘‘(5) REFERENCE TO ENROLLMENT PROCEDURES FOR MA–PD

PLANS.—For rules applicable to enrollment, disenrollment,

termination, and change of enrollment of part D eligible individuals in MA–PD plans, see section 1851.

‘‘(6) REFERENCE TO PENALTIES FOR LATE ENROLLMENT.— Section 1860D–13(b) imposes a late enrollment penalty for part

D eligible individuals who—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2075

‘‘(A) enroll in a prescription drug plan or an MA–

PD plan after the initial enrollment period described in

paragraph (2); and

‘‘(B) fail to maintain continuous creditable prescription

drug coverage during the period of non-enrollment.

‘‘(c) PROVIDING INFORMATION TO BENEFICIARIES.— ‘‘(1) ACTIVITIES.—The Secretary shall conduct activities that

are designed to broadly disseminate information to part D

eligible individuals (and prospective part D eligible individuals)

regarding the coverage provided under this part. Such activities

shall ensure that such information is first made available at

least 30 days prior to the initial enrollment period described

in subsection (b)(2)(A).

‘‘(2) REQUIREMENTS.—The activities described in paragraph

(1) shall—

‘‘(A) be similar to the activities performed by the Secretary under section 1851(d), including dissemination

(including through the toll-free telephone number 1–800–

MEDICARE) of comparative information for prescription

drug plans and MA–PD plans; and

‘‘(B) be coordinated with the activities performed by

the Secretary under such section and under section 1804.

‘‘(3) COMPARATIVE INFORMATION.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), the

comparative information referred to in paragraph (2)(A)

shall include a comparison of the following with respect

to qualified prescription drug coverage:

‘‘(i) BENEFITS.—The benefits provided under the

plan.

‘‘(ii) MONTHLY BENEFICIARY PREMIUM.—The

monthly beneficiary premium under the plan.

‘‘(iii) QUALITY AND PERFORMANCE.—The quality

and performance under the plan.

‘‘(iv) BENEFICIARY COST-SHARING.—The costsharing required of part D eligible individuals under

the plan.

‘‘(v) CONSUMER SATISFACTION SURVEYS.—The

results of consumer satisfaction surveys regarding the

plan conducted pursuant to section 1860D–4(d).

‘‘(B) EXCEPTION FOR UNAVAILABILITY OF INFORMA- TION.—The Secretary is not required to provide comparative information under clauses (iii) and (v) of subparagraph

(A) with respect to a plan—

‘‘(i) for the first plan year in which it is offered;

and

‘‘(ii) for the next plan year if it is impracticable

or the information is otherwise unavailable.

‘‘(4) INFORMATION ON LATE ENROLLMENT PENALTY.—The

information disseminated under paragraph (1) shall include

information concerning the methodology for determining the

late enrollment penalty under section 1860D–13(b).

‘‘PRESCRIPTION DRUG BENEFITS

‘‘SEC. 1860D–2. (a) REQUIREMENTS.— ‘‘(1) IN GENERAL.—For purposes of this part and part C,

the term ‘qualified prescription drug coverage’ means either

of the following:

42 USC

1395w–102.

117 STAT. 2076 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(A) STANDARD PRESCRIPTION DRUG COVERAGE WITH

ACCESS TO NEGOTIATED PRICES.—Standard prescription

drug coverage (as defined in subsection (b)) and access

to negotiated prices under subsection (d).

‘‘(B) ALTERNATIVE PRESCRIPTION DRUG COVERAGE WITH

AT LEAST ACTUARIALLY EQUIVALENT BENEFITS AND ACCESS

TO NEGOTIATED PRICES.—Coverage of covered part D drugs

which meets the alternative prescription drug coverage

requirements of subsection (c) and access to negotiated

prices under subsection (d), but only if the benefit design

of such coverage is approved by the Secretary, as provided

under subsection (c).

‘‘(2) PERMITTING SUPPLEMENTAL PRESCRIPTION DRUG COV- ERAGE.—‘‘(A) IN GENERAL.—Subject to subparagraph (B), qualified prescription drug coverage may include supplemental

prescription drug coverage consisting of either or both of

the following:

‘‘(i) CERTAIN REDUCTIONS IN COST-SHARING.—

‘‘(I) IN GENERAL.—A reduction in the annual

deductible, a reduction in the coinsurance percentage, or an increase in the initial coverage limit

with respect to covered part D drugs, or any combination thereof, insofar as such a reduction or

increase increases the actuarial value of benefits

above the actuarial value of basic prescription drug

coverage.

‘‘(II) CONSTRUCTION.—Nothing in this paragraph shall be construed as affecting the application of subsection (c)(3).

‘‘(ii) OPTIONAL DRUGS.—Coverage of any product

that would be a covered part D drug but for the application of subsection (e)(2)(A).

‘‘(B) REQUIREMENT.—A PDP sponsor may not offer a

prescription drug plan that provides supplemental prescription drug coverage pursuant to subparagraph (A) in an

area unless the sponsor also offers a prescription drug

plan in the area that only provides basic prescription drug

coverage.

‘‘(3) BASIC PRESCRIPTION DRUG COVERAGE.—For purposes

of this part and part C, the term ‘basic prescription drug

coverage’ means either of the following:

‘‘(A) Coverage that meets the requirements of paragraph (1)(A).

‘‘(B) Coverage that meets the requirements of paragraph (1)(B) but does not have any supplemental prescription drug coverage described in paragraph (2)(A).

‘‘(4) 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.

‘‘(5) CONSTRUCTION.—Nothing in this subsection shall be

construed as changing the computation of incurred costs under

subsection (b)(4).

‘‘(b) STANDARD PRESCRIPTION DRUG COVERAGE.—For purposes

of this part and part C, the term ‘standard prescription drug coverage’ means coverage of covered part D drugs that meets the

following requirements:

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2077

‘‘(1) DEDUCTIBLE.— ‘‘(A) IN GENERAL.—The coverage has an annual

deductible—

‘‘(i) for 2006, that is equal to $250; or

‘‘(ii) for a subsequent year, that is equal to the

amount specified under this paragraph for the previous

year increased by the percentage specified in paragraph (6) for the year involved.

‘‘(B) ROUNDING.—Any amount determined under subparagraph (A)(ii) that is not a multiple of $5 shall

be rounded to the nearest multiple of $5.

‘‘(2) BENEFIT STRUCTURE.— ‘‘(A) 25 PERCENT COINSURANCE.—The coverage has

coinsurance (for costs above the annual deductible specified

in paragraph (1) and up to the initial coverage limit under

paragraph (3)) that is—

‘‘(i) equal to 25 percent; or

‘‘(ii) actuarially equivalent (using processes and

methods established under section 1860D–11(c)) to an

average expected payment of 25 percent of such costs.

‘‘(B) USE OF TIERS.—Nothing in this part shall be construed as preventing a PDP sponsor or an MA organization

from applying tiered copayments under a plan, so long

as such tiered copayments are consistent with subparagraph (A)(ii).

‘‘(3) INITIAL COVERAGE LIMIT.—

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

(4), the coverage has an initial coverage limit on the maximum costs that may be recognized for payment purposes

(including the annual deductible)—

‘‘(i) for 2006, that is equal to $2,250; or

‘‘(ii) for a subsequent year, that is equal to the

amount specified in this paragraph for the previous

year, increased by the annual percentage increase

described in paragraph (6) for the year involved.

‘‘(B) ROUNDING.—Any amount determined under

subparagraph (A)(ii) that is not a multiple of $10 shall

be rounded to the nearest multiple of $10.

‘‘(4) PROTECTION AGAINST HIGH OUT-OF-POCKET EXPENDITURES.—

‘‘(A) IN GENERAL.—

‘‘(i) IN GENERAL.—The coverage provides benefits,

after the part D eligible individual has incurred costs

(as described in subparagraph (C)) for covered part

D drugs in a year equal to the annual out-of-pocket

threshold specified in subparagraph (B), with costsharing that is equal to the greater of—

‘‘(I) a copayment of $2 for a generic drug or

a preferred drug that is a multiple source drug

(as defined in section 1927(k)(7)(A)(i)) and $5 for

any other drug; or

‘‘(II) coinsurance that is equal to 5 percent.

‘‘(ii) ADJUSTMENT OF AMOUNT.—For a year after

2006, the dollar amounts specified in clause (i)(I) shall

be equal to the dollar amounts specified in this

subparagraph for the previous year, increased by the

annual percentage increase described in paragraph (6)

117 STAT. 2078 PUBLIC LAW 108–173—DEC. 8, 2003

for the year involved. Any amount established under

this clause that is not a multiple of a 5 cents shall

be rounded to the nearest multiple of 5 cents.

‘‘(B) ANNUAL OUT-OF-POCKET THRESHOLD.— ‘‘(i) IN GENERAL.—For purposes of this part, the

‘annual out-of-pocket threshold’ specified in this

subparagraph— ‘‘(I) for 2006, is equal to $3,600; 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 (6) for the year

involved.

‘‘(ii) ROUNDING.—Any amount determined under clause (i)(II) that is not a multiple of $50 shall be

rounded to the nearest multiple of $50.

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

‘‘(i) incurred costs shall only include costs incurred

with respect to covered part D drugs for the annual

deductible described in paragraph (1), for cost-sharing

described in paragraph (2), and for amounts for which

benefits are not provided because of the application

of the initial coverage limit described in paragraph

(3), but does not include any costs incurred for covered

part D drugs which are not included (or treated as

being included) in the plan’s formulary; and

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

if they are paid by the part D eligible individual (or

by another person, such as a family member, on behalf

of the individual), under section 1860D–14, or under

a State Pharmaceutical Assistance Program and the

part D eligible individual (or other person) is not

reimbursed through insurance or otherwise, a group

health plan, or other third-party payment arrangement

(other than under such section or such a Program)

for such costs.

‘‘(D) INFORMATION REGARDING THIRD-PARTY REIMBURSEMENT.—

‘‘(i) PROCEDURES FOR EXCHANGING INFORMATION.—

In order to accurately apply the requirements of

subparagraph (C)(ii), the Secretary is authorized to

establish procedures, in coordination with the Secretary of the Treasury and the Secretary of Labor—

‘‘(I) for determining whether costs for part D

eligible individuals are being reimbursed through

insurance or otherwise, a group health plan, or

other third-party payment arrangement; and

‘‘(II) for alerting the PDP sponsors and MA

organizations that offer the prescription drug plans

and MA–PD plans in which such individuals are

enrolled about such reimbursement arrangements.

‘‘(ii) AUTHORITY TO REQUEST INFORMATION FROM

ENROLLEES.—A PDP sponsor or an MA organization

may periodically ask part D eligible individuals

enrolled in a prescription drug plan or an MA–PD

plan offered by the sponsor or organization whether

such individuals have or expect to receive such thirdVerDate 11-MAY-2000 15:01 Jan 08, 2004 Jkt 029139 PO 00173 Frm 00014 Fmt 6580 Sfmt 6581 E:\PUBLAW\PUBL173.108 APPS10 PsN: PUBL173
PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2079

party reimbursement. A material misrepresentation of

the information described in the preceding sentence

by an individual (as defined in standards set by the

Secretary and determined through a process established by the Secretary) shall constitute grounds for

termination of enrollment in any plan under section

1851(g)(3)(B) (and as applied under this part under

section 1860D–1(b)(1)(B)(v)) for a period specified by

the Secretary.

‘‘(5) CONSTRUCTION.—Nothing in this part shall be construed as preventing a PDP sponsor or an MA organization

offering an MA–PD plan from reducing to zero the cost-sharing

otherwise applicable to preferred or generic drugs.

‘‘(6) ANNUAL PERCENTAGE INCREASE.—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 part D drugs in the United States

for part D eligible individuals, as determined by the Secretary

for the 12-month period ending in July of the previous year

using such methods as the Secretary shall specify.

‘‘(c) ALTERNATIVE PRESCRIPTION DRUG COVERAGE REQUIREMENTS.—A prescription drug plan or an MA–PD plan may provide

a different prescription drug benefit design from standard prescription drug coverage so long as the Secretary determines (consistent

with section 1860D–11(c)) that the following requirements are met

and the plan applies for, and receives, the approval of the Secretary

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 is at

least equal to the actuarial value of standard prescription

drug coverage.

‘‘(B) ASSURING EQUIVALENT UNSUBSIDIZED VALUE OF

COVERAGE.—The unsubsidized value of the coverage is at

least equal to the unsubsidized value of standard prescription drug coverage. For purposes of this subparagraph,

the unsubsidized value of coverage is the amount by which

the actuarial value of the coverage exceeds the actuarial

value of the subsidy payments under section 1860D–15

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,

to provide for the payment, with respect to costs incurred

that are equal to the initial coverage limit under subsection

(b)(3) for the year, of an amount equal to at least the

product of—

‘‘(i) the amount by which the initial coverage limit

described in subsection (b)(3) for the year exceeds the

deductible described in subsection (b)(1) for the year;

and

‘‘(ii) 100 percent minus the coinsurance percentage

specified in subsection (b)(2)(A)(i).

‘‘(2) MAXIMUM REQUIRED DEDUCTIBLE.—The deductible

under the coverage shall not exceed the deductible amount

specified under subsection (b)(1) for the year.

117 STAT. 2080 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(3) SAME PROTECTION AGAINST HIGH OUT-OF-POCKET

EXPENDITURES.—The coverage provides the coverage required

under subsection (b)(4).

‘‘(d) ACCESS TO NEGOTIATED PRICES.—

‘‘(1) ACCESS.—

‘‘(A) IN GENERAL.—Under qualified prescription drug

coverage offered by a PDP sponsor offering a prescription

drug plan or an MA organization offering an MA–PD plan,

the sponsor or organization shall provide enrollees with

access to negotiated prices used for payment for covered

part D drugs, regardless of the fact that no benefits may

be payable under the coverage with respect to such drugs

because of the application of a deductible or other costsharing or an initial coverage limit (described in subsection

(b)(3)).

‘‘(B) NEGOTIATED PRICES.—For purposes of this part,

negotiated prices shall take into account negotiated price

concessions, such as discounts, direct or indirect subsidies,

rebates, and direct or indirect remunerations, for covered

part D drugs, and include any dispensing fees for such

drugs.

‘‘(C) MEDICAID-RELATED PROVISIONS.—The prices negotiated by a prescription drug plan, by an MA–PD plan

with respect to covered part D drugs, or by a qualified

retiree prescription drug plan (as defined in section 1860D–

22(a)(2)) with respect to such drugs on behalf of part D

eligible individuals, 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.—A PDP sponsor offering a prescription

drug plan or an MA organization offering an MA–PD plan

shall disclose to the Secretary (in a manner specified by the

Secretary) the aggregate negotiated price concessions described

in paragraph (1)(B) made available to the sponsor or organization by a manufacturer which are passed through in the form

of lower subsidies, lower monthly beneficiary prescription drug

premiums, and lower prices through pharmacies and other

dispensers. The provisions of section 1927(b)(3)(D) apply to

information disclosed to the Secretary under this paragraph.

‘‘(3) AUDITS.—To protect against fraud and abuse and to

ensure proper disclosures and accounting under this part and

in accordance with section 1857(d)(2)(B) (as applied under section 1860D–12(b)(3)(C)), the Secretary may conduct periodic

audits, directly or through contracts, of the financial statements

and records of PDP sponsors with respect to prescription drug

plans and MA organizations with respect to MA–PD plans.

‘‘(e) COVERED PART D DRUG DEFINED.—

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

for purposes of this part, the term ‘covered part D drug’

means—

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

or (A)(iii) 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 medical supplies

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2081

associated with the injection of insulin (as defined in regulations of the Secretary),

and such term includes a vaccine licensed under section 351

of the Public Health Service Act and any use of a covered

part D 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) of such section

(relating to smoking cessation agents), or under section

1927(d)(3).

‘‘(B) MEDICARE COVERED DRUGS.—A drug prescribed

for a part D eligible individual that would otherwise be

a covered part D drug under this part shall not be so

considered if payment for such drug as so prescribed and

dispensed or administered with respect to that individual

is available (or would be available but for the application

of a deductible) under part A or B for that individual.

‘‘(3) APPLICATION OF GENERAL EXCLUSION PROVISIONS.—A

prescription drug plan or an MA–PD plan may exclude from

qualified prescription drug coverage any covered part D drug—

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

1862(a) applied to this part; or

‘‘(B) which is not prescribed in accordance with the

plan or this part.

Such exclusions are determinations subject to reconsideration

and appeal pursuant to subsections (g) and (h), respectively,

of section 1860D–4.

‘‘ACCESS TO A CHOICE OF QUALIFIED PRESCRIPTION DRUG COVERAGE

‘‘SEC. 1860D–3. (a) ASSURING ACCESS TO A CHOICE OF COV- ERAGE.—‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH AREA.—The

Secretary shall ensure that each part D eligible individual

has available, consistent with paragraph (2), a choice of enrollment in at least 2 qualifying plans (as defined in paragraph

(3)) in the area in which the individual resides, at least one

of which is a prescription drug plan. In any such case in

which such plans are not available, the part D eligible individual shall be given the opportunity to enroll in a fallback

prescription drug plan.

‘‘(2) REQUIREMENT FOR DIFFERENT PLAN SPONSORS.—The

requirement in paragraph (1) is not satisfied with respect to

an area if only one entity offers all the qualifying plans in

the area.

‘‘(3) QUALIFYING PLAN DEFINED.—For purposes of this section, the term ‘qualifying plan’ means—

‘‘(A) a prescription drug plan; or

‘‘(B) an MA–PD plan described in section

1851(a)(2)(A)(i) that provides—

‘‘(i) basic prescription drug coverage; or

‘‘(ii) qualified prescription drug coverage that provides supplemental prescription drug coverage so long

as there is no MA monthly supplemental beneficiary

premium applied under the plan, due to the application

42 USC

1395w–103.

117 STAT. 2082 PUBLIC LAW 108–173—DEC. 8, 2003

of a credit against such premium of a rebate under

section 1854(b)(1)(C).

‘‘(b) FLEXIBILITY IN RISK ASSUMED AND APPLICATION OF FALL- BACK PLAN.—In order to ensure access pursuant to subsection (a)

in an area—

‘‘(1) the Secretary may approve limited risk plans under

section 1860D–11(f) for the area; and

‘‘(2) only if such access is still not provided in the area

after applying paragraph (1), the Secretary shall provide for

the offering of a fallback prescription drug plan for that area

under section 1860D–11(g).

‘‘BENEFICIARY PROTECTIONS FOR QUALIFIED PRESCRIPTION DRUG

COVERAGE

‘‘SEC. 1860D–4. (a) DISSEMINATION OF INFORMATION.— ‘‘(1) GENERAL INFORMATION.— ‘‘(A) APPLICATION OF MA 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, insofar as the

Secretary determines appropriate with respect to benefits

provided under this part, and including the information

described in subparagraph (B).

‘‘(B) DRUG SPECIFIC INFORMATION.—The information

described in this subparagraph is information concerning

the following:

‘‘(i) Access to specific covered part D drugs,

including access through pharmacy networks.

‘‘(ii) How any formulary (including any tiered formulary structure) used by the sponsor functions,

including a description of how a part D eligible individual may obtain information on the formulary consistent with paragraph (3).

‘‘(iii) Beneficiary cost-sharing requirements and

how a part D eligible individual may obtain information on such requirements, including tiered or other

copayment level applicable to each drug (or class of

drugs), consistent with paragraph (3).

‘‘(iv) The medication therapy management program

required under subsection (c).

‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL COVERAGE, UTILIZATION, AND GRIEVANCE INFORMATION.—Upon request of

a part D eligible individual who is eligible to enroll in a

prescription drug plan, the PDP sponsor offering such plan

shall provide information similar (as determined by the Secretary) to the information described in subparagraphs (A), (B),

and (C) of section 1852(c)(2) to such individual.

‘‘(3) PROVISION OF SPECIFIC INFORMATION.— ‘‘(A) RESPONSE TO BENEFICIARY QUESTIONS.—Each PDP

sponsor offering a prescription drug plan shall have a

mechanism for providing specific information on a timely

basis to enrollees upon request. Such mechanism shall

include access to information through the use of a tollfree telephone number and, upon request, the provision

of such information in writing.

42 USC

1395w–104.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2083

‘‘(B) AVAILABILITY OF INFORMATION ON CHANGES IN FOR- MULARY THROUGH THE INTERNET.—A PDP sponsor offering

a prescription drug plan shall make available on a timely

basis through an Internet website information on specific

changes in the formulary under the plan (including changes

to tiered or preferred status of covered part D drugs).

‘‘(4) CLAIMS INFORMATION.—A PDP sponsor offering a

prescription drug plan must furnish to each enrollee in a form

easily understandable to such enrollees—

‘‘(A) an explanation of benefits (in accordance with

section 1806(a) or in a comparable manner); and

‘‘(B) when prescription drug benefits are provided

under this part, a notice of the benefits in relation to—

‘‘(i) the initial coverage limit for the current year;

and

‘‘(ii) the annual out-of-pocket threshold for the current year.

Notices under subparagraph (B) need not be provided more

often than as specified by the Secretary and notices under

subparagraph (B)(ii) shall take into account the application

of section 1860D–2(b)(4)(C) to the extent practicable, as

specified by the Secretary.

‘‘(b) ACCESS TO COVERED PART D DRUGS.—

‘‘(1) ASSURING PHARMACY ACCESS.—

‘‘(A) PARTICIPATION OF ANY WILLING PHARMACY.—A

prescription drug plan shall permit the participation of

any pharmacy that meets the terms and conditions under

the plan.

‘‘(B) DISCOUNTS ALLOWED FOR NETWORK PHARMACIES.—

For covered part D drugs dispensed through in-network

pharmacies, a prescription drug plan may, notwithstanding

subparagraph (A), reduce coinsurance or copayments for

part D eligible individuals enrolled in the plan below the

level otherwise required. In no case shall such a reduction

result in an increase in payments made by the Secretary

under section 1860D–15 to a plan.

‘‘(C) CONVENIENT ACCESS FOR NETWORK PHARMACIES.—

‘‘(i) 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 (consistent with

rules established by the Secretary).

‘‘(ii) APPLICATION OF TRICARE STANDARDS.—The

Secretary shall establish rules for convenient access

to in-network pharmacies under this subparagraph

that are no less favorable to enrollees than the rules

for convenient access to pharmacies included in the

statement of work of solicitation (#MDA906–03–R–

0002) of the Department of Defense under the

TRICARE Retail Pharmacy (TRRx) as of March 13,

2003.

‘‘(iii) ADEQUATE EMERGENCY ACCESS.—Such rules

shall include adequate emergency access for enrollees.

‘‘(iv) CONVENIENT ACCESS IN LONG-TERM CARE

FACILITIES.—Such rules may include standards with

respect to access for enrollees who are residing in

117 STAT. 2084 PUBLIC LAW 108–173—DEC. 8, 2003

long-term care facilities and for pharmacies operated

by the Indian Health Service, Indian tribes and tribal

organizations, and urban Indian organizations (as

defined in section 4 of the Indian Health Care Improvement Act).

‘‘(D) LEVEL PLAYING FIELD.—Such a sponsor shall

permit enrollees to receive benefits (which may include

a 90-day supply of drugs or biologicals) through a pharmacy

(other than a mail order pharmacy), with any differential

in charge paid by such enrollees.

‘‘(E) NOT REQUIRED TO ACCEPT INSURANCE RISK.—The

terms and conditions under subparagraph (A) may not

require participating pharmacies to accept insurance risk

as a condition of participation.

‘‘(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 enrollee

to assure access to negotiated prices under section 1860D–

2(d).

‘‘(B) STANDARDS.—

‘‘(i) IN GENERAL.—The Secretary shall provide for

the development, adoption, or recognition of standards

relating to a standardized format for the card or other

technology required under subparagraph (A). Such

standards shall be compatible with part C of title XI

and may be based on standards developed by an appropriate standard setting organization.

‘‘(ii) CONSULTATION.—In developing the standards

under clause (i), the Secretary shall consult with the

National Council for Prescription Drug Programs and

other standard setting organizations determined appropriate by the Secretary.

‘‘(iii) IMPLEMENTATION.—The Secretary shall

develop, adopt, or recognize the standards under clause

(i) by such date as the Secretary determines shall

be sufficient to ensure that PDP sponsors utilize such

standards beginning January 1, 2006.

‘‘(3) REQUIREMENTS ON DEVELOPMENT AND APPLICATION OF

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

uses a formulary (including the use of tiered cost-sharing),

the following requirements must be met:

‘‘(A) DEVELOPMENT AND REVISION BY A PHARMACY AND

THERAPEUTIC (P&T) COMMITTEE.—

‘‘(i) IN GENERAL.—The formulary must be developed and reviewed by a pharmacy and therapeutic

committee. A majority of the members of such committee shall consist of individuals who are practicing

physicians or practicing pharmacists (or both).

‘‘(ii) INCLUSION OF INDEPENDENT EXPERTS.—Such

committee shall include at least one practicing physician and at least one practicing pharmacist, each of

whom—

‘‘(I) is independent and free of conflict with

respect to the sponsor and plan; and

‘‘(II) has expertise in the care of elderly or

disabled persons.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2085

‘‘(B) FORMULARY DEVELOPMENT.—In developing and

reviewing the formulary, the committee shall—

‘‘(i) base clinical decisions on the strength of scientific evidence and standards of practice, including

assessing peer-reviewed medical literature, such as

randomized clinical trials, pharmacoeconomic studies,

outcomes research data, and on such other information

as the committee determines to be appropriate; and

‘‘(ii) take into account whether including in the

formulary (or in a tier in such formulary) particular

covered part D drugs has therapeutic advantages in

terms of safety and efficacy.

‘‘(C) INCLUSION OF DRUGS IN ALL THERAPEUTIC CAT- EGORIES AND CLASSES.— ‘‘(i) IN GENERAL.—The formulary must include

drugs within each therapeutic category and class of

covered part D drugs, although not necessarily all

drugs within such categories and classes.

‘‘(ii) MODEL GUIDELINES.—The Secretary shall

request the United States Pharmacopeia to develop,

in consultation with pharmaceutical benefit managers

and other interested parties, a list of categories and

classes that may be used by prescription drug plans

under this paragraph and to revise such classification

from time to time to reflect changes in therapeutic

uses of covered part D drugs and the additions of

new covered part D drugs.

‘‘(iii) LIMITATION ON CHANGES IN THERAPEUTIC

CLASSIFICATION.—The PDP sponsor of a prescription

drug plan may not change the therapeutic categories

and classes in a formulary other than at the beginning

of each plan year except as the Secretary may permit

to take into account new therapeutic uses and newly

approved covered part D drugs.

‘‘(D) PROVIDER AND PATIENT EDUCATION.—The PDP

sponsor shall establish policies and procedures to educate

and inform health care providers and enrollees concerning

the formulary.

‘‘(E) NOTICE BEFORE REMOVING DRUG FROM FORMULARY

OR CHANGING PREFERRED OR TIER STATUS OF DRUG.—Any

removal of a covered part D drug from a formulary and

any change in the preferred or tiered cost-sharing status

of such a drug shall take effect only after appropriate

notice is made available (such as under subsection (a)(3))

to the Secretary, affected enrollees, physicians, pharmacies,

and pharmacists.

‘‘(F) PERIODIC EVALUATION OF PROTOCOLS.—In connection with the formulary, the sponsor of a prescription drug

plan shall provide for the periodic evaluation and analysis

of treatment protocols and procedures.

The requirements of this paragraph may be met by a PDP

sponsor directly or through arrangements with another entity.

‘‘(c) COST AND UTILIZATION MANAGEMENT; QUALITY ASSURANCE;

MEDICATION THERAPY MANAGEMENT PROGRAM.—

‘‘(1) IN GENERAL.—The PDP sponsor shall have in place,

directly or through appropriate arrangements, with respect to

covered part D drugs, the following:

117 STAT. 2086 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(A) A cost-effective drug utilization management program, including incentives to reduce costs when medically

appropriate, such as through the use of multiple source

drugs (as defined in section 1927(k)(7)(A)(i)).

‘‘(B) Quality assurance measures and systems to reduce

medication errors and adverse drug interactions and

improve medication use.

‘‘(C) A medication therapy management program

described in paragraph (2).

‘‘(D) A program to control fraud, abuse, and waste.

Nothing in this section shall be construed as impairing a PDP

sponsor from utilizing cost management tools (including differential payments) under all methods of operation.

‘‘(2) MEDICATION THERAPY MANAGEMENT PROGRAM.—

‘‘(A) DESCRIPTION.—

‘‘(i) IN GENERAL.—A medication therapy management program described in this paragraph is a program

of drug therapy management that may be furnished

by a pharmacist and that is designed to assure, with

respect to targeted beneficiaries described in clause

(ii), that covered part D drugs under the prescription

drug plan are appropriately used to optimize therapeutic outcomes through improved medication use, and

to reduce the risk of adverse events, including adverse

drug interactions. Such a program may distinguish

between services in ambulatory and institutional settings.

‘‘(ii) TARGETED BENEFICIARIES DESCRIBED.—Targeted beneficiaries described in this clause are part

D eligible individuals who—

‘‘(I) have multiple chronic diseases (such as

diabetes, asthma, hypertension, hyperlipidemia,

and congestive heart failure);

‘‘(II) are taking multiple covered part D drugs;

and

‘‘(III) are identified as likely to incur annual

costs for covered part D drugs that exceed a level

specified by the Secretary.

‘‘(B) ELEMENTS.—Such program may include elements

that promote—

‘‘(i) enhanced enrollee understanding to promote

the appropriate use of medications by enrollees and

to reduce the risk of potential adverse events associated

with medications, through beneficiary education, counseling, and other appropriate means;

‘‘(ii) increased enrollee adherence with prescription

medication regimens through medication refill

reminders, special packaging, and other compliance

programs and other appropriate means; and

‘‘(iii) detection of adverse drug events and patterns

of overuse and underuse of prescription drugs.

‘‘(C) DEVELOPMENT OF PROGRAM IN COOPERATION WITH

LICENSED PHARMACISTS.—Such program shall be developed

in cooperation with licensed and practicing pharmacists

and physicians.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2087

‘‘(D) COORDINATION WITH CARE MANAGEMENT PLANS.— The Secretary shall establish guidelines for the coordination of any medication therapy management program under

this paragraph with respect to a targeted beneficiary with

any care management plan established with respect to

such beneficiary under a chronic care improvement program under section 1807.

‘‘(E) CONSIDERATIONS IN PHARMACY FEES.—The PDP

sponsor of a prescription drug plan shall take into account,

in establishing fees for pharmacists and others providing

services under such plan, the resources used, and time

required to, implement the medication therapy management program under this paragraph. Each such sponsor

shall disclose to the Secretary upon request the amount

of any such management or dispensing fees. The provisions

of section 1927(b)(3)(D) apply to information disclosed

under this subparagraph.

‘‘(d) CONSUMER SATISFACTION SURVEYS.—In order to provide

for comparative information under section 1860D–1(c)(3)(A)(v), the

Secretary shall conduct consumer satisfaction surveys with respect

to PDP sponsors and prescription drug plans in a manner similar

to the manner such surveys are conducted for MA organizations

and MA plans under part C.

‘‘(e) ELECTRONIC PRESCRIPTION PROGRAM.—

‘‘(1) APPLICATION OF STANDARDS.—As of such date as the

Secretary may specify, but not later than 1 year after the

date of promulgation of final standards under paragraph (4)(D),

prescriptions and other information described in paragraph

(2)(A) for covered part D drugs prescribed for part D eligible

individuals that are transmitted electronically shall be transmitted only in accordance with such standards under an electronic prescription drug program that meets the requirements

of paragraph (2).

‘‘(2) PROGRAM REQUIREMENTS.—Consistent with uniform

standards established under paragraph (3)—

‘‘(A) PROVISION OF INFORMATION TO PRESCRIBING

HEALTH CARE PROFESSIONAL AND DISPENSING PHARMACIES

AND PHARMACISTS.—An electronic prescription drug program shall provide for the electronic transmittal to the

prescribing health care professional and to the dispensing

pharmacy and pharmacist of the prescription and information on eligibility and benefits (including the drugs included

in the applicable formulary, any tiered formulary structure,

and any requirements for prior authorization) and of the

following information with respect to the prescribing and

dispensing of a covered part D drug:

‘‘(i) Information on the drug being prescribed or

dispensed and other drugs listed on the medication

history, including information on drug-drug interactions, warnings or cautions, and, when indicated,

dosage adjustments.

‘‘(ii) Information on the availability of lower cost,

therapeutically appropriate alternatives (if any) for the

drug prescribed.

‘‘(B) APPLICATION TO MEDICAL HISTORY INFORMATION.— Effective on and after such date as the Secretary specifies

and after the establishment of appropriate standards to

Deadline.

117 STAT. 2088 PUBLIC LAW 108–173—DEC. 8, 2003

carry out this subparagraph, the program shall provide

for the electronic transmittal in a manner similar to the

manner under subparagraph (A) of information that relates

to the medical history concerning the individual and related

to a covered part D drug being prescribed or dispensed,

upon request of the professional or pharmacist involved.

‘‘(C) LIMITATIONS.—Information shall only be disclosed

under subparagraph (A) or (B) if the disclosure of such

information is permitted under the Federal regulations

(concerning the privacy of individually identifiable health

information) promulgated under section 264(c) of the

Health Insurance Portability and Accountability Act of

1996.

‘‘(D) TIMING.—To the extent feasible, the information

exchanged under this paragraph shall be on an interactive,

real-time basis.

‘‘(3) STANDARDS.—

‘‘(A) IN GENERAL.—The Secretary shall provide consistent with this subsection for the promulgation of uniform

standards relating to the requirements for electronic

prescription drug programs under paragraph (2).

‘‘(B) OBJECTIVES.—Such standards shall be consistent

with the objectives of improving—

‘‘(i) patient safety;

‘‘(ii) the quality of care provided to patients; and

‘‘(iii) efficiencies, including cost savings, in the

delivery of care.

‘‘(C) DESIGN CRITERIA.—Such standards shall—

‘‘(i) be designed so that, to the extent practicable,

the standards do not impose an undue administrative

burden on prescribing health care professionals and

dispensing pharmacies and pharmacists;

‘‘(ii) be compatible with standards established

under part C of title XI, standards established under

subsection (b)(2)(B)(i), and with general health

information technology standards; and

‘‘(iii) be designed so that they permit electronic

exchange of drug labeling and drug listing information

maintained by the Food and Drug Administration and

the National Library of Medicine.

‘‘(D) PERMITTING USE OF APPROPRIATE MESSAGING.—

Such standards shall allow for the messaging of information

only if it relates to the appropriate prescribing of drugs,

including quality assurance measures and systems referred

to in subsection (c)(1)(B).

‘‘(E) PERMITTING PATIENT DESIGNATION OF DISPENSING

PHARMACY.—

‘‘(i) IN GENERAL.—Consistent with clause (ii), such

standards shall permit a part D eligible individual

to designate a particular pharmacy to dispense a prescribed drug.

‘‘(ii) NO CHANGE IN BENEFITS.—Clause (i) shall not

be construed as affecting—

‘‘(I) the access required to be provided to pharmacies by a prescription drug plan; or

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2089

‘‘(II) the application of any differences in benefits or payments under such a plan based on the

pharmacy dispensing a covered part D drug.

‘‘(4) DEVELOPMENT, PROMULGATION, AND MODIFICATION OF

STANDARDS.—

‘‘(A) INITIAL STANDARDS.—Not later than September

1, 2005, the Secretary shall develop, adopt, recognize, or

modify initial uniform standards relating to the requirements for electronic prescription drug programs described

in paragraph (2) taking into consideration the recommendations (if any) from the National Committee on Vital and

Health Statistics (as established under section 306(k) of

the Public Health Service Act (42 U.S.C. 242k(k))) under

subparagraph (B).

‘‘(B) ROLE OF NCVHS.—The National Committee on

Vital and Health Statistics shall develop recommendations

for uniform standards relating to such requirements in

consultation with the following:

‘‘(i) Standard setting organizations (as defined in

section 1171(8))

‘‘(ii) Practicing physicians.

‘‘(iii) Hospitals.

‘‘(iv) Pharmacies.

‘‘(v) Practicing pharmacists.

‘‘(vi) Pharmacy benefit managers.

‘‘(vii) State boards of pharmacy.

‘‘(viii) State boards of medicine.

‘‘(ix) Experts on electronic prescribing.

‘‘(x) Other appropriate Federal agencies.

‘‘(C) PILOT PROJECT TO TEST INITIAL STANDARDS.—

‘‘(i) IN GENERAL.—During the 1-year period that

begins on January 1, 2006, the Secretary shall conduct

a pilot project to test the initial standards developed

under subparagraph (A) prior to the promulgation of

the final uniform standards under subparagraph (D)

in order to provide for the efficient implementation

of the requirements described in paragraph (2).

‘‘(ii) EXCEPTION.—Pilot testing of standards is not

required under clause (i) where there already is adequate industry experience with such standards, as

determined by the Secretary after consultation with

effected standard setting organizations and industry

users.

‘‘(iii) VOLUNTARY PARTICIPATION OF PHYSICIANS AND

PHARMACIES.—In In order to conduct the pilot project

under clause (i), the Secretary shall enter into agreements with physicians, physician groups, pharmacies,

hospitals, PDP sponsors, MA organizations, and other

appropriate entities under which health care professionals electronically transmit prescriptions to dispensing pharmacies and pharmacists in accordance

with such standards.

‘‘(iv) EVALUATION AND REPORT.—

‘‘(I) EVALUATION.—The Secretary shall conduct

an evaluation of the pilot project conducted under

clause (i).

Contracts.

Deadline.

117 STAT. 2090 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(II) REPORT TO CONGRESS.—Not later than

April 1, 2007, the Secretary shall submit to Congress a report on the evaluation conducted under

subclause (I).

‘‘(D) FINAL STANDARDS.—Based upon the evaluation

of the pilot project under subparagraph (C)(iv)(I) and not

later than April 1, 2008, the Secretary shall promulgate

uniform standards relating to the requirements described

in paragraph (2).

‘‘(5) RELATION TO STATE LAWS.—The standards promulgated

under this subsection shall supersede any State law or regulation that—

‘‘(A) is contrary to the standards or restricts the ability

to carry out this part; and

‘‘(B) pertains to the electronic transmission of medication history and of information on eligibility, benefits, and

prescriptions with respect to covered part D drugs under

this part.

‘‘(6) ESTABLISHMENT OF SAFE HARBOR.—The Secretary, in

consultation with the Attorney General, shall promulgate regulations that provide for a safe harbor from sanctions under

paragraphs (1) and (2) of section 1128B(b) and an exception

to the prohibition under subsection (a)(1) of section 1877 with

respect to the provision of nonmonetary remuneration (in the

form of hardware, software, or information technology and

training services) necessary and used solely to receive and

transmit electronic prescription information in accordance with

the standards promulgated under this subsection—

‘‘(A) in the case of a hospital, by the hospital to members of its medical staff;

‘‘(B) in the case of a group practice (as defined in

section 1877(h)(4)), by the practice to prescribing health

care professionals who are members of such practice; and

‘‘(C) in the case of a PDP sponsor or MA organization,

by the sponsor or organization to pharmacists and pharmacies participating in the network of such sponsor or

organization, and to prescribing health care professionals.

‘‘(f) GRIEVANCE MECHANISM.—Each PDP sponsor shall provide

meaningful procedures for hearing and resolving grievances

between the sponsor (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).

‘‘(g) COVERAGE DETERMINATIONS AND RECONSIDERATIONS.—

‘‘(1) 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 an MA organization with respect to

benefits it offers under an MA plan under part C.

‘‘(2) REQUEST FOR A DETERMINATION FOR THE TREATMENT

OF TIERED FORMULARY DRUG.—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, a part D eligible individual who is enrolled in the

Deadline.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2091

plan may request an exception to the tiered cost-sharing structure. Under such an exception, a nonpreferred drug could be

covered under the terms applicable for preferred drugs if the

prescribing physician determines that the preferred drug for

treatment of the same condition either would not be as effective

for the individual or would have adverse effects for the individual or both. A PDP sponsor shall have an exceptions process

under this paragraph consistent with guidelines established

by the Secretary for making a determination with respect to

such a request. Denial of such an exception shall be treated

as a coverage denial for purposes of applying subsection (h).

‘‘(h) 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 benefits (including a determination

related to the application of tiered cost-sharing described in

subsection (g)(2)) in a manner similar (as determined by the

Secretary) to the manner such requirements apply to an MA

organization with respect to benefits under the original medicare fee-for-service program option it offers under an MA plan

under part C. In applying this paragraph only the part D

eligible individual shall be entitled to bring such an appeal.

‘‘(2) LIMITATION IN CASES ON NONFORMULARY DETERMINATIONS.—A part D eligible individual who is enrolled in a

prescription drug plan offered by a PDP sponsor may appeal

under paragraph (1) a determination not to provide for coverage

of a covered part D drug that is not on the formulary under

the plan only if the prescribing physician determines that all

covered part D drugs on any tier of the formulary for treatment

of the same condition would not be as effective for the individual

as the nonformulary drug, would have adverse effects for the

individual, or both.

‘‘(3) TREATMENT OF NONFORMULARY DETERMINATIONS.—If

a PDP sponsor determines that a plan provides coverage for

a covered part D drug that is not on the formulary of the

plan, the drug shall be treated as being included on the formulary for purposes of section 1860D–2(b)(4)(C)(i).

‘‘(i) PRIVACY, CONFIDENTIALITY, AND ACCURACY OF ENROLLEE

RECORDS.—The provisions of section 1852(h) shall apply to a PDP

sponsor and prescription drug plan in the same manner as it

applies to an MA organization and an MA plan.

‘‘(j) TREATMENT OF ACCREDITATION.—Subparagraph (A) of section 1852(e)(4) (relating to treatment of accreditation) shall apply

to a PDP sponsor under this part with respect to the following

requirements, in the same manner as it applies to an MA organization with respect to the requirements in subparagraph (B) (other

than clause (vii) thereof) of such section:

‘‘(1) Subsection (b) of this section (relating to access to

covered part D drugs).

‘‘(2) Subsection (c) of this section (including quality assurance and medication therapy management).

‘‘(3) Subsection (i) of this section (relating to confidentiality

and accuracy of enrollee records).

‘‘(k) PUBLIC DISCLOSURE OF PHARMACEUTICAL PRICES FOR

EQUIVALENT DRUGS.— ‘‘(1) IN GENERAL.—A PDP sponsor offering a prescription

drug plan shall provide that each pharmacy that dispenses

117 STAT. 2092 PUBLIC LAW 108–173—DEC. 8, 2003

a covered part D drug shall inform an enrollee of any differential between the price of the drug to the enrollee and the

price of the lowest priced generic covered part D drug under

the plan that is therapeutically equivalent and bioequivalent

and available at such pharmacy.

‘‘(2) TIMING OF NOTICE.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), the

information under paragraph (1) shall be provided at the

time of purchase of the drug involved, or, in the case

of dispensing by mail order, at the time of delivery of

such drug.

‘‘(B) WAIVER.—The Secretary may waive subparagraph

(A) in such circumstances as the Secretary may specify.

‘‘Subpart 2—Prescription Drug Plans; PDP Sponsors; Financing

‘‘PDP REGIONS; SUBMISSION OF BIDS; PLAN APPROVAL

‘‘SEC. 1860D–11. (a) ESTABLISHMENT OF PDP REGIONS; SERVICE

AREAS.—‘‘(1) COVERAGE OF ENTIRE PDP REGION.—The service area

for a prescription drug plan shall consist of an entire PDP

region established under paragraph (2).

‘‘(2) ESTABLISHMENT OF PDP REGIONS.— ‘‘(A) IN GENERAL.—The Secretary shall establish, and

may revise, PDP regions in a manner that is consistent

with the requirements for the establishment and revision

of MA regions under subparagraphs (B) and (C) of section

1858(a)(2).

‘‘(B) RELATION TO MA REGIONS.—To the extent practicable, PDP regions shall be the same as MA regions

under section 1858(a)(2). The Secretary may establish PDP

regions which are not the same as MA regions if the

Secretary determines that the establishment of different

regions under this part would improve access to benefits

under this part.

‘‘(C) AUTHORITY FOR TERRITORIES.—The Secretary shall

establish, and may revise, PDP regions for areas in States

that are not within the 50 States or the District of

Columbia.

‘‘(3) NATIONAL PLAN.—Nothing in this subsection shall be

construed as preventing a prescription drug plan from being

offered in more than one PDP region (including all PDP

regions).

‘‘(b) SUBMISSION OF BIDS, PREMIUMS, AND RELATED INFORMA- TION.— ‘‘(1) IN GENERAL.—A PDP sponsor shall submit to the Secretary information described in paragraph (2) with respect to

each prescription drug plan it offers. Such information shall

be submitted at the same time and in a similar manner to

the manner in which information described in paragraph (6)

of section 1854(a) is submitted by an MA organization under

paragraph (1) of such section.

‘‘(2) INFORMATION DESCRIBED.—The information described

in this paragraph is information on the following:

‘‘(A) COVERAGE PROVIDED.—The prescription drug coverage provided under the plan, including the deductible

and other cost-sharing.

42 USC

1395w–111.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2093

‘‘(B) ACTUARIAL VALUE.—The actuarial value of the

qualified prescription drug coverage in the region for a

part D eligible individual with a national average risk

profile for the factors described in section 1860D–15(c)(1)(A)

(as specified by the Secretary).

‘‘(C) BID.—Information on the bid, including an actuarial certification of—

‘‘(i) the basis for the actuarial value described in

subparagraph (B) assumed in such bid;

‘‘(ii) the portion of such bid attributable to basic

prescription drug coverage and, if applicable, the portion of such bid attributable to supplemental benefits;

‘‘(iii) assumptions regarding the reinsurance subsidy payments provided under section 1860D–15(b)

subtracted from the actuarial value to produce such

bid; and

‘‘(iv) administrative expenses assumed in the bid.

‘‘(D) SERVICE AREA.—The service area for the plan.

‘‘(E) LEVEL OF RISK ASSUMED.—

‘‘(i) IN GENERAL.—Whether the PDP sponsor

requires a modification of risk level under clause (ii)

and, if so, the extent of such modification. Any such

modification shall apply with respect to all prescription

drug plans offered by a PDP sponsor in a PDP region.

This subparagraph shall not apply to an MA–PD plan.

‘‘(ii) RISK LEVELS DESCRIBED.—A modification of

risk level under this clause may consist of one or

more of the following:

‘‘(I) INCREASE IN FEDERAL PERCENTAGE

ASSUMED IN INITIAL RISK CORRIDOR.—An equal

percentage point increase in the percents applied

under subparagraphs (B)(i), (B)(ii)(I), (C)(i), and

(C)(ii)(I) of section 1860D–15(e)(2). In no case shall

the application of previous sentence prevent the

application of a higher percentage under section

1869D–15(e)(2)(B)(iii).

‘‘(II) INCREASE IN FEDERAL PERCENTAGE

ASSUMED IN SECOND RISK CORRIDOR.—An equal

percentage point increase in the percents applied

under subparagraphs (B)(ii)(II) and (C)(ii)(II) of

section 1860D–15(e)(2).

‘‘(III) DECREASE IN SIZE OF RISK CORRIDORS.—

A decrease in the threshold risk percentages specified in section 1860D–15(e)(3)(C).

‘‘(F) ADDITIONAL INFORMATION.—Such other information as the Secretary may require to carry out this part.

‘‘(3) PAPERWORK REDUCTION FOR OFFERING OF PRESCRIPTION

DRUG PLANS NATIONALLY OR IN MULTI-REGION AREAS.—The Secretary shall establish requirements for information submission

under this subsection in a manner that promotes the offering

of such plans in more than one PDP region (including all

regions) through the filing of consolidated information.

‘‘(c) ACTUARIAL VALUATION.—

‘‘(1) PROCESSES.—For purposes of this part, the Secretary

shall establish processes and methods for determining the actuarial valuation of prescription drug coverage, including—

117 STAT. 2094 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(A) an actuarial valuation of standard prescription

drug coverage under section 1860D–2(b);

‘‘(B) actuarial valuations relating to alternative

prescription drug coverage under section 1860D–2(c)(1);

‘‘(C) an actuarial valuation of the reinsurance subsidy

payments under section 1860D–15(b);

‘‘(D) the use of generally accepted actuarial principles

and methodologies; and

‘‘(E) applying the same methodology for determinations

of actuarial valuations under subparagraphs (A) and (B).

‘‘(2) ACCOUNTING FOR DRUG UTILIZATION.—Such processes

and methods for determining actuarial valuation shall take

into account the effect that providing alternative prescription

drug coverage (rather than standard prescription drug coverage)

has on drug utilization.

‘‘(3) RESPONSIBILITIES.— ‘‘(A) PLAN RESPONSIBILITIES.—PDP sponsors and MA

organizations are responsible for the preparation and

submission of actuarial valuations required under this part

for prescription drug plans and MA–PD plans they offer.

‘‘(B) USE OF OUTSIDE ACTUARIES.—Under the processes

and methods established under paragraph (1), PDP sponsors offering prescription drug plans and MA organizations

offering MA–PD plans may use actuarial opinions certified

by independent, qualified actuaries to establish actuarial

values.

‘‘(d) REVIEW OF INFORMATION AND NEGOTIATION.—

‘‘(1) REVIEW OF INFORMATION.—The Secretary shall review

the information filed under subsection (b) for the purpose of

conducting negotiations under paragraph (2).

‘‘(2) NEGOTIATION REGARDING TERMS AND CONDITIONS.—

Subject to subsection (i), in exercising the authority under

paragraph (1), the Secretary—

‘‘(A) has the authority to negotiate the terms and conditions of the proposed bid submitted and other terms and

conditions of a proposed plan; and

‘‘(B) has authority similar to the authority of the

Director of the Office of Personnel Management with

respect to health benefits plans under chapter 89 of title

5, United States Code.

‘‘(e) APPROVAL OF PROPOSED PLANS.—

‘‘(1) IN GENERAL.—After review and negotiation under subsection (d), the Secretary shall approve or disapprove the

prescription drug plan.

‘‘(2) REQUIREMENTS FOR APPROVAL.—The Secretary may

approve a prescription drug plan only if the following requirements are met:

‘‘(A) COMPLIANCE WITH REQUIREMENTS.—The plan and

the PDP sponsor offering the plan comply with the requirements under this part, including the provision of qualified

prescription drug coverage.

‘‘(B) ACTUARIAL DETERMINATIONS.—The Secretary

determines that the plan and PDP sponsor meet the

requirements under this part relating to actuarial determinations, including such requirements under section

1860D–2(c).

‘‘(C) APPLICATION OF FEHBP STANDARD.—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2095

‘‘(i) IN GENERAL.—The Secretary determines that

the portion of the bid submitted under subsection (b)

that is attributable to basic prescription drug coverage

is supported by the actuarial bases provided under

such subsection and reasonably and equitably reflects

the revenue requirements (as used for purposes of section 1302(8)(C) of the Public Health Service Act) for

benefits provided under that plan, less the sum (determined on a monthly per capita basis) of the actuarial

value of the reinsurance payments under section

1860D–15(b).

‘‘(ii) SUPPLEMENTAL COVERAGE.—The Secretary

determines that the portion of the bid submitted under

subsection (b) that is attributable to supplemental

prescription drug coverage pursuant to section 1860D–

2(a)(2) is supported by the actuarial bases provided

under such subsection and reasonably and equitably

reflects the revenue requirements (as used for purposes

of section 1302(8)(C) of the Public Health Service Act)

for such coverage under the plan.

‘‘(D) PLAN DESIGN.—

‘‘(i) IN GENERAL.—The Secretary does not find that

the design of the plan and its benefits (including any

formulary and tiered formulary structure) are likely

to substantially discourage enrollment by certain part

D eligible individuals under the plan.

‘‘(ii) USE OF CATEGORIES AND CLASSES IN

FORMULARIES.—The Secretary may not find that the

design of categories and classes within a formulary

violates clause (i) if such categories and classes are

consistent with guidelines (if any) for such categories

and classes established by the United States Pharmacopeia.

‘‘(f) APPLICATION OF LIMITED RISK PLANS.—

‘‘(1) CONDITIONS FOR APPROVAL OF LIMITED RISK PLANS.—

The Secretary may only approve a limited risk plan (as defined

in paragraph (4)(A)) for a PDP region if the access requirements

under section 1860D–3(a) would not be met for the region

but for the approval of such a plan (or a fallback prescription

drug plan under subsection (g)).

‘‘(2) RULES.—The following rules shall apply with respect

to the approval of a limited risk plan in a PDP region:

‘‘(A) LIMITED EXERCISE OF AUTHORITY.—Only the minimum number of such plans may be approved in order

to meet the access requirements under section 1860D–

3(a).

‘‘(B) MAXIMIZING ASSUMPTION OF RISK.—The Secretary

shall provide priority in approval for those plans bearing

the highest level of risk (as computed by the Secretary),

but the Secretary may take into account the level of the

bids submitted by such plans.

‘‘(C) NO FULL UNDERWRITING FOR LIMITED RISK

PLANS.—In no case may the Secretary approve a limited

risk plan under which the modification of risk level provides

for no (or a de minimis) level of financial risk.

117 STAT. 2096 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(3) ACCEPTANCE OF ALL FULL RISK CONTRACTS.—There

shall be no limit on the number of full risk plans that are

approved under subsection (e).

‘‘(4) RISK-PLANS DEFINED.—For purposes of this subsection:

‘‘(A) LIMITED RISK PLAN.—The term ‘limited risk plan’

means a prescription drug plan that provides basic

prescription drug coverage and for which the PDP sponsor

includes a modification of risk level described in subparagraph (E) of subsection (b)(2) in its bid submitted for the

plan under such subsection. Such term does not include

a fallback prescription drug plan.

‘‘(B) FULL RISK PLAN.—The term ‘full risk plan’ means

a prescription drug plan that is not a limited risk plan

or a fallback prescription drug plan.

‘‘(g) GUARANTEEING ACCESS TO COVERAGE.— ‘‘(1) SOLICITATION OF BIDS.— ‘‘(A) IN GENERAL.—Separate from the bidding process

under subsection (b), the Secretary shall provide for a

process for the solicitation of bids from eligible fallback

entities (as defined in paragraph (2)) for the offering in

all fallback service areas (as defined in paragraph (3))

in one or more PDP regions of a fallback prescription

drug plan (as defined in paragraph (4)) during the contract

period specified in paragraph (5).

‘‘(B) ACCEPTANCE OF BIDS.—

‘‘(i) IN GENERAL.—Except as provided in this

subparagraph, the provisions of subsection (e) shall

apply with respect to the approval or disapproval of

fallback prescription drug plans. The Secretary shall

enter into contracts under this subsection with eligible

fallback entities for the offering of fallback prescription

drug plans so approved in fallback service areas.

‘‘(ii) LIMITATION OF 1 PLAN FOR ALL FALLBACK

SERVICE AREAS IN A PDP REGION.—With respect to all

fallback service areas in any PDP region for a contract

period, the Secretary shall approve the offering of only

1 fallback prescription drug plan.

‘‘(iii) COMPETITIVE PROCEDURES.—Competitive

procedures (as defined in section 4(5) of the Office

of Federal Procurement Policy Act (41 U.S.C. 403(5)))

shall be used to enter into a contract under this subsection. The provisions of subsection (d) of section

1874A shall apply to a contract under this section

in the same manner as they apply to a contract under

such section.

‘‘(iv) TIMING.—The Secretary shall approve a fallback prescription drug plan for a PDP region in a

manner so that, if there are any fallback service areas

in the region for a year, the fallback prescription drug

plan is offered at the same time as prescription drug

plans would otherwise be offered.

‘‘(V) NO NATIONAL FALLBACK PLAN.—The Secretary

shall not enter into a contract with a single fallback

entity for the offering of fallback plans throughout

the United States.

‘‘(2) ELIGIBLE FALLBACK ENTITY.—For purposes of this section, the term ‘eligible fallback entity’ means, with respect

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2097

to all fallback service areas in a PDP region for a contract

period, an entity that—

‘‘(A) meets the requirements to be a PDP sponsor (or

would meet such requirements but for the fact that the

entity is not a risk-bearing entity); and

‘‘(B) does not submit a bid under section 1860D–11(b)

for any prescription drug plan for any PDP region for

the first year of such contract period.

For purposes of subparagraph (B), an entity shall be treated

as submitting a bid with respect to a prescription drug plan

if the entity is acting as a subcontractor of a PDP sponsor

that is offering such a plan. The previous sentence shall not

apply to entities that are subcontractors of an MA organization

except insofar as such organization is acting as a PDP sponsor

with respect to a prescription drug plan.

‘‘(3) FALLBACK SERVICE AREA.—For purposes of this subsection, the term ‘fallback service area’ means, for a PDP region

with respect to a year, any area within such region for which

the Secretary determines before the beginning of the year that

the access requirements of the first sentence of section 1860D–

3(a) will not be met for part D eligible individuals residing

in the area for the year.

‘‘(4) FALLBACK PRESCRIPTION DRUG PLAN.—For purposes of

this part, the term ‘fallback prescription drug plan’ means

a prescription drug plan that—

‘‘(A) only offers the standard prescription drug coverage

and access to negotiated prices described in section 1860D–

2(a)(1)(A) and does not include any supplemental prescription drug coverage; and

‘‘(B) meets such other requirements as the Secretary

may specify.

‘‘(5) PAYMENTS UNDER THE CONTRACT.—

‘‘(A) IN GENERAL.—A contract entered into under this

subsection shall provide for—

‘‘(i) payment for the actual costs (taking into

account negotiated price concessions described in section 1860D–2(d)(1)(B)) of covered part D drugs provided

to part D eligible individuals enrolled in a fallback

prescription drug plan offered by the entity; and

‘‘(ii) payment of management fees that are tied

to performance measures established by the Secretary

for the management, administration, and delivery of

the benefits under the contract.

‘‘(B) PERFORMANCE MEASURES.—The performance

measures established by the Secretary pursuant to

subparagraph (A)(ii) shall include at least measures for

each of the following:

‘‘(i) COSTS.—The entity contains costs to the Medicare Prescription Drug Account and to part D eligible

individuals enrolled in a fallback prescription drug

plan offered by the entity through mechanisms such

as generic substitution and price discounts.

‘‘(ii) QUALITY PROGRAMS.—The entity provides such

enrollees with quality programs that avoid adverse

drug reactions and overutilization and reduce medical

errors.

117 STAT. 2098 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(iii) CUSTOMER SERVICE.—The entity provides

timely and accurate delivery of services and pharmacy

and beneficiary support services.

‘‘(iv) BENEFIT ADMINISTRATION AND CLAIMS ADJU- DICATION.—The entity provides efficient and effective

benefit administration and claims adjudication.

‘‘(6) MONTHLY BENEFICIARY PREMIUM.—Except as provided

in section 1860D–13(b) (relating to late enrollment penalty)

and subject to section 1860D–14 (relating to low-income assistance), the monthly beneficiary premium to be charged under

a fallback prescription drug plan offered in all fallback service

areas in a PDP region shall be uniform and shall be equal

to 25.5 percent of an amount equal to the Secretary’s estimate

of the average monthly per capita actuarial cost, including

administrative expenses, under the fallback prescription drug

plan of providing coverage in the region, as calculated by the

Chief Actuary of the Centers for Medicare & Medicaid Services.

In calculating such administrative expenses, the Chief Actuary

shall use a factor that is based on similar expenses of prescription drug plans that are not fallback prescription drug plans.

‘‘(7) GENERAL CONTRACT TERMS AND CONDITIONS.—

‘‘(A) IN GENERAL.—Except as may be appropriate to

carry out this section, the terms and conditions of contracts

with eligible fallback entities offering fallback prescription

drug plans under this subsection shall be the same as

the terms and conditions of contracts under this part for

prescription drug plans.

‘‘(B) PERIOD OF CONTRACT.—

‘‘(i) IN GENERAL.—Subject to clause (ii), a contract

approved for a fallback prescription drug plan for fallback service areas for a PDP region under this section

shall be for a period of 3 years (except as may be

renewed after a subsequent bidding process).

‘‘(ii) LIMITATION.—A fallback prescription drug

plan may be offered under a contract in an area for

a year only if that area is a fallback service area

for that year.

‘‘(C) ENTITY NOT PERMITTED TO MARKET OR BRAND FALLBACK PRESCRIPTION DRUG PLANS.—An eligible fallback

entity with a contract under this subsection may not engage

in any marketing or branding of a fallback prescription

drug plan.

‘‘(h) ANNUAL REPORT ON USE OF LIMITED RISK PLANS AND

FALLBACK PLANS.—The Secretary shall submit to Congress an

annual report that describes instances in which limited risk plans

and fallback prescription drug plans were offered under subsections

(f) and (g). The Secretary shall include in such report such recommendations as may be appropriate to limit the need for the

provision of such plans and to maximize the assumption of financial

risk under section subsection (f).

‘‘(i) NONINTERFERENCE.—In order to promote competition under

this part and in carrying out this part, the Secretary—

‘‘(1) may not interfere with the negotiations between drug

manufacturers and pharmacies and PDP sponsors; and

‘‘(2) may not require a particular formulary or institute

a price structure for the reimbursement of covered part D

drugs.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2099

‘‘(j) COORDINATION OF BENEFITS.—A PDP sponsor offering a

prescription drug plan shall permit State Pharmaceutical Assistance

Programs and Rx plans under sections 1860D–23 and 1860D–24

to coordinate benefits with the plan and, in connection with such

coordination with such a Program, not to impose fees that are

unrelated to the cost of coordination.

‘‘REQUIREMENTS FOR AND CONTRACTS WITH PRESCRIPTION DRUG

PLAN (PDP) SPONSORS

‘‘SEC. 1860D–12. (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 FOR UNSUBSIDIZED COV- ERAGE.—‘‘(A) IN GENERAL.—Subject to subparagraph (B), to the

extent that the entity is at risk the entity assumes financial

risk on a prospective basis for benefits that it offers under

a prescription drug plan and that is not covered under

section 1860D–15(b).

‘‘(B) REINSURANCE PERMITTED.—The plan sponsor may

obtain insurance or make other arrangements for the cost

of coverage provided to any enrollee to the extent that

the sponsor is at risk for providing such coverage.

‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—In the case

of a PDP sponsor that is not described in paragraph (1) and

for which a waiver has been approved under subsection (c),

such sponsor shall meet solvency standards established by the

Secretary under subsection (d).

‘‘(b) CONTRACT REQUIREMENTS.— ‘‘(1) IN GENERAL.—The Secretary shall not permit the

enrollment under section 1860D–1 in a prescription drug plan

offered by a PDP sponsor under this part, and the sponsor

shall not be eligible for payments under section 1860D–14

or 1860D–15, unless the Secretary 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) LIMITATION ON ENTITIES OFFERING FALLBACK PRESCRIP- TION DRUG PLANS.—The Secretary shall not enter into a contract

with a PDP sponsor for the offering of a prescription drug

plan (other than a fallback prescription drug plan) in a PDP

region for a year if the sponsor—

‘‘(A) submitted a bid under section 1860D–11(g) for

such year (as the first year of a contract period under

such section) to offer a fallback prescription drug plan

in any PDP region;

‘‘(B) offers a fallback prescription drug plan in any

PDP region during the year; or

‘‘(C) offered a fallback prescription drug plan in that

PDP region during the previous year.

42 USC

1395w–112.

117 STAT. 2100 PUBLIC LAW 108–173—DEC. 8, 2003

For purposes of this paragraph, an entity shall be treated

as submitting a bid with respect to a prescription drug plan

or offering a fallback prescription drug plan if the entity is

acting as a subcontractor of a PDP sponsor that is offering

such a plan. The previous sentence shall not apply to entities

that are subcontractors of an MA organization except insofar

as such organization is acting as a PDP sponsor with respect

to a prescription drug plan.

‘‘(3) INCORPORATION OF CERTAIN MEDICARE ADVANTAGE CONTRACT REQUIREMENTS.—Except as otherwise provided, the following provisions of section 1857 shall apply 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), except that—

‘‘(i) the Secretary may increase the minimum

number of enrollees required under such paragraph

(1) as the Secretary determines appropriate; and

‘‘(ii) the requirement of such paragraph (1) shall

be waived during the first contract year with respect

to an organization in a region.

‘‘(B) CONTRACT PERIOD AND EFFECTIVENESS.—Section

1857(c), except that in applying paragraph (4)(B) of such

section any reference to payment amounts under section

1853 shall be deemed payment amounts under section

1860D–15.

‘‘(C) PROTECTIONS AGAINST FRAUD AND BENEFICIARY

PROTECTIONS.—Section 1857(d).

‘‘(D) ADDITIONAL CONTRACT TERMS.—Section 1857(e);

except that section 1857(e)(2) shall apply as specified to

PDP sponsors and payments under this part to an MA–

PD plan shall be treated as expenditures made under part

D.

‘‘(E) INTERMEDIATE SANCTIONS.—Section 1857(g) (other

than paragraph (1)(F) of such section), except that in

applying such section the reference in section 1857(g)(1)(B)

to section 1854 is deemed a reference to this part.

‘‘(F) PROCEDURES FOR TERMINATION.—Section 1857(h).

‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EXPAND CHOICE.—

‘‘(1) AUTHORIZING WAIVER.—

‘‘(A) IN GENERAL.—In the case of an entity that seeks

to offer a prescription drug plan in a State, the Secretary

shall waive the requirement of subsection (a)(1) that the

entity be licensed in that State if the Secretary determines,

based on the application and other evidence presented to

the Secretary, that any of the grounds for approval of

the application described in paragraph (2) have been met.

‘‘(B) APPLICATION OF REGIONAL PLAN WAIVER RULE.—

In addition to the waiver available under subparagraph

(A), the provisions of section 1858(d) shall apply to PDP

sponsors under this part in a manner similar to the manner

in which such provisions apply to MA organizations under

part C, except that no application shall be required under

paragraph (1)(B) of such section in the case of a State

that does not provide a licensing process for such a sponsor.

‘‘(2) GROUNDS FOR APPROVAL.—

Applicability.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2101

‘‘(A) IN GENERAL.—The grounds for approval under

this paragraph are—

‘‘(i) subject to subparagraph (B), the grounds for

approval described in subparagraphs (B), (C), and (D)

of section 1855(a)(2); and

‘‘(ii) the application by a State of any grounds

other than those required under Federal law.

‘‘(B) SPECIAL RULES.—In applying subparagraph

(A)(i)—

‘‘(i) the ground of approval described in section

1855(a)(2)(B) is deemed to have been met if the State

does not have a licensing process in effect with respect

to the PDP sponsor; and

‘‘(ii) for plan years beginning before January 1,

2008, if the State does have such a licensing process

in effect, such ground for approval described in such

section is deemed to have been met upon submission

of an application described in such section.

‘‘(3) APPLICATION OF WAIVER PROCEDURES.—With respect

to an application for a waiver (or a waiver granted) under

paragraph (1)(A) of this subsection, the provisions of subparagraphs (E), (F), and (G) of section 1855(a)(2) shall apply, except

that clauses (i) and (ii) of such subparagraph (E) shall not

apply in the case of a State that does not have a licensing

process described in paragraph (2)(B)(i) in effect.

‘‘(4) REFERENCES TO CERTAIN PROVISIONS.—In applying

provisions of section 1855(a)(2) under paragraphs (2) and (3)

of 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)(A) of this subsection; and

‘‘(B) any reference to solvency standards shall be

treated as a reference to solvency standards established

under subsection (d) of this section.

‘‘(d) SOLVENCY STANDARDS FOR NON-LICENSED ENTITIES.—

‘‘(1) ESTABLISHMENT AND PUBLICATION.—The Secretary, in

consultation with the National Association of Insurance

Commissioners, shall establish and publish, by not later than

January 1, 2005, financial solvency and capital adequacy standards for entities described in paragraph (2).

‘‘(2) COMPLIANCE WITH STANDARDS.—A 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 Secretary shall establish certification

procedures for such sponsors with respect to such solvency

standards in the manner described in section 1855(c)(2).

‘‘(e) LICENSURE DOES NOT SUBSTITUTE FOR OR CONSTITUTE

CERTIFICATION.—The fact that a PDP sponsor is licensed in accordance with subsection (a)(1) or has a waiver application approved

under subsection (c) does not deem the sponsor to meet other

requirements imposed under this part for a sponsor.

‘‘(f) PERIODIC REVIEW AND REVISION OF STANDARDS.—

‘‘(1) IN GENERAL.—Subject to paragraph (2), the Secretary

may periodically review the standards established under this

Deadline.

117 STAT. 2102 PUBLIC LAW 108–173—DEC. 8, 2003

section and, based on such review, may revise such standards

if the Secretary determines such revision to be appropriate.

‘‘(2) PROHIBITION OF MIDYEAR IMPLEMENTATION OF SIGNIFICANT NEW REGULATORY REQUIREMENTS.—The Secretary may

not implement, other than at the beginning of a calendar year,

regulations under this section that impose new, significant

regulatory requirements on a PDP sponsor or a prescription

drug plan.

‘‘(g) PROHIBITION OF STATE IMPOSITION OF PREMIUM TAXES;

RELATION TO STATE LAWS.—The provisions of sections 1854(g) and

1856(b)(3) shall apply with respect to PDP sponsors and prescription

drug plans under this part in the same manner as such sections

apply to MA organizations and MA plans under part C.

‘‘PREMIUMS; LATE ENROLLMENT PENALTY

‘‘SEC. 1860D–13. (a) MONTHLY BENEFICIARY PREMIUM.—

‘‘(1) COMPUTATION.—

‘‘(A) IN GENERAL.—The monthly beneficiary premium

for a prescription drug plan is the base beneficiary premium

computed under paragraph (2) as adjusted under this paragraph.

‘‘(B) ADJUSTMENT TO REFLECT DIFFERENCE BETWEEN

BID AND NATIONAL AVERAGE BID.—

‘‘(i) ABOVE AVERAGE BID.—If for a month the

amount of the standardized bid amount (as defined

in paragraph (5)) exceeds the amount of the adjusted

national average monthly bid amount (as defined in

clause (iii)), the base beneficiary premium for the

month shall be increased by the amount of such excess.

‘‘(ii) BELOW AVERAGE BID.—If for a month the

amount of the adjusted national average monthly bid

amount for the month exceeds the standardized bid

amount, the base beneficiary premium for the month

shall be decreased by the amount of such excess.

‘‘(iii) ADJUSTED NATIONAL AVERAGE MONTHLY BID

AMOUNT DEFINED.—For purposes of this subparagraph,

the term ‘adjusted national average monthly bid

amount’ means the national average monthly bid

amount computed under paragraph (4), as adjusted

under section 1860D–15(c)(2).

‘‘(C) INCREASE FOR SUPPLEMENTAL PRESCRIPTION DRUG

BENEFITS.—The base beneficiary premium shall be

increased by the portion of the PDP approved bid that

is attributable to supplemental prescription drug benefits.

‘‘(D) INCREASE FOR LATE ENROLLMENT PENALTY.—The

base beneficiary premium shall be increased by the amount

of any late enrollment penalty under subsection (b).

‘‘(E) DECREASE FOR LOW-INCOME ASSISTANCE.—The

monthly beneficiary premium is subject to decrease in the

case of a subsidy eligible individual under section 1860D–

14.

‘‘(F) UNIFORM PREMIUM.—Except as provided in subparagraphs (D) and (E), the monthly beneficiary premium

for a prescription drug plan in a PDP region is the same

for all part D eligible individuals enrolled in the plan.

42 USC

1395w–113.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2103

‘‘(2) BASE BENEFICIARY PREMIUM.—The base beneficiary premium under this paragraph for a prescription drug plan for

a month is equal to the product—

‘‘(A) the beneficiary premium percentage (as specified

in paragraph (3)); and

‘‘(B) the national average monthly bid amount (computed under paragraph (4)) for the month.

‘‘(3) BENEFICIARY PREMIUM PERCENTAGE.—For purposes of

this subsection, the beneficiary premium percentage for any

year is the percentage equal to a fraction—

‘‘(A) the numerator of which is 25.5 percent; and

‘‘(B) the denominator of which is 100 percent minus

a percentage equal to—

‘‘(i) the total reinsurance payments which the Secretary estimates are payable under section 1860D–

15(b) with respect to the coverage year; divided by

‘‘(ii) the sum of—

‘‘(I) the amount estimated under clause (i) for

the year; and

‘‘(II) the total payments which the Secretary

estimates will be paid to prescription drug plans

and MA–PD plans that are attributable to the

standardized bid amount during the year, taking

into account amounts paid by the Secretary and

enrollees.

‘‘(4) COMPUTATION OF NATIONAL AVERAGE MONTHLY BID

AMOUNT.—

‘‘(A) IN GENERAL.—For each year (beginning with 2006)

the Secretary shall compute a national average monthly

bid amount equal to the average of the standardized bid

amounts (as defined in paragraph (5)) for each prescription

drug plan and for each MA–PD plan described in section

1851(a)(2)(A)(i). Such average does not take into account

the bids submitted for MSA plans, MA private fee-forservice plan, and specialized MA plans for special needs

individuals, PACE programs under section 1894 (pursuant

to section 1860D–21(f)), and under reasonable cost

reimbursement contracts under section 1876(h) (pursuant

to section 1860D–21(e)).

‘‘(B) WEIGHTED AVERAGE.—

‘‘(i) IN GENERAL.—The monthly national average

monthly bid amount computed under subparagraph

(A) for a year shall be a weighted average, with the

weight for each plan being equal to the average number

of part D eligible individuals enrolled in such plan

in the reference month (as defined in section

1858(f)(4)).

‘‘(ii) SPECIAL RULE FOR 2006.—For purposes of

applying this paragraph for 2006, the Secretary shall

establish procedures for determining the weighted

average under clause (i) for 2005.

‘‘(5) STANDARDIZED BID AMOUNT DEFINED.—For purposes

of this subsection, the term ‘standardized bid amount’ means

the following:

‘‘(A) PRESCRIPTION DRUG PLANS.—

117 STAT. 2104 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(i) BASIC COVERAGE.—In the case of a prescription

drug plan that provides basic prescription drug coverage, the PDP approved bid (as defined in paragraph

(6)).

‘‘(ii) SUPPLEMENTAL COVERAGE.—In the case of a

prescription drug plan that provides supplemental

prescription drug coverage, the portion of the PDP

approved bid that is attributable to basic prescription

drug coverage.

‘‘(B) MA–PD PLANS.—In the case of an MA–PD plan,

the portion of the accepted bid amount that is attributable

to basic prescription drug coverage.

‘‘(6) PDP APPROVED BID DEFINED.—For purposes of this

part, the term ‘PDP approved bid’ means, with respect to a

prescription drug plan, the bid amount approved for the plan

under this part.

‘‘(b) LATE ENROLLMENT PENALTY.—

‘‘(1) IN GENERAL.—Subject to the succeeding provisions of

this subsection, in the case of a part D eligible individual

described in paragraph (2) with respect to a continuous period

of eligibility, there shall be an increase in the monthly beneficiary premium established under subsection (a) in an amount

determined under paragraph (3).

‘‘(2) INDIVIDUALS SUBJECT TO PENALTY.—A part D eligible

individual described in this paragraph is, with respect to a

continuous period of eligibility, an individual for whom there

is a continuous period of 63 days or longer (all of which in

such continuous period of eligibility) beginning on the day

after the last date of the individual’s initial enrollment period

under section 1860D–1(b)(2) and ending on the date of enrollment under a prescription drug plan or MA–PD plan during

all of which the individual was not covered under any creditable

prescription drug coverage.

‘‘(3) AMOUNT OF PENALTY.—

‘‘(A) IN GENERAL.—The amount determined under this

paragraph for a part D eligible individual for a continuous

period of eligibility is the greater of—

‘‘(i) an amount that the Secretary determines is

actuarially sound for each uncovered month (as defined

in subparagraph (B)) in the same continuous period

of eligibility; or

‘‘(ii) 1 percent of the base beneficiary premium

(computed under subsection (a)(2)) for each such uncovered month in such period.

‘‘(B) UNCOVERED MONTH DEFINED.—For purposes of

this subsection, the term ‘uncovered month’ means, with

respect to a part D eligible individual, any month beginning

after the end of the initial enrollment period under section

1860D–1(b)(2) unless the individual can demonstrate that

the individual had creditable prescription drug coverage

(as defined in paragraph (4)) for any portion of such month.

‘‘(4) CREDITABLE PRESCRIPTION DRUG COVERAGE DEFINED.—

For purposes of this part, the term ‘creditable prescription

drug coverage’ means any of the following coverage, but only

if the coverage meets the requirement of paragraph (5):

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2105

‘‘(A) COVERAGE UNDER PRESCRIPTION DRUG PLAN OR

MA–PD PLAN.—Coverage under a prescription drug plan

or under an MA–PD plan.

‘‘(B) MEDICAID.—Coverage under a medicaid plan

under title XIX or under a waiver under section 1115.

‘‘(C) GROUP HEALTH PLAN.—Coverage under a group

health plan, including a health benefits plan under chapter

89 of title 5, United States Code (commonly known as

the Federal employees health benefits program), and a

qualified retiree prescription drug plan (as defined in section 1860D–22(a)(2)).

‘‘(D) STATE PHARMACEUTICAL ASSISTANCE PROGRAM.— Coverage under a State pharmaceutical assistance program

described in section 1860D–23(b)(1).

‘‘(E) VETERANS’ COVERAGE OF PRESCRIPTION DRUGS.— Coverage for veterans, and survivors and dependents of

veterans, under chapter 17 of title 38, United States Code.

‘‘(F) PRESCRIPTION DRUG COVERAGE UNDER MEDIGAP

POLICIES.—Coverage under a medicare supplemental policy

under section 1882 that provides benefits for prescription

drugs (whether or not such coverage conforms to the standards for packages of benefits under section 1882(p)(1)).

‘‘(G) MILITARY COVERAGE (INCLUDING TRICARE).—Coverage under chapter 55 of title 10, United States Code.

‘‘(H) OTHER COVERAGE.—Such other coverage as the

Secretary determines appropriate.

‘‘(5) ACTUARIAL EQUIVALENCE REQUIREMENT.—Coverage

meets the requirement of this paragraph only if the coverage

is determined (in a manner specified by the Secretary) to provide coverage of the cost of prescription drugs the actuarial

value of which (as defined by the Secretary) to the individual

equals or exceeds the actuarial value of standard prescription

drug coverage (as determined under section 1860D–11(c)).

‘‘(6) PROCEDURES TO DOCUMENT CREDITABLE PRESCRIPTION

DRUG COVERAGE.— ‘‘(A) IN GENERAL.—The Secretary shall establish procedures (including the form, manner, and time) for the documentation of creditable prescription drug coverage,

including procedures to assist in determining whether coverage meets the requirement of paragraph (5).

‘‘(B) DISCLOSURE BY ENTITIES OFFERING CREDITABLE

PRESCRIPTION DRUG COVERAGE.—

‘‘(i) IN GENERAL.—Each entity that offers prescription drug coverage of the type described in subparagraphs (B) through (H) of paragraph (4) shall provide

for disclosure, in a form, manner, and time consistent

with standards established by the Secretary, to the

Secretary and part D eligible individuals of whether

the coverage meets the requirement of paragraph (5)

or whether such coverage is changed so it no longer

meets such requirement.

‘‘(ii) DISCLOSURE OF NON-CREDITABLE COVERAGE.—

In the case of such coverage that does not meet such

requirement, the disclosure to part D eligible individuals under this subparagraph shall include information

regarding the fact that because such coverage does

not meet such requirement there are limitations on

117 STAT. 2106 PUBLIC LAW 108–173—DEC. 8, 2003

the periods in a year in which the individuals may

enroll under a prescription drug plan or an MA–PD

plan and that any such enrollment is subject to a

late enrollment penalty under this subsection.

‘‘(C) WAIVER OF REQUIREMENT.—In the case of a part

D eligible individual who was enrolled in prescription drug

coverage of the type described in subparagraphs (B)

through (H) of paragraph (4) which is not creditable

prescription drug coverage because it does not meet the

requirement of paragraph (5), the individual may apply

to the Secretary to have such coverage treated as creditable

prescription drug coverage if the individual establishes that

the individual was not adequately informed that such coverage did not meet such requirement.

‘‘(7) CONTINUOUS PERIOD OF ELIGIBILITY.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), for

purposes of this subsection, the term ‘continuous period

of eligibility’ means, with respect to a part D eligible individual, the period that begins with the first day on which

the individual is eligible to enroll in a prescription drug

plan under this part and ends with the individual’s death.

‘‘(B) SEPARATE PERIOD.—Any period during all of which

a part D eligible individual is entitled to hospital insurance

benefits under part A and—

‘‘(i) which terminated in or before the month preceding the month in which the individual attained

age 65; or

‘‘(ii) for which the basis for eligibility for such

entitlement changed between section 226(b) and section

226(a), between 226(b) and section 226A, or between

section 226A and section 226(a),

shall be a separate continuous period of eligibility with

respect to the individual (and each such period which terminates shall be deemed not to have existed for purposes

of subsequently applying this paragraph).

‘‘(c) COLLECTION OF MONTHLY BENEFICIARY PREMIUMS.—

‘‘(1) IN GENERAL.—Subject to paragraphs (2) and (3), the

provisions of section 1854(d) shall apply to PDP sponsors and

premiums (and any late enrollment penalty) under this part

in the same manner as they apply to MA organizations and

beneficiary premiums under part C, except that any reference

to a Trust Fund is deemed for this purpose a reference to

the Medicare Prescription Drug Account.

‘‘(2) CREDITING OF LATE ENROLLMENT PENALTY.—

‘‘(A) PORTION ATTRIBUTABLE TO INCREASED ACTUARIAL

COSTS.—With respect to late enrollment penalties imposed

under subsection (b), the Secretary shall specify the portion

of such a penalty that the Secretary estimates is attributable to increased actuarial costs assumed by the PDP

sponsor or MA organization (and not taken into account

through risk adjustment provided under section 1860D–

15(c)(1) or through reinsurance payments under section

1860D–15(b)) as a result of such late enrollment.

‘‘(B) COLLECTION THROUGH WITHHOLDING.—In the case

of a late enrollment penalty that is collected from a part

D eligible individual in the manner described in section

1854(d)(2)(A), the Secretary shall provide that only the

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2107

portion of such penalty estimated under subparagraph (A)

shall be paid to the PDP sponsor or MA organization

offering the part D plan in which the individual is enrolled.

‘‘(C) COLLECTION BY PLAN.—In the case of a late enrollment penalty that is collected from a part D eligible individual in a manner other than the manner described in

section 1854(d)(2)(A), the Secretary shall establish procedures for reducing payments otherwise made to the PDP

sponsor or MA organization by an amount equal to the

amount of such penalty less the portion of such penalty

estimated under subparagraph (A).

‘‘(3) FALLBACK PLANS.—In applying this subsection in the

case of a fallback prescription drug plan, paragraph (2) shall

not apply and the monthly beneficiary premium shall be collected in the manner specified in section 1854(d)(2)(A) (or such

other manner as may be provided under section 1840 in the

case of monthly premiums under section 1839).

‘‘PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-INCOME

INDIVIDUALS

‘‘SEC. 1860D–14. (a) INCOME-RELATED SUBSIDIES FOR INDIVIDUALS WITH INCOME UP TO 150 PERCENT OF POVERTY LINE.—

‘‘(1) INDIVIDUALS WITH INCOME BELOW 135 PERCENT OF POVERTY LINE.—In the case of a subsidy eligible individual (as

defined in paragraph (3)) who is determined to have income

that is below 135 percent of the poverty line applicable to

a family of the size involved and who meets the resources

requirement described in paragraph (3)(D) or who is covered

under this paragraph under paragraph (3)(B)(i), the individual

is entitled under this section to the following:

‘‘(A) FULL PREMIUM SUBSIDY.—An income-related premium subsidy equal to—

‘‘(i) 100 percent of the amount described in subsection (b)(1), but not to exceed the premium amount

specified in subsection (b)(2)(B); plus

‘‘(ii) 80 percent of any late enrollment penalties

imposed under section 1860D–13(b) for the first 60

months in which such penalties are imposed for that

individual, and 100 percent of any such penalties for

any subsequent month.

‘‘(B) ELIMINATION OF DEDUCTIBLE.—A reduction in the

annual deductible applicable under section 1860D–2(b)(1)

to $0.

‘‘(C) CONTINUATION OF COVERAGE ABOVE THE INITIAL

COVERAGE LIMIT.—The continuation of coverage from the

initial coverage limit (under paragraph (3) of section

1860D–2(b)) for expenditures incurred through the total

amount of expenditures at which benefits are available

under paragraph (4) of such section, subject to the reduced

cost-sharing described in subparagraph (D).

‘‘(D) REDUCTION IN COST-SHARING BELOW OUT-OFPOCKET THRESHOLD.—

‘‘(i) INSTITUTIONALIZED INDIVIDUALS.—In the case

of an individual who is a full-benefit dual eligible individual and who is an institutionalized individual or

42 USC

1395w–114.

117 STAT. 2108 PUBLIC LAW 108–173—DEC. 8, 2003

couple (as defined in section 1902(q)(1)(B)), the elimination of any beneficiary coinsurance described in section 1860D–2(b)(2) (for all amounts through the total

amount of expenditures at which benefits are available

under section 1860D–2(b)(4)).

‘‘(ii) LOWEST INCOME DUAL ELIGIBLE INDIVIDUALS.— In the case of an individual not described in clause

(i) who is a full-benefit dual eligible individual and

whose income does not exceed 100 percent of the poverty line applicable to a family of the size involved,

the substitution for the beneficiary coinsurance

described in section 1860D–2(b)(2) (for all amounts

through the total amount of expenditures at which

benefits are available under section 1860D–2(b)(4)) of

a copayment amount that does not exceed $1 for a

generic drug or a preferred drug that is a multiple

source drug (as defined in section 1927(k)(7)(A)(i)) and

$3 for any other drug, or, if less, the copayment amount

applicable to an individual under clause (iii).

‘‘(iii) OTHER INDIVIDUALS.—In the case of an individual not described in clause (i) or (ii), the substitution

for the beneficiary coinsurance described in section

1860D–2(b)(2) (for all amounts through the total

amount of expenditures at which benefits are available

under section 1860D–2(b)(4)) of a copayment amount

that does not exceed the copayment amount specified

under section 1860D–2(b)(4)(A)(i)(I) for the drug and

year involved.

‘‘(E) ELIMINATION OF COST-SHARING ABOVE ANNUAL

OUT-OF-POCKET THRESHOLD.—The elimination of any costsharing imposed under section 1860D–2(b)(4)(A).

‘‘(2) OTHER INDIVIDUALS WITH INCOME BELOW 150 PERCENT

OF POVERTY LINE.—In the case of a subsidy eligible individual

who is not described in paragraph (1), the individual is entitled

under this section to the following:

‘‘(A) SLIDING SCALE PREMIUM SUBSIDY.—An incomerelated premium subsidy determined on a linear sliding

scale ranging from 100 percent of the amount described

in paragraph (1)(A) for individuals with incomes at or

below 135 percent of such level to 0 percent of such amount

for individuals with incomes at 150 percent of such level.

‘‘(B) REDUCTION OF DEDUCTIBLE.—A reduction in the

annual deductible applicable under section 1860D–2(b)(1)

to $50.

‘‘(C) CONTINUATION OF COVERAGE ABOVE THE INITIAL

COVERAGE LIMIT.—The continuation of coverage from the

initial coverage limit (under paragraph (3) of section

1860D–2(b)) for expenditures incurred through the total

amount of expenditures at which benefits are available

under paragraph (4) of such section, subject to the reduced

coinsurance described in subparagraph (D).

‘‘(D) REDUCTION IN COST-SHARING BELOW OUT-OFPOCKET THRESHOLD.—The substitution for the beneficiary

coinsurance described in section 1860D–2(b)(2) (for all

amounts above the deductible under subparagraph (B)

through the total amount of expenditures at which benefits

are available under section 1860D–2(b)(4)) of coinsurance

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2109

of ‘15 percent’ instead of coinsurance of ‘25 percent’ in

section 1860D–2(b)(2).

‘‘(E) REDUCTION OF COST-SHARING ABOVE ANNUAL OUTOF-POCKET THRESHOLD.—Subject to subsection (c), the

substitution for the cost-sharing imposed under section

1860D–2(b)(4)(A) of a copayment or coinsurance not to

exceed the copayment or coinsurance amount specified

under section 1860D–2(b)(4)(A)(i)(I) for the drug and year

involved.

‘‘(3) DETERMINATION OF ELIGIBILITY.—

‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL DEFINED.—For purposes of this part, subject to subparagraph (F), the term

‘subsidy eligible individual’ means a part D eligible individual who—

‘‘(i) is enrolled in a prescription drug plan or MA–

PD plan;

‘‘(ii) has income below 150 percent of the poverty

line applicable to a family of the size involved; and

‘‘(iii) meets the resources requirement described

in subparagraph (D) or (E).

‘‘(B) DETERMINATIONS.—

‘‘(i) IN GENERAL.—The determination of whether

a part D eligible individual residing in a State is a

subsidy eligible individual and whether the individual

is described in paragraph (1) shall be determined under

the State plan under title XIX for the State under

section 1935(a) or by the Commissioner of Social Security. 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.

‘‘(ii) EFFECTIVE PERIOD.—Determinations under

this subparagraph shall be effective beginning with

the month in which the individual applies for a determination that the individual is a subsidy eligible individual and shall remain in effect for a period specified

by the Secretary, but not to exceed 1 year.

‘‘(iii) REDETERMINATIONS AND APPEALS THROUGH

MEDICAID.—Redeterminations and appeals, with

respect to eligibility determinations under clause (i)

made under a State plan under title XIX, shall be

made in accordance with the frequency of, and manner

in which, redeterminations and appeals of eligibility

are made under such plan for purposes of medical

assistance under such title.

‘‘(iv) REDETERMINATIONS AND APPEALS THROUGH

COMMISSIONER.—With respect to eligibility determinations under clause (i) made by the Commissioner of

Social Security—

‘‘(I) redeterminations shall be made at such

time or times as may be provided by the Commissioner; and

‘‘(II) the Commissioner shall establish procedures for appeals of such determinations that are

similar to the procedures described in the third

sentence of section 1631(c)(1)(A).

117 STAT. 2110 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(v) TREATMENT OF MEDICAID BENEFICIARIES.— Subject to subparagraph (F), the Secretary—

‘‘(I) shall provide that part D eligible individuals who are full-benefit dual eligible individuals

(as defined in section 1935(c)(6)) or who are recipients of supplemental security income benefits

under title XVI shall be treated as subsidy eligible

individuals described in paragraph (1); and

‘‘(II) may provide that part D eligible individuals not described in subclause (I) who are determined for purposes of the State plan under title

XIX to be eligible for medical assistance under

clause (i), (iii), or (iv) of section 1902(a)(10)(E) are

treated as being determined to be subsidy eligible

individuals described in paragraph (1).

Insofar as the Secretary determines that the eligibility

requirements under the State plan for medical assistance referred to in subclause (II) are substantially

the same as the requirements for being treated as

a subsidy eligible individual described in paragraph

(1), the Secretary shall provide for the treatment

described in such subclause.

‘‘(C) INCOME DETERMINATIONS.—For purposes of

applying this section—

‘‘(i) in the case of a part D eligible individual

who is not treated as a subsidy eligible individual

under subparagraph (B)(v), income shall be determined

in the manner described in section 1905(p)(1)(B), without regard to the application of section 1902(r)(2); and

‘‘(ii) the term ‘poverty line’ has the meaning given

such term in section 673(2) of the Community Services

Block Grant Act (42 U.S.C. 9902(2)), including any

revision required by such section.

Nothing in clause (i) shall be construed to affect the application of section 1902(r)(2) for the determination of eligibility

for medical assistance under title XIX.

‘‘(D) RESOURCE STANDARD APPLIED TO FULL LOWINCOME SUBSIDY TO BE BASED ON THREE TIMES SSI

RESOURCE STANDARD.—The resources requirement of this

subparagraph is that an individual’s resources (as determined under section 1613 for purposes of the supplemental

security income program) do not exceed—

‘‘(i) for 2006 three times the maximum amount

of resources that an individual may have and obtain

benefits under that program; and

‘‘(ii) for a subsequent year the resource limitation

established under this clause for the previous year

increased by the annual percentage increase in the

consumer price index (all items; U.S. city average)

as of September of such previous year.

Any resource limitation established under clause (ii) that

is not a multiple of $10 shall be rounded to the nearest

multiple of $10.

‘‘(E) ALTERNATIVE RESOURCE STANDARD.—

‘‘(i) IN GENERAL.—The resources requirement of

this subparagraph is that an individual’s resources

(as determined under section 1613 for purposes of the

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2111

supplemental security income program) do not

exceed—

‘‘(I) for 2006, $10,000 (or $20,000 in the case

of the combined value of the individual’s assets

or resources and the assets or resources of the

individual’s spouse); and

‘‘(II) for a subsequent year the dollar amounts

specified in this subclause (or subclause (I)) for

the previous year increased by the annual percentage increase in the consumer price index (all items;

U.S. city average) as of September of such previous

year.

Any dollar amount established under subclause (II)

that is not a multiple of $10 shall be rounded to

the nearest multiple of $10.

‘‘(ii) USE OF SIMPLIFIED APPLICATION FORM AND

PROCESS.—The Secretary, jointly with the Commissioner of Social Security, shall—

‘‘(I) develop a model, simplified application

form and process consistent with clause (iii) for

the determination and verification of a part D

eligible individual’s assets or resources under this

subparagraph; and

‘‘(II) provide such form to States.

‘‘(iii) DOCUMENTATION AND SAFEGUARDS.—Under

such process—

‘‘(I) the application form shall consist of an

attestation under penalty of perjury regarding the

level of assets or resources (or combined assets

and resources in the case of a married part D

eligible individual) and valuations of general

classes of assets or resources;

‘‘(II) such form shall be accompanied by copies

of recent statements (if any) from financial institutions in support of the application; and

‘‘(III) matters attested to in the application

shall be subject to appropriate methods of

verification.

‘‘(iv) METHODOLOGY FLEXIBILITY.—The Secretary

may permit a State in making eligibility determinations for premium and cost-sharing subsidies under

this section to use the same asset or resource methodologies that are used with respect to eligibility for

medical assistance for medicare cost-sharing described

in section 1905(p) so long as the Secretary determines

that the use of such methodologies will not result in

any significant differences in the number of individuals

determined to be subsidy eligible individuals.

‘‘(F) TREATMENT OF TERRITORIAL RESIDENTS.—In the

case of a part D eligible 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 under

this section but may be eligible for financial assistance

with prescription drug expenses under section 1935(e).

‘‘(4) INDEXING DOLLAR AMOUNTS.—

117 STAT. 2112 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(A) COPAYMENT FOR LOWEST INCOME DUAL ELIGIBLE

INDIVIDUALS.—The dollar amounts applied under paragraph (1)(D)(ii)—

‘‘(i) for 2007 shall be the dollar amounts specified

in such paragraph increased by the annual percentage

increase in the consumer price index (all items; U.S.

city average) as of September of such previous year;

or

‘‘(ii) for a subsequent year shall be the dollar

amounts specified in this clause (or clause (i)) for the

previous year increased by the annual percentage

increase in the consumer price index (all items; U.S.

city average) as of September of such previous year.

Any amount established under clause (i) or (ii), that is

based on an increase of $1 or $3, that is not a multiple

of 5 cents or 10 cents, respectively, shall be rounded to

the nearest multiple of 5 cents or 10 cents, respectively.

‘‘(B) REDUCED DEDUCTIBLE.—The dollar amount

applied under paragraph (2)(B)—

‘‘(i) for 2007 shall be the dollar amount specified

in such paragraph increased by the annual percentage

increase described in section 1860D–2(b)(6) for 2007;

or

‘‘(ii) for a subsequent year shall be the dollar

amount specified in this clause (or clause (i)) for the

previous year increased by the annual percentage

increase described in section 1860D–2(b)(6) for the year

involved.

Any amount established under clause (i) or (ii) that is

not a multiple of $1 shall be rounded to the nearest multiple of $1.

‘‘(b) PREMIUM SUBSIDY AMOUNT.—

‘‘(1) IN GENERAL.—The premium subsidy amount described

in this subsection for a subsidy eligible individual residing

in a PDP region and enrolled in a prescription drug plan

or MA–PD plan is the low-income benchmark premium amount

(as defined in paragraph (2)) for the PDP region in which

the individual resides or, if greater, the amount specified in

paragraph (3).

‘‘(2) LOW-INCOME BENCHMARK PREMIUM AMOUNT DEFINED.—

‘‘(A) IN GENERAL.—For purposes of this subsection, the

term ‘low-income benchmark premium amount’ means,

with respect to a PDP region in which—

‘‘(i) all prescription drug plans are offered by the

same PDP sponsor, the weighted average of the

amounts described in subparagraph (B)(i) for such

plans; or

‘‘(ii) there are prescription drug plans offered by

more than one PDP sponsor, the weighted average

of amounts described in subparagraph (B) for prescription drug plans and MA–PD plans described in section

1851(a)(2)(A)(i) offered in such region.

‘‘(B) PREMIUM AMOUNTS DESCRIBED.—The premium

amounts described in this subparagraph are, in the case

of—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2113

‘‘(i) a prescription drug plan that is a basic

prescription drug plan, the monthly beneficiary premium for such plan;

‘‘(ii) a prescription drug plan that provides alternative prescription drug coverage the actuarial value

of which is greater than that of standard prescription

drug coverage, the portion of the monthly beneficiary

premium that is attributable to basic prescription drug

coverage; and

‘‘(iii) an MA–PD plan, the portion of the MA

monthly prescription drug beneficiary premium that

is attributable to basic prescription drug benefits

(described in section 1852(a)(6)(B)(ii)).

The premium amounts described in this subparagraph do

not include any amounts attributable to late enrollment

penalties under section 1860D–13(b).

‘‘(3) ACCESS TO 0 PREMIUM PLAN.—In no case shall the

premium subsidy amount under this subsection for a PDP

region be less than the lowest monthly beneficiary premium

for a prescription drug plan that offers basic prescription drug

coverage in the region.

‘‘(c) ADMINISTRATION OF SUBSIDY PROGRAM.— ‘‘(1) IN GENERAL.—The Secretary shall provide a process

whereby, in the case of a part D eligible individual who is

determined to be a subsidy eligible individual and who is

enrolled in a prescription drug plan or is enrolled in an MA–

PD plan—

‘‘(A) the Secretary provides for a notification of the

PDP sponsor or the MA organization offering the plan

involved that the individual is eligible for a subsidy and

the amount of the subsidy under subsection (a);

‘‘(B) the sponsor or organization involved reduces the

premiums or cost-sharing otherwise imposed by the amount

of the applicable subsidy and submits to the Secretary

information on the amount of such reduction;

‘‘(C) the Secretary periodically and on a timely basis

reimburses the sponsor or organization for the amount

of such reductions; and

‘‘(D) the Secretary ensures the confidentiality of

individually identifiable information.

In applying subparagraph (C), the Secretary shall compute

reductions based upon imposition under subsections (a)(1)(D)

and (a)(2)(E) of unreduced copayment amounts applied under

such subsections.

‘‘(2) USE OF CAPITATED FORM OF PAYMENT.—The reimbursement under this section 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.

‘‘(d) RELATION TO MEDICAID PROGRAM.—For special provisions

under the medicaid program relating to medicare prescription drug

benefits, see section 1935.

‘‘SUBSIDIES FOR PART D ELIGIBLE INDIVIDUALS FOR QUALIFIED

PRESCRIPTION DRUG COVERAGE

‘‘SEC. 1860D–15. (a) SUBSIDY PAYMENT.—In order to reduce

premium levels applicable to qualified prescription drug coverage

42 USC

1395w–115.

117 STAT. 2114 PUBLIC LAW 108–173—DEC. 8, 2003

for part D eligible individuals consistent with an overall subsidy

level of 74.5 percent for basic prescription drug coverage, to reduce

adverse selection among prescription drug plans and MA–PD plans,

and to promote the participation of PDP sponsors under this part

and MA organizations under part C, the Secretary shall provide

for payment to a PDP sponsor that offers a prescription drug

plan and an MA organization that offers an MA–PD plan of the

following subsidies in accordance with this section:

‘‘(1) DIRECT SUBSIDY.—A direct subsidy for each part D

eligible individual enrolled in a prescription drug plan or MA–

PD plan for a month equal to—

‘‘(A) the amount of the plan’s standardized bid amount

(as defined in section 1860D–13(a)(5)), adjusted under subsection (c)(1), reduced by

‘‘(B) the base beneficiary premium (as computed under

paragraph (2) of section 1860D–13(a) and as adjusted under

paragraph (1)(B) of such section).

‘‘(2) SUBSIDY THROUGH REINSURANCE.—The reinsurance

payment amount (as defined in subsection (b)).

This section constitutes budget authority in advance of appropriations Acts and represents the obligation of the Secretary to provide

for the payment of amounts provided under this section.

‘‘(b) REINSURANCE PAYMENT AMOUNT.—

‘‘(1) IN GENERAL.—The reinsurance payment amount under

this subsection for a part D eligible individual enrolled in

a prescription drug plan or MA–PD plan for a coverage year

is an amount equal to 80 percent of the allowable reinsurance

costs (as specified in paragraph (2)) attributable to that portion

of gross covered prescription drug costs as specified in paragraph (3) incurred in the coverage year after such individual

has incurred costs that exceed the annual out-of-pocket

threshold specified in section 1860D–2(b)(4)(B).

‘‘(2) ALLOWABLE REINSURANCE COSTS.—For purposes of this

section, the term ‘allowable reinsurance costs’ means, with

respect to gross covered prescription drug costs under a

prescription drug plan offered by a PDP sponsor or an MA–

PD plan offered by an MA organization, the part of such costs

that are actually paid (net of discounts, chargebacks, and average percentage rebates) by the sponsor or organization or by

(or on behalf of) an enrollee 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 basic prescription drug coverage, or, in the case

of a plan providing supplemental prescription drug coverage,

if such coverage were standard prescription drug coverage.

‘‘(3) GROSS COVERED PRESCRIPTION DRUG COSTS.—For purposes of this section, the term ‘gross covered prescription drug

costs’ means, with respect to a part D eligible individual

enrolled in a prescription drug plan or MA–PD plan during

a coverage year, the costs incurred under the plan, not including

administrative costs, but including costs directly related to

the dispensing of covered part D drugs during the year and

costs relating to the deductible. Such costs shall be determined

whether they are paid by the individual or under the plan,

regardless of whether the coverage under the plan exceeds

basic prescription drug coverage.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2115

‘‘(4) COVERAGE YEAR DEFINED.—For purposes of this section,

the term ‘coverage year’ means a calendar year in which covered

part D drugs are dispensed if the claim for such drugs (and

payment on such claim) is made not later than such period

after the end of such year as the Secretary specifies.

‘‘(c) ADJUSTMENTS RELATING TO BIDS.—

‘‘(1) HEALTH STATUS RISK ADJUSTMENT.—

‘‘(A) ESTABLISHMENT OF RISK ADJUSTORS.—The Secretary shall establish an appropriate methodology for

adjusting the standardized bid amount under subsection

(a)(1)(A) to take into account variation in costs for basic

prescription drug coverage among prescription drug plans

and MA–PD plans based on the differences in actuarial

risk of different enrollees being served. Any such risk

adjustment shall be designed in a manner so as not to

result in a change in the aggregate amounts payable to

such plans under subsection (a)(1) and through that portion

of the monthly beneficiary prescription drug premiums

described in subsection (a)(1)(B) and MA monthly prescription drug beneficiary premiums.

‘‘(B) CONSIDERATIONS.—In establishing the methodology under subparagraph (A), the Secretary may take

into account the similar methodologies used under section

1853(a)(3) to adjust payments to MA organizations for benefits under the original medicare fee-for-service program

option.

‘‘(C) DATA COLLECTION.—In order to carry out this

paragraph, the Secretary shall require—

‘‘(i) PDP sponsors to submit data regarding drug

claims that can be linked at the individual level to

part A and part B data and such other information

as the Secretary determines necessary; and

‘‘(ii) MA organizations that offer MA–PD plans

to submit data regarding drug claims that can be

linked at the individual level to other data that such

organizations are required to submit to the Secretary

and such other information as the Secretary determines necessary.

‘‘(D) PUBLICATION.—At the time of publication of risk

adjustment factors under section 1853(b)(1)(B)(i)(II), the

Secretary shall publish the risk adjusters established under

this paragraph for the succeeding year.

‘‘(2) GEOGRAPHIC ADJUSTMENT.—

‘‘(A) IN GENERAL.—Subject to subparagraph (B), for

purposes of section 1860D–13(a)(1)(B)(iii), the Secretary

shall establish an appropriate methodology for adjusting

the national average monthly bid amount (computed under

section 1860D–13(a)(4)) to take into account differences

in prices for covered part D drugs among PDP regions.

‘‘(B) DE MINIMIS RULE.—If the Secretary determines

that the price variations described in subparagraph (A)

among PDP regions are de minimis, the Secretary shall

not provide for adjustment under this paragraph.

‘‘(C) BUDGET NEUTRAL ADJUSTMENT.—Any adjustment

under this paragraph shall be applied in a manner so

as to not result in a change in the aggregate payments

117 STAT. 2116 PUBLIC LAW 108–173—DEC. 8, 2003

made under this part that would have been made if the

Secretary had not applied such adjustment.

‘‘(d) PAYMENT METHODS.—

‘‘(1) IN GENERAL.—Payments under this section shall be

based on such a method as the Secretary determines. The

Secretary may establish a payment method by which interim

payments of amounts under this section are made during a

year based on the Secretary’s best estimate of amounts that

will be payable after obtaining all of the information.

‘‘(2) REQUIREMENT FOR PROVISION OF INFORMATION.— ‘‘(A) REQUIREMENT.—Payments under this section to

a PDP sponsor or MA organization are conditioned upon

the furnishing to the Secretary, in a form and manner

specified by the Secretary, of such information as may

be required to carry out this section.

‘‘(B) RESTRICTION ON USE OF INFORMATION.—Information disclosed or obtained pursuant to subparagraph (A)

may be used by officers, employees, and contractors of

the Department of Health and Human Services only for

the purposes of, and to the extent necessary in, carrying

out this section.

‘‘(3) SOURCE OF PAYMENTS.—Payments under this section

shall be made from the Medicare Prescription Drug Account.

‘‘(4) APPLICATION OF ENROLLEE ADJUSTMENT.—The provisions of section 1853(a)(2) shall apply to payments to PDP

sponsors under this section in the same manner as they apply

to payments to MA organizations under section 1853(a).

‘‘(e) PORTION OF TOTAL PAYMENTS TO A SPONSOR OR ORGANIZATION SUBJECT TO RISK (APPLICATION OF RISK CORRIDORS).—

‘‘(1) COMPUTATION OF ADJUSTED ALLOWABLE RISK CORRIDOR

COSTS.—

‘‘(A) IN GENERAL.—For purposes of this subsection, the

term ‘adjusted allowable risk corridor costs’ means, for

a plan for a coverage year (as defined in subsection (b)(4))—

‘‘(i) the allowable risk corridor costs (as defined

in subparagraph (B)) for the plan for the year, reduced

by

‘‘(ii) the sum of (I) the total reinsurance payments

made under subsection (b) to the sponsor of the plan

for the year, and (II) the total subsidy payments made

under section 1860D–14 to the sponsor of the plan

for the year.

‘‘(B) ALLOWABLE RISK CORRIDOR COSTS.—For purposes

of this subsection, the term ‘allowable risk corridor costs’

means, with respect to a prescription drug plan offered

by a PDP sponsor or an MA–PD plan offered by an MA

organization, the part of costs (not including administrative

costs, but including costs directly related to the dispensing

of covered part D drugs during the year) incurred by the

sponsor or organization under the plan that are actually

paid (net of discounts, chargebacks, and average percentage

rebates) by the sponsor or organization 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 basic prescription drug

coverage, or, in the case of a plan providing supplemental

prescription drug coverage, if such coverage were basic

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2117

prescription drug coverage taking into account the adjustment under section 1860D–11(c)(2). In computing allowable

costs under this paragraph, the Secretary shall compute

such costs based upon imposition under paragraphs (1)(D)

and (2)(E) of section 1860D–14(a) of the maximum amount

of copayments permitted under such paragraphs.

‘‘(2) ADJUSTMENT OF PAYMENT.— ‘‘(A) NO ADJUSTMENT IF ADJUSTED ALLOWABLE RISK

CORRIDOR COSTS WITHIN RISK CORRIDOR.—If the adjusted

allowable risk corridor costs (as defined in paragraph (1))

for the plan for the year are at least equal to the first

threshold lower limit of the risk corridor (specified in paragraph (3)(A)(i)), but not greater than the first threshold

upper limit of the risk corridor (specified in paragraph

(3)(A)(iii)) for the plan for the year, then no payment adjustment shall be made under this subsection.

‘‘(B) INCREASE IN PAYMENT IF ADJUSTED ALLOWABLE

RISK CORRIDOR COSTS ABOVE UPPER LIMIT OF RISK CORRIDOR.—

‘‘(i) COSTS BETWEEN FIRST AND SECOND THRESHOLD

UPPER LIMITS.—If the adjusted allowable risk corridor

costs for the plan for the year are greater than the

first threshold upper limit, but not greater than the

second threshold upper limit, of the risk corridor for

the plan for the year, the Secretary shall increase

the total of the payments made to the sponsor or

organization offering the plan for the year under this

section by an amount equal to 50 percent (or, for

2006 and 2007, 75 percent or 90 percent if the conditions described in clause (iii) are met for the year)

of the difference between such adjusted allowable risk

corridor costs and the first threshold upper limit of

the risk corridor.

‘‘(ii) COSTS ABOVE SECOND THRESHOLD UPPER

LIMITS.—If the adjusted allowable risk corridor costs

for the plan for the year are greater than the second

threshold upper limit of the risk corridor for the plan

for the year, the Secretary shall increase the total

of the payments made to the sponsor or organization

offering the plan for the year under this section by

an amount equal to the sum of—

‘‘(I) 50 percent (or, for 2006 and 2007, 75 percent or 90 percent if the conditions described in

clause (iii) are met for the year) of the difference

between the second threshold upper limit and the

first threshold upper limit; and

‘‘(II) 80 percent of the difference between such

adjusted allowable risk corridor costs and the

second threshold upper limit of the risk corridor.

‘‘(iii) CONDITIONS FOR APPLICATION OF HIGHER

PERCENTAGE FOR 2006 AND 2007.—The conditions

described in this clause are met for 2006 or 2007

if the Secretary determines with respect to such year

that—

‘‘(I) at least 60 percent of prescription drug

plans and MA–PD plans to which this subsection

applies have adjusted allowable risk corridor costs

117 STAT. 2118 PUBLIC LAW 108–173—DEC. 8, 2003

for the plan for the year that are more than the

first threshold upper limit of the risk corridor for

the plan for the year; and

‘‘(II) such plans represent at least 60 percent

of part D eligible individuals enrolled in any

prescription drug plan or MA–PD plan.

‘‘(C) REDUCTION IN PAYMENT IF ADJUSTED ALLOWABLE

RISK CORRIDOR COSTS BELOW LOWER LIMIT OF RISK CORRIDOR.—

‘‘(i) COSTS BETWEEN FIRST AND SECOND THRESHOLD

LOWER LIMITS.—If the adjusted allowable risk corridor

costs for the plan for the year are less than the first

threshold lower limit, but not less than the second

threshold lower limit, of the risk corridor for the plan

for the year, the Secretary shall reduce the total of

the payments made to the sponsor or organization

offering the plan for the year under this section by

an amount (or otherwise recover from the sponsor or

organization an amount) equal to 50 percent (or, for

2006 and 2007, 75 percent) of the difference between

the first threshold lower limit of the risk corridor and

such adjusted allowable risk corridor costs.

‘‘(ii) COSTS BELOW SECOND THRESHOLD LOWER

LIMIT.—If the adjusted allowable risk corridor costs

for the plan for the year are less the second threshold

lower limit of the risk corridor for the plan for the

year, the Secretary shall reduce the total of the payments made to the sponsor or organization offering

the plan for the year under this section by an amount

(or otherwise recover from the sponsor or organization

an amount) equal to the sum of—

‘‘(I) 50 percent (or, for 2006 and 2007, 75 percent) of the difference between the first threshold

lower limit and the second threshold lower limit;

and

‘‘(II) 80 percent of the difference between the

second threshold upper limit of the risk corridor

and such adjusted allowable risk corridor costs.

‘‘(3) ESTABLISHMENT OF RISK CORRIDORS.—

‘‘(A) IN GENERAL.—For each plan year the Secretary

shall establish a risk corridor for each prescription drug

plan and each MA–PD plan. The risk corridor for a plan

for a year shall be equal to a range as follows:

‘‘(i) FIRST THRESHOLD LOWER LIMIT.—The first

threshold lower limit of such corridor shall be equal

to—

‘‘(I) the target amount described in subparagraph (B) for the plan; minus

‘‘(II) an amount equal to the first threshold

risk percentage for the plan (as determined under

subparagraph (C)(i)) of such target amount.

‘‘(ii) SECOND THRESHOLD LOWER LIMIT.—The second

threshold lower limit of such corridor shall be equal

to—

‘‘(I) the target amount described in subparagraph (B) for the plan; minus

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2119

‘‘(II) an amount equal to the second threshold

risk percentage for the plan (as determined under

subparagraph (C)(ii)) of such target amount.

‘‘(iii) FIRST THRESHOLD UPPER LIMIT.—The first

threshold upper limit of such corridor shall be equal

to the sum of—

‘‘(I) such target amount; and

‘‘(II) the amount described in clause (i)(II).

‘‘(iv) SECOND THRESHOLD UPPER LIMIT.—The second

threshold upper limit of such corridor shall be equal

to the sum of—

‘‘(I) such target amount; and

‘‘(II) the amount described in clause (ii)(II).

‘‘(B) TARGET AMOUNT DESCRIBED.—The target amount

described in this paragraph is, with respect to a prescription drug plan or an MA–PD plan in a year, the total

amount of payments paid to the PDP sponsor or MA–

PD organization for the plan for the year, taking into

account amounts paid by the Secretary and enrollees, based

upon the standardized bid amount (as defined in section

1860D–13(a)(5) and as risk adjusted under subsection

(c)(1)), reduced by the total amount of administrative

expenses for the year assumed in such standardized bid.

‘‘(C) FIRST AND SECOND THRESHOLD RISK PERCENTAGE

DEFINED.—

‘‘(i) FIRST THRESHOLD RISK PERCENTAGE.—Subject

to clause (iii), for purposes of this section, the first

threshold risk percentage is—

‘‘(I) for 2006 and 2007, and 2.5 percent;

‘‘(II) for 2008 through 2011, 5 percent; and

‘‘(III) for 2012 and subsequent years, a

percentage established by the Secretary, but in

no case less than 5 percent.

‘‘(ii) SECOND THRESHOLD RISK PERCENTAGE.—Subject to clause (iii), for purposes of this section, the

second threshold risk percentage is—

‘‘(I) for 2006 and 2007, 5 percent;

‘‘(II) for 2008 through 2011, 10 percent; and

‘‘(III) for 2012 and subsequent years, a

percentage established by the Secretary that is

greater than the percent established for the year

under clause (i)(III), but in no case less than 10

percent.

‘‘(iii) REDUCTION OF RISK PERCENTAGE TO ENSURE

2 PLANS IN AN AREA.—Pursuant to section 1860D–

11(b)(2)(E)(ii), a PDP sponsor may submit a bid that

requests a decrease in the applicable first or second

threshold risk percentages or an increase in the percents applied under paragraph (2).

‘‘(4) PLANS AT RISK FOR ENTIRE AMOUNT OF SUPPLEMENTAL

PRESCRIPTION DRUG COVERAGE.—A PDP sponsor and MA

organization that offers a plan that provides supplemental

prescription drug benefits shall be at full financial risk for

the provision of such supplemental benefits.

‘‘(5) NO EFFECT ON MONTHLY PREMIUM.—No adjustment

in payments made by reason of this subsection shall affect

117 STAT. 2120 PUBLIC LAW 108–173—DEC. 8, 2003

the monthly beneficiary premium or the MA monthly prescription drug beneficiary premium.

‘‘(f) DISCLOSURE OF INFORMATION.—

‘‘(1) IN GENERAL.—Each contract under this part and under

part C shall provide that—

‘‘(A) the PDP sponsor offering a prescription drug plan

or an MA organization offering an MA–PD plan shall provide the Secretary with such information as the Secretary

determines is necessary to carry out this section; and

‘‘(B) the Secretary shall have the right in accordance

with section 1857(d)(2)(B) (as applied under section 1860D–

12(b)(3)(C)) to inspect and audit any books and records

of a PDP sponsor or MA organization that pertain to the

information regarding costs provided to the Secretary under

subparagraph (A).

‘‘(2) RESTRICTION ON USE OF INFORMATION.—Information

disclosed or obtained pursuant to the provisions of this section

may be used by officers, employees, and contractors of the

Department of Health and Human Services only for the purposes of, and to the extent necessary in, carrying out this

section.

‘‘(g) PAYMENT FOR FALLBACK PRESCRIPTION DRUG PLANS.—In

lieu of the amounts otherwise payable under this section to a

PDP sponsor offering a fallback prescription drug plan (as defined

in section 1860D–3(c)(4)), the amount payable shall be the amounts

determined under the contract for such plan pursuant to section

1860D–11(g)(5).

‘‘MEDICARE PRESCRIPTION DRUG ACCOUNT IN THE FEDERAL

SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND

‘‘SEC. 1860D–16. (a) ESTABLISHMENT AND OPERATION OF

ACCOUNT.—

‘‘(1) ESTABLISHMENT.—There is created within the Federal

Supplementary Medical Insurance Trust Fund established by

section 1841 an account to be known as the ‘Medicare Prescription Drug Account’ (in this section referred to as the ‘Account’).

‘‘(2) FUNDING.—The Account shall consist of such gifts and

bequests as may be made as provided in section 201(i)(1),

accrued interest on balances in the Account, and such amounts

as may be deposited in, or appropriated to, such Account as

provided in this part.

‘‘(3) SEPARATE FROM REST OF TRUST FUND.—Funds provided

under this part to the Account shall be kept separate from

all other funds within the Federal Supplementary Medical

Insurance Trust Fund, but shall be invested, and such investments redeemed, in the same manner as all other funds and

investments within such Trust Fund.

‘‘(b) PAYMENTS FROM ACCOUNT.—

‘‘(1) IN GENERAL.—The Managing Trustee shall pay from

time to time from the Account such amounts as the Secretary

certifies are necessary to make payments to operate the program under this part, including—

‘‘(A) payments under section 1860D–14 (relating to lowincome subsidy payments);

‘‘(B) payments under section 1860D–15 (relating to subsidy payments and payments for fallback plans);

42 USC

1395w–116.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2121

‘‘(C) payments to sponsors of qualified retiree prescription drug plans under section 1860D–22(a); and

‘‘(D) 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 Account to the Grants to States

for Medicaid account amounts the Secretary certifies are attributable to increases in payment resulting from the application

of section 1935(b).

‘‘(3) PAYMENTS OF PREMIUMS WITHHELD.—The Managing

Trustee shall make payment to the PDP sponsor or MA

organization involved of the premiums (and the portion of late

enrollment penalties) that are collected in the manner described

in section 1854(d)(2)(A) and that are payable under a prescription drug plan or MA–PD plan offered by such sponsor or

organization.

‘‘(4) TREATMENT IN RELATION TO PART B PREMIUM.—

Amounts payable from the Account shall not be taken into

account in computing actuarial rates or premium amounts

under section 1839.

‘‘(c) DEPOSITS INTO ACCOUNT.—

‘‘(1) LOW-INCOME TRANSFER.—Amounts paid under section

1935(c) (and any amounts collected or offset under paragraph

(1)(C) of such section) are deposited into the Account.

‘‘(2) AMOUNTS WITHHELD.—Pursuant to sections 1860D–

13(c) and 1854(d) (as applied under this part), amounts that

are withheld (and allocated) to the Account are deposited into

the Account.

‘‘(3) 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 Account, an amount equivalent to the

amount of payments made from the Account under subsection

(b) plus such amounts as the Managing Trustee certifies is

necessary to maintain an appropriate contingency margin,

reduced by the amounts deposited under paragraph (1) or subsection (a)(2).

‘‘(4) INITIAL FUNDING AND RESERVE.—In order to assure

prompt payment of benefits provided under this part and the

administrative expenses thereunder during the early months

of the program established by this part and to provide an

initial contingency reserve, there are authorized to be appropriated to the Account, out of any moneys in the Treasury

not otherwise appropriated, such amount as the Secretary certifies are required, but not to exceed 10 percent of the estimated

total expenditures from such Account in 2006.

‘‘(5) TRANSFER OF ANY REMAINING BALANCE FROM TRANSITIONAL ASSISTANCE ACCOUNT.—Any balance in the Transitional

Assistance Account that is transferred under section 1860D–

31(k)(5) shall be deposited into the Account.

117 STAT. 2122 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘Subpart 3—Application to Medicare Advantage Program and

Treatment of Employer-Sponsored Programs and Other Prescription Drug Plans

‘‘APPLICATION TO MEDICARE ADVANTAGE PROGRAM AND RELATED

MANAGED CARE PROGRAMS

‘‘SEC. 1860D–21. (a) SPECIAL RULES RELATING TO OFFERING

OF QUALIFIED PRESCRIPTION DRUG COVERAGE.— ‘‘(1) IN GENERAL.—An MA organization on and after

January 1, 2006—

‘‘(A) may not offer an MA plan described in section

1851(a)(2)(A) in an area unless either that plan (or another

MA plan offered by the organization in that same service

area) includes required prescription drug coverage (as

defined in paragraph (2)); and

‘‘(B) may not offer prescription drug coverage (other

than that required under parts A and B) to an enrollee—

‘‘(i) under an MSA plan; or

‘‘(ii) under another MA plan unless such drug coverage under such other plan provides qualified

prescription drug coverage and unless the requirements of this section with respect to such coverage

are met.

‘‘(2) QUALIFYING COVERAGE.—For purposes of paragraph

(1)(A), the term ‘required coverage’ means with respect to an

MA–PD plan—

‘‘(A) basic prescription drug coverage; or

‘‘(B) qualified prescription drug coverage that provides

supplemental prescription drug coverage, so long as there

is no MA monthly supplemental beneficiary premium

applied under the plan (due to the application of a credit

against such premium of a rebate under section

1854(b)(1)(C)).

‘‘(b) APPLICATION OF DEFAULT ENROLLMENT RULES.— ‘‘(1) SEAMLESS CONTINUATION.—In applying section

1851(c)(3)(A)(ii), an individual who is enrolled in a health benefits plan shall not be considered to have been deemed to make

an election into an MA–PD plan unless such health benefits

plan provides any prescription drug coverage.

‘‘(2) MA CONTINUATION.—In applying section 1851(c)(3)(B),

an individual who is enrolled in an MA plan shall not be

considered to have been deemed to make an election into an

MA–PD plan unless—

‘‘(A) for purposes of the election as of January 1, 2006,

the MA plan provided as of December 31, 2005, any

prescription drug coverage; or

‘‘(B) for periods after January 1, 2006, such MA plan

is an MA–PD plan.

‘‘(3) DISCONTINUANCE OF MA–PD ELECTION DURING FIRST

YEAR OF ELIGIBILITY.—In applying the second sentence of section 1851(e)(4) in the case of an individual who is electing

to discontinue enrollment in an MA–PD plan, the individual

shall be permitted to enroll in a prescription drug plan under

part D at the time of the election of coverage under the original

medicare fee-for-service program.

‘‘(4) RULES REGARDING ENROLLEES IN MA PLANS NOT PRO- VIDING QUALIFIED PRESCRIPTION DRUG COVERAGE.—In the case

42 USC

1395w–131.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2123

of an individual who is enrolled in an MA plan (other than

an MSA plan) that does not provide qualified prescription drug

coverage, if the organization offering such coverage discontinues

the offering with respect to the individual of all MA plans

that do not provide such coverage—

‘‘(i) the individual is deemed to have elected the

original medicare fee-for-service program option, unless

the individual affirmatively elects to enroll in an MA–

PD plan; and

‘‘(ii) in the case of such a deemed election, the

disenrollment shall be treated as an involuntary termination of the MA plan described in subparagraph (B)(ii)

of section 1882(s)(3) for purposes of applying such section.

The information disclosed under section 1852(c)(1) for individuals who are enrolled in such an MA plan shall include information regarding such rules.

‘‘(c) APPLICATION OF PART D RULES FOR PRESCRIPTION DRUG

COVERAGE.—With respect to the offering of qualified prescription

drug coverage by an MA organization under this part on and

after January 1, 2006—

‘‘(1) IN GENERAL.—Except as otherwise provided, the provisions of this part shall apply under part C with respect to

prescription drug coverage provided under MA–PD plans in

lieu of the other provisions of part C that would apply to

such coverage under such plans.

‘‘(2) WAIVER.—The Secretary shall waive the provisions

referred to in paragraph (1) to the extent the Secretary determines that such provisions duplicate, or are in conflict with,

provisions otherwise applicable to the organization or plan

under part C or as may be necessary in order to improve

coordination of this part with the benefits under this part.

‘‘(3) TREATMENT OF MA OWNED AND OPERATED PHARMACIES.—The Secretary may waive the requirement of section

1860D–4(b)(1)(C) in the case of an MA–PD plan that provides

access (other than mail order) to qualified prescription drug

coverage through pharmacies owned and operated by the MA

organization, if the Secretary determines that the organization’s

pharmacy network is sufficient to provide comparable access

for enrollees under the plan.

‘‘(d) SPECIAL RULES FOR PRIVATE FEE-FOR-SERVICE PLANS THAT

OFFER PRESCRIPTION DRUG COVERAGE.—With respect to an MA

plan described in section 1851(a)(2)(C) that offers qualified prescription drug coverage, on and after January 1, 2006, the following

rules apply:

‘‘(1) REQUIREMENTS REGARDING NEGOTIATED PRICES.—Subsections (a)(1) and (d)(1) of section 1860D–2 and section 1860D–

4(b)(2)(A) shall not be construed to require the plan to provide

negotiated prices (described in subsection (d)(1)(B) of such section), but shall apply to the extent the plan does so.

‘‘(2) MODIFICATION OF PHARMACY ACCESS STANDARD AND

DISCLOSURE REQUIREMENT.—If the plan provides coverage for

drugs purchased from all pharmacies, without charging additional cost-sharing, and without regard to whether they are

participating pharmacies in a network or have entered into

contracts or agreements with pharmacies to provide drugs to

117 STAT. 2124 PUBLIC LAW 108–173—DEC. 8, 2003

enrollees covered by the plan, subsections (b)(1)(C) and (k)

of section 1860D–4 shall not apply to the plan.

‘‘(3) DRUG UTILIZATION MANAGEMENT PROGRAM AND MEDICATION THERAPY MANAGEMENT PROGRAM NOT REQUIRED.—The

requirements of subparagraphs (A) and (C) of section 1860D–

4(c)(1) shall not apply to the plan.

‘‘(4) APPLICATION OF REINSURANCE.—The Secretary shall

determine the amount of reinsurance payments under section

1860D–15(b) using a methodology that—

‘‘(A) bases such amount on the Secretary’s estimate

of the amount of such payments that would be payable

if the plan were an MA–PD plan described in section

1851(a)(2)(A)(i) and the previous provisions of this subsection did not apply; and

‘‘(B) takes into account the average reinsurance payments made under section 1860D–15(b) for populations

of similar risk under MA–PD plans described in such section.

‘‘(5) EXEMPTION FROM RISK CORRIDOR PROVISIONS.—The

provisions of section 1860D–15(e) shall not apply.

‘‘(6) EXEMPTION FROM NEGOTIATIONS.—Subsections (d) and

(e)(2)(C) of section 1860D–11 shall not apply and the provisions

of section 1854(a)(5)(B) prohibiting the review, approval, or

disapproval of amounts described in such section shall apply

to the proposed bid and terms and conditions described in

section 1860D–11(d).

‘‘(7) TREATMENT OF INCURRED COSTS WITHOUT REGARD TO

FORMULARY.—The exclusion of costs incurred for covered part

D drugs which are not included (or treated as being included)

in a plan’s formulary under section 1860D–2(b)(4)(B)(i) shall

not apply insofar as the plan does not utilize a formulary.

‘‘(e) APPLICATION TO REASONABLE COST REIMBURSEMENT CONTRACTORS.—

‘‘(1) IN GENERAL.—Subject to paragraphs (2) and (3) and

rules established by the Secretary, in the case of an organization that is providing benefits under a reasonable cost

reimbursement contract under section 1876(h) and that elects

to provide qualified prescription drug coverage to a part D

eligible individual who is enrolled under such a contract, the

provisions of this part (and related provisions of part C) shall

apply to the provision of such coverage to such enrollee in

the same manner as such provisions apply to the provision

of such coverage under an MA–PD local plan described in

section 1851(a)(2)(A)(i) and coverage under such a contract

that so provides qualified prescription drug coverage shall be

deemed to be an MA–PD local plan.

‘‘(2) LIMITATION ON ENROLLMENT.—In applying paragraph

(1), the organization may not enroll part D eligible individuals

who are not enrolled under the reasonable cost reimbursement

contract involved.

‘‘(3) BIDS NOT INCLUDED IN DETERMINING NATIONAL AVER- AGE MONTHLY BID AMOUNT.—The bid of an organization offering

prescription drug coverage under this subsection shall not be

taken into account in computing the national average monthly

bid amount and low-income benchmark premium amount under

this part.

‘‘(f) APPLICATION TO PACE.—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2125

‘‘(1) IN GENERAL.—Subject to paragraphs (2) and (3) and

rules established by the Secretary, in the case of a PACE

program under section 1894 that elects to provide qualified

prescription drug coverage to a part D eligible individual who

is enrolled under such program, the provisions of this part

(and related provisions of part C) shall apply to the provision

of such coverage to such enrollee in a manner that is similar

to the manner in which such provisions apply to the provision

of such coverage under an MA–PD local plan described in

section 1851(a)(2)(A)(ii) and a PACE program that so provides

such coverage may be deemed to be an MA–PD local plan.

‘‘(2) LIMITATION ON ENROLLMENT.—In applying paragraph

(1), the organization may not enroll part D eligible individuals

who are not enrolled under the PACE program involved.

‘‘(3) BIDS NOT INCLUDED IN DETERMINING STANDARDIZED

BID AMOUNT.—The bid of an organization offering prescription

drug coverage under this subsection is not be taken into account

in computing any average benchmark bid amount and lowincome benchmark premium amount under this part.

‘‘SPECIAL RULES FOR EMPLOYER-SPONSORED PROGRAMS

‘‘SEC. 1860D–22. (a) SUBSIDY PAYMENT.—

‘‘(1) IN GENERAL.—The Secretary shall provide in accordance with this subsection for payment to the sponsor of a

qualified retiree prescription drug plan (as defined in paragraph

(2)) of a special subsidy payment equal to the amount specified

in paragraph (3) for each qualified covered retiree under the

plan (as defined in paragraph (4)). This subsection constitutes

budget authority in advance of appropriations Acts and represents the obligation of the Secretary to provide for the payment of amounts provided under this section.

‘‘(2) QUALIFIED RETIREE PRESCRIPTION DRUG PLAN

DEFINED.—For purposes of this subsection, the term ‘qualified

retiree prescription drug plan’ means employment-based retiree

health coverage (as defined in subsection (c)(1)) if, with respect

to a part D eligible individual who is a participant or beneficiary

under such coverage, the following requirements are met:

‘‘(A) ATTESTATION OF ACTUARIAL EQUIVALENCE TO

STANDARD COVERAGE.—The sponsor of the plan provides

the Secretary, annually or at such other time as the Secretary may require, with an attestation that the actuarial

value of prescription drug coverage under the plan (as

determined using the processes and methods described in

section 1860D–11(c)) is at least equal to the actuarial value

of standard prescription drug coverage.

‘‘(B) AUDITS.—The sponsor of the plan, or an administrator of the plan designated by the sponsor, shall maintain

(and afford the Secretary access to) such records as the

Secretary 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 under this section. The provisions of section 1860D–

2(d)(3) shall apply to such information under this section

(including such actuarial value and attestation) in a

manner similar to the manner in which they apply to

financial records of PDP sponsors and MA organizations.

42 USC

1395w–132.

117 STAT. 2126 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(C) PROVISION OF DISCLOSURE REGARDING PRESCRIP- TION DRUG COVERAGE.—The sponsor of the plan shall provide for disclosure of information regarding prescription

drug coverage in accordance with section 1860D–

13(b)(6)(B).

‘‘(3) EMPLOYER AND UNION SPECIAL SUBSIDY AMOUNTS.— ‘‘(A) IN GENERAL.—For purposes of this subsection, the

special subsidy payment amount under this paragraph for

a qualifying covered retiree for a coverage year enrolled

with the sponsor of a qualified retiree prescription drug

plan is, for the portion of the retiree’s gross covered retiree

plan-related prescription drug costs (as defined in subparagraph (C)(ii)) for such year that exceeds the cost threshold

amount specified in subparagraph (B) and does not exceed

the cost limit under such subparagraph, an amount equal

to 28 percent of the allowable retiree costs (as defined

in subparagraph (C)(i)) attributable to such gross covered

prescription drug costs.

‘‘(B) COST THRESHOLD AND COST LIMIT APPLICABLE.—

‘‘(i) IN GENERAL.—Subject to clause (ii)—

‘‘(I) the cost threshold under this subparagraph is equal to $250 for plan years that end

in 2006; and

‘‘(II) the cost limit under this subparagraph

is equal to $5,000 for plan years that end in 2006.

‘‘(ii) INDEXING.—The cost threshold and cost limit

amounts specified in subclauses (I) and (II) of clause

(i) for a plan year that ends after 2006 shall be adjusted

in the same manner as the annual deductible and

the annual out-of-pocket threshold, respectively, are

annually adjusted under paragraphs (1) and (4)(B) of

section 1860D–2(b).

‘‘(C) DEFINITIONS.—For purposes of this paragraph:

‘‘(i) ALLOWABLE RETIREE COSTS.—The term ‘allowable retiree costs’ means, with respect to gross covered

prescription drug costs under a qualified retiree

prescription drug plan by a plan sponsor, the part

of such costs that are actually paid (net of discounts,

chargebacks, and average percentage rebates) by the

sponsor or by or on behalf of a qualifying covered

retiree under the plan.

‘‘(ii) GROSS COVERED RETIREE PLAN-RELATED

PRESCRIPTION DRUG COSTS.—For purposes of this section, the term ‘gross covered retiree plan-related

prescription drug costs’ means, with respect to a qualifying covered retiree enrolled in a qualified retiree

prescription drug plan during a coverage year, the

costs incurred under the plan, not including administrative costs, but including costs directly related to

the dispensing of covered part D drugs during the

year. Such costs shall be determined whether they

are paid by the retiree or under the plan.

‘‘(iii) COVERAGE YEAR.—The term ‘coverage year’ has

the meaning given such term in section 1860D–15(b)(4).

‘‘(4) QUALIFYING COVERED RETIREE DEFINED.—For purposes

of this subsection, the term ‘qualifying covered retiree’ means

a part D eligible individual who is not enrolled in a prescription

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2127

drug plan or an MA–PD plan but is covered under a qualified

retiree prescription drug plan.

‘‘(5) PAYMENT METHODS, INCLUDING PROVISION OF NECESSARY INFORMATION.—The provisions of section 1860D–15(d)

(including paragraph (2), relating to requirement for provision

of information) shall apply to payments under this subsection

in a manner similar to the manner in which they apply to

payment under section 1860D–15(b).

‘‘(6) CONSTRUCTION.—Nothing in this subsection shall be

construed as—

‘‘(A) precluding a part D eligible individual who is

covered under employment-based retiree health coverage

from enrolling in a prescription drug plan or in an MA–

PD plan;

‘‘(B) precluding such employment-based retiree health

coverage or an employer or other person from paying all

or any portion of any premium required for coverage under

a prescription drug plan or MA–PD plan on behalf of such

an individual;

‘‘(C) preventing such employment-based retiree health

coverage from providing coverage—

‘‘(i) that is better than standard prescription drug

coverage to retirees who are covered under a qualified

retiree prescription drug plan; or

‘‘(ii) that is supplemental to the benefits provided

under a prescription drug plan or an MA–PD plan,

including benefits to retirees who are not covered under

a qualified retiree prescription drug plan but who are

enrolled in such a prescription drug plan or MA–PD

plan; or

‘‘(D) preventing employers to provide for flexibility in

benefit design and pharmacy access provisions, without

regard to the requirements for basic prescription drug coverage, so long as the actuarial equivalence requirement

of paragraph (2)(A) is met.

‘‘(b) APPLICATION OF MA WAIVER AUTHORITY.—The provisions

of section 1857(i) shall apply with respect to prescription drug

plans in relation to employment-based retiree health coverage in

a manner similar to the manner in which they apply to an MA

plan in relation to employers, including authorizing the establishment of separate premium amounts for enrollees in a prescription

drug plan by reason of such coverage and limitations on enrollment

to part D eligible individuals enrolled under such coverage.

‘‘(c) DEFINITIONS.—For purposes of this section:

‘‘(1) EMPLOYMENT-BASED RETIREE HEALTH COVERAGE.—The

term ‘employment-based retiree health coverage’ means health

insurance or other coverage of health care costs (whether provided by voluntary insurance coverage or pursuant to statutory

or contractual obligation) for part D eligible individuals (or

for such individuals and their spouses and dependents) under

a group health plan based on their status as retired participants

in such plan.

‘‘(2) SPONSOR.—The term ‘sponsor’ means a plan sponsor,

as defined in section 3(16)(B) of the Employee Retirement

Income Security Act of 1974, in relation to a group health

plan, except that, in the case of a plan maintained jointly

by one employer and an employee organization and with respect

117 STAT. 2128 PUBLIC LAW 108–173—DEC. 8, 2003

to which the employer is the primary source of financing, such

term means such employer.

‘‘(3) GROUP HEALTH PLAN.—The term ‘group health plan’

includes such a plan as defined in section 607(1) of the

Employee Retirement Income Security Act of 1974 and also

includes the following:

‘‘(A) FEDERAL AND STATE GOVERNMENTAL PLANS.—Such

a plan established or maintained for its employees by the

Government of the United States, by the government of

any State or political subdivision thereof, or by any agency

or instrumentality of any of the foregoing, including a

health benefits plan offered under chapter 89 of title 5,

United States Code.

‘‘(B) COLLECTIVELY BARGAINED PLANS.—Such a plan

established or maintained under or pursuant to one or

more collective bargaining agreements.

‘‘(C) CHURCH PLANS.—Such a plan established and

maintained for its employees (or their beneficiaries) by

a church or by a convention or association of churches

which is exempt from tax under section 501 of the Internal

Revenue Code of 1986.

‘‘STATE PHARMACEUTICAL ASSISTANCE PROGRAMS

‘‘SEC. 1860D–23. (a) REQUIREMENTS FOR BENEFIT COORDINATION.—

‘‘(1) IN GENERAL.—Before July 1, 2005, the Secretary shall

establish consistent with this section requirements for prescription drug plans to ensure the effective coordination between

a part D plan (as defined in paragraph (5)) and a State Pharmaceutical Assistance Program (as defined in subsection (b)) with

respect to—

‘‘(A) payment of premiums and coverage; and

‘‘(B) payment for supplemental prescription drug benefits,

for part D eligible individuals enrolled under both types of

plans.

‘‘(2) COORDINATION ELEMENTS.—The requirements under

paragraph (1) shall include requirements relating to coordination of each of the following:

‘‘(A) Enrollment file sharing.

‘‘(B) The processing of claims, including electronic processing.

‘‘(C) Claims payment.

‘‘(D) Claims reconciliation reports.

‘‘(E) Application of the protection against high outof-pocket expenditures under section 1860D–2(b)(4).

‘‘(F) Other administrative processes specified by the

Secretary.

Such requirements shall be consistent with applicable law to

safeguard the privacy of any individually identifiable beneficiary information.

‘‘(3) USE OF LUMP SUM PER CAPITA METHOD.—Such requirements shall include a method for the application by a part

D plan of specified funding amounts from a State Pharmaceutical Assistance Program for enrolled individuals for supplemental prescription drug benefits.

42 USC

1395w–133.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2129

‘‘(4) CONSULTATION.—In establishing requirements under

this subsection, the Secretary shall consult with State Pharmaceutical Assistance Programs, MA organizations, States,

pharmaceutical benefit managers, employers, representatives

of part D eligible individuals, the data processing experts, pharmacists, pharmaceutical manufacturers, and other experts.

‘‘(5) PART D PLAN DEFINED.—For purposes of this section

and section 1860D–24, the term ‘part D plan’ means a prescription drug plan and an MA–PD plan.

‘‘(b) STATE PHARMACEUTICAL ASSISTANCE PROGRAM.—For purposes of this part, the term ‘State Pharmaceutical Assistance Program’ means a State program—

‘‘(1) which provides financial assistance for the purchase

or provision of supplemental prescription drug coverage or benefits on behalf of part D eligible individuals;

‘‘(2) which, in determining eligibility and the amount of

assistance to part D eligible individuals under the Program,

provides assistance to such individuals in all part D plans

and does not discriminate based upon the part D plan in

which the individual is enrolled; and

‘‘(3) which satisfies the requirements of subsections (a)

and (c).

‘‘(c) RELATION TO OTHER PROVISIONS.—

‘‘(1) MEDICARE AS PRIMARY PAYOR.—The requirements of

this section shall not change or affect the primary payor status

of a part D plan.

‘‘(2) USE OF A SINGLE CARD.—A card that is issued under

section 1860D–4(b)(2)(A) for use under a part D plan may

also be used in connection with coverage of benefits provided

under a State Pharmaceutical Assistance Program and, in such

case, may contain an emblem or symbol indicating such connection.

‘‘(3) OTHER PROVISIONS.—The provisions of section 1860D–

24(c) shall apply to the requirements under this section.

‘‘(4) SPECIAL TREATMENT UNDER OUT-OF-POCKET RULE.—

In applying section 1860D–2(b)(4)(C)(ii), expenses incurred

under a State Pharmaceutical Assistance Program may be

counted toward the annual out-of-pocket threshold.

‘‘(5) CONSTRUCTION.—Nothing in this section shall be construed as requiring a State Pharmaceutical Assistance Program

to coordinate or provide financial assistance with respect to

any part D plan.

‘‘(d) FACILITATION OF TRANSITION AND COORDINATION WITH

STATE PHARMACEUTICAL ASSISTANCE PROGRAMS.—

‘‘(1) TRANSITIONAL GRANT PROGRAM.—The Secretary shall

provide payments to State Pharmaceutical Assistance Programs

with an application approved under this subsection.

‘‘(2) USE OF FUNDS.—Payments under this section may

be used by a Program for any of the following:

‘‘(A) Educating part D eligible individuals enrolled in

the Program about the prescription drug coverage available

through part D plans under this part.

‘‘(B) Providing technical assistance, phone support, and

counseling for such enrollees to facilitate selection and

enrollment in such plans.

117 STAT. 2130 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(C) Other activities designed to promote the effective

coordination of enrollment, coverage, and payment between

such Program and such plans.

‘‘(3) ALLOCATION OF FUNDS.—Of the amount appropriated

to carry out this subsection for a fiscal year, the Secretary

shall allocate payments among Programs that have applications

approved under paragraph (4) for such fiscal year in proportion

to the number of enrollees enrolled in each such Program

as of October 1, 2003.

‘‘(4) APPLICATION.—No payments may be made under this

subsection except pursuant to an application that is submitted

and approved in a time, manner, and form specified by the

Secretary.

‘‘(5) FUNDING.—Out of any funds in the Treasury not otherwise appropriated, there are appropriated for each of fiscal

years 2005 and 2006, $62,500,000 to carry out this subsection.

‘‘COORDINATION REQUIREMENTS FOR PLANS PROVIDING PRESCRIPTION

DRUG COVERAGE

‘‘SEC. 1860D–24. (a) APPLICATION OF BENEFIT COORDINATION

REQUIREMENTS TO ADDITIONAL PLANS.—

‘‘(1) IN GENERAL.—The Secretary shall apply the coordination requirements established under section 1860D–23(a) to

Rx plans described in subsection (b) in the same manner as

such requirements apply to a State Pharmaceutical Assistance

Program.

‘‘(2) APPLICATION TO TREATMENT OF CERTAIN OUT-OF-POCKET

EXPENDITURES.—To the extent specified by the Secretary, the

requirements referred to in paragraph (1) shall apply to procedures established under section 1860D–2(b)(4)(D).

‘‘(3) USER FEES.—

‘‘(A) IN GENERAL.—The Secretary may impose user fees

for the transmittal of information necessary for benefit

coordination under section 1860D–2(b)(4)(D) in a manner

similar to the manner in which user fees are imposed

under section 1842(h)(3)(B), except that the Secretary may

retain a portion of such fees to defray the Secretary’s

costs in carrying out procedures under section 1860D–

2(b)(4)(D).

‘‘(B) APPLICATION.—A user fee may not be imposed

under subparagraph (A) with respect to a State Pharmaceutical Assistance Program.

‘‘(b) RX PLAN.—An Rx plan described in this subsection is

any of the following:

‘‘(1) MEDICAID PROGRAMS.—A State plan under title XIX,

including such a plan operating under a waiver under section

1115, if it meets the requirements of section 1860D–23(b)(2).

‘‘(2) GROUP HEALTH PLANS.—An employer group health

plan.

‘‘(3) FEHBP.—The Federal employees health benefits plan

under chapter 89 of title 5, United States Code.

‘‘(4) MILITARY COVERAGE (INCLUDING TRICARE).—Coverage

under chapter 55 of title 10, United States Code.

‘‘(5) OTHER PRESCRIPTION DRUG COVERAGE.—Such other

health benefit plans or programs that provide coverage or financial assistance for the purchase or provision of prescription

42 USC

1395w–134.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2131

drug coverage on behalf of part D eligible individuals as the

Secretary may specify.

‘‘(c) RELATION TO OTHER PROVISIONS.—

‘‘(1) USE OF COST MANAGEMENT TOOLS.—The requirements

of this section shall not impair or prevent a PDP sponsor

or MA organization from applying cost management tools

(including differential payments) under all methods of operation.

‘‘(2) NO AFFECT ON TREATMENT OF CERTAIN OUT-OF-POCKET

EXPENDITURES.—The requirements of this section shall not

affect the application of the procedures established under section 1860D–2(b)(4)(D).

‘‘Subpart 4—Medicare Prescription Drug Discount Card and

Transitional Assistance Program

‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD AND TRANSITIONAL

ASSISTANCE PROGRAM

‘‘SEC. 1860D–31. (a) ESTABLISHMENT OF PROGRAM.—

‘‘(1) IN GENERAL.—The Secretary shall establish a program

under this section—

‘‘(A) to endorse prescription drug discount card programs that meet the requirements of this section in order

to provide access to prescription drug discounts through

prescription drug card sponsors for discount card eligible

individuals throughout the United States; and

‘‘(B) to provide for transitional assistance for transitional assistance eligible individuals enrolled in such

endorsed programs.

‘‘(2) PERIOD OF OPERATION.—

‘‘(A) IMPLEMENTATION DEADLINE.—The Secretary shall

implement the program under this section so that discount

cards and transitional assistance are first available by

not later than 6 months after the date of the enactment

of this section.

‘‘(B) EXPEDITING IMPLEMENTATION.—The Secretary

shall promulgate regulations to carry out the program

under this section which may be effective and final immediately on an interim basis as of the date of publication

of the interim final regulation. If the Secretary provides

for an interim final regulation, the Secretary shall provide

for a period of public comments on such regulation after

the date of publication. The Secretary may change or revise

such regulation after completion of the period of public

comment.

‘‘(C) TERMINATION AND TRANSITION.—

‘‘(i) IN GENERAL.—Subject to clause (ii)—

‘‘(I) the program under this section shall not

apply to covered discount card drugs dispensed

after December 31, 2005; and

‘‘(II) transitional assistance shall be available

after such date to the extent the assistance relates

to drugs dispensed on or before such date.

‘‘(ii) TRANSITION.—In the case of an individual who

is enrolled in an endorsed discount card program as

Regulations.

42 USC

1395w–141.

117 STAT. 2132 PUBLIC LAW 108–173—DEC. 8, 2003

of December 31, 2005, during the individual’s transition period (if any) under clause (iii), in accordance

with transition rules specified by the Secretary—

‘‘(I) such endorsed program may continue to

apply to covered discount card drugs dispensed

to the individual under the program during such

transition period;

‘‘(II) no annual enrollment fee shall be

applicable during the transition period;

‘‘(III) during such period the individual may

not change the endorsed program plan in which

the individual is enrolled; and

‘‘(IV) the balance of any transitional assistance

remaining on January 1, 2006, shall remain available for drugs dispensed during the individual’s

transition period.

‘‘(iii) TRANSITION PERIOD.—The transition period

under this clause for an individual is the period beginning on January 1, 2006, and ending in the case of

an individual who—

‘‘(I) is enrolled in a prescription drug plan

or an MA–PD plan before the last date of the

initial enrollment period under section 1860D–

1(b)(2)(A), on the effective date of the individual’s

coverage under such part; or

‘‘(II) is not so enrolled, on the last day of

such initial period.

‘‘(3) VOLUNTARY NATURE OF PROGRAM.—Nothing in this section shall be construed as requiring a discount card eligible

individual to enroll in an endorsed discount card program under

this section.

‘‘(4) GLOSSARY AND DEFINITIONS OF TERMS.—For purposes

of this section:

‘‘(A) COVERED DISCOUNT CARD DRUG.—The term ‘covered discount card drug’ has the meaning given the term

‘covered part D drug’ in section 1860D–2(e).

‘‘(B) DISCOUNT CARD ELIGIBLE INDIVIDUAL.—The term

‘discount card eligible individual’ is defined in subsection

(b)(1)(A).

‘‘(C) ENDORSED DISCOUNT CARD PROGRAM; ENDORSED

PROGRAM.—The terms ‘endorsed discount card program’

and ‘endorsed program’ mean a prescription drug discount

card program that is endorsed (and for which the sponsor

has a contract with the Secretary) under this section.

‘‘(D) NEGOTIATED PRICE.—Negotiated prices are

described in subsection (e)(1)(A)(ii).

‘‘(E) PRESCRIPTION DRUG CARD SPONSOR; SPONSOR.—

The terms ‘prescription drug card sponsor’ and ‘sponsor’

are defined in subsection (h)(1)(A).

‘‘(F) STATE.—The term ‘State’ has the meaning given

such term for purposes of title XIX.

‘‘(G) TRANSITIONAL ASSISTANCE ELIGIBLE INDIVIDUAL.—

The term ‘transitional assistance eligible individual’ is

defined in subsection (b)(2).

‘‘(b) ELIGIBILITY FOR DISCOUNT CARD AND FOR TRANSITIONAL

ASSISTANCE.—For purposes of this section:

‘‘(1) DISCOUNT CARD ELIGIBLE INDIVIDUAL.—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2133

‘‘(A) IN GENERAL.—The term ‘discount card eligible individual’ means an individual who—

‘‘(i) is entitled to benefits, or enrolled, under part

A or enrolled under part B; and

‘‘(ii) subject to paragraph (4), is not an individual

described in subparagraph (B).

‘‘(B) INDIVIDUAL DESCRIBED.—An individual described

in this subparagraph is an individual described in subparagraph (A)(i) who is enrolled under title XIX (or under

a waiver under section 1115 of the requirements of such

title) and is entitled to any medical assistance for outpatient prescribed drugs described in section 1905(a)(12).

‘‘(2) TRANSITIONAL ASSISTANCE ELIGIBLE INDIVIDUAL.—

‘‘(A) IN GENERAL.—Subject to subparagraph (B), the

term ‘transitional assistance eligible individual’ means a

discount card eligible individual who resides in one of the

50 States or the District of Columbia and whose income

(as determined under subsection (f)(1)(B)) is not more than

135 percent of the poverty line (as defined in section 673(2)

of the Community Services Block Grant Act, 42 U.S.C.

9902(2), including any revision required by such section)

applicable to the family size involved (as determined under

subsection (f)(1)(B)).

‘‘(B) EXCLUSION OF INDIVIDUALS WITH CERTAIN

PRESCRIPTION DRUG COVERAGE.—Such term does not

include an individual who has coverage of, or assistance

for, covered discount card drugs under any of the following:

‘‘(i) A group health plan or health insurance coverage (as such terms are defined in section 2791 of

the Public Health Service Act), other than coverage

under a plan under part C and other than coverage

consisting only of excepted benefits (as defined in such

section).

‘‘(ii) Chapter 55 of title 10, United States Code

(relating to medical and dental care for members of

the uniformed services).

‘‘(iii) A plan under chapter 89 of title 5, United

States Code (relating to the Federal employees’ health

benefits program).

‘‘(3) SPECIAL TRANSITIONAL ASSISTANCE ELIGIBLE INDIVIDUAL.—The term ‘special transitional assistance eligible individual’ means a transitional assistance eligible individual whose

income (as determined under subsection (f)(1)(B)) is not more

than 100 percent of the poverty line (as defined in section

673(2) of the Community Services Block Grant Act, 42 U.S.C.

9902(2), including any revision required by such section)

applicable to the family size involved (as determined under

subsection (f)(1)(B)).

‘‘(4) TREATMENT OF MEDICAID MEDICALLY NEEDY.—For purposes of this section, the Secretary shall provide for appropriate

rules for the treatment of medically needy individuals described

in section 1902(a)(10)(C) as discount card eligible individuals

and as transitional assistance eligible individuals.

‘‘(c) ENROLLMENT AND ENROLLMENT FEES.—

‘‘(1) ENROLLMENT PROCESS.—The Secretary shall establish

a process through which a discount card eligible individual

117 STAT. 2134 PUBLIC LAW 108–173—DEC. 8, 2003

is enrolled and disenrolled in an endorsed discount card program under this section consistent with the following:

‘‘(A) CONTINUOUS OPEN ENROLLMENT.—Subject to the

succeeding provisions of this paragraph and subsection

(h)(9), a discount card eligible individual who is not enrolled

in an endorsed discount card program and is residing in

a State may enroll in any such endorsed program—

‘‘(i) that serves residents of the State; and

‘‘(ii) at any time beginning on the initial enrollment

date, specified by the Secretary, and before January

1, 2006.

‘‘(B) USE OF STANDARD ENROLLMENT FORM.—An enrollment in an endorsed program shall only be effected through

completion of a standard enrollment form specified by the

Secretary. Each sponsor of an endorsed program shall

transmit to the Secretary (in a form and manner specified

by the Secretary) information on individuals who complete

such enrollment forms and, to the extent provided under

subsection (f), information regarding certification as a

transitional assistance eligible individual.

‘‘(C) ENROLLMENT ONLY IN ONE PROGRAM.—

‘‘(i) IN GENERAL.—Subject to clauses (ii) and (iii),

a discount card eligible individual may be enrolled

in only one endorsed discount card program under

this section.

‘‘(ii) CHANGE IN ENDORSED PROGRAM PERMITTED

FOR 2005.—The Secretary shall establish a process,

similar to (and coordinated with) the process for

annual, coordinated elections under section 1851(e)(3)

during 2004, under which an individual enrolled in

an endorsed discount card program may change the

endorsed program in which the individual is enrolled

for 2005.

‘‘(iii) ADDITIONAL EXCEPTIONS.—The Secretary

shall permit an individual to change the endorsed discount card program in which the individual is enrolled

in the case of an individual who changes residence

to be outside the service area of such program and

in such other exceptional cases as the Secretary may

provide (taking into account the circumstances for special election periods under section 1851(e)(4)). Under

the previous sentence, the Secretary may consider a

change in residential setting (such as placement in

a nursing facility) or enrollment in or disenrollment

from a plan under part C through which the individual

was enrolled in an endorsed program to be an exceptional circumstance.

‘‘(D) DISENROLLMENT.—

‘‘(i) VOLUNTARY.—An individual may voluntarily

disenroll from an endorsed discount card program at

any time. In the case of such a voluntary disenrollment,

the individual may not enroll in another endorsed program, except under such exceptional circumstances as

the Secretary may recognize under subparagraph

(C)(iii) or during the annual coordinated enrollment

period provided under subparagraph (C)(ii).

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2135

‘‘(ii) INVOLUNTARY.—An individual who is enrolled

in an endorsed discount card program and not a transitional assistance eligible individual may be disenrolled

by the sponsor of the program if the individual fails

to pay any annual enrollment fee required under the

program.

‘‘(E) APPLICATION TO CERTAIN ENROLLEES.—In the case

of a discount card eligible individual who is enrolled in

a plan described in section 1851(a)(2)(A) or under a reasonable cost reimbursement contract under section 1876(h)

that is offered by an organization that also is a prescription

discount card sponsor that offers an endorsed discount

card program under which the individual may be enrolled

and that has made an election to apply the special rules

under subsection (h)(9)(B) for such an endorsed program,

the individual may only enroll in such an endorsed discount

card program offered by that sponsor.

‘‘(2) ENROLLMENT FEES.—

‘‘(A) IN GENERAL.—Subject to the succeeding provisions

of this paragraph, a prescription drug card sponsor may

charge an annual enrollment fee for each discount card

eligible individual enrolled in an endorsed discount card

program offered by such sponsor. The annual enrollment

fee for either 2004 or 2005 shall not be prorated for portions

of a year. There shall be no annual enrollment fee for

a year after 2005.

‘‘(B) AMOUNT.—No annual enrollment fee charged

under subparagraph (A) may exceed $30.

‘‘(C) UNIFORM ENROLLMENT FEE.—A prescription drug

card sponsor shall ensure that the annual enrollment fee

(if any) for an endorsed discount card program is the same

for all discount card eligible individuals enrolled in the

program and residing in the State.

‘‘(D) COLLECTION.—The annual enrollment fee (if any)

charged for enrollment in an endorsed program shall be

collected by the sponsor of the program.

‘‘(E) PAYMENT OF FEE FOR TRANSITIONAL ASSISTANCE

ELIGIBLE INDIVIDUALS.—Under subsection (g)(1)(A), the

annual enrollment fee (if any) otherwise charged under

this paragraph with respect to a transitional assistance

eligible individual shall be paid by the Secretary on behalf

of such individual.

‘‘(F) OPTIONAL PAYMENT OF FEE BY STATE.—

‘‘(i) IN GENERAL.—The Secretary shall establish an

arrangement under which a State may provide for

payment of some or all of the enrollment fee for some

or all enrollees who are not transitional assistance

eligible individuals in the State, as specified by the

State under the arrangement. Insofar as such a payment arrangement is made with respect to an enrollee,

the amount of the enrollment fee shall be paid directly

by the State to the sponsor.

‘‘(ii) NO FEDERAL MATCHING AVAILABLE UNDER MEDICAID OR SCHIP.—Expenditures made by a State for

enrollment fees described in clause (i) shall not be

treated as State expenditures for purposes of Federal

matching payments under title XIX or XXI.

117 STAT. 2136 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(G) RULES IN CASE OF CHANGES IN PROGRAM ENROLLMENT DURING A YEAR.—The Secretary shall provide special

rules in the case of payment of an annual enrollment

fee for a discount card eligible individual who changes

the endorsed program in which the individual is enrolled

during a year.

‘‘(3) ISSUANCE OF DISCOUNT CARD.—Each prescription drug

card sponsor of an endorsed discount card program shall issue,

in a standard format specified by the Secretary, to each discount

card eligible individual enrolled in such program a card that

establishes proof of enrollment and that can be used in a

coordinated manner to identify the sponsor, program, and individual for purposes of the program under this section.

‘‘(4) PERIOD OF ACCESS.—In the case of a discount card

eligible individual who enrolls in an endorsed program, access

to negotiated prices and transitional assistance, if any, under

such endorsed program shall take effect on such date as the

Secretary shall specify.

‘‘(d) PROVISION OF INFORMATION ON ENROLLMENT AND PROGRAM

FEATURES.—

‘‘(1) SECRETARIAL RESPONSIBILITIES.—

‘‘(A) IN GENERAL.—The Secretary shall provide for

activities under this subsection to broadly disseminate

information to discount card eligible individuals (and

prospective eligible individuals) regarding—

‘‘(i) enrollment in endorsed discount card programs; and

‘‘(ii) the features of the program under this section,

including the availability of transitional assistance.

‘‘(B) 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—

‘‘(i) compares the annual enrollment fee and other

features of such programs, which may include comparative prices for covered discount card drugs; and

‘‘(ii) includes educational materials on the variability of discounts on prices of covered discount card

drugs under an endorsed program.

The dissemination of information under clause (i) shall,

to the extent practicable, be coordinated with the dissemination of educational information on other medicare

options.

‘‘(C) SPECIAL RULE FOR INITIAL ENROLLMENT DATE

UNDER THE PROGRAM.—To the extent practicable, the Secretary shall ensure, through the activities described in

subparagraphs (A) and (B), that discount card eligible

individuals are provided with such information at least

30 days prior to the initial enrollment date specified under

subsection (c)(1)(A)(ii).

‘‘(D) USE OF MEDICARE TOLL-FREE NUMBER.—The Secretary shall provide through the toll-free telephone number

1–800–MEDICARE for the receipt and response to inquiries

and complaints concerning the program under this section

and endorsed programs.

‘‘(2) PRESCRIPTION DRUG CARD SPONSOR RESPONSIBILITIES.—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2137

‘‘(A) IN GENERAL.—Each prescription drug card sponsor

that offers an endorsed discount card program shall make

available to discount card eligible individuals (through the

Internet and otherwise) information that the Secretary

identifies as being necessary to promote informed choice

among endorsed discount card programs by such individuals, including information on enrollment fees and negotiated prices for covered discount card drugs charged to

such individuals.

‘‘(B) RESPONSE TO ENROLLEE QUESTIONS.—Each

sponsor offering an endorsed discount card program shall

have a mechanism (including a toll-free telephone number)

for providing upon request specific information (such as

negotiated prices and the amount of transitional assistance

remaining available through the program) to discount card

eligible individuals enrolled in the program. The sponsor

shall inform transitional assistance eligible individuals

enrolled in the program of the availability of such tollfree telephone number to provide information on the

amount of available transitional assistance.

‘‘(C) INFORMATION ON BALANCE OF TRANSITIONAL

ASSISTANCE AVAILABLE AT POINT-OF-SALE.—Each sponsor

offering an endorsed discount card program shall have

a mechanism so that information on the amount of transitional assistance remaining under subsection (g)(1)(B) is

available (electronically or by telephone) at the point-ofsale of covered discount card drugs.

‘‘(3) PUBLIC DISCLOSURE OF PHARMACEUTICAL PRICES FOR

EQUIVALENT DRUGS.—

‘‘(A) IN GENERAL.—A prescription drug card sponsor

offering an endorsed discount card program shall provide

that each pharmacy that dispenses a covered discount card

drug shall inform a discount card eligible individual

enrolled in the program of any differential between the

price of the drug to the enrollee and the price of the

lowest priced generic covered discount card drug under

the program that is therapeutically equivalent and bioequivalent and available at such pharmacy.

‘‘(B) TIMING OF NOTICE.—

‘‘(i) IN GENERAL.—Subject to clause (ii), the

information under subparagraph (A) shall be provided

at the time of purchase of the drug involved, or, in

the case of dispensing by mail order, at the time of

delivery of such drug.

‘‘(ii) WAIVER.—The Secretary may waive clause (i)

in such circumstances as the Secretary may specify.

‘‘(e) DISCOUNT CARD FEATURES.—

‘‘(1) SAVINGS TO ENROLLEES THROUGH NEGOTIATED

PRICES.—

‘‘(A) ACCESS TO NEGOTIATED PRICES.—

‘‘(i) IN GENERAL.—Each prescription drug card

sponsor that offers an endorsed discount card program

shall provide each discount card eligible individual

enrolled in the program with access to negotiated

prices.

117 STAT. 2138 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(ii) NEGOTIATED PRICES.—For purposes of this section, negotiated prices shall take into account negotiated price concessions, such as discounts, direct or

indirect subsidies, rebates, and direct or indirect remunerations, for covered discount card drugs, and include

any dispensing fees for such drugs.

‘‘(B) ENSURING PHARMACY ACCESS.—Each prescription

drug card sponsor offering an endorsed discount card program shall secure the participation in its network of a

sufficient number of pharmacies that dispense (other than

solely by mail order) drugs directly to enrollees to ensure

convenient access to covered discount card drugs at negotiated prices (consistent with rules established by the Secretary). The Secretary shall establish convenient access

rules under this clause that are no less favorable to

enrollees than the standards for convenient access to pharmacies included in the statement of work of solicitation

(#MDA906–03–R–0002) of the Department of Defense

under the TRICARE Retail Pharmacy (TRRx) as of March

13, 2003.

‘‘(C) PROHIBITION ON CHARGES FOR REQUIRED SERVICES.—

‘‘(i) IN GENERAL.—Subject to clause (ii), a prescription drug card sponsor (and any pharmacy contracting

with such sponsor for the provision of covered discount

card drugs to individuals enrolled in such sponsor’s

endorsed discount card program) may not charge an

enrollee any amount for any items and services

required to be provided by the sponsor under this

section.

‘‘(ii) CONSTRUCTION.—Nothing in clause (i) shall

be construed to prevent—

‘‘(I) the sponsor from charging the annual

enrollment fee (except in the case of a transitional

assistance eligible individual); and

‘‘(II) the pharmacy dispensing the covered discount card drug, from imposing a charge (consistent with the negotiated price) for the covered

discount card drug dispensed, reduced by the

amount of any transitional assistance made available.

‘‘(D) INAPPLICABILITY OF MEDICAID BEST PRICE RULES.—

The prices negotiated from drug manufacturers for covered

discount card drugs under an endorsed discount card program under this section 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) REDUCTION OF MEDICATION ERRORS AND ADVERSE DRUG

INTERACTIONS.—Each endorsed discount card program shall

implement a system to reduce the likelihood of medication

errors and adverse drug interactions and to improve medication

use.

‘‘(f) ELIGIBILITY PROCEDURES FOR ENDORSED PROGRAMS AND

TRANSITIONAL ASSISTANCE.—

‘‘(1) DETERMINATIONS.—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2139

‘‘(A) PROCEDURES.—The determination of whether an

individual is a discount card eligible individual or a transitional assistance eligible individual or a special transitional

assistance eligible individual (as defined in subsection (b))

shall be determined under procedures specified by the Secretary consistent with this subsection.

‘‘(B) INCOME AND FAMILY SIZE DETERMINATIONS.—For

purposes of this section, the Secretary shall define the

terms ‘income’ and ‘family size’ and shall specify the

methods and period for which they are determined. If under

such methods income or family size is determined based

on the income or family size for prior periods of time,

the Secretary shall permit (whether through a process of

reconsideration or otherwise) an individual whose income

or family size has changed to elect to have eligibility for

transitional assistance determined based on income or

family size for a more recent period.

‘‘(2) USE OF SELF-CERTIFICATION FOR TRANSITIONAL ASSISTANCE.—

‘‘(A) IN GENERAL.—Under the procedures specified

under paragraph (1)(A) an individual who wishes to be

treated as a transitional assistance eligible individual or

a special transitional assistance eligible individual under

this section (or another qualified person on such individual’s behalf) shall certify on the enrollment form under

subsection (c)(1)(B) (or similar form specified by the Secretary), through a simplified means specified by the Secretary and under penalty of perjury or similar sanction

for false statements, as to the amount of the individual’s

income, family size, and individual’s prescription drug coverage (if any) insofar as they relate to eligibility to be

a transitional assistance eligible individual or a special

transitional assistance eligible individual. Such certification

shall be deemed as consent to verification of respective

eligibility under paragraph (3). A certification under this

paragraph may be provided before, on, or after the time

of enrollment under an endorsed program.

‘‘(B) TREATMENT OF SELF-CERTIFICATION.—The Secretary shall treat a certification under subparagraph (A)

that is verified under paragraph (3) as a determination

that the individual involved is a transitional assistance

eligible individual or special transitional assistance eligible

individual (as the case may be) for the entire period of

the enrollment of the individual in any endorsed program.

‘‘(3) VERIFICATION.—

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

methods (which may include the use of sampling and the

use of information described in subparagraph (B)) to verify

eligibility for individuals who seek to enroll in an endorsed

program and for individuals who provide a certification

under paragraph (2).

‘‘(B) INFORMATION DESCRIBED.—The information

described in this subparagraph is as follows:

‘‘(i) MEDICAID-RELATED INFORMATION.—Information on eligibility under title XIX and provided to the

Secretary under arrangements between the Secretary

117 STAT. 2140 PUBLIC LAW 108–173—DEC. 8, 2003

and States in order to verify the eligibility of individuals who seek to enroll in an endorsed program and

of individuals who provide certification under paragraph (2).

‘‘(ii) SOCIAL SECURITY INFORMATION.—Financial

information made available to the Secretary under

arrangements between the Secretary and the Commissioner of Social Security in order to verify the eligibility

of individuals who provide such certification.

‘‘(iii) INFORMATION FROM SECRETARY OF THE

TREASURY.—Financial information made available to

the Secretary under section 6103(l)(19) of the Internal

Revenue Code of 1986 in order to verify the eligibility

of individuals who provide such certification.

‘‘(C) VERIFICATION IN CASES OF MEDICAID ENROLLEES.—

‘‘(i) IN GENERAL.—Nothing in this section shall be

construed as preventing the Secretary from finding

that a discount card eligible individual meets the

income requirements under subsection (b)(2)(A) if the

individual is within a category of discount card eligible

individuals who are enrolled under title XIX (such

as qualified medicare beneficiaries (QMBs), specified

low-income medicare beneficiaries (SLMBs), and certain qualified individuals (QI–1s)).

‘‘(ii) AVAILABILITY OF INFORMATION FOR

VERIFICATION PURPOSES.—As a condition of provision

of Federal financial participation to a State that is

one of the 50 States or the District of Columbia under

title XIX, for purposes of carrying out this section,

the State shall provide the information it submits to

the Secretary relating to such title in a manner specified by the Secretary that permits the Secretary to

identify individuals who are described in subsection

(b)(1)(B) or are transitional assistance eligible individuals or special transitional assistance eligible individuals.

‘‘(4) RECONSIDERATION.—

‘‘(A) IN GENERAL.—The Secretary shall establish a

process under which a discount card eligible individual,

who is determined through the certification and verification

methods under paragraphs (2) and (3) not to be a transitional assistance eligible individual or a special transitional

assistance eligible individual, may request a reconsideration of the determination.

‘‘(B) CONTRACT AUTHORITY.—The Secretary may enter

into a contract to perform the reconsiderations requested

under subparagraph (A).

‘‘(C) COMMUNICATION OF RESULTS.—Under the process

under subparagraph (A) the results of such reconsideration

shall be communicated to the individual and the prescription drug card sponsor involved.

‘‘(g) TRANSITIONAL ASSISTANCE.—

‘‘(1) PROVISION OF TRANSITIONAL ASSISTANCE.—An individual who is a transitional assistance eligible individual (as

determined under this section) and who is enrolled with an

endorsed program is entitled—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2141

‘‘(A) to have payment made of any annual enrollment

fee charged under subsection (c)(2) for enrollment under

the program; and

‘‘(B) to have payment made, up to the amount specified

in paragraph (2), under such endorsed program of 90 percent (or 95 percent in the case of a special transitional

assistance eligible individual) of the costs incurred for covered discount card drugs obtained through the program

taking into account the negotiated price (if any) for the

drug under the program.

‘‘(2) LIMITATION ON DOLLAR AMOUNT.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), the

amount specified in this paragraph for a transitional assistance eligible individual— ‘‘(i) for costs incurred during 2004, is $600; or

‘‘(ii) for costs incurred during 2005, is— ‘‘(I) $600, plus

‘‘(II) except as provided in subparagraph (E),

the amount by which the amount available under

this paragraph for 2004 for that individual exceeds

the amount of payment made under paragraph

(1)(B) for that individual for costs incurred during

2004.

‘‘(B) PRORATION.—

‘‘(i) IN GENERAL.—In the case of an individual not

described in clause (ii) with respect to a year, the

Secretary may prorate the amount specified in

subparagraph (A) for the balance of the year involved

in a manner specified by the Secretary.

‘‘(ii) INDIVIDUAL DESCRIBED.—An individual

described in this clause is a transitional assistance

eligible individual who—

‘‘(I) with respect to 2004, enrolls in an

endorsed program, and provides a certification

under subsection (f)(2), before the initial

implementation date of the program under this

section; and

‘‘(II) with respect to 2005, is enrolled in an

endorsed program, and has provided such a certification, before February 1, 2005.

‘‘(C) ACCOUNTING FOR AVAILABLE BALANCES IN CASES

OF CHANGES IN PROGRAM ENROLLMENT.—In the case of

a transitional assistance eligible individual who changes

the endorsed discount card program in which the individual

is enrolled under this section, the Secretary shall provide

a process under which the Secretary provides to the sponsor

of the endorsed program in which the individual enrolls

information concerning the balance of amounts available

on behalf of the individual under this paragraph.

‘‘(D) LIMITATION ON USE OF FUNDS.—Pursuant to subsection (a)(2)(C), no assistance shall be provided under

paragraph (1)(B) with respect to covered discount card

drugs dispensed after December 31, 2005.

‘‘(E) NO ROLLOVER PERMITTED IN CASE OF VOLUNTARY

DISENROLLMENT.—Except in such exceptional cases as the

Secretary may provide, in the case of a transitional assistance eligible individual who voluntarily disenrolls from

117 STAT. 2142 PUBLIC LAW 108–173—DEC. 8, 2003

an endorsed plan, the provisions of subclause (II) of

subparagraph (A)(ii) shall not apply.

‘‘(3) PAYMENT.—The Secretary shall provide a method for

the reimbursement of prescription drug card sponsors for assistance provided under this subsection.

‘‘(4) COVERAGE OF COINSURANCE.—

‘‘(A) WAIVER PERMITTED BY PHARMACY.—Nothing in

this section shall be construed as precluding a pharmacy

from reducing or waiving the application of coinsurance

imposed under paragraph (1)(B) in accordance with section

1128B(b)(3)(G).

‘‘(B) OPTIONAL PAYMENT OF COINSURANCE BY STATE.—

‘‘(i) IN GENERAL.—The Secretary shall establish an

arrangement under which a State may provide for

payment of some or all of the coinsurance under paragraph (1)(B) for some or all enrollees in the State,

as specified by the State under the arrangement.

Insofar as such a payment arrangement is made with

respect to an enrollee, the amount of the coinsurance

shall be paid directly by the State to the pharmacy

involved.

‘‘(ii) NO FEDERAL MATCHING AVAILABLE UNDER MEDICAID OR SCHIP.—Expenditures made by a State for

coinsurance described in clause (i) shall not be treated

as State expenditures for purposes of Federal matching

payments under title XIX or XXI.

‘‘(iii) NOT TREATED AS MEDICARE COST-SHARING.—

Coinsurance described in paragraph (1)(B) shall not

be treated as coinsurance under this title for purposes

of section 1905(p)(3)(B).

‘‘(C) TREATMENT OF COINSURANCE.—The amount of any

coinsurance imposed under paragraph (1)(B), whether paid

or waived under this paragraph, shall not be taken into

account in applying the limitation in dollar amount under

paragraph (2).

‘‘(5) ENSURING ACCESS TO TRANSITIONAL ASSISTANCE FOR

QUALIFIED RESIDENTS OF LONG-TERM CARE FACILITIES AND AMERICAN INDIANS.—

‘‘(A) RESIDENTS OF LONG-TERM CARE FACILITIES.—The

Secretary shall establish procedures and may waive

requirements of this section as necessary to negotiate

arrangements with sponsors to provide arrangements with

pharmacies that support long-term care facilities in order

to ensure access to transitional assistance for transitional

assistance eligible individuals who reside in long-term care

facilities.

‘‘(B) AMERICAN INDIANS.—The Secretary shall establish

procedures and may waive requirements of this section

to ensure that, for purposes of providing transitional assistance, pharmacies operated by the Indian Health Service,

Indian tribes and tribal organizations, and urban Indian

organizations (as defined in section 4 of the Indian Health

Care Improvement Act) have the opportunity to participate

in the pharmacy networks of at least two endorsed programs in each of the 50 States and the District of Columbia

where such a pharmacy operates.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2143

‘‘(6) NO IMPACT ON BENEFITS UNDER OTHER PROGRAMS.—

The availability of negotiated prices or transitional assistance

under this section shall not be treated as benefits or otherwise

taken into account in determining an individual’s eligibility

for, or the amount of benefits under, any other Federal program.

‘‘(7) DISREGARD FOR PURPOSES OF PART C.—Nonuniformity

of benefits resulting from the implementation of this section

(including the provision or nonprovision of transitional assistance and the payment or waiver of any enrollment fee under

this section) shall not be taken into account in applying section

1854(f).

‘‘(h) QUALIFICATION OF PRESCRIPTION DRUG CARD SPONSORS

AND ENDORSEMENT OF DISCOUNT CARD PROGRAMS; BENEFICIARY

PROTECTIONS.—

‘‘(1) PRESCRIPTION DRUG CARD SPONSOR AND QUALIFICATIONS.—

‘‘(A) PRESCRIPTION DRUG CARD SPONSOR AND SPONSOR

DEFINED.—For purposes of this section, the terms ‘prescription drug card sponsor’ and ‘sponsor’ mean any nongovernmental entity that the Secretary determines to be appropriate to offer an endorsed discount card program under

this section, which may include—

‘‘(i) a pharmaceutical benefit management company;

‘‘(ii) a wholesale or retail pharmacy delivery

system;

‘‘(iii) an insurer (including an insurer that offers

medicare supplemental policies under section 1882);

‘‘(iv) an organization offering a plan under part

C; or

‘‘(v) any combination of the entities described in

clauses (i) through (iv).

‘‘(B) ADMINISTRATIVE QUALIFICATIONS.—Each endorsed

discount card program shall be operated directly, or

through arrangements with an affiliated organization (or

organizations), by one or more entities that have demonstrated experience and expertise in operating such a

program or a similar program and that meets such business

stability and integrity requirements as the Secretary may

specify.

‘‘(C) ACCOUNTING FOR TRANSITIONAL ASSISTANCE.—The

sponsor of an endorsed discount card program shall have

arrangements satisfactory to the Secretary to account for

the assistance provided under subsection (g) on behalf of

transitional assistance eligible individuals.

‘‘(2) APPLICATIONS FOR PROGRAM ENDORSEMENT.—

‘‘(A) SUBMISSION.—Each prescription drug card sponsor

that seeks endorsement of a prescription drug discount

card program under this section shall submit to the Secretary, at such time and in such manner as the Secretary

may specify, an application containing such information

as the Secretary may require.

‘‘(B) APPROVAL; COMPLIANCE WITH APPLICABLE REQUIREMENTS.—The Secretary shall review the application submitted under subparagraph (A) and shall determine

whether to endorse the prescription drug discount card

117 STAT. 2144 PUBLIC LAW 108–173—DEC. 8, 2003

program. The Secretary may not endorse such a program

unless—

‘‘(i) the program and prescription drug card sponsor

offering the program comply with the applicable

requirements under this section; and

‘‘(ii) the sponsor has entered into a contract with

the Secretary to carry out such requirements.

‘‘(C) TERMINATION OF ENDORSEMENT AND CONTRACTS.— An endorsement of an endorsed program and a contract

under subparagraph (B) shall be for the duration of the

program under this section (including any transition

applicable under subsection (a)(2)(C)(ii)), except that the

Secretary may, with notice and for cause (as defined by

the Secretary), terminate such endorsement and contract.

‘‘(D) ENSURING CHOICE OF PROGRAMS.— ‘‘(i) IN GENERAL.—The Secretary shall ensure that

there is available to each discount card eligible individual a choice of at least 2 endorsed programs (each

offered by a different sponsor).

‘‘(ii) LIMITATION ON NUMBER.—The Secretary may

limit (but not below 2) the number of sponsors in

a State that are awarded contracts under this paragraph.

‘‘(3) SERVICE AREA ENCOMPASSING ENTIRE STATES.—Except

as provided in paragraph (9), if a prescription drug card sponsor

that offers an endorsed program enrolls in the program individuals residing in any part of a State, the sponsor must permit

any discount card eligible individual residing in any portion

of the State to enroll in the program.

‘‘(4) SAVINGS TO MEDICARE BENEFICIARIES.—Each prescription drug card sponsor that offers an endorsed discount card

program shall pass on to discount card eligible individuals

enrolled in the program negotiated prices on covered discount

card drugs, including discounts negotiated with pharmacies

and manufacturers, to the extent disclosed under subsection

(i)(1).

‘‘(5) GRIEVANCE MECHANISM.—Each prescription drug card

sponsor shall provide meaningful procedures for hearing and

resolving grievances between the sponsor (including any entity

or individual through which the sponsor carries out the

endorsed discount card program) and enrollees in endorsed

discount card programs of the sponsor under this section in

a manner similar to that required under section 1852(f).

‘‘(6) CONFIDENTIALITY OF ENROLLEE RECORDS.—

‘‘(A) IN GENERAL.—For purposes of the program under

this section, the operations of an endorsed program are

covered functions and a prescription drug card sponsor

is a covered entity for purposes of applying part C of

title XI and all regulatory provisions promulgated thereunder, including regulations (relating to privacy) adopted

pursuant to the authority of the Secretary under section

264(c) of the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. 1320d–2 note).

‘‘(B) WAIVER AUTHORITY.—In order to promote participation of sponsors in the program under this section, the

Secretary may waive such relevant portions of regulations

relating to privacy referred to in subparagraph (A), for

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2145

such appropriate, limited period of time, as the Secretary

specifies.

‘‘(7) LIMITATION ON PROVISION AND MARKETING OF PRODUCTS

AND SERVICES.—The sponsor of an endorsed discount card

program—

‘‘(A) may provide under the program—

‘‘(i) a product or service only if the product or

service is directly related to a covered discount card

drug; or

‘‘(ii) a discount price for nonprescription drugs;

and

‘‘(B) may, to the extent otherwise permitted under

paragraph (6) (relating to application of HIPAA requirements), market a product or service under the program

only if the product or service is directly related to—

‘‘(i) a covered discount card drug; or

‘‘(ii) a drug described in subparagraph (A)(ii) and

the marketing consists of information on the discounted

price made available for the drug involved.

‘‘(8) ADDITIONAL PROTECTIONS.—Each endorsed discount

card program shall meet such additional requirements as the

Secretary identifies to protect and promote the interest of discount card eligible individuals, including requirements that

ensure that discount card eligible individuals enrolled in

endorsed discount card programs are not charged more than

the lower of the price based on negotiated prices or the usual

and customary price.

‘‘(9) SPECIAL RULES FOR CERTAIN ORGANIZATIONS.—

‘‘(A) IN GENERAL.—In the case of an organization that

is offering a plan under part C or enrollment under a

reasonable cost reimbursement contract under section

1876(h) that is seeking to be a prescription drug card

sponsor under this section, the organization may elect to

apply the special rules under subparagraph (B) with respect

to enrollees in any plan described in section 1851(a)(2)(A)

that it offers or under such contract and an endorsed

discount card program it offers, but only if it limits enrollment under such program to individuals enrolled in such

plan or under such contract.

‘‘(B) SPECIAL RULES.—The special rules under this

subparagraph are as follows:

‘‘(i) LIMITATION ON ENROLLMENT.—The sponsor

limits enrollment under this section under the

endorsed discount card program to discount card

eligible individuals who are enrolled in the part C

plan involved or under the reasonable cost reimbursement contract involved and is not required nor permitted to enroll other individuals under such program.

‘‘(ii) PHARMACY ACCESS.—Pharmacy access requirements under subsection (e)(1)(B) are deemed to be

met if the access is made available through a pharmacy

network (and not only through mail order) and the

network used by the sponsor is approved by the Secretary.

‘‘(iii) SPONSOR REQUIREMENTS.—The Secretary may

waive the application of such requirements for a

sponsor as the Secretary determines to be duplicative

117 STAT. 2146 PUBLIC LAW 108–173—DEC. 8, 2003

or to conflict with a requirement of the organization

under part C or section 1876 (as the case may be)

or to be necessary in order to improve coordination

of this section with the benefits under such part or

section.

‘‘(i) DISCLOSURE AND OVERSIGHT.— ‘‘(1) DISCLOSURE.—Each prescription drug card sponsor

offering an endorsed discount card program shall disclose to

the Secretary (in a manner specified by the Secretary) information relating to program performance, use of prescription drugs

by discount card eligible individuals enrolled in the program,

the extent to which negotiated price concessions described in

subsection (e)(1)(A)(ii) made available to the entity by a manufacturer are passed through to enrollees through pharmacies

or otherwise, and such other information as the Secretary may

specify. The provisions of section 1927(b)(3)(D) shall apply to

drug pricing data reported under the previous sentence (other

than data in aggregate form).

‘‘(2) OVERSIGHT; AUDIT AND INSPECTION AUTHORITY.—The

Secretary shall provide appropriate oversight to ensure compliance of endorsed discount card programs and their sponsors

with the requirements of this section. The Secretary shall have

the right to audit and inspect any books and records of a

prescription discount card sponsor (and of any affiliated

organization referred to in subsection (h)(1)(B)) that pertain

to the endorsed discount card program under this section,

including amounts payable to the sponsor under this section.

‘‘(3) SANCTIONS FOR ABUSIVE PRACTICES.—The Secretary

may implement intermediate sanctions or may revoke the

endorsement of a program offered by a sponsor under this

section if the Secretary determines that the sponsor or the

program no longer meets the applicable requirements of this

section or that the sponsor has engaged in false or misleading

marketing practices. The Secretary may impose a civil money

penalty in an amount not to exceed $10,000 for conduct that

a party knows or should know is a violation of this section.

The provisions of section 1128A (other than subsections (a)

and (b) and the second sentence of subsection (f)) shall apply

to a civil money penalty under the previous sentence in the

same manner as such provisions apply to a penalty or proceeding under section 1128A(a).

‘‘(j) TREATMENT OF TERRITORIES.—

‘‘(1) IN GENERAL.—The Secretary may waive any provision

of this section (including subsection (h)(2)(D)) in the case of

a resident of a State (other than the 50 States and the District

of Columbia) insofar as the Secretary determines it is necessary

to secure access to negotiated prices for discount card eligible

individuals (or, at the option of the Secretary, individuals

described in subsection (b)(1)(A)(i)).

‘‘(2) TRANSITIONAL ASSISTANCE.—

‘‘(A) IN GENERAL.—In the case of a State, other than

the 50 States and the District of Columbia, if the State

establishes a plan described in subparagraph (B) (for providing transitional assistance with respect to the provision

of prescription drugs to some or all individuals residing

in the State who are described in subparagraph (B)(i)),

the Secretary shall pay to the State for the entire period

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2147

of the operation of this section an amount equal to the

amount allotted to the State under subparagraph (C).

‘‘(B) PLAN.—The plan described in this subparagraph

is a plan that—

‘‘(i) provides transitional assistance with respect

to the provision of covered discount card drugs to some

or all individuals who are entitled to benefits under

part A or enrolled under part B, who reside in the

State, and who have income below 135 percent of the

poverty line; and

‘‘(ii) assures that amounts received by the State

under this paragraph are used only for such assistance.

‘‘(C) ALLOTMENT LIMIT.—The amount described in this

subparagraph for a State is equal to $35,000,000 multiplied

by the ratio (as estimated by the Secretary) of—

‘‘(i) the number of individuals who are entitled

to benefits under part A or enrolled under part B

and who reside in the State (as determined by the

Secretary as of July 1, 2003), to

‘‘(ii) the sum of such numbers for all States to

which this paragraph applies.

‘‘(D) CONTINUED AVAILABILITY OF FUNDS.—Amounts

made available to a State under this paragraph which

are not used under this paragraph shall be added to the

amount available to that State for purposes of carrying

out section 1935(e).

‘‘(k) FUNDING.—

‘‘(1) ESTABLISHMENT OF TRANSITIONAL ASSISTANCE

ACCOUNT.—

‘‘(A) IN GENERAL.—There is created within the Federal

Supplementary Medical Insurance Trust Fund established

by section 1841 an account to be known as the ‘Transitional

Assistance Account’ (in this subsection referred to as the

‘Account’).

‘‘(B) FUNDS.—The Account shall consist of such gifts

and bequests as may be made as provided in section

201(i)(1), accrued interest on balances in the Account, and

such amounts as may be deposited in, or appropriated

to, the Account as provided in this subsection.

‘‘(C) SEPARATE FROM REST OF TRUST FUND.—Funds provided under this subsection to the Account shall be kept

separate from all other funds within the Federal Supplementary Medical Insurance Trust Fund, but shall be

invested, and such investments redeemed, in the same

manner as all other funds and investments within such

Trust Fund.

‘‘(2) PAYMENTS FROM ACCOUNT.—

‘‘(A) IN GENERAL.—The Managing Trustee shall pay

from time to time from the Account such amounts as the

Secretary certifies are necessary to make payments for

transitional assistance provided under subsections (g) and

(j)(2).

‘‘(B) TREATMENT IN RELATION TO PART B PREMIUM.—

Amounts payable from the Account shall not be taken

into account in computing actuarial rates or premium

amounts under section 1839.

Investments.

117 STAT. 2148 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(3) APPROPRIATIONS TO COVER BENEFITS.—There are appropriated to the Account in a fiscal year, out of any moneys

in the Treasury not otherwise appropriated, an amount equal

to the payments made from the Account in the year.

‘‘(4) FOR ADMINISTRATIVE EXPENSES.—There are authorized

to be appropriated to the Secretary such sums as may be

necessary to carry out the Secretary’s responsibilities under

this section.

‘‘(5) TRANSFER OF ANY REMAINING BALANCE TO MEDICARE

PRESCRIPTION DRUG ACCOUNT.—Any balance remaining in the

Account after the Secretary determines that funds in the

Account are no longer necessary to carry out the program

under this section shall be transferred and deposited into the

Medicare Prescription Drug Account under section 1860D–16.

‘‘(6) CONSTRUCTION.—Nothing in this section shall be construed as authorizing the Secretary to provide for payment

(other than payment of an enrollment fee on behalf of a transitional assistance eligible individual under subsection (g)(1)(A))

to a sponsor for administrative expenses incurred by the

sponsor in carrying out this section (including in administering

the transitional assistance provisions of subsections (f) and

(g)).

‘‘Subpart 5—Definitions and Miscellaneous Provisions

‘‘DEFINITIONS; TREATMENT OF REFERENCES TO PROVISIONS IN PART C

‘‘SEC. 1860D–41. (a) DEFINITIONS.—For purposes of this part:

‘‘(1) BASIC PRESCRIPTION DRUG COVERAGE.—The term ‘basic

prescription drug coverage’ is defined in section 1860D–2(a)(3).

‘‘(2) COVERED PART D DRUG.—The term ‘covered part D

drug’ is defined in section 1860D–2(e).

‘‘(3) CREDITABLE PRESCRIPTION DRUG COVERAGE.—The term

‘creditable prescription drug coverage’ has the meaning given

such term in section 1860D–13(b)(4).

‘‘(4) PART D ELIGIBLE INDIVIDUAL.—The term ‘part D eligible

individual’ has the meaning given such term in section 1860D–

1(a)(4)(A).

‘‘(5) FALLBACK PRESCRIPTION DRUG PLAN.—The term ‘fallback prescription drug plan’ has the meaning given such term

in section 1860D–11(g)(4).

‘‘(6) INITIAL COVERAGE LIMIT.—The term ‘initial coverage

limit’ means such limit as established under section 1860D–

2(b)(3), or, in the case of coverage that is not standard prescription drug coverage, the comparable limit (if any) established

under the coverage.

‘‘(7) INSURANCE RISK.—The term ‘insurance risk’ means,

with respect to a participating pharmacy, risk of the type

commonly assumed only by insurers licensed by a State and

does not include payment variations designed to reflect performance-based measures of activities within the control of the

pharmacy, such as formulary compliance and generic drug

substitution.

‘‘(8) MA PLAN.—The term ‘MA plan’ has the meaning given

such term in section 1860D–1(a)(4)(B).

‘‘(9) MA–PD PLAN.—The term ‘MA–PD plan’ has the

meaning given such term in section 1860D–1(a)(4)(C).

42 USC

1395w–151.

Appropriation

authorization.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2149

‘‘(10) MEDICARE PRESCRIPTION DRUG ACCOUNT.—The term

‘Medicare Prescription Drug Account’ means the Account created under section 1860D–16(a).

‘‘(11) PDP APPROVED BID.—The term ‘PDP approved bid’

has the meaning given such term in section 1860D–13(a)(6).

‘‘(12) PDP REGION.—The term ‘PDP region’ means such

a region as provided under section 1860D–11(a)(2).

‘‘(13) PDP SPONSOR.—The term ‘PDP sponsor’ means a

nongovernmental entity that is certified under this part as

meeting the requirements and standards of this part for such

a sponsor.

‘‘(14) PRESCRIPTION DRUG PLAN.—The term ‘prescription

drug plan’ means prescription drug coverage that is offered—

‘‘(A) under a policy, contract, or plan that has been

approved under section 1860D–11(e); and

‘‘(B) by a PDP sponsor pursuant to, and in accordance

with, a contract between the Secretary and the sponsor

under section 1860D–12(b).

‘‘(15) QUALIFIED PRESCRIPTION DRUG COVERAGE.—The term

‘qualified prescription drug coverage’ is defined in section

1860D–2(a)(1).

‘‘(16) STANDARD PRESCRIPTION DRUG COVERAGE.—The term

‘standard prescription drug coverage’ is defined in section

1860D–2(b).

‘‘(17) STATE PHARMACEUTICAL ASSISTANCE PROGRAM.—The

term ‘State Pharmaceutical Assistance Program’ has the

meaning given such term in section 1860D–23(b).

‘‘(18) SUBSIDY ELIGIBLE INDIVIDUAL.—The term ‘subsidy

eligible individual’ has the meaning given such term in section

1860D–14(a)(3)(A).

‘‘(b) APPLICATION OF PART C 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 an MA plan included a reference

to a prescription drug plan;

‘‘(2) any reference to an MA organization or a providersponsored 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–12(b);

‘‘(4) any reference to part C included a reference to this

part; and

‘‘(5) any reference to an election period under section 1851

were a reference to an enrollment period under section 1860D–

1.

‘‘MISCELLANEOUS PROVISIONS

‘‘SEC. 1860D–42. (a) ACCESS TO COVERAGE IN TERRITORIES.— The Secretary may waive such requirements of this part, including

section 1860D–3(a)(1), insofar as the Secretary determines it is

necessary to secure access to qualified prescription drug coverage

for part D eligible individuals residing in a State (other than

the 50 States and the District of Columbia).

‘‘(b) APPLICATION OF DEMONSTRATION AUTHORITY.—The provisions of section 402 of the Social Security Amendments of 1967

(Public Law 90–248) shall apply with respect to this part and

42 USC

1395w–152.

117 STAT. 2150 PUBLIC LAW 108–173—DEC. 8, 2003

part C in the same manner it applies with respect to parts A

and B, except that any reference with respect to a Trust Fund

in relation to an experiment or demonstration project relating to

prescription drug coverage under this part shall be deemed a reference to the Medicare Prescription Drug Account within the Federal Supplementary Medical Insurance Trust Fund.’’.

(b) SUBMISSION OF LEGISLATIVE PROPOSAL.—Not later than 6

months after the date of the enactment of this Act, the Secretary

shall submit to the appropriate committees of Congress a legislative

proposal providing for such technical and conforming amendments

in the law as are required by the provisions of this title and

title II.

(c) STUDY ON TRANSITIONING PART B PRESCRIPTION DRUG COV- ERAGE.—Not later than January 1, 2005, the Secretary shall submit

a report to Congress that makes recommendations regarding

methods for providing benefits under subpart 1 of 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.

(d) REPORT ON PROGRESS IN IMPLEMENTATION OF PRESCRIPTION

DRUG BENEFIT.—Not later than March 1, 2005, the Secretary shall

submit a report to Congress on the progress that has been made

in implementing the prescription drug benefit under this title. The

Secretary shall include in the report specific steps that have been

taken, and that need to be taken, to ensure a timely start of

the program on January 1, 2006. The report shall include recommendations regarding an appropriate transition from the program under section 1860D–31 of the Social Security Act to prescription drug benefits under subpart 1 of part D of title XVIII of

such Act.

(e) 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 COSTSHARING.—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 by pharmacies (including pharmacies of the Indian Health Service, Indian tribes, tribal

organizations, and urban Indian organizations) of any costsharing imposed under part D of title XVIII, if the conditions

described in clauses (i) through (iii) of section 1128A(i)(6)(A)

are met with respect to the waiver or reduction (except that,

in the case of such a waiver or reduction on behalf of a subsidy

eligible individual (as defined in section 1860D–14(a)(3)), section 1128A(i)(6)(A) shall be applied without regard to clauses

(ii) and (iii) of that section).’’.

(3) MEDICARE PRESCRIPTION DRUG ACCOUNT.—

(A) Section 201(g) (42 U.S.C. 401(g)) is amended—

(i) in paragraph (1)(B)(i)(V), by inserting ‘‘(and,

of such portion, the portion of such costs which should

42 USC 1395x

note, 426,

1395i–4; 45 USC

231f.

42 USC

1395w–101 note.

Reports.

42 USC

1395w–101 note.

42 USC

1395w–101 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2151

have been borne by the Medicare Prescription Drug

Account in such Trust Fund)’’ after ‘‘Trust Fund’’; and

(ii) in paragraph (1)(B)(ii)(III), by inserting ‘‘(and,

of such portion, the portion of such costs which should

have been borne by the Medicare Prescription Drug

Account in such Trust Fund)’’ after ‘‘Trust Fund’’.

(B) Section 201(i)(1) (42 U.S.C. 401(i)(1)) is amended

by inserting ‘‘(and for the Medicare Prescription Drug

Account and the Transitional Assistance Account in such

Trust Fund)’’ after ‘‘Federal Supplementary Medical Insurance Trust Fund’’.

(C) Section 1841 (42 U.S.C. 1395t) is amended—

(i) in the last sentence of subsection (a)—

(I) by striking ‘‘and’’ before ‘‘such amounts’’;

and

(II) by inserting before the period the following: ‘‘, and such amounts as may be deposited

in, or appropriated to, the Medicare Prescription

Drug Account established by section 1860D–16’’;

(ii) in subsection (g), by adding at the end the

following: ‘‘The payments provided for under part D,

other than under section 1860D–31(k)(2), shall be made

from the Medicare Prescription Drug Account in the

Trust Fund.’’;

(iii) in subsection (h), by inserting ‘‘or pursuant

to section 1860D–13(c)(1) or 1854(d)(2)(A) (in which

case payments shall be made in appropriate part from

the Medicare Prescription Drug Account in the Trust

Fund)’’ after ‘‘1840(d)’’; and

(iv) in subsection (i), by inserting after ‘‘and section

1842(g)’’ the following: ‘‘and pursuant to sections

1860D–13(c)(1) and 1854(d)(2)(A) (in which case payments shall be made in appropriate part from the

Medicare Prescription Drug Account in the Trust

Fund)’’.

(D) Section 1853(f) (42 U.S.C. 1395w–23(f)) is

amended—

(i) in the heading by striking ‘‘TRUST FUND’’ and

inserting ‘‘TRUST FUNDS’’; and

(ii) by inserting after the first sentence the following: ‘‘Payments to MA organizations for statutory

drug benefits provided under this title are made from

the Medicare Prescription Drug Account in the Federal

Supplementary Medical Insurance Trust Fund.’’.

(4) APPLICATION OF CONFIDENTIALITY FOR DRUG PRICING

DATA.—Section 1927(b)(3)(D) (42 U.S.C. 1396r–8(b)(3)(D)) is

amended by adding after and below clause (iii) the following:

‘‘The previous sentence shall also apply to information disclosed under section 1860D–2(d)(2) or 1860D–4(c)(2)(E).’’.

(5) CLARIFICATION OF TREATMENT OF PART A ENROLLEES.—

Section 1818(a) (42 U.S.C. 1395i–2(a)) is amended by adding

at the end the following: ‘‘Except as otherwise provided, any

reference to an individual entitled to benefits under this part

includes an individual entitled to benefits under this part

pursuant to an enrollment under this section or section 1818A.’’.

(6) DISCLOSURE.—Section 6103(l)(7)(D)(ii) of the Internal

Revenue Code of 1986 is amended by inserting ‘‘or subsidies 26 USC 6103.

117 STAT. 2152 PUBLIC LAW 108–173—DEC. 8, 2003

provided under section 1860D–14 of such Act’’ after ‘‘Social

Security Act’’.

(7) EXTENSION OF STUDY AUTHORITY.—Section 1875(b) (42

U.S.C. 1395ll(b)) is amended by striking ‘‘the insurance programs under parts A and B’’ and inserting ‘‘this title’’.

(8) CONFORMING AMENDMENTS RELATING TO FACILITATION

OF ELECTRONIC PRESCRIBING.— (A) Section 1128B(b)(3)(C) (42 U.S.C. 1320a–

7b(b)(3)(C)) is amended by inserting ‘‘or in regulations

under section 1860D–3(e)(6)’’ after ‘‘1987’’.

(B) Section 1877(b) (42 U.S.C. 1395nn(b)) is amended

by adding at the end the following new paragraph:

‘‘(5) ELECTRONIC PRESCRIBING.—An exception established

by regulation under section 1860D–3(e)(6).’’.

(9) OTHER CHANGES.—Section 1927(g)(1)(B)(i) (42 U.S.C.

1396r–8(g)(1)(B)(i)) is amended—

(A) by adding ‘‘and’’ at the end of subclause (II); and

(B) by striking subclause (IV).

SEC. 102. MEDICARE ADVANTAGE CONFORMING AMENDMENTS.

(a) CONFORMING AMENDMENTS TO ENROLLMENT PROCESS.—

(1) EXTENDING OPEN ENROLLMENT PERIODS.—Section

1851(e) (42 U.S.C. 1395w–21(e)) is amended—

(A) in paragraph (2), by striking ‘‘2004’’ and ‘‘2005’’

and inserting ‘‘2005’’ and ‘‘2006’’ each place it appears;

and

(B) in paragraph (4), by striking ‘‘2005’’ and inserting

‘‘2006’’ each place it appears.

(2) ESTABLISHMENT OF SPECIAL ANNUAL, COORDINATED

ELECTION PERIOD FOR 6 MONTHS BEGINNING NOVEMBER 15,

2005.—Section 1851(e)(3)(B) (42 U.S.C. 1395w–21(e)(3)(B)) is

amended to read as follows:

‘‘(B) ANNUAL, COORDINATED ELECTION PERIOD.—For

purposes of this section, the term ‘annual, coordinated election period’ means—

‘‘(i) with respect to a year before 2002, the month

of November before such year;

‘‘(ii) with respect to 2002, 2003, 2004, and 2005,

the period beginning on November 15 and ending on

December 31 of the year before such year;

‘‘(iii) with respect to 2006, the period beginning

on November 15, 2005, and ending on May 15, 2006;

and

‘‘(iv) with respect to 2007 and succeeding years,

the period beginning on November 15 and ending on

December 31 of the year before such year.’’.

(3) SPECIAL INFORMATION CAMPAIGN.—Section 1851(e)(3)

(42 U.S.C. 1395w–21(e)(3)) is amended—

(A) in subparagraph (C), by inserting ‘‘and during the

period described in subparagraph (B)(iii)’’ after ‘‘(beginning

with 1999)’’; and

(B) in subparagraph (D)—

(i) in the heading by striking ‘‘CAMPAIGN IN 1998’’

and inserting ‘‘CAMPAIGNS’’; and

(ii) by adding at the end the following: ‘‘During

the period described in subparagraph (B)(iii), the Secretary shall provide for an educational and publicity

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2153

campaign to inform MA eligible individuals about the

availability of MA plans (including MA–PD plans)

offered in different areas and the election process provided under this section.’’.

(4) COORDINATING INITIAL ENROLLMENT PERIODS.—Section

1851(e)(1) (42 U.S.C. 1395w–21(e)(1)) is amended by adding

at the end the following new sentence: ‘‘If any portion of an

individual’s initial enrollment period under part B occurs after

the end of the annual, coordinated election period described

in paragraph (3)(B)(iii), the initial enrollment period under

this part shall further extend through the end of the individual’s

initial enrollment period under part B.’’.

(5) COORDINATION OF EFFECTIVENESS OF ELECTIONS DURING

ANNUAL COORDINATED ELECTION PERIOD FOR 2006.—Section

1851(f)(3) (42 U.S.C. 1395w–21(f)(3)) is amended by inserting

‘‘, other than the period described in clause (iii) of such subsection’’ after ‘‘subsection (e)(3)(B)’’.

(6) LIMITATION ON ONE-CHANGE RULE TO SAME TYPE OF

PLAN.—Section 1851(e)(2) (42 U.S.C. 1395w–21(e)(2)) is

amended—

(A) in subparagraph (B)(i), by inserting ‘‘, subparagraph (C)(iii),’’ after ‘‘clause (ii)’’;

(B) in subparagraph (C)(i), by striking ‘‘clause (ii)’’

and inserting ‘‘clauses (ii) and (iii)’’; and

(C) by adding at the end of subparagraph (C) the

following new clause:

‘‘(iii) LIMITATION ON EXERCISE OF RIGHT WITH

RESPECT TO PRESCRIPTION DRUG COVERAGE.—Effective

for plan years beginning on or after January 1, 2006,

in applying clause (i) (and clause (i) of subparagraph

(B)) in the case of an individual who—

‘‘(I) is enrolled in an MA plan that does provide

qualified prescription drug coverage, the individual

may exercise the right under such clause only

with respect to coverage under the original feefor-service plan or coverage under another MA

plan that does not provide such coverage and may

not exercise such right to obtain coverage under

an MA–PD plan or under a prescription drug plan

under part D; or

‘‘(II) is enrolled in an MA–PD plan, the individual may exercise the right under such clause

only with respect to coverage under another MA–

PD plan (and not an MA plan that does not provide

qualified prescription drug coverage) or under the

original fee-for-service plan and coverage under

a prescription drug plan under part D.’’.

(b) PROMOTION OF E-PRESCRIBING BY MA PLANS.—Section

1852(j) (42 U.S.C. 1395w–22(j)) is amended by adding at the end

the following new paragraph:

‘‘(7) PROMOTION OF E-PRESCRIBING BY MA PLANS.— ‘‘(A) IN GENERAL.—An MA–PD plan may provide for

a separate payment or otherwise provide for a differential

payment for a participating physician that prescribes covered part D drugs in accordance with an electronic prescription drug program that meets standards established under

section 1860D–4(e).

117 STAT. 2154 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(B) CONSIDERATIONS.—Such payment may take into

consideration the costs of the physician in implementing

such a program and may also be increased for those participating physicians who significantly increase—

‘‘(i) formulary compliance;

‘‘(ii) lower cost, therapeutically equivalent alternatives;

‘‘(iii) reductions in adverse drug interactions; and

‘‘(iv) efficiencies in filing prescriptions through

reduced administrative costs.

‘‘(C) STRUCTURE.—Additional or increased payments

under this subsection may be structured in the same

manner as medication therapy management fees are structured under section 1860D–4(c)(2)(E).’’.

(c) OTHER CONFORMING AMENDMENTS.— (1) Section 1851(a)(1) (42 U.S.C. 1395w–21(a)(1)) is

amended—

(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 1860D–1.’’.

(2) EFFECTIVE DATE.—The amendments made by this subsection shall apply on and after January 1, 2006.

SEC. 103. MEDICAID AMENDMENTS.

(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-INCOME SUB- SIDIES.—(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) REQUIREMENTS RELATING TO MEDICARE

PRESCRIPTION DRUG LOW-INCOME SUBSIDIES AND MEDICARE TRANSITIONAL PRESCRIPTION DRUG ASSISTANCE.—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

do the following:

‘‘(1) INFORMATION FOR TRANSITIONAL PRESCRIPTION DRUG

ASSISTANCE VERIFICATION.—The State shall provide the Secretary with information to carry out section 1860D–

31(f)(3)(B)(i).

42 USC 1396u–5.

42 USC 1396v.

42 USC

1395w–21 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2155

‘‘(2) ELIGIBILITY DETERMINATIONS FOR LOW-INCOME SUB- SIDIES.—The State shall—

‘‘(A) make determinations of eligibility for premium

and cost-sharing subsidies under and in accordance with

section 1860D–14;

‘‘(B) inform the Secretary of such determinations in

cases in which such eligibility is established; and

‘‘(C) otherwise provide the Secretary with such

information as may be required to carry out part D, other

than subpart 4, of title XVIII (including section 1860D–

14).

‘‘(3) SCREENING FOR ELIGIBILITY, AND ENROLLMENT OF, BENEFICIARIES FOR MEDICARE COST-SHARING.—As part of

making an eligibility determination required under paragraph

(2) for an individual, the State shall make a determination

of the individual’s eligibility for medical assistance for any

medicare cost-sharing described in section 1905(p)(3) and, if

the individual is eligible for any such medicare cost-sharing,

offer enrollment to the individual under the State plan (or

under a waiver of such plan).

‘‘(b) REGULAR FEDERAL SUBSIDY OF ADMINISTRATIVE COSTS.—

The amounts expended by a State in carrying out subsection (a)

are expenditures reimbursable under the appropriate paragraph

of section 1903(a).’’.

(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUBSIDIES FOR DUALLY

ELIGIBLE INDIVIDUALS.—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 INDIVIDUALS.—

‘‘(1) PHASED-DOWN STATE CONTRIBUTION.—

‘‘(A) IN GENERAL.—Each of the 50 States and the District of Columbia for each month beginning with January

2006 shall provide for payment under this subsection to

the Secretary of the product of—

‘‘(i) the amount computed under paragraph (2)(A)

for the State and month;

‘‘(ii) the total number of full-benefit dual eligible

individuals (as defined in paragraph (6)) for such State

and month; and

‘‘(iii) the factor for the month specified in paragraph (5).

‘‘(B) FORM AND MANNER OF PAYMENT.—Payment under

subparagraph (A) shall be made in a manner specified

by the Secretary that is similar to the manner in which

State payments are made under an agreement entered

into under section 1843, except that all such payments

shall be deposited into the Medicare Prescription Drug

Account in the Federal Supplementary Medical Insurance

Trust Fund.

‘‘(C) COMPLIANCE.—If a State fails to pay to the Secretary an amount required under subparagraph (A),

interest shall accrue on such amount at the rate provided

under section 1903(d)(5). The amount so owed and

applicable interest shall be immediately offset against

amounts otherwise payable to the State under section

117 STAT. 2156 PUBLIC LAW 108–173—DEC. 8, 2003

1903(a), in accordance with the Federal Claims Collection

Act of 1996 and applicable regulations.

‘‘(D) DATA MATCH.—The Secretary shall perform such

periodic data matches as may be necessary to identify

and compute the number of full-benefit dual eligible

individuals for purposes of computing the amount under

subparagraph (A).

‘‘(2) AMOUNT.— ‘‘(A) IN GENERAL.—The amount computed under this

paragraph for a State described in paragraph (1) and for

a month in a year is equal to—

‘‘(i) 1⁄12 of the product of—

‘‘(I) the base year State medicaid per capita

expenditures for covered part D drugs for fullbenefit dual eligible individuals (as computed

under paragraph (3)); and

‘‘(II) a proportion equal to 100 percent minus

the Federal medical assistance percentage (as

defined in section 1905(b)) applicable to the State

for the fiscal year in which the month occurs;

and

‘‘(ii) increased for each year (beginning with 2004

up to and including the year involved) by the applicable

growth factor specified in paragraph (4) for that year.

‘‘(B) NOTICE.—The Secretary shall notify each State

described in paragraph (1) not later than October 15 before

the beginning of each year (beginning with 2006) of the

amount computed under subparagraph (A) for the State

for that year.

‘‘(3) BASE YEAR STATE MEDICAID PER CAPITA EXPENDITURES

FOR COVERED PART D DRUGS FOR FULL-BENEFIT DUAL ELIGIBLE

INDIVIDUALS.—

‘‘(A) IN GENERAL.—For purposes of paragraph (2)(A),

the ‘base year State medicaid per capita expenditures for

covered part D drugs for full-benefit dual eligible individuals’ for a State is equal to the weighted average (as

weighted under subparagraph (C)) of—

‘‘(i) the gross per capita medicaid expenditures for

prescription drugs for 2003, determined under subparagraph (B); and

‘‘(ii) the estimated actuarial value of prescription

drug benefits provided under a capitated managed care

plan per full-benefit dual eligible individual for 2003,

as determined using such data as the Secretary determines appropriate.

‘‘(B) GROSS PER CAPITA MEDICAID EXPENDITURES FOR

PRESCRIPTION DRUGS.—

‘‘(i) IN GENERAL.—The gross per capita medicaid

expenditures for prescription drugs for 2003 under this

subparagraph is equal to the expenditures, including

dispensing fees, for the State under this title during

2003 for covered outpatient drugs, determined per fullbenefit-dual-eligible-individual for such individuals not

receiving medical assistance for such drugs through

a medicaid managed care plan.

‘‘(ii) DETERMINATION.—In determining the amount

under clause (i), the Secretary shall—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2157

‘‘(I) use data from the Medicaid Statistical

Information System (MSIS) and other available

data;

‘‘(II) exclude expenditures attributable to covered outpatient prescription drugs that are not

covered part D drugs (as defined in section 1860D–

2(e)); and

‘‘(III) reduce such expenditures by the product

of such portion and the adjustment factor

(described in clause (iii)).

‘‘(iii) ADJUSTMENT FACTOR.—The adjustment factor

described in this clause for a State is equal to the

ratio for the State for 2003 of—

‘‘(I) aggregate payments under agreements

under section 1927; to

‘‘(II) the gross expenditures under this title

for covered outpatient drugs referred to in clause

(i).

Such factor shall be determined based on information

reported by the State in the medicaid financial

management reports (form CMS–64) for the 4 quarters

of calendar year 2003 and such other data as the

Secretary may require.

‘‘(C) WEIGHTED AVERAGE.—The weighted average under

subparagraph (A) shall be determined taking into account—

‘‘(i) with respect to subparagraph (A)(i), the average number of full-benefit dual eligible individuals in

2003 who are not described in clause (ii); and

‘‘(ii) with respect to subparagraph (A)(ii), the average number of full-benefit dual eligible individuals in

such year who received in 2003 medical assistance

for covered outpatient drugs through a medicaid managed care plan.

‘‘(4) APPLICABLE GROWTH FACTOR.—The applicable growth

factor under this paragraph for—

‘‘(A) each of 2004, 2005, and 2006, is the average

annual percent change (to that year from the previous

year) of the per capita amount of prescription drug expenditures (as determined based on the most recent National

Health Expenditure projections for the years involved); and

‘‘(B) a succeeding year, is the annual percentage

increase specified in section 1860D–2(b)(6) for the year.

‘‘(5) FACTOR.—The factor under this paragraph for a

month—

‘‘(A) in 2006 is 90 percent;

‘‘(B) in 2007 is 881⁄3 percent;

‘‘(C) in 2008 is 862⁄3 percent;

‘‘(D) in 2009 is 85 percent;

‘‘(E) in 2010 is 831⁄3 percent;

‘‘(F) in 2011 is 812⁄3 percent;

‘‘(G) in 2012 is 80 percent;

‘‘(H) in 2013 is 781⁄3 percent;

‘‘(I) in 2014 is 762⁄3 percent; or

‘‘(J) after December 2014, is 75 percent.

‘‘(6) FULL-BENEFIT DUAL ELIGIBLE INDIVIDUAL DEFINED.—

117 STAT. 2158 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(A) IN GENERAL.—For purposes of this section, the

term ‘full-benefit dual eligible individual’ means for a State

for a month an individual who—

‘‘(i) has coverage for the month for covered part

D drugs under a prescription drug plan under part

D of title XVIII, or under an MA–PD plan under part

C of such title; and

‘‘(ii) is determined eligible by the State for medical

assistance for full benefits under this title for such

month under section 1902(a)(10)(A) or 1902(a)(10)(C),

by reason of section 1902(f), or under any other category of eligibility for medical assistance for full benefits under this title, as determined by the Secretary.

‘‘(B) TREATMENT OF MEDICALLY NEEDY AND OTHER

INDIVIDUALS REQUIRED TO SPEND DOWN.—In applying

subparagraph (A) in the case of an individual determined

to be eligible by the State for medical assistance under

section 1902(a)(10)(C) or by reason of section 1902(f), the

individual shall be treated as meeting the requirement

of subparagraph (A)(ii) for any month if such medical assistance is provided for in any part of the month.’’.

(c) MEDICAID COORDINATION WITH MEDICARE PRESCRIPTION

DRUG BENEFITS.—Section 1935, as so inserted and amended, is

further amended by adding at the end the following new subsection:

‘‘(d) COORDINATION OF PRESCRIPTION DRUG BENEFITS.—

‘‘(1) MEDICARE AS PRIMARY PAYOR.—In the case of a part

D eligible individual (as defined in section 1860D–1(a)(3)(A))

who is described in subsection (c)(6)(A)(ii), notwithstanding any

other provision of this title, medical assistance is not available

under this title for such drugs (or for any cost-sharing

respecting such drugs), and the rules under this title relating

to the provision of medical assistance for such drugs shall

not apply. The provision of benefits with respect to such drugs

shall not be considered as the provision of care or services

under the plan under this title. No payment may be made

under section 1903(a) for prescribed drugs for which medical

assistance is not available pursuant to this paragraph.

‘‘(2) COVERAGE OF CERTAIN EXCLUDABLE DRUGS.—In the

case of medical assistance under this title with respect to

a covered outpatient drug (other than a covered part D drug)

furnished to an individual who is enrolled in a prescription

drug plan under part D of title XVIII or an MA–PD plan

under part C of such title, the State may elect to provide

such medical assistance in the manner otherwise provided in

the case of individuals who are not full-benefit dual eligible

individuals or through an arrangement with such plan.’’.

(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.—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2159

‘‘(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 and submits to the Secretary a plan described in paragraph (2) (for providing

medical assistance with respect to the provision of prescription drugs to part D eligible individuals), the amount otherwise determined under section 1108(f) (as increased under

section 1108(g)) for the State shall be increased by the

amount for the fiscal period specified in paragraph (3).

‘‘(2) PLAN.—The Secretary shall determine that a plan is

described in this paragraph if the plan—

‘‘(A) provides medical assistance with respect to the

provision of covered part D drugs (as defined in section

1860D–2(e)) to low-income part D eligible individuals;

‘‘(B) provides assurances that additional amounts

received by the State that are attributable to the operation

of this subsection shall be used only for such assistance

and related administrative expenses and that no more than

10 percent of the amount specified in paragraph (3)(A)

for the State for any fiscal period shall be used for such

administrative expenses; and

‘‘(C) meets such other criteria as the Secretary may

establish.

‘‘(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 ratio (as estimated by the Secretary) of—

‘‘(I) the number of individuals who are entitled

to benefits under part A or enrolled under part

B and who reside in the State (as determined

by the Secretary based on the most recent available data before the beginning of the year); to

‘‘(II) the sum of such numbers for all States

that submit a plan described in paragraph (2).

‘‘(B) AGGREGATE AMOUNT.—The aggregate amount

specified in this subparagraph for—

‘‘(i) the last 3 quarters of fiscal year 2006, is equal

to $28,125,000;

‘‘(ii) fiscal year 2007, is equal to $37,500,000; or

‘‘(iii) 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 1860D–2(b)(6) for the year involved.

‘‘(4) REPORT.—The Secretary shall submit to Congress a

report on the application of this subsection and may include

in the report such recommendations as the Secretary deems

appropriate.’’.

(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)’’.

(e) AMENDMENT TO BEST PRICE.— (1) IN GENERAL.—Section 1927(c)(1)(C)(i) (42 U.S.C. 1396r–

8(c)(1)(C)(i)) is amended—

117 STAT. 2160 PUBLIC LAW 108–173—DEC. 8, 2003

(A) by striking ‘‘and’’ at the end of subclause (III);

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

(IV) and inserting a semicolon; and

(C) by adding at the end the following new subclauses:

‘‘(V) the prices negotiated from drug manufacturers for covered discount card drugs under an

endorsed discount card program under section

1860D–31; and

‘‘(VI) any prices charged which are negotiated

by a prescription drug plan under part D of title

XVIII, by an MA–PD plan under part C of such

title with respect to covered part D drugs or by

a qualified retiree prescription drug plan (as

defined in section 1860D–22(a)(2)) with respect to

such drugs on behalf of individuals entitled to

benefits under part A or enrolled under part B

of such title.’’.

(2) IN GENERAL.—Section 1927(c)(1)(C)(i)(VI) of the Social

Security Act, as added by paragraph (1), shall apply to prices

charged for drugs dispensed on or after January 1, 2006.

(f) EXTENSION OF MEDICARE COST-SHARING FOR PART B PREMIUM FOR QUALIFYING INDIVIDUALS THROUGH SEPTEMBER 2004.—

(1) IN GENERAL.—Section 1902(a)(10)(E)(iv) (42 U.S.C.

1396a(a)(10)(E)(iv)), as amended by section 401(a) of Public

Law 108–89, is amended by striking ‘‘ending with March 2004’’

and inserting ‘‘ending with September 2004’’.

(2) TOTAL AMOUNT AVAILABLE FOR ALLOCATION.—Section

1933(g) (42 U.S.C. 1396u–3(g)), as added by section 401(c) of

Public Law 108–89, is amended—

(A) in the matter preceding paragraph (1), by striking

‘‘March 31, 2004’’ and inserting ‘‘September 30, 2004’’; and

(B) in paragraph (2), by striking ‘‘$100,000,000’’ and

inserting ‘‘$300,000,000’’.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to calendar quarters beginning on or after

April 1, 2004.

(g) OUTREACH BY THE COMMISSIONER OF SOCIAL SECURITY.—

Section 1144 (42 U.S.C. 1320b–14) is amended—

(1) in the section heading, by inserting ‘‘AND SUBSIDIES

FOR LOW-INCOME INDIVIDUALS UNDER TITLE XVIII’’ after ‘‘COSTSHARING’’;

(2) in subsection (a)—

(A) in paragraph (1)—

(i) in subparagraph (A), by inserting ‘‘for the

transitional assistance under section 1860D–31(f), or

for premium and cost-sharing subsidies under section

1860D–14’’ before the semicolon; and

(ii) in subparagraph (B), by inserting ‘‘, program,

and subsidies’’ after ‘‘medical assistance’’; and

(B) in paragraph (2)—

(i) in the matter preceding subparagraph (A), by

inserting ‘‘, the transitional assistance under section

1860D–31(f), or premium and cost-sharing subsidies

under section 1860D–14’’ after ‘‘assistance’’; and

(ii) in subparagraph (A), by striking ‘‘such eligibility’’ and inserting ‘‘eligibility for medicare costsharing under the medicaid program’’; and

42 USC 1396a

note.

Effective date.

42 USC 1396r–8

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2161

(3) in subsection (b)—

(A) in paragraph (1)(A), by inserting ‘‘, for transitional

assistance under section 1860D–31(f), or for premium and

cost-sharing subsidies for low-income individuals under section 1860D–14’’ after ‘‘1933’’; and

(B) in paragraph (2), by inserting ‘‘, program, and

subsidies’’ after ‘‘medical assistance’’.

SEC. 104. MEDIGAP AMENDMENTS.

(a) RULES RELATING TO MEDIGAP POLICIES THAT PROVIDE

PRESCRIPTION DRUG COVERAGE.— (1) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) is

amended by adding at the end the following new subsection:

‘‘(v) RULES RELATING TO MEDIGAP POLICIES THAT PROVIDE

PRESCRIPTION DRUG COVERAGE.— ‘‘(1) PROHIBITION ON SALE, ISSUANCE, AND RENEWAL OF

NEW POLICIES THAT PROVIDE PRESCRIPTION DRUG COVERAGE.—

‘‘(A) IN GENERAL.—Notwithstanding any other provision of law, on or after January 1, 2006, a medigap Rx

policy (as defined in paragraph (6)(A)) may not be sold,

issued, or renewed under this section—

‘‘(i) to an individual who is a part D enrollee (as

defined in paragraph (6)(B)); or

‘‘(ii) except as provided in subparagraph (B), to

an individual who is not a part D enrollee.

‘‘(B) CONTINUATION PERMITTED FOR NON-PART D

ENROLLEES.—Subparagraph (A)(ii) shall not apply to the

renewal of a medigap Rx policy that was issued before

January 1, 2006.

‘‘(C) CONSTRUCTION.—Nothing in this subsection shall

be construed as preventing the offering on and after

January 1, 2006, of ‘H’, ‘I’, and ‘J’ policies described in

paragraph (2)(D)(i) if the benefit packages are modified

in accordance with paragraph (2)(C).

‘‘(2) ELIMINATION OF DUPLICATIVE COVERAGE UPON PART

D ENROLLMENT.—

‘‘(A) IN GENERAL.—In the case of an individual who

is covered under a medigap Rx policy and enrolls under

a part D plan—

‘‘(i) before the end of the initial part D enrollment

period, the individual may—

‘‘(I) enroll in a medicare supplemental policy

without prescription drug coverage under paragraph (3); or

‘‘(II) continue the policy in effect subject to

the modification described in subparagraph (C)(i);

or

‘‘(ii) after the end of such period, the individual

may continue the policy in effect subject to such modification.

‘‘(B) NOTICE REQUIRED TO BE PROVIDED TO CURRENT

POLICYHOLDERS WITH MEDIGAP RX POLICY.—No medicare

supplemental policy of an issuer shall be deemed to meet

the standards in subsection (c) unless the issuer provides

written notice (in accordance with standards of the Secretary established in consultation with the National

Association of Insurance Commissioners) during the 60-

117 STAT. 2162 PUBLIC LAW 108–173—DEC. 8, 2003

day period immediately preceding the initial part D enrollment period, to each individual who is a policyholder or

certificate holder of a medigap Rx policy (at the most

recent available address of that individual) of the following:

‘‘(i) If the individual enrolls in a plan under part

D during the initial enrollment period under section

1860D–1(b)(2)(A), the individual has the option of—

‘‘(I) continuing enrollment in the individual’s

current plan, but the plan’s coverage of prescription drugs will be modified under subparagraph

(C)(i); or

‘‘(II) enrolling in another medicare supplemental policy pursuant to paragraph (3).

‘‘(ii) If the individual does not enroll in a plan

under part D during such period, the individual may

continue enrollment in the individual’s current plan

without change, but—

‘‘(I) the individual will not be guaranteed the

option of enrollment in another medicare supplemental policy pursuant to paragraph (3); and

‘‘(II) if the current plan does not provide creditable prescription drug coverage (as defined in

section 1860D–13(b)(4)), notice of such fact and

that there are limitations on the periods in a year

in which the individual may enroll under a part

D plan and any such enrollment is subject to a

late enrollment penalty.

‘‘(iii) Such other information as the Secretary may

specify (in consultation with the National Association

of Insurance Commissioners), including the potential

impact of such election on premiums for medicare

supplemental policies.

‘‘(C) MODIFICATION.—

‘‘(i) IN GENERAL.—The policy modification described

in this subparagraph is the elimination of prescription

coverage for expenses of prescription drugs incurred

after the effective date of the individual’s coverage

under a part D plan and the appropriate adjustment

of premiums to reflect such elimination of coverage.

‘‘(ii) CONTINUATION OF RENEWABILITY AND APPLICATION OF MODIFICATION.—No medicare supplemental

policy of an issuer shall be deemed to meet the standards in subsection (c) unless the issuer—

‘‘(I) continues renewability of medigap Rx policies that it has issued, subject to subclause (II);

and

‘‘(II) applies the policy modification described

in clause (i) in the cases described in clauses (i)(II)

and (ii) of subparagraph (A).

‘‘(D) REFERENCES TO RX POLICIES.—

‘‘(i) H, I, AND J POLICIES.—Any reference to a benefit package classified as ‘H’, ‘I’, or ‘J’ (including the

benefit package classified as ‘J’ with a high deductible

feature, as described in subsection (p)(11)) under the

standards established under subsection (p)(2) shall be

construed as including a reference to such a package

as modified under subparagraph (C) and such packages

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2163

as modified shall not be counted as a separate benefit

package under such subsection.

‘‘(ii) APPLICATION IN WAIVERED STATES.—Except for

the modification provided under subparagraph (C), the

waivers previously in effect under subsection (p)(2)

shall continue in effect.

‘‘(3) AVAILABILITY OF SUBSTITUTE POLICIES WITH GUARAN- TEED ISSUE.— ‘‘(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’, or ‘F’

(including the benefit package classified as ‘F’ with

a high deductible feature, as described in subsection

(p)(11)), under the standards established under subsection (p)(2), or a benefit package described in

subparagraph (A) or (B) of subsection (w)(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 effective date of the individual’s coverage

under a part D plan.

‘‘(B) INDIVIDUAL COVERED.—An individual described in

this subparagraph with respect to the issuer of a medicare

supplemental policy is an individual who—

‘‘(i) enrolls in a part D plan during the initial

part D enrollment period;

‘‘(ii) at the time of such enrollment was enrolled

in a medigap Rx policy issued by such issuer; and

‘‘(iii) terminates enrollment in such policy and submits evidence of such termination along with the

application for the policy under subparagraph (A).

‘‘(C) SPECIAL RULE FOR WAIVERED STATES.—For purposes of applying this paragraph in the case of a State

that provides for offering of benefit packages other than

under the classification referred to in subparagraph (A)(i),

the references to benefit packages in such subparagraph

are deemed references to comparable benefit packages

offered in such State.

‘‘(4) ENFORCEMENT.—

‘‘(A) PENALTIES FOR DUPLICATION.—The penalties

described in subsection (d)(3)(A)(ii) shall apply with respect

to a violation of paragraph (1)(A).

‘‘(B) GUARANTEED ISSUE.—The provisions of paragraph

(4) of subsection (s) shall apply with respect to the requirements of paragraph (3) in the same manner as they apply

to the requirements of such subsection.

‘‘(5) 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 with

117 STAT. 2164 PUBLIC LAW 108–173—DEC. 8, 2003

respect to a part D enrollee through the continuation of the

policy subject to modification under paragraph (2)(C) or the

offering of a substitute policy under paragraph (3). The previous

sentence shall not be construed to affect the guaranteed renewability of such a modified or substitute policy.

‘‘(6) DEFINITIONS.—For purposes of this subsection:

‘‘(A) MEDIGAP RX POLICY.—The term ‘medigap Rx policy’

means a medicare supplemental policy—

‘‘(i) which has a benefit package classified as ‘H’,

‘I’, or ‘J’ (including the benefit package classified as

‘J’ with a high deductible feature, as described in subsection (p)(11)) under the standards established under

subsection (p)(2), without regard to this subsection;

and

‘‘(ii) to which such standards do not apply (or to

which such standards have been waived under subsection (p)(6)) but which provides benefits for prescription drugs.

Such term does not include a policy with a benefit package

as classified under clause (i) which has been modified under

paragraph (2)(C)(i).

‘‘(B) PART D ENROLLEE.—The term ‘part D enrollee’

means an individual who is enrolled in a part D plan.

‘‘(C) PART D PLAN.—The term ‘part D plan’ means

a prescription drug plan or an MA–PD plan (as defined

for purposes of part D).

‘‘(D) INITIAL PART D ENROLLMENT PERIOD.—The term

‘initial part D enrollment period’ means the initial enrollment period described in section 1860D–1(b)(2)(A).’’.

(2) CONFORMING CURRENT GUARANTEED ISSUE PROVISIONS.—

(A) EXTENDING GUARANTEED ISSUE POLICY FOR INDIVIDUALS ENROLLED IN MEDIGAP RX POLICIES WHO TRY MEDICARE

ADVANTAGE.—Subsection (s)(3)(C)(ii) of such section is

amended—

(i) by striking ‘‘(ii) Only’’ and inserting ‘‘(ii)(I) Subject to subclause (II), only’’; and

(ii) by adding at the end the following new subclause:

‘‘(II) If the medicare supplemental policy referred to in subparagraph (B)(v) was a medigap Rx policy (as defined in subsection

(v)(6)(A)), a medicare supplemental policy described in this subparagraph is such policy in which the individual was most recently

enrolled as modified under subsection (v)(2)(C)(i) or, at the election

of the individual, a policy referred to in subsection (v)(3)(A)(i).’’.

(B) CONFORMING AMENDMENT.—Section

1882(s)(3)(C)(iii) is amended by inserting ‘‘and subject to

subsection (v)(1)’’ after ‘‘subparagraph (B)(vi)’’.

(b) DEVELOPMENT OF NEW STANDARDS FOR MEDIGAP POLICIES.—

(1) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) is further

amended by adding at the end the following new subsection:

‘‘(w) DEVELOPMENT OF NEW STANDARDS FOR MEDICARE SUPPLEMENTAL POLICIES.—

‘‘(1) IN GENERAL.—The Secretary shall request the National

Association of Insurance Commissioners to review and revise

the standards for benefit packages under subsection (p)(1),

taking into account the changes in benefits resulting from

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2165

enactment of the Medicare Prescription Drug, Improvement,

and Modernization Act of 2003 and to otherwise update standards to reflect other changes in law included in such Act.

Such revision shall incorporate the inclusion of the 2 benefit

packages described in paragraph (2). Such revisions shall be

made consistent with the rules applicable under subsection

(p)(1)(E) with the reference to the ‘1991 NAIC Model Regulation’

deemed a reference to the NAIC Model Regulation as published

in the Federal Register on December 4, 1998, and as subsequently updated by the National Association of Insurance

Commissioners to reflect previous changes in law (and subsection (v)) and the reference to ‘date of enactment of this

subsection’ deemed a reference to the date of enactment of

the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. To the extent practicable, such revision shall

provide for the implementation of revised standards for benefit

packages as of January 1, 2006.

‘‘(2) NEW BENEFIT PACKAGES.—The benefit packages

described in this paragraph are the following (notwithstanding

any other provision of this section relating to a core benefit

package):

‘‘(A) FIRST NEW BENEFIT PACKAGE.—A benefit package

consisting of the following:

‘‘(i) Subject to clause (ii), coverage of 50 percent

of the cost-sharing otherwise applicable under parts

A and B, except there shall be no coverage of the

part B deductible and coverage of 100 percent of any

cost-sharing otherwise applicable for preventive benefits.

‘‘(ii) Coverage for all hospital inpatient coinsurance

and 365 extra lifetime days of coverage of inpatient

hospital services (as in the current core benefit package).

‘‘(iii) A limitation on annual out-of-pocket expenditures under parts A and B to $4,000 in 2006 (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 BENEFIT PACKAGE.—A benefit package consisting of the benefit package 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 (iii)

of such subparagraph.’’.

(2) CONFORMING AMENDMENTS.—Section 1882 (42 U.S.C.

1395ss) is amended—

(A) in subsection (g)(1), by inserting ‘‘a prescription

drug plan under part D or’’ after ‘‘but does not include’’;

and

(B) in subsection (o)(1), by striking ‘‘subsection (p)’’

and inserting ‘‘subsections (p), (v), and (w)’’.

(c) RULE OF CONSTRUCTION.—

(1) IN GENERAL.—Nothing in this Act shall be construed

to require an issuer of a medicare supplemental policy under

section 1882 of the Social Security Act (42 U.S.C. 1395rr) to

participate as a PDP sponsor under part D of title XVIII of

42 USC 1395ss

note.

117 STAT. 2166 PUBLIC LAW 108–173—DEC. 8, 2003

such Act, as added by section 101, as a condition for issuing

such policy.

(2) PROHIBITION ON STATE REQUIREMENT.—A State may

not require an issuer of a medicare supplemental policy under

section 1882 of the Social Security Act (42 U.S.C. 1395rr) to

participate as a PDP sponsor under such part D as a condition

for issuing such policy.

SEC. 105. ADDITIONAL PROVISIONS RELATING TO MEDICARE

PRESCRIPTION DRUG DISCOUNT CARD AND TRANSITIONAL ASSISTANCE PROGRAM.

(a) EXCLUSION OF COSTS FROM DETERMINATION OF PART B

MONTHLY PREMIUM.—Section 1839(g) (42 U.S.C. 1395r(g)) is

amended—

(1) by striking ‘‘attributable to the application of section’’

and inserting ‘‘attributable to—

‘‘(1) the application of section’’;

(2) by striking the period and inserting ‘‘; and’’; and

(3) by adding at the end the following new paragraph:

‘‘(2) the medicare prescription drug discount card and

transitional assistance program under section 1860D–31.’’.

(b) APPLICATION OF CONFIDENTIALITY FOR DRUG PRICING

DATA.—The last sentence of section 1927(b)(3)(D) (42 U.S.C. 1396r–

8(b)(3)(D)), as added by section 101(e)(4), is amended by inserting

‘‘and drug pricing data reported under the first sentence of section

1860D–31(i)(1)’’ after ‘‘section 1860D–4(c)(2)(E)’’.

(c) RULES FOR IMPLEMENTATION.—The following rules shall

apply to the medicare prescription drug discount card and transitional assistance program under section 1860D–31 of the Social

Security Act, as added by section 101(a):

(1) In promulgating regulations pursuant to subsection

(a)(2)(B) of such section 1860D–31—

(A) section 1871(a)(3) of the Social Security Act (42

U.S.C. 1395hh(a)(3)), as added by section 902(a)(1), shall

not apply;

(B) chapter 35 of title 44, United States Code, shall

not apply; and

(C) sections 553(d) and 801(a)(3)(A) of title 5, United

States Code, shall not apply.

(2) Section 1857(c)(5) of the Social Security Act (42 U.S.C.

1395w–27(c)(5)) shall apply with respect to section 1860D–

31 of such Act, as added by section 101(a), in the same manner

as it applies to part C of title XVIII of such Act.

(3) The administration of such program shall be made

without regard to chapter 35 of title 44, United States Code.

(4)(A) There shall be no judicial review of a determination

not to endorse, or enter into a contract, with a prescription

drug card sponsor under section 1860D–31 of the Social Security

Act.

(B) In the case of any order issued to enjoin any provision

of section 1860D–31 of the Social Security Act (or of any provision of this section), such order shall not affect any other

provision of such section (or of this section) and all such provisions shall be treated as severable.

(d) CONFORMING AMENDMENTS TO FEDERAL SMI TRUST FUND

FOR TRANSITIONAL ASSISTANCE ACCOUNT.—Section 1841 (42 U.S.C.

1395t), as amended by section 101(e)(3)(C), is amended—

Applicability.

Applicability.

42 USC

1395w–141 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2167

(1) in the last sentence of subsection (a), by inserting after

‘‘section 1860D–16’’ the following: ‘‘or the Transitional Assistance Account established by section 1860D–31(k)(1)’’; and

(2) in subsection (g), by adding at the end the following:

‘‘The payments provided for under section 1860D–31(k)(2) shall

be made from the Transitional Assistance Account in the Trust

Fund.’’.

(e) DISCLOSURE OF RETURN INFORMATION FOR PURPOSES OF

PROVIDING TRANSITIONAL ASSISTANCE UNDER MEDICARE DISCOUNT

CARD PROGRAM.— (1) IN GENERAL.—Subsection (l) of section 6103 of the

Internal Revenue Code of 1986 (relating to disclosure of returns

and return information for purposes other than tax administration) is amended by adding at the end the following new paragraph:

‘‘(19) DISCLOSURE OF RETURN INFORMATION FOR PURPOSES

OF PROVIDING TRANSITIONAL ASSISTANCE UNDER MEDICARE DISCOUNT CARD PROGRAM.—

‘‘(A) IN GENERAL.—The Secretary, upon written request

from the Secretary of Health and Human Services pursuant

to carrying out section 1860D–31 of the Social Security

Act, shall disclose to officers, employees, and contractors

of the Department of Health and Human Services with

respect to a taxpayer for the applicable year—

‘‘(i)(I) whether the adjusted gross income, as modified in accordance with specifications of the Secretary

of Health and Human Services for purposes of carrying

out such section, of such taxpayer and, if applicable,

such taxpayer’s spouse, for the applicable year, exceeds

the amounts specified by the Secretary of Health and

Human Services in order to apply the 100 and 135

percent of the poverty lines under such section, (II)

whether the return was a joint return, and (III) the

applicable year, or

‘‘(ii) if applicable, the fact that there is no return

filed for such taxpayer for the applicable year.

‘‘(B) DEFINITION OF APPLICABLE YEAR.—For the purposes of this subsection, the term ‘applicable year’ means

the most recent taxable year for which information is available in the Internal Revenue Service’s taxpayer data

information systems, or, if there is no return filed for

such taxpayer for such year, the prior taxable year.

‘‘(C) RESTRICTION ON USE OF DISCLOSED INFORMATION.—Return information disclosed under this paragraph

may be used only for the purposes of determining eligibility

for and administering transitional assistance under section

1860D–31 of the Social Security Act.’’.

(2) CONFIDENTIALITY.—Paragraph (3) of section 6103(a) of

such Code is amended by striking ‘‘or (16)’’ and inserting ‘‘(16),

or (19)’’.

(3) PROCEDURES AND RECORDKEEPING RELATED TO DISCLO- SURES.—Subsection (p)(4) of section 6103 of such Code is

amended by striking ‘‘(l)(16) or (17)’’ each place it appears

and inserting ‘‘(l)(16), (17), or (19)’’.

(4) UNAUTHORIZED DISCLOSURE OR INSPECTION.—Paragraph

(2) of section 7213(a) of such Code is amended by striking

‘‘or (16)’’ and inserting ‘‘(16), or (19)’’.

26 USC 7213.

26 USC 6103.

117 STAT. 2168 PUBLIC LAW 108–173—DEC. 8, 2003

SEC. 106. STATE PHARMACEUTICAL ASSISTANCE TRANSITION COMMISSION.

(a) ESTABLISHMENT.— (1) IN GENERAL.—There is established, as of the first day

of the third month beginning after the date of the enactment

of this Act, a State Pharmaceutical Assistance Transition

Commission (in this section referred to as the ‘‘Commission’’)

to develop a proposal for addressing the unique transitional

issues facing State pharmaceutical assistance programs, and

program participants, due to the implementation of the voluntary prescription drug benefit program under part D of title

XVIII of the Social Security Act, as added by section 101.

(2) DEFINITIONS.—For purposes of this section:

(A) STATE PHARMACEUTICAL ASSISTANCE PROGRAM

DEFINED.—The term ‘‘State pharmaceutical assistance program’’ means a program (other than the medicaid program)

operated by a State (or under contract with a State) that

provides as of the date of the enactment of this Act financial

assistance to medicare beneficiaries for the purchase of

prescription drugs.

(B) PROGRAM PARTICIPANT.—The term ‘‘program

participant’’ means a low-income medicare beneficiary who

is a participant in a State pharmaceutical assistance program.

(b) COMPOSITION.—The Commission shall include the following:

(1) A representative of each Governor of each State that

the Secretary identifies as operating on a statewide basis a

State pharmaceutical assistance program that provides for eligibility and benefits that are comparable or more generous than

the low-income assistance eligibility and benefits offered under

section 1860D–14 of the Social Security Act.

(2) Representatives from other States that the Secretary

identifies have in operation other State pharmaceutical assistance programs, as appointed by the Secretary.

(3) Representatives of organizations that have an inherent

interest in program participants or the program itself, as

appointed by the Secretary but not to exceed the number of

representatives under paragraphs (1) and (2).

(4) Representatives of Medicare Advantage organizations,

pharmaceutical benefit managers, and other private health

insurance plans, as appointed by the Secretary.

(5) The Secretary (or the Secretary’s designee) and such

other members as the Secretary may specify.

The Secretary shall designate a member to serve as Chair of the

Commission and the Commission shall meet at the call of the

Chair.

(c) DEVELOPMENT OF PROPOSAL.—The Commission shall develop

the proposal described in subsection (a) in a manner consistent

with the following principles:

(1) Protection of the interests of program participants in

a manner that is the least disruptive to such participants

and that includes a single point of contact for enrollment and

processing of benefits.

(2) Protection of the financial and flexibility interests of

States so that States are not financially worse off as a result

of the enactment of this title.

(3) Principles of medicare modernization under this Act.

42 USC

1395w–101 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2169

(d) REPORT.—By not later than January 1, 2005, the Commission shall submit to the President and Congress a report that

contains a detailed proposal (including specific legislative or

administrative recommendations, if any) and such other recommendations as the Commission deems appropriate.

(e) SUPPORT.—The Secretary shall provide the Commission with

the administrative support services necessary for the Commission

to carry out its responsibilities under this section.

(f) TERMINATION.—The Commission shall terminate 30 days

after the date of submission of the report under subsection (d).

SEC. 107. STUDIES AND REPORTS.

(a) STUDY REGARDING REGIONAL VARIATIONS IN PRESCRIPTION

DRUG SPENDING.— (1) IN GENERAL.—The Secretary shall conduct a study that

examines variations in per capita spending for covered part

D drugs under part D of title XVIII of the Social Security

Act among PDP regions and, with respect to such spending,

the amount of such variation that is attributable to—

(A) price variations (described in section 1860D–

15(c)(2) of such Act); and

(B) differences in per capita utilization that is not

taken into account in the health status risk adjustment

provided under section 1860D–15(c)(1) of such Act.

(2) REPORT AND RECOMMENDATIONS.—Not later than

January 1, 2009, the Secretary shall submit to Congress a

report on the study conducted under paragraph (1). Such report

shall include—

(A) information regarding the extent of geographic variation described in paragraph (1)(B);

(B) an analysis of the impact on direct subsidies under

section 1860D–15(a)(1) of the Social Security Act in different PDP regions if such subsidies were adjusted to take

into account the variation described in subparagraph (A);

and

(C) recommendations regarding the appropriateness of

applying an additional geographic adjustment factor under

section 1860D–15(c)(2) that reflects some or all of the variation described in subparagraph (A).

(b) REVIEW AND REPORT ON CURRENT STANDARDS OF PRACTICE

FOR PHARMACY SERVICES PROVIDED TO PATIENTS IN NURSING

FACILITIES.—

(1) REVIEW.—

(A) IN GENERAL.—Not later than 12 months after the

date of the enactment of this Act, the Secretary shall

conduct a thorough review of the current standards of

practice for pharmacy services provided to patients in

nursing facilities.

(B) SPECIFIC MATTERS REVIEWED.—In conducting the

review under subparagraph (A), the Secretary shall—

(i) assess the current standards of practice, clinical

services, and other service requirements generally used

for pharmacy services in long-term care settings; and

(ii) evaluate the impact of those standards with

respect to patient safety, reduction of medication errors

and quality of care.

(2) REPORT.—

Deadline.

42 USC 1395i–3

note.

Deadline.

42 USC

1395w–111 note.

Deadline.

117 STAT. 2170 PUBLIC LAW 108–173—DEC. 8, 2003

(A) IN GENERAL.—Not later than the date that is 18

months after the date of the enactment of this Act, the

Secretary shall submit a report to Congress on the study

conducted under paragraph (1)(A).

(B) CONTENTS.—The report submitted under subparagraph (A) shall contain—

(i) a description of the plans of the Secretary to

implement the provisions of this Act in a manner consistent with applicable State and Federal laws designed

to protect the safety and quality of care of nursing

facility patients; and

(ii) recommendations regarding necessary actions

and appropriate reimbursement to ensure the provision

of prescription drugs to medicare beneficiaries residing

in nursing facilities in a manner consistent with

existing patient safety and quality of care standards

under applicable State and Federal laws.

(c) IOM STUDY ON DRUG SAFETY AND QUALITY.—

(1) IN GENERAL.—The Secretary shall enter into a contract

with the Institutes of Medicine of the National Academies of

Science (such Institutes referred to in this subsection as the

‘‘IOM’’) to carry out a comprehensive study (in this subsection

referred to as the ‘‘study’’) of drug safety and quality issues

in order to provide a blueprint for system-wide change.

(2) OBJECTIVES.—

(A) The study shall develop a full understanding of

drug safety and quality issues through an evidence-based

review of literature, case studies, and analysis. This review

will consider the nature and causes of medication errors,

their impact on patients, the differences in causation,

impact, and prevention across multiple dimensions of

health care delivery-including patient populations, care settings, clinicians, and institutional cultures.

(B) The study shall attempt to develop credible estimates of the incidence, severity, costs of medication errors

that can be useful in prioritizing resources for national

quality improvement efforts and influencing national

health care policy.

(C) The study shall evaluate alternative approaches

to reducing medication errors in terms of their efficacy,

cost-effectiveness, appropriateness in different settings and

circumstances, feasibility, institutional barriers to

implementation, associated risks, and the quality of evidence supporting the approach.

(D) The study shall provide guidance to consumers,

providers, payers, and other key stakeholders on highpriority strategies to achieve both short-term and longterm drug safety goals, to elucidate the goals and expected

results of such initiatives and support the business case

for them, and to identify critical success factors and key

levers for achieving success.

(E) The study shall assess the opportunities and key

impediments to broad nationwide implementation of medication error reductions, and to provide guidance to policymakers and government agencies (including the Food and

Drug Administration, the Centers for Medicare & Medicaid

Contracts.

42 USC 299 note.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2171

Services, and the National Institutes of Health) in promoting a national agenda for medication error reduction.

(F) The study shall develop an applied research agenda

to evaluate the health and cost impacts of alternative interventions, and to assess collaborative public and private

strategies for implementing the research agenda through

AHRQ and other government agencies.

(3) CONDUCT OF STUDY.— (A) EXPERT COMMITTEE.—In conducting the study, the

IOM shall convene a committee of leading experts and

key stakeholders in pharmaceutical management and drug

safety, including clinicians, health services researchers,

pharmacists, system administrators, payer representatives,

and others.

(B) COMPLETION.—The study shall be completed within

an 18-month period.

(4) REPORT.—A report on the study shall be submitted

to Congress upon the completion of the study.

(5) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be appropriated to carry out this section such sums

as may be necessary.

(d) STUDY OF MULTI-YEAR CONTRACTS.—

(1) IN GENERAL.—The Secretary shall provide for a study

on the feasibility and advisability of providing for contracting

with PDP sponsors and MA organizations under parts C and

D of title XVIII on a multi-year basis.

(2) REPORT.—Not later than January 1, 2007, the Secretary

shall submit to Congress a report on the study under paragraph

(1). The report shall include such recommendations as the

Secretary deems appropriate.

(e) GAO STUDY REGARDING IMPACT OF ASSETS TEST FOR SUBSIDY ELIGIBLE INDIVIDUALS.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study to determine the extent to which drug

utilization and access to covered part D drugs under part

D of title XVIII of the Social Security Act by subsidy eligible

individuals differs from such utilization and access for individuals who would qualify as such subsidy eligible individuals

but for the application of section 1860D–14(a)(3)(A)(iii) of such

Act.

(2) REPORT.—Not later than September 30, 2007, the Comptroller General shall submit a report to Congress on the study

conducted under paragraph (1) that includes such recommendations for legislation as the Comptroller General determines

are appropriate.

(f) STUDY ON MAKING PRESCRIPTION PHARMACEUTICAL INFORMATION ACCESSIBLE FOR BLIND AND VISUALLY-IMPAIRED INDIVIDUALS.—

(1) STUDY.—

(A) IN GENERAL.—The Secretary shall undertake a

study of how to make prescription pharmaceutical information, including drug labels and usage instructions, accessible to blind and visually-impaired individuals.

(B) STUDY TO INCLUDE EXISTING AND EMERGING TECHNOLOGIES.—The study under subparagraph (A) shall

include a review of existing and emerging technologies,

including assistive technology, that makes essential

21 USC 352 note.

Deadline.

42 USC

1395w–114 note.

Deadline.

42 USC

1395w–27 note.

117 STAT. 2172 PUBLIC LAW 108–173—DEC. 8, 2003

information on the content and prescribed use of pharmaceutical medicines available in a usable format for blind

and visually-impaired individuals.

(2) REPORT.— (A) IN GENERAL.—Not later than 18 months after the

date of the enactment of this Act, the Secretary shall

submit a report to Congress on the study required under

paragraph (1).

(B) CONTENTS OF REPORT.—The report required under

paragraph (1) shall include recommendations for the

implementation of usable formats for making prescription

pharmaceutical information available to blind and visuallyimpaired individuals and an estimate of the costs associated

with the implementation of each format.

SEC. 108. GRANTS TO PHYSICIANS TO IMPLEMENT ELECTRONIC

PRESCRIPTION DRUG PROGRAMS.

(a) IN GENERAL.—The Secretary is authorized to make grants

to physicians for the purpose of assisting such physicians to implement electronic prescription drug programs that comply with the

standards promulgated or modified under section 1860D–4(e) of

the Social Security Act, as inserted by section 101(a).

(b) AWARDING OF GRANTS.—

(1) APPLICATION.—No grant may be made under this section

except pursuant to a grant application that is submitted and

approved in a time, manner, and form specified by the Secretary.

(2) CONSIDERATIONS AND PREFERENCES.—In awarding

grants under this section, the Secretary shall—

(A) give special consideration to physicians who serve

a disproportionate number of medicare patients; and

(B) give preference to physicians who serve a rural

or underserved area.

(3) LIMITATION ON GRANTS.—Only 1 grant may be awarded

under this section with respect to any physician or group practice of physicians.

(c) TERMS AND CONDITIONS.—

(1) IN GENERAL.—Grants under this section shall be made

under such terms and conditions as the Secretary specifies

consistent with this section.

(2) USE OF GRANT FUNDS.—Funds provided under grants

under this section may be used for any of the following:

(A) For purchasing, leasing, and installing computer

software and hardware, including handheld computer technologies.

(B) Making upgrades and other improvements to

existing computer software and hardware to enable e-prescribing.

(C) Providing education and training to eligible physician staff on the use of technology to implement the electronic transmission of prescription and patient information.

(3) PROVISION OF INFORMATION.—As a condition for the

awarding of a grant under this section, an applicant shall

provide to the Secretary such information as the Secretary

may require in order to—

(A) evaluate the project for which the grant is made;

and

42 USC

1395w–104 note.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2173

(B) ensure that funding provided under the grant is

expended only for the purposes for which it is made.

(4) AUDIT.—The Secretary shall conduct appropriate audits

of grants under this section.

(5) MATCHING REQUIREMENT.—The applicant for a grant

under this section shall agree, with respect to the costs to

be incurred by the applicant in implementing an electronic

prescription drug program, to make available (directly or

through donations from public or private entities) non-Federal

contributions toward such costs in an amount that is not less

than 50 percent of such costs. Non-Federal contributions under

the previous sentence may be in cash or in kind, fairly evaluated, including plant, equipment, or services. Amounts provided

by the Federal Government, or services assisted or subsidized

to any significant extent by the Federal Government, may

not be included in determining the amount of such contributions.

(d) AUTHORIZATION OF APPROPRIATIONS.—There are authorized

to be appropriated to carry out this section $50,000,000 for fiscal

year 2007 and such sums as may be necessary for each of fiscal

years 2008 and 2009.

SEC. 109. EXPANDING THE WORK OF MEDICARE QUALITY IMPROVEMENT ORGANIZATIONS TO INCLUDE PARTS C AND D.

(a) APPLICATION TO MEDICARE MANAGED CARE AND PRESCRIPTION DRUG COVERAGE.—Section 1154(a)(1) (42 U.S.C. 1320c–3(a)(1))

is amended by inserting ‘‘, to Medicare Advantage organizations

pursuant to contracts under part C, and to prescription drug sponsors pursuant to contracts under part D’’ after ‘‘under section 1876’’.

(b) PRESCRIPTION DRUG THERAPY QUALITY IMPROVEMENT.—Section 1154(a) (42 U.S.C. 1320c–3(a)) is amended by adding at the

end the following new paragraph:

‘‘(17) The organization shall execute its responsibilities

under subparagraphs (A) and (B) of paragraph (1) by offering

to providers, practitioners, Medicare Advantage organizations

offering Medicare Advantage plans under part C, and prescription drug sponsors offering prescription drug plans under part

D quality improvement assistance pertaining to prescription

drug therapy. For purposes of this part and title XVIII, the

functions described in this paragraph shall be treated as a

review function.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply on and after January 1, 2004.

(d) IOM STUDY OF QIOS.—

(1) IN GENERAL.—The Secretary shall request the Institute

of Medicine of the National Academy of Sciences to conduct

an evaluation of the program under part B of title XI of the

Social Security Act. The study shall include a review of the

following:

(A) An overview of the program under such part.

(B) The duties of organizations with contracts with

the Secretary under such part.

(C) The extent to which quality improvement organizations improve the quality of care for medicare beneficiaries.

(D) The extent to which other entities could perform

such quality improvement functions as well as, or better

than, quality improvement organizations.

42 USC 1320c

note.

42 USC 1320c–3

note.

117 STAT. 2174 PUBLIC LAW 108–173—DEC. 8, 2003

(E) The effectiveness of reviews and other actions conducted by such organizations in carrying out those duties.

(F) The source and amount of funding for such

organizations.

(G) The conduct of oversight of such organizations.

(2) REPORT TO CONGRESS.—Not later than June 1, 2006,

the Secretary shall submit to Congress a report on the results

of the study described in paragraph (1), including any recommendations for legislation.

(3) INCREASED COMPETITION.—If the Secretary finds based

on the study conducted under paragraph (1) that other entities

could improve quality in the medicare program as well as,

or better than, the current quality improvement organizations,

then the Secretary shall provide for such increased competition

through the addition of new types of entities which may perform

quality improvement functions.

SEC. 110. CONFLICT OF INTEREST STUDY.

(a) STUDY.—The Federal Trade Commission shall conduct a

study of differences in payment amounts for pharmacy services

provided to enrollees in group health plans that utilize pharmacy

benefit managers. Such study shall include the following:

(1) An assessment of the differences in costs incurred by

such enrollees and plans for prescription drugs dispensed by

mail-order pharmacies owned by pharmaceutical benefit managers compared to mail-order pharmacies not owned by pharmaceutical benefit managers, and community pharmacies.

(2) Whether such plans are acting in a manner that maximizes competition and results in lower prescription drug prices

for enrollees.

(b) REPORT.—Not later than 18 months after the date of the

enactment of this Act, the Commission shall submit to Congress

a report on the study conducted under subsection (a). Such report

shall include recommendations regarding any need for legislation

to ensure the fiscal integrity of the voluntary prescription drug

benefit program under part D of title XVIII, as added by section

101, that may be appropriated as the result of such study.

(c) EXEMPTION FROM PAPERWORK REDUCTION ACT.—Chapter

35 of title 44, United States Code, shall not apply to the collection

of information under subsection (a).

SEC. 111. STUDY ON EMPLOYMENT-BASED RETIREE HEALTH COVERAGE.

(a) STUDY.—The Comptroller General of the United States shall

conduct an initial and final study under this subsection to examine

trends in employment-based retiree health coverage (as defined

in 1860D–22(c)(1) of the Social Security Act, as added by section

101), including coverage under the Federal Employees Health Benefits Program (FEHBP), and the options and incentives available

under this Act which may have an effect on the voluntary provision

of such coverage.

(b) CONTENT OF INITIAL STUDY.—The initial study under this

section shall consider the following:

(1) Trends in employment-based retiree health coverage

prior to the date of the enactment of this Act.

(2) The opinions of sponsors of employment-based retiree

health coverage concerning which of the options available under

this Act they are most likely to utilize for the provision of

42 USC

1395w–132 note.

Deadline.

42 USC

1395w–101 note.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2175

health coverage to their medicare-eligible retirees, including

an assessment of the administrative burdens associated with

the available options.

(3) The likelihood of sponsors of employment-based retiree

health coverage to maintain or adjust their levels of retiree

health benefits beyond coordination with medicare, including

for prescription drug coverage, provided to medicare-eligible

retirees after the date of the enactment of this Act.

(4) The factors that sponsors of employment-based retiree

health coverage expect to consider in making decisions about

any changes they may make in the health coverage provided

to medicare-eligible retirees.

(5) Whether the prescription drug plan options available,

or the health plan options available under the Medicare Advantage program, are likely to cause employers and other entities

that did not provide health coverage to retirees prior to the

date of the enactment of this Act to provide supplemental

coverage or contributions toward premium expenses for medicare-eligible retirees who may enroll in such options in the

future.

(c) CONTENTS OF FINAL STUDY.—The final study under this

section shall consider the following:

(1) Changes in the trends in employment-based retiree

health coverage since the completion of the initial study by

the Comptroller General.

(2) Factors contributing to any changes in coverage levels.

(3) The number and characteristics of sponsors of employment-based retiree health coverage who receive the special

subsidy payments under section 1860D–22 of the Social Security Act, as added by section 101, for the provision of prescription drug coverage to their medicare-eligible retirees that is

the same or greater actuarial value as the prescription drug

coverage available to other medicare beneficiaries without

employment-based retiree health coverage.

(4) The extent to which sponsors of employment-based

retiree health coverage provide supplemental health coverage

or contribute to the premiums for medicare-eligible retirees

who enroll in a prescription drug plan or an MA–PD plan.

(5) Other coverage options, including tax-preferred retirement or health savings accounts, consumer-directed health

plans, or other vehicles that sponsors of employment-based

retiree health coverage believe would assist retirees with their

future health care needs and their willingness to sponsor such

alternative plan designs.

(6) The extent to which employers or other entities that

did not provide employment-based retiree health coverage prior

to the date of the enactment of this Act provided some form

of coverage or financial assistance for retiree health care needs

after the date of the enactment of this Act.

(7) Recommendations by employers, benefits experts, academics, and others on ways that the voluntary provision of

employment-based retiree health coverage may be improved

and expanded.

(d) REPORTS.—The Comptroller General shall submit a report

to Congress on—

(1) the initial study under subsection (b) not later than

1 year after the date of the enactment of this Act; and

Deadlines.

117 STAT. 2176 PUBLIC LAW 108–173—DEC. 8, 2003

(2) the final study under subsection (c) not later than

January 1, 2007.

(e) CONSULTATION.—The Comptroller General shall consult with

sponsors of employment-based retiree health coverage, benefits

experts, human resources professionals, employee benefits consultants, and academics with experience in health benefits and survey

research in the development and design of the initial and final

studies under this section.

TITLE II—MEDICARE ADVANTAGE

Subtitle A—Implementation of Medicare

Advantage Program

SEC. 201. IMPLEMENTATION OF MEDICARE ADVANTAGE PROGRAM.

(a) IN GENERAL.—There is hereby established the Medicare

Advantage program. The Medicare Advantage program shall consist

of the program under part C of title XVIII of the Social Security

Act (as amended by this Act).

(b) REFERENCES.—Subject to subsection (c), any reference to

the program under part C of title XVIII of the Social Security

Act shall be deemed a reference to the Medicare Advantage program

and, with respect to such part, any reference to ‘‘Medicare+Choice’’

is deemed a reference to ‘‘Medicare Advantage’’ and ‘‘MA’’.

(c) TRANSITION.—In order to provide for an orderly transition

and avoid beneficiary and provider confusion, the Secretary shall

provide for an appropriate transition in the use of the terms

‘‘Medicare+Choice’’ and ‘‘Medicare Advantage’’ (or ‘‘MA’’) in reference to the program under part C of title XVIII of the Social

Security Act. Such transition shall be fully completed for all materials for plan years beginning not later than January 1, 2006.

Before the completion of such transition, any reference to ‘‘Medicare

Advantage’’ or ‘‘MA’’ shall be deemed to include a reference to

‘‘Medicare+Choice’’.

Subtitle B—Immediate Improvements

SEC. 211. IMMEDIATE IMPROVEMENTS.

(a) EQUALIZING PAYMENTS WITH FEE-FOR-SERVICE.—

(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) 100 PERCENT OF FEE-FOR-SERVICE COSTS.—

‘‘(i) IN GENERAL.—For each year specified in clause

(ii), the adjusted average per capita cost for the year

involved, determined under section 1876(a)(4) and

adjusted as appropriate for the purpose of risk adjustment, for the MA payment area for individuals who

are not enrolled in an MA plan under this part for

the year, but adjusted to exclude costs attributable

to payments under section 1886(h).

‘‘(ii) PERIODIC REBASING.—The provisions of clause

(i) shall apply for 2004 and for subsequent years as

the Secretary shall specify (but not less than once

every 3 years).

Effective date.

42 USC

1395w–21 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2177

‘‘(iii) 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 Defense or the Department of Veterans Affairs.’’.

(2) CONFORMING AMENDMENT.—Such section is further

amended, in the matter before subparagraph (A), by striking

‘‘or (C)’’ and inserting ‘‘(C), or (D)’’.

(b) CHANGE IN BUDGET NEUTRALITY FOR BLEND.—Section

1853(c) (42 U.S.C. 1395w–23(c)) is amended—

(1) in paragraph (1)(A), by inserting ‘‘(for a year other

than 2004)’’ after ‘‘multiplied’’; and

(2) in paragraph (5), by inserting ‘‘(other than 2004)’’ after

‘‘for each year’’.

(c) INCREASING MINIMUM PERCENTAGE INCREASE TO NATIONAL

GROWTH RATE.—

(1) IN GENERAL.—Section 1853(c)(1) (42 U.S.C. 1395w–

23(c)(1)) is amended—

(A) in subparagraph (A), by striking ‘‘The sum’’ and

inserting ‘‘For a year before 2005, the sum’’;

(B) in subparagraph (B)(iv), by striking ‘‘and each succeeding year’’ and inserting ‘‘, 2003, and 2004’’;

(C) in subparagraph (C)(iv), by striking ‘‘and each succeeding year’’ and inserting ‘‘and 2003’’; and

(D) by adding at the end of subparagraph (C) the

following new clause:

‘‘(v) For 2004 and each succeeding year, the greater

of—

‘‘(I) 102 percent of the annual MA capitation

rate under this paragraph for the area for the

previous year; or

‘‘(II) the annual MA capitation rate under this

paragraph for the area for the previous year

increased by the national per capita MA growth

percentage, described in paragraph (6) for that

succeeding year, but not taking into account any

adjustment under paragraph (6)(C) for a year

before 2004.’’.

(2) CONFORMING AMENDMENT.—Section 1853(c)(6)(C) (42

U.S.C. 1395w–23(c)(6)(C)) is amended by inserting before the

period at the end the following: ‘‘, except that for purposes

of paragraph (1)(C)(v)(II), no such adjustment shall be made

for a year before 2004’’.

(d) INCLUSION OF COSTS OF DOD AND VA MILITARY FACILITY

SERVICES TO MEDICARE-ELIGIBLE BENEFICIARIES IN CALCULATION

OF 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:

117 STAT. 2178 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(E) INCLUSION OF COSTS OF DOD AND VA MILITARY

FACILITY SERVICES TO MEDICARE-ELIGIBLE BENEFICIARIES.— In determining the area-specific MA capitation rate under

subparagraph (A) for a year (beginning with 2004), 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) EXTENDING SPECIAL RULE FOR CERTAIN INPATIENT HOSPITAL

STAYS TO REHABILITATION HOSPITALS AND LONG-TERM CARE HOS- PITALS.—

(1) IN GENERAL.—Section 1853(g) (42 U.S.C. 1395w–23(g))

is amended—

(A) in the matter preceding paragraph (1), by inserting

‘‘, a rehabilitation hospital described in section

1886(d)(1)(B)(ii) or a distinct part rehabilitation unit

described in the matter following clause (v) of section

1886(d)(1)(B), or a long-term care hospital (described in

section 1886(d)(1)(B)(iv))’’ after ‘‘1886(d)(1)(B))’’; and

(B) in paragraph (2)(B), by inserting ‘‘or other payment

provision under this title for inpatient services for the

type of facility, hospital, or unit involved, described in

the matter preceding paragraph (1), as the case may be,’’

after ‘‘1886(d)’’.

(2) EFFECTIVE DATE.—The amendments made by paragraph

(1) shall apply to contract years beginning on or after January

1, 2004.

(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)) as applied under section 1853(c)(1)(A) of such

Act (as amended by subsection (a)). Such study shall include

an examination of—

(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 of

MA local plans under the Medicare Advantage 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 18 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).

(g) REPORT ON IMPACT OF INCREASED FINANCIAL ASSISTANCE

TO MEDICARE ADVANTAGE PLANS.—Not later than July 1, 2006,

the Secretary 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

Deadline.

42 USC

1395w–21 note.

Deadline.

42 USC

1395w–23 note.

42 USC

1395w–23 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2179

Budget Refinement Act of 1999 and BIPA) on the availability of

Medicare Advantage plans in different areas and its impact on

lowering premiums and increasing benefits under such plans.

(h) MEDPAC STUDY AND REPORT ON CLARIFICATION OF

AUTHORITY REGARDING DISAPPROVAL OF UNREASONABLE BENE- FICIARY COST-SHARING.— (1) STUDY.—The Medicare Payment Advisory Commission,

in consultation with beneficiaries, consumer groups, employers,

and organizations offering plans under part C of title XVIII

of the Social Security Act, shall conduct a study to determine

the extent to which the cost-sharing structures under such

plans affect access to covered services or select enrollees based

on the health status of eligible individuals described in section

1851(a)(3) of the Social Security Act (42 U.S.C. 1395w–21(a)(3)).

(2) REPORT.—Not later than December 31, 2004, the

Commission shall submit a report to Congress on the study

conducted under paragraph (1) together with recommendations

for such legislation and administrative actions as the Commission considers appropriate.

(i) IMPLEMENTATION OF PROVISIONS.—

(1) ANNOUNCEMENT OF REVISED MEDICARE ADVANTAGE PAYMENT RATES.—Within 6 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)

MA capitation rates under section 1853 of the Social Security

Act (42 U.S.C. 1395w–23) for 2004, revised in accordance with

the provisions of this section.

(2) TRANSITION TO REVISED PAYMENT RATES.—The provisions of section 604 of BIPA (114 Stat. 2763A–555) (other

than subsection (a)) shall apply to the provisions of subsections

(a) through (d) of this section for 2004 in the same manner

as the provisions of such section 604 applied to the provisions

of BIPA for 2001.

(3) SPECIAL RULE FOR PAYMENT RATES IN 2004.—

(A) JANUARY AND FEBRUARY.—Notwithstanding the

amendments made by subsections (a) through (d), for purposes of making payments under section 1853 of the Social

Security Act (42 U.S.C. 1395w–23) for January and February 2004, the annual capitation rate for a payment area

shall be calculated and the excess amount under section

1854(f)(1)(B) of such Act (42 U.S.C. 1395w–24(f)(1)(B)) shall

be determined as if such amendments had not been

enacted.

(B) MARCH THROUGH DECEMBER.—Notwithstanding the

amendments made by subsections (a) through (d), for purposes of making payments under section 1853 of the Social

Security Act (42 U.S.C. 1395w–23) for March through

December 2004, the annual capitation rate for a payment

area shall be calculated and the excess amount under section 1854(f)(1)(B) of such Act (42 U.S.C. 1395w–24(f)(1)(B))

shall be determined, in such manner as the Secretary estimates will ensure that the total of such payments with

respect to 2004 is the same as the amounts that would

have been if subparagraph (A) had not been enacted.

(C) CONSTRUCTION.—Subparagraphs (A) and (B) shall

not be taken into account in computing such capitation

rate for 2005 and subsequent years.

Applicability.

Deadline.

42 USC

1395w–23 note.

Deadline.

42 USC

1395w–21 note.

117 STAT. 2180 PUBLIC LAW 108–173—DEC. 8, 2003

(4) PLANS REQUIRED TO PROVIDE NOTICE OF CHANGES IN

PLAN BENEFITS.—In the case of an organization offering a plan

under part C of title XVIII of the Social Security Act that

revises its submission of the information described in section

1854(a)(1) of such Act (42 U.S.C. 1395w–23(a)(1)) for a plan

pursuant to the application of paragraph (2), if such revision

results in changes in beneficiary premiums, beneficiary costsharing, or benefits under the plan, then by not later than

3 weeks after the date the Secretary approves such submission,

the organization offering the plan shall provide each beneficiary

enrolled in the plan with written notice of such changes.

(5) LIMITATION ON REVIEW.—There shall be no administrative or judicial review under section 1869 or section 1878 of

the Social Security Act (42 U.S.C. 1395ff and 1395oo), or otherwise of any determination made by the Secretary under this

subsection or the application of the payment rates determined

pursuant to this subsection.

(j) ADDITIONAL AMENDMENTS.—Section 1852(d)(4) (42 U.S.C.

1395w–22(d)(4)) is amended—

(1) in subparagraph (B), by inserting ‘‘(other than deemed

contracts or agreements under subsection (j)(6))’’ after ‘‘the

plan has contracts or agreements’’; and

(2) in the last sentence, by inserting before the period

at the end the following: ‘‘, except that, if a plan entirely

meets such requirement with respect to a category of health

care professional or provider on the basis of subparagraph

(B), it may provide for a higher beneficiary copayment in the

case of health care professionals and providers of that category

who do not have contracts or agreements (other than deemed

contracts or agreements under subsection (j)(6)) to provide covered services under the terms of the plan’’.

Subtitle C—Offering of Medicare Advantage (MA) Regional Plans; Medicare Advantage Competition

SEC. 221. ESTABLISHMENT OF MA REGIONAL PLANS.

(a) OFFERING OF MA REGIONAL PLANS.—

(1) IN GENERAL.—Section 1851(a)(2)(A) is amended—

(A) by striking ‘‘COORDINATED CARE PLANS.—Coordinated’’ and inserting the following: ‘‘COORDINATED CARE

PLANS (INCLUDING REGIONAL PLANS).—

‘‘(i) IN GENERAL.—Coordinated’’;

(B) by inserting ‘‘regional or local’’ before ‘‘preferred

provider organization plans’’; and

(C) by inserting ‘‘ (including MA regional plans)’’ after

‘‘preferred provider organization plans’’.

(2) MORATORIUM ON NEW LOCAL PREFERRED PROVIDER

ORGANIZATION PLANS.—The Secretary shall not permit the

offering of a local preferred provider organization plan under

part C of title XVIII of the Social Security Act during 2006

or 2007 in a service area unless such plan was offered under

such part (including under a demonstration project under such

part) in such area as of December 31, 2005.

(b) DEFINITION OF MA REGIONAL PLAN; MA LOCAL PLAN.—

42 USC

1395w–21 note.

42 USC

1395w–21.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2181

(1) IN GENERAL.—Section 1859(b) (42 U.S.C. 1395w–29(b))

is amended by adding at the end the following new paragraphs:

‘‘(4) MA REGIONAL PLAN.—The term ‘MA regional plan’

means an MA plan described in section 1851(a)(2)(A)(i)—

‘‘(A) that has a network of providers that have agreed

to a contractually specified reimbursement for covered

benefits with the organization offering the plan;

‘‘(B) that provides for reimbursement for all covered

benefits regardless of whether such benefits are provided

within such network of providers; and

‘‘(C) the service area of which is one or more entire

MA regions.

‘‘(5) MA LOCAL PLAN.—The term ‘MA local plan’ means

an MA plan that is not an MA regional plan.’’.

(2) CONSTRUCTION.—Nothing in part C of title XVIII of

the Social Security Act shall be construed as preventing an

MSA plan or MA private fee-for-service plan from having a

service area that covers one or more MA regions or the entire

nation.

(c) RULES FOR MA REGIONAL PLANS.—Part C of title XVIII

(42 U.S.C. 1395w–21 et seq.) is amended by inserting after section

1857 the following new section:

‘‘SPECIAL RULES FOR MA REGIONAL PLANS

‘‘SEC. 1858. (a) REGIONAL SERVICE AREA; ESTABLISHMENT OF

MA REGIONS.— ‘‘(1) COVERAGE OF ENTIRE MA REGION.—The service area

for an MA regional plan shall consist of an entire MA region

established under paragraph (2) and the provisions of section

1854(h) shall not apply to such a plan.

‘‘(2) ESTABLISHMENT OF MA REGIONS.— ‘‘(A) MA REGION.—For purposes of this title, the term

‘MA region’ means such a region within the 50 States

and the District of Columbia as established by the Secretary under this paragraph.

‘‘(B) ESTABLISHMENT.— ‘‘(i) INITIAL ESTABLISHMENT.—Not later than

January 1, 2005, the Secretary shall first establish

and publish MA regions.

‘‘(ii) PERIODIC REVIEW AND REVISION OF SERVICE

AREAS.—The Secretary may periodically review MA

regions under this paragraph and, based on such

review, may revise such regions if the Secretary determines such revision to be appropriate.

‘‘(C) REQUIREMENTS FOR MA REGIONS.—The Secretary

shall establish, and may revise, MA regions under this

paragraph in a manner consistent with the following:

‘‘(i) NUMBER OF REGIONS.—There shall be no fewer

than 10 regions, and no more than 50 regions.

‘‘(ii) MAXIMIZING AVAILABILITY OF PLANS.—The

regions shall maximize the availability of MA regional

plans to all MA eligible individuals without regard

to health status, especially those residing in rural

areas.

‘‘(D) MARKET SURVEY AND ANALYSIS.—Before establishing MA regions, the Secretary shall conduct a market

survey and analysis, including an examination of current

Deadline.

42 USC

1395w–27a.

42 USC

1395w–21 note.

42 USC

1395w–28.

117 STAT. 2182 PUBLIC LAW 108–173—DEC. 8, 2003

insurance markets, to determine how the regions should

be established.

‘‘(3) NATIONAL PLAN.—Nothing in this subsection shall be

construed as preventing an MA regional plan from being offered

in more than one MA region (including all regions).

‘‘(b) APPLICATION OF SINGLE DEDUCTIBLE AND CATASTROPHIC

LIMIT ON OUT-OF-POCKET EXPENSES.—An MA regional plan shall

include the following:

‘‘(1) SINGLE DEDUCTIBLE.—Any deductible for benefits

under the original medicare fee-for-service program option shall

be a single deductible (instead of a separate inpatient hospital

deductible and a part B deductible) and may be applied differentially for in-network services and may be waived for preventive

or other items and services.

‘‘(2) CATASTROPHIC LIMIT.—

‘‘(A) IN-NETWORK.—A catastrophic limit on out-ofpocket expenditures for in-network benefits under the

original medicare fee-for-service program option.

‘‘(B) TOTAL.—A catastrophic limit on out-of-pocket

expenditures for all benefits under the original medicare

fee-for-service program option.

‘‘(c) PORTION OF TOTAL PAYMENTS TO AN ORGANIZATION SUBJECT

TO RISK FOR 2006 AND 2007.—

‘‘(1) APPLICATION OF RISK CORRIDORS.—

‘‘(A) IN GENERAL.—This subsection shall only apply

to MA regional plans offered during 2006 or 2007.

‘‘(B) NOTIFICATION OF ALLOWABLE COSTS UNDER THE

PLAN.—In the case of an MA organization that offers an

MA regional plan in an MA region in 2006 or 2007, the

organization shall notify the Secretary, before such date

in the succeeding year as the Secretary specifies, of—

‘‘(i) its total amount of costs that the organization

incurred in providing benefits covered under the

original medicare fee-for-service program option for all

enrollees under the plan in the region in the year

and the portion of such costs that is attributable to

administrative expenses described in subparagraph

(C); and

‘‘(ii) its total amount of costs that the organization

incurred in providing rebatable integrated benefits (as

defined in subparagraph (D)) and with respect to such

benefits the portion of such costs that is attributable

to administrative expenses described in subparagraph

(C) and not described in clause (i) of this subparagraph.

‘‘(C) ALLOWABLE COSTS DEFINED.—For purposes of this

subsection, the term ‘allowable costs’ means, with respect

to an MA regional plan for a year, the total amount of

costs described in subparagraph (B) for the plan and year,

reduced by the portion of such costs attributable to administrative expenses incurred in providing the benefits

described in such subparagraph.

‘‘(D) REBATABLE INTEGRATED BENEFITS.—For purposes

of this subsection, the term ‘rebatable integrated benefits’

means such non-drug supplemental benefits under subclause (I) of section 1854(b)(1)(C)(ii) pursuant to a rebate

under such section that the Secretary determines are

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2183

integrated with the benefits described in subparagraph

(B)(i).

‘‘(2) ADJUSTMENT OF PAYMENT.—

‘‘(A) NO ADJUSTMENT IF ALLOWABLE COSTS WITHIN 3

PERCENT OF TARGET AMOUNT.—If the allowable costs for

the plan for the year are at least 97 percent, but do not

exceed 103 percent, of the target amount for the plan

and year, there shall be no payment adjustment under

this subsection for the plan and year.

‘‘(B) INCREASE IN PAYMENT IF ALLOWABLE COSTS ABOVE

103 PERCENT OF TARGET AMOUNT.—

‘‘(i) COSTS BETWEEN 103 AND 108 PERCENT OF TARGET AMOUNT.—If the allowable costs for the plan for

the year are greater than 103 percent, but not greater

than 108 percent, of the target amount for the plan

and year, the Secretary shall increase the total of

the monthly payments made to the organization

offering the plan for the year under section 1853(a)

by an amount equal to 50 percent of the difference

between such allowable costs and 103 percent of such

target amount.

‘‘(ii) COSTS ABOVE 108 PERCENT OF TARGET

AMOUNT.—If the allowable costs for the plan for the

year are greater than 108 percent of the target amount

for the plan and year, the Secretary shall increase

the total of the monthly payments made to the

organization offering the plan for the year under section 1853(a) by an amount equal to the sum of—

‘‘(I) 2.5 percent of such target amount; and

‘‘(II) 80 percent of the difference between such

allowable costs and 108 percent of such target

amount.

‘‘(C) REDUCTION IN PAYMENT IF ALLOWABLE COSTS

BELOW 97 PERCENT OF TARGET AMOUNT.—

‘‘(i) COSTS BETWEEN 92 AND 97 PERCENT OF TARGET

AMOUNT.—If the allowable costs for the plan for the

year are less than 97 percent, but greater than or

equal to 92 percent, of the target amount for the plan

and year, the Secretary shall reduce the total of the

monthly payments made to the organization offering

the plan for the year under section 1853(a) by an

amount (or otherwise recover from the plan an amount)

equal to 50 percent of the difference between 97 percent

of the target amount and such allowable costs.

‘‘(ii) COSTS BELOW 92 PERCENT OF TARGET

AMOUNT.—If the allowable costs for the plan for the

year are less than 92 percent of the target amount

for the plan and year, the Secretary shall reduce the

total of the monthly payments made to the organization

offering the plan for the year under section 1853(a)

by an amount (or otherwise recover from the plan

an amount) equal to the sum of—

‘‘(I) 2.5 percent of such target amount; and

‘‘(II) 80 percent of the difference between 92

percent of such target amount and such allowable

costs.

117 STAT. 2184 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(D) TARGET AMOUNT DESCRIBED.—For purposes of this

paragraph, the term ‘target amount’ means, with respect

to an MA regional plan offered by an organization in a

year, an amount equal to—

‘‘(i) the sum of—

‘‘(I) the total monthly payments made to the

organization for enrollees in the plan for the year

that are attributable to benefits under the original

medicare fee-for-service program option (as defined

in section 1852(a)(1)(B));

‘‘(II) the total of the MA monthly basic beneficiary premium collectable for such enrollees for

the year; and

‘‘(III) the total amount of the rebates under

section 1854(b)(1)(C)(ii) that are attributable to

rebatable integrated benefits; reduced by

‘‘(ii) the amount of administrative expenses

assumed in the bid insofar as the bid is attributable

to benefits described in clause (i)(I) or (i)(III).

‘‘(3) DISCLOSURE OF INFORMATION.—

‘‘(A) IN GENERAL.—Each contract under this part shall

provide—

‘‘(i) that an MA organization offering an MA

regional plan shall provide the Secretary with such

information as the Secretary determines is necessary

to carry out this subsection; and

‘‘(ii) that, pursuant to section 1857(d)(2)(B), the

Secretary has the right to inspect and audit any books

and records of the organization that pertain to the

information regarding costs provided to the Secretary

under paragraph (1)(B).

‘‘(B) RESTRICTION ON USE OF INFORMATION.—Information disclosed or obtained pursuant to the provisions of

this subsection may be used by officers, employees, and

contractors of the Department of Health and Human Services only for the purposes of, and to the extent necessary

in, carrying out this subsection.

‘‘(d) ORGANIZATIONAL AND FINANCIAL REQUIREMENTS.—

‘‘(1) IN GENERAL.—In the case of an MA organization that

is offering an MA regional plan in an MA region and—

‘‘(A) meets the requirements of section 1855(a)(1) with

respect to at least one such State in such region; and

‘‘(B) with respect to each other State in such region

in which it does not meet requirements, it demonstrates

to the satisfaction of the Secretary that it has filed the

necessary application to meet such requirements,

the Secretary may waive such requirement with respect to

each State described in subparagraph (B) for such period of

time as the Secretary determines appropriate for the timely

processing of such an application by the State (and, if such

application is denied, through the end of such plan year as

the Secretary determines appropriate to provide for a transition).

‘‘(2) SELECTION OF APPROPRIATE STATE.—In applying paragraph (1) in the case of an MA organization that meets the

requirements of section 1855(a)(1) with respect to more than

one State in a region, the organization shall select, in a manner

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2185

specified by the Secretary among such States, one State the

rules of which shall apply in the case of the States described

in paragraph (1)(B).

‘‘(e) STABILIZATION FUND.— ‘‘(1) ESTABLISHMENT.—The Secretary shall establish under

this subsection an MA Regional Plan Stabilization Fund (in

this subsection referred to as the ‘Fund’) which shall be available for two purposes:

‘‘(A) PLAN ENTRY.—To provide incentives to have MA

regional plans offered in each MA region under paragraph

(3).

‘‘(B) PLAN RETENTION.—To provide incentives to retain

MA regional plans in certain MA regions with belownational-average MA market penetration under paragraph

(4).

‘‘(2) FUNDING.— ‘‘(A) INITIAL FUNDING.—

‘‘(i) IN GENERAL.—There shall be available to the

Fund, for expenditures from the Fund during the

period beginning on January 1, 2007, and ending on

December 31, 2013, a total of $10,000,000,000.

‘‘(ii) PAYMENT FROM TRUST FUNDS.—Such amount

shall be available to the Fund, as expenditures are

made from the Fund, from the Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund in the proportion specified

in section 1853(f).

‘‘(B) ADDITIONAL FUNDING FROM SAVINGS.—

‘‘(i) IN GENERAL.—There shall also be made available to the Fund, 50 percent of savings described in

clause (ii).

‘‘(ii) SAVINGS.—The savings described in this clause

are 25 percent of the average per capita savings

described in section 1854(b)(4)(C) for which monthly

rebates are provided under section 1854(b)(1)(C) in

the fiscal year involved that are attributable to MA

regional plans.

‘‘(iii) AVAILABILITY.—Funds made available under

this subparagraph shall be transferred into a special

account in the Treasury from the Federal Hospital

Insurance Trust Fund and the Federal Supplementary

Medical Insurance Trust Fund in the proportion specified in section 1853(f) on a monthly basis.

‘‘(C) OBLIGATIONS.—Amounts in the Fund shall be

available in advance of appropriations to MA regional plans

in qualifying MA regions only in accordance with paragraph

(5).

‘‘(D) ORDERING.—Expenditures from the Fund shall

first be made from amounts made available under subparagraph (A).

‘‘(3) PLAN ENTRY FUNDING.— ‘‘(A) IN GENERAL.—Funding is available under this

paragraph for a year only as follows:

‘‘(i) NATIONAL PLAN.—For a national bonus payment described in subparagraph (B) for the offering

by a single MA organization of an MA regional plan

in each MA region in the year, but only if there was

117 STAT. 2186 PUBLIC LAW 108–173—DEC. 8, 2003

not such a plan offered in each such region in the

previous year. Funding under this clause is only available with respect to any individual MA organization

for a single year, but may be made available to more

than one such organization in the same year.

‘‘(ii) REGIONAL PLANS.—Subject to clause (iii), for

an increased amount under subparagraph (C) for an

MA regional plan offered in an MA region which did

not have any MA regional plan offered in the prior

year.

‘‘(iii) LIMITATION ON REGIONAL PLAN FUNDING IN

CASE OF NATIONAL PLAN.—In no case shall there be

any payment adjustment under subparagraph (C) for

a year for which a national payment adjustment is

made under subparagraph (B).

‘‘(B) NATIONAL BONUS PAYMENT.—The national bonus

payment under this subparagraph shall—

‘‘(i) be available to an MA organization only if

the organization offers MA regional plans in every

MA region;

‘‘(ii) be available with respect to all MA regional

plans of the organization regardless of whether any

other MA regional plan is offered in any region; and

‘‘(iii) subject to amounts available under paragraph

(5) for a year, be equal to 3 percent of the benchmark

amount otherwise applicable for each MA regional plan

offered by the organization.

‘‘(C) REGIONAL PAYMENT ADJUSTMENT.—

‘‘(i) IN GENERAL.—The increased amount under this

subparagraph for an MA regional plan in an MA region

for a year shall be an amount, determined by the

Secretary, based on the bid submitted for such plan

(or plans) and shall be available to all MA regional

plans offered in such region and year. Such amount

may be based on the mean, mode, or median, or other

measure of such bids and may vary from region to

region. The Secretary may not limit the number of

plans or bids in a region.

‘‘(ii) MULTI-YEAR FUNDING.—

‘‘(I) IN GENERAL.—Subject to amounts available under paragraph (5), funding under this

subparagraph shall be available for a period determined by the Secretary.

‘‘(II) REPORT.—If the Secretary determines

that funding will be provided for a second consecutive year with respect to an MA region, the Secretary shall submit to the Congress a report that

describes the underlying market dynamics in the

region and that includes recommendations concerning changes in the payment methodology

otherwise provided for MA regional plans under

this part.

‘‘(iii) APPLICATION TO ALL PLANS IN A REGION.—

Funding under this subparagraph with respect to an

MA region shall be made available with respect to

all MA regional plans offered in the region.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2187

‘‘(iv) LIMITATION ON AVAILABILITY OF PLAN RETEN- TION FUNDING IN NEXT YEAR.—If an increased amount

is made available under this subparagraph with

respect to an MA region for a period determined by

the Secretary under clause (ii)(I), in no case shall

funding be available under paragraph (4) with respect

to MA regional plans offered in the region in the year

following such period.

‘‘(D) APPLICATION.—Any additional payment under this

paragraph provided for an MA regional plan for a year

shall be treated as if it were an addition to the benchmark

amount otherwise applicable to such plan and year, but

shall not be taken into account in the computation of

any benchmark amount for any subsequent year.

‘‘(4) PLAN RETENTION FUNDING.— ‘‘(A) IN GENERAL.—Funding is available under this

paragraph for a year with respect to MA regional plans

offered in an MA region for the increased amount specified

in subparagraph (B) but only if the region meets the

requirements of subparagraphs (C) and (E).

‘‘(B) PAYMENT INCREASE.—The increased amount under

this subparagraph for an MA regional plan in an MA

region for a year shall be an amount, determined by the

Secretary, that does not exceed the greater of—

‘‘(i) 3 percent of the benchmark amount applicable

in the region; or

‘‘(ii) such amount as (when added to the benchmark

amount applicable to the region) will result in the

ratio of—

‘‘(I) such additional amount plus the benchmark amount computed under section

1854(b)(4)(B)(i) for the region and year, to the

adjusted average per capita cost for the region

and year, as estimated by the Secretary under

section 1876(a)(4) and adjusted as appropriate for

the purpose of risk adjustment; being equal to

‘‘(II) the weighted average of such benchmark

amounts for all the regions and such year, to the

average per capita cost for the United States and

such year, as estimated by the Secretary under

section 1876(a)(4) and adjusted as appropriate for

the purpose of risk adjustment.

‘‘(C) REGIONAL REQUIREMENTS.—The requirements of

this subparagraph for an MA region for a year are as

follows:

‘‘(i) NOTIFICATION OF PLAN EXIT.—The Secretary

has received notice (in such form and manner as the

Secretary specifies) before a year that one or more

MA regional plans that were offered in the region

in the previous year will not be offered in the succeeding year.

‘‘(ii) REGIONAL PLANS AVAILABLE FROM FEWER THAN

2 MA ORGANIZATIONS IN THE REGION.—The Secretary

determines that if the plans referred to in clause (i)

are not offered in the year, fewer than 2 MA organizations will be offering MA regional plans in the region

in the year involved.

117 STAT. 2188 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(iii) PERCENTAGE ENROLLMENT IN MA REGIONAL

PLANS BELOW NATIONAL AVERAGE.—For the previous

year, the Secretary determines that the average

percentage of MA eligible individuals residing in the

region who are enrolled in MA regional plans is less

than the average percentage of such individuals in

the United States enrolled in such plans.

‘‘(D) APPLICATION.—Any additional payment under this

paragraph provided for an MA regional plan for a year

shall be treated as if it were an addition to the benchmark

amount otherwise applicable to such plan and year, but

shall not be taken into account in the computation of

any benchmark amount for any subsequent year.

‘‘(E) 2-CONSECUTIVE-YEAR LIMITATION.—

‘‘(i) IN GENERAL.—In no case shall any funding

be available under this paragraph in an MA region

in a period of consecutive years that exceeds 2 years.

‘‘(ii) REPORT.—If the Secretary determines that

funding will be provided under this paragraph for a

second consecutive year with respect to an MA region,

the Secretary shall submit to the Congress a report

that describes the underlying market dynamics in the

region and that includes recommendations concerning

changes in the payment methodology otherwise provided for MA regional plans under this part.

‘‘(5) FUNDING LIMITATION.—

‘‘(A) IN GENERAL.—The total amount expended from

the Fund as a result of the application of this subsection

through the end of a calendar year may not exceed the

amount available to the Fund as of the first day of such

year. For purposes of this subsection, amounts that are

expended under this title insofar as such amounts would

not have been expended but for the application of this

subsection shall be counted as amounts expended as a

result of such application.

‘‘(B) APPLICATION OF LIMITATION.—The Secretary may

obligate funds from the Fund for a year only if the Secretary determines (and the Chief Actuary of the Centers

for Medicare & Medicaid Services and the appropriate

budget officer certify) that there are available in the Fund

at the beginning of the year sufficient amounts to cover

all such obligations incurred during the year consistent

with subparagraph (A). The Secretary shall take such steps,

in connection with computing additional payment amounts

under paragraphs (3) and (4) and including limitations

on enrollment in MA regional plans receiving such payments, as will ensure that sufficient funds are available

to make such payments for the entire year. Funds shall

only be made available from the Fund pursuant to an

apportionment made in accordance with applicable procedures.

‘‘(6) SECRETARY REPORTS.—Not later than April 1 of each

year (beginning in 2008), the Secretary shall submit a report

to Congress and the Comptroller General of the United States

that includes—

‘‘(A) a detailed description of—

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2189

‘‘(i) the total amount expended as a result of the

application of this subsection in the previous year compared to the total amount that would have been

expended under this title in the year if this subsection

had not been enacted;

‘‘(ii) the projections of the total amount that will

be expended as a result of the application of this subsection in the year in which the report is submitted

compared to the total amount that would have been

expended under this title in the year if this subsection

had not been enacted;

‘‘(iii) amounts remaining within the funding limitation specified in paragraph (5); and

‘‘(iv) the steps that the Secretary will take under

paragraph (5)(B) to ensure that the application of this

subsection will not cause expenditures to exceed the

amount available in the Fund; and

‘‘(B) a certification from the Chief Actuary of the Centers for Medicare & Medicaid Services that the description

provided under subparagraph (A) is reasonable, accurate,

and based on generally accepted actuarial principles and

methodologies.

‘‘(7) BIENNIAL GAO REPORTS.—Not later than January 1

of 2009, 2011, 2013, and 2015, the Comptroller General of

the United States shall submit to the Secretary and Congress

a report on the application of additional payments under this

subsection. Each report shall include—

‘‘(A) an evaluation of—

‘‘(i) the quality of care provided to individuals

enrolled in MA regional plans for which additional

payments were made under this subsection;

‘‘(ii) the satisfaction of such individuals with benefits under such a plan;

‘‘(iii) the costs to the medicare program for payments made to such plans; and

‘‘(iv) any improvements in the delivery of health

care services under such a plan;

‘‘(B) a comparative analysis of the performance of MA

regional plans receiving payments under this subsection

with MA regional plans not receiving such payments; and

‘‘(C) recommendations for such legislation or administrative action as the Comptroller General determines to

be appropriate.

‘‘(f) COMPUTATION OF APPLICABLE MA REGION-SPECIFIC NONDRUG MONTHLY BENCHMARK AMOUNTS.—

‘‘(1) COMPUTATION FOR REGIONS.—For purposes of section

1853(j)(2) and this section, subject to subsection (e), the term

‘MA region-specific non-drug monthly benchmark amount’

means, with respect to an MA region for a month in a year,

the sum of the 2 components described in paragraph (2) for

the region and year. The Secretary shall compute such benchmark amount for each MA region before the beginning of each

annual, coordinated election period under section 1851(e)(3)(B)

for each year (beginning with 2006).

‘‘(2) 2 COMPONENTS.—For purposes of paragraph (1), the

2 components described in this paragraph for an MA region

and a year are the following:

Deadline.

117 STAT. 2190 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(A) STATUTORY COMPONENT.—The product of the following:

‘‘(i) STATUTORY REGION-SPECIFIC NON-DRUG

AMOUNT.—The statutory region-specific non-drug

amount (as defined in paragraph (3)) for the region

and year.

‘‘(ii) STATUTORY NATIONAL MARKET SHARE.—The

statutory national market share percentage, determined under paragraph (4) for the year.

‘‘(B) PLAN-BID COMPONENT.—The product of the following:

‘‘(i) WEIGHTED AVERAGE OF MA PLAN BIDS IN

REGION.—The weighted average of the plan bids for

the region and year (as determined under paragraph

(5)(A)).

‘‘(ii) NON-STATUTORY MARKET SHARE.—1 minus the

statutory national market share percentage, determined under paragraph (4) for the year.

‘‘(3) STATUTORY REGION-SPECIFIC NON-DRUG AMOUNT.—For

purposes of paragraph (2)(A)(i), the term ‘statutory region-specific non-drug amount’ means, for an MA region and year,

an amount equal the sum (for each MA local area within

the region) of the product of—

‘‘(A) MA area-specific non-drug monthly benchmark

amount under section 1853(j)(1)(A) for that area and year;

and

‘‘(B) the number of MA eligible individuals residing

in the local area, divided by the total number of MA eligible

individuals residing in the region.

‘‘(4) COMPUTATION OF STATUTORY MARKET SHARE PERCENTAGE.—

‘‘(A) IN GENERAL.—The Secretary shall determine for

each year a statutory national market share percentage

that is equal to the proportion of MA eligible individuals

nationally who were not enrolled in an MA plan during

the reference month.

‘‘(B) REFERENCE MONTH DEFINED.—For purposes of this

part, the term ‘reference month’ means, with respect to

a year, the most recent month during the previous year

for which the Secretary determines that data are available

to compute the percentage specified in subparagraph (A)

and other relevant percentages under this part.

‘‘(5) DETERMINATION OF WEIGHTED AVERAGE MA BIDS FOR

A REGION.—

‘‘(A) IN GENERAL.—For purposes of paragraph (2)(B)(i),

the weighted average of plan bids for an MA region and

a year is the sum, for MA regional plans described in

subparagraph (D) in the region and year, of the products

(for each such plan) of the following:

‘‘(i) MONTHLY MA STATUTORY NON-DRUG BID

AMOUNT.—The unadjusted MA statutory non-drug

monthly bid amount for the plan.

‘‘(ii) PLAN’S SHARE OF MA ENROLLMENT IN

REGION.—The factor described in subparagraph (B) for

the plan.

‘‘(B) PLAN’S SHARE OF MA ENROLLMENT IN REGION.—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2191

‘‘(i) IN GENERAL.—Subject to the succeeding provisions of this subparagraph, the factor described in

this subparagraph for a plan is equal to the number

of individuals described in subparagraph (C) for such

plan, divided by the total number of such individuals

for all MA regional plans described in subparagraph

(D) for that region and year.

‘‘(ii) SINGLE PLAN RULE.—In the case of an MA

region in which only a single MA regional plan is

being offered, the factor described in this subparagraph

shall be equal to 1.

‘‘(iii) EQUAL DIVISION AMONG MULTIPLE PLANS IN

YEAR IN WHICH PLANS ARE FIRST AVAILABLE.—In the

case of an MA region in the first year in which any

MA regional plan is offered, if more than one MA

regional plan is offered in such year, the factor

described in this subparagraph for a plan shall (as

specified by the Secretary) be equal to—

‘‘(I) 1 divided by the number of such plans

offered in such year; or

‘‘(II) a factor for such plan that is based upon

the organization’s estimate of projected enrollment,

as reviewed and adjusted by the Secretary to

ensure reasonableness and as is certified by the

Chief Actuary of the Centers for Medicare & Medicaid Services.

‘‘(C) COUNTING OF INDIVIDUALS.—For purposes of

subparagraph (B)(i), the Secretary shall count for each

MA regional plan described in subparagraph (D) for an

MA region and year, the number of individuals who reside

in the region and who were enrolled under such plan

under this part during the reference month.

‘‘(D) PLANS COVERED.—For an MA region and year,

an MA regional plan described in this subparagraph is

an MA regional plan that is offered in the region and

year and was offered in the region in the reference month.

‘‘(g) ELECTION OF UNIFORM COVERAGE DETERMINATION.—

Instead of applying section 1852(a)(2)(C) with respect to an MA

regional plan, the organization offering the plan may elect to have

a local coverage determination for the entire MA region be the

local coverage determination applied for any part of such region

(as selected by the organization).

‘‘(h) ASSURING NETWORK ADEQUACY.—

‘‘(1) IN GENERAL.—For purposes of enabling MA organizations that offer MA regional plans to meet applicable provider

access requirements under section 1852 with respect to such

plans, the Secretary may provide for payment under this section

to an essential hospital that provides inpatient hospital services

to enrollees in such a plan where the MA organization offering

the plan certifies to the Secretary that the organization was

unable to reach an agreement between the hospital and the

organization regarding provision of such services under the

plan. Such payment shall be available only if—

‘‘(A) the organization provides assurances satisfactory

to the Secretary that the organization will make payment

to the hospital for inpatient hospital services of an amount

that is not less than the amount that would be payable

Certification.

117 STAT. 2192 PUBLIC LAW 108–173—DEC. 8, 2003

to the hospital under section 1886 with respect to such

services; and

‘‘(B) with respect to specific inpatient hospital services

provided to an enrollee, the hospital demonstrates to the

satisfaction of the Secretary that the hospital’s costs of

such services exceed the payment amount described in

subparagraph (A).

‘‘(2) PAYMENT AMOUNTS.—The payment amount under this

subsection for inpatient hospital services provided by a subsection (d) hospital to an enrollee in an MA regional plan

shall be, subject to the limitation of funds under paragraph

(3), the amount (if any) by which—

‘‘(A) the amount of payment that would have been

paid for such services under this title if the enrollees were

covered under the original medicare fee-for-service program

option and the hospital were a critical access hospital;

exceeds

‘‘(B) the amount of payment made for such services

under paragraph (1)(A).

‘‘(3) AVAILABLE AMOUNTS.—There shall be available for payments under this subsection—

‘‘(A) in 2006, $25,000,000; and

‘‘(B) in each succeeding year the amount specified in

this paragraph for the preceding year increased by the

market basket percentage increase (as defined in section

1886(b)(3)(B)(iii)) for the fiscal year ending in such succeeding year.

Payments under this subsection shall be made from the Federal

Hospital Insurance Trust Fund.

‘‘(4) ESSENTIAL HOSPITAL.—In this subsection, the term

‘essential hospital’ means, with respect to an MA regional plan

offered by an MA organization, a subsection (d) hospital (as

defined in section 1886(d)) that the Secretary determines, based

upon an application filed by the organization with the Secretary, is necessary to meet the requirements referred to in

paragraph (1) for such plan.’’.

(d) CONFORMING AMENDMENTS.—

(1) RELATING TO MA REGIONS.—Section 1853(d) (42 U.S.C.

1395w–23(d)) is amended—

(A) by amending the heading to read as follows: ‘‘MA

PAYMENT AREA; MA LOCAL AREA; MA REGION DEFINED’’;

(B) by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively;

(C) by amending paragraph (1) to read as follows:

‘‘(1) MA PAYMENT AREA.—In this part, except as provided

in this subsection, the term ‘MA payment area’ means—

‘‘(A) with respect to an MA local plan, an MA local

area (as defined in paragraph (2)); and

‘‘(B) with respect to an MA regional plan, an MA

region (as established under section 1858(a)(2)).’’;

(D) by inserting after paragraph (1) the following new

paragraph:

‘‘(2) MA LOCAL AREA.—The term ‘MA local area’ means

a county or equivalent area specified by the Secretary.’’; and

(E) in paragraph (4), as so redesignated—

(i) in subparagraph (A), by inserting ‘‘for MA local

plans’’ after ‘‘paragraph (1)’’;

Definition.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2193

(ii) in subparagraph (A)(iii), by striking ‘‘paragraph

(1)’’ and inserting ‘‘paragraph (1)(A)’’; and

(iii) in subparagraph (B)—

(I) by inserting ‘‘with respect to MA local

plans’’ after ‘‘established under this section’’;

(II) by inserting ‘‘for such plans’’ after ‘‘payments under this section’’; and

(III) by inserting ‘‘for such plans’’ after ‘‘made

under this section’’.

(2) MA LOCAL AREA DEFINED.—Section 1859(c) (42 U.S.C.

1395w–29(c)) is amended by adding at the end the following:

‘‘(5) MA LOCAL AREA.—The term ‘MA local area’ is defined

in section 1853(d)(2).’’.

(3) APPLICATION OF SPECIAL BENEFIT RULES TO PPOS AND

REGIONAL PLANS.—Section 1852(a) (42 U.S.C. 1395w–22(a)) is

amended—

(A) in paragraph (1), by inserting ‘‘and except as provided in paragraph (6) for MA regional plans’’ after ‘‘MSA

plans’’; and

(B) by adding at the end the following new paragraph:

‘‘(6) SPECIAL BENEFIT RULES FOR REGIONAL PLANS.—In the

case of an MA plan that is an MA regional plan, benefits

under the plan shall include the benefits described in paragraphs (1) and (2) of section 1858(b).’’.

(4) APPLICATION OF CAPITATION RATES TO LOCAL AREAS.—

Section 1853(c)(1) (42 U.S.C. 1395w–23(c)(1)) is amended by

inserting ‘‘that is an MA local area’’ after ‘‘for a

Medicare+Choice payment area’’.

(5) NETWORK ADEQUACY HOSPITAL PAYMENTS.—Section

1851(i)(2) (42 U.S.C. 1395w–21(i)(2)) is amended by inserting

‘‘1858(h),’’ after ‘‘1857(f)(2),’’.

SEC. 222. COMPETITION PROGRAM BEGINNING IN 2006.

(a) SUBMISSION OF BIDDING AND REBATE INFORMATION BEGINNING IN 2006.—

(1) IN GENERAL.—Section 1854 (42 U.S.C. 1395w–24) is

amended—

(A) by amending paragraph (1) of subsection (a) to

read as follows:

‘‘(1) IN GENERAL.—

‘‘(A) INITIAL SUBMISSION.—Not later than the second

Monday in September of 2002, 2003, and 2004 (or the

first Monday in June of each subsequent year), each MA

organization shall submit to the Secretary, in a form and

manner specified by the Secretary and for each MA 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 the following:

‘‘(i) The information described in paragraph (2),

(3), (4), or (6)(A) for the type of plan and year involved.

‘‘(ii) The plan type for each plan.

‘‘(iii) The enrollment capacity (if any) in relation

to the plan and area.

‘‘(B) BENEFICIARY REBATE INFORMATION.—In the case

of a plan required to provide a monthly rebate under subsection (b)(1)(C) for a year, the MA organization offering

the plan shall submit to the Secretary, in such form and

Deadline.

42 USC

1395w–28.

117 STAT. 2194 PUBLIC LAW 108–173—DEC. 8, 2003

manner and at such time as the Secretary specifies,

information on—

‘‘(i) the manner in which such rebate will be provided under clause (ii) of such subsection; and

‘‘(ii) the MA monthly prescription drug beneficiary

premium (if any) and the MA monthly supplemental

beneficiary premium (if any).

‘‘(C) PAPERWORK REDUCTION FOR OFFERING OF MA

REGIONAL PLANS NATIONALLY OR IN MULTI-REGION AREAS.—

The Secretary shall establish requirements for information

submission under this subsection in a manner that promotes the offering of MA regional plans in more than

one region (including all regions) through the filing of

consolidated information.’’; and

(B) by adding at the end of subsection (a) the following:

‘‘(6) SUBMISSION OF BID AMOUNTS BY MA ORGANIZATIONS

BEGINNING IN 2006.—

‘‘(A) INFORMATION TO BE SUBMITTED.—For an MA plan

(other than an MSA plan) for a plan year beginning on

or after January 1, 2006, the information described in

this subparagraph is as follows:

‘‘(i) The monthly aggregate bid amount for the

provision of all items and services under the plan,

which amount shall be based on average revenue

requirements (as used for purposes of section 1302(8)

of the Public Health Service Act) in the payment area

for an enrollee with a national average risk profile

for the factors described in section 1853(a)(1)(C) (as

specified by the Secretary).

‘‘(ii) The proportions of such bid amount that are

attributable to—

‘‘(I) the provision of benefits under the original

medicare fee-for-service program option (as defined

in section 1852(a)(1)(B));

‘‘(II) the provision of basic prescription drug

coverage; and

‘‘(III) the provision of supplemental health care

benefits.

‘‘(iii) The actuarial basis for determining the

amount under clause (i) and the proportions described

in clause (ii) and such additional information as the

Secretary may require to verify such actuarial bases

and the projected number of enrollees in each MA

local area.

‘‘(iv) A description of deductibles, coinsurance, and

copayments applicable under the plan and the actuarial value of such deductibles, coinsurance, and copayments, described in subsection (e)(4)(A).

‘‘(v) With respect to qualified prescription drug

coverage, the information required under section

1860D–4, as incorporated under section 1860D–

11(b)(2), with respect to such coverage.

In the case of a specialized MA plan for special needs

individuals, the information described in this subparagraph

is such information as the Secretary shall specify.

‘‘(B) ACCEPTANCE AND NEGOTIATION OF BID AMOUNTS.—

Guidelines.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2195

‘‘(i) AUTHORITY.—Subject to clauses (iii) and (iv),

the Secretary has the authority to negotiate regarding

monthly bid amounts submitted under subparagraph

(A) (and the proportions described in subparagraph

(A)(ii)), including supplemental benefits provided under

subsection (b)(1)(C)(ii)(I) and in exercising such

authority the Secretary shall have authority similar

to the authority of the Director of the Office of Personnel Management with respect to health benefits

plans under chapter 89 of title 5, United States Code.

‘‘(ii) APPLICATION OF FEHBP STANDARD.—Subject to

clause (iv), the Secretary may only accept such a bid

amount or proportion if the Secretary determines that

such amount and proportions are supported by the

actuarial bases provided under subparagraph (A) and

reasonably and equitably reflects the revenue requirements (as used for purposes of section 1302(8) of the

Public Health Service Act) of benefits provided under

that plan.

‘‘(iii) NONINTERFERENCE.—In order to promote

competition under this part and part D and in carrying

out such parts, the Secretary may not require any

MA organization to contract with a particular hospital,

physician, or other entity or individual to furnish items

and services under this title or require a particular

price structure for payment under such a contract to

the extent consistent with the Secretary’s authority

under this part.

‘‘(iv) EXCEPTION.—In the case of a plan described

in section 1851(a)(2)(C), the provisions of clauses (i)

and (ii) shall not apply and the provisions of paragraph

(5)(B), prohibiting the review, approval, or disapproval

of amounts described in such paragraph, shall apply

to the negotiation and rejection of the monthly bid

amounts and the proportions referred to in subparagraph (A).’’.

(2) DEFINITION OF BENEFITS UNDER THE ORIGINAL MEDICARE

FEE-FOR-SERVICE PROGRAM OPTION.—Section 1852(a)(1) (42

U.S.C. 1395w–22(a)(1)) is amended—

(A) by striking ‘‘IN GENERAL.—Except’’ and inserting

‘‘REQUIREMENT.—

‘‘(A) IN GENERAL.—Except’’; and

(B) by striking ‘‘title XI’’ and all that follows and

inserting the following: ‘‘title XI, benefits under the original

medicare fee-for-service program option (and, for plan years

before 2006, additional benefits required under section

1854(f)(1)(A)).

‘‘(B) BENEFITS UNDER THE ORIGINAL MEDICARE FEEFOR-SERVICE PROGRAM OPTION DEFINED.—

‘‘(i) IN GENERAL.—For purposes of this part, the

term ‘benefits under the original medicare fee-forservice program option’ means those items and services

(other than hospice care) for which benefits are available under parts A and B to individuals entitled to

benefits under part A and enrolled under part B, with

cost-sharing for those services as required under parts

117 STAT. 2196 PUBLIC LAW 108–173—DEC. 8, 2003

A and B or an actuarially equivalent level of costsharing as determined in this part.

‘‘(ii) SPECIAL RULE FOR REGIONAL PLANS.—In the

case of an MA regional plan in determining an actuarially equivalent level of cost-sharing with respect to

benefits under the original medicare fee-for-service program option, there shall only be taken into account,

with respect to the application of section 1858(b)(2),

such expenses only with respect to subparagraph (A)

of such section.’’.

(3) CONFORMING AMENDMENT RELATING TO SUPPLEMENTAL

HEALTH BENEFITS.—Section 1852(a)(3) (42 U.S.C. 1395w–

22(a)(3)) is amended by adding at the end the following: ‘‘Such

benefits may include reductions in cost-sharing below the actuarial value specified in section 1854(e)(4)(B).’’.

(b) PROVIDING FOR BENEFICIARY SAVINGS FOR CERTAIN PLANS.—

(1) BENEFICIARY REBATES.—Section 1854(b)(1) (42 U.S.C.

1395w–24(b)(1)) is amended—

(A) in subparagraph (A), by striking ‘‘The monthly

amount’’ and inserting ‘‘Subject to the rebate under

subparagraph (C), the monthly amount (if any)’’; and

(B) by adding at the end the following new subparagraph:

‘‘(C) BENEFICIARY REBATE RULE.—

‘‘(i) REQUIREMENT.—The MA 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)(C) or (4)(C), as applicable to the plan

and year involved.

‘‘(ii) FORM OF REBATE.—A rebate required under

this subparagraph shall be provided through the

application of the amount of the rebate toward one

or more of the following:

‘‘(I) PROVISION OF SUPPLEMENTAL HEALTH CARE

BENEFITS AND PAYMENT FOR PREMIUM FOR SUPPLEMENTAL BENEFITS.—The provision of supplemental

health care benefits described in section 1852(a)(3)

in a manner specified under the plan, which may

include the reduction of cost-sharing otherwise

applicable as well as additional health care benefits which are not benefits under the original medicare fee-for-service program option, or crediting

toward an MA monthly supplemental beneficiary

premium (if any).

‘‘(II) PAYMENT FOR PREMIUM FOR PRESCRIPTION

DRUG COVERAGE.—Crediting toward the MA

monthly prescription drug beneficiary premium.

‘‘(III) PAYMENT TOWARD PART B PREMIUM.—

Crediting toward the premium imposed under part

B (determined without regard to the application

of subsections (b), (h), and (i) of section 1839).

‘‘(iii) DISCLOSURE RELATING TO REBATES.—The plan

shall disclose to the Secretary information on the form

and amount of the rebate provided under this subparagraph or the actuarial value in the case of supplemental health care benefits.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2197

‘‘(iv) APPLICATION OF PART B PREMIUM REDUCTION.—Insofar as an MA organization elects to provide

a rebate under this subparagraph under a plan as

a credit toward the part B premium under clause

(ii)(III), the Secretary shall apply such credit to reduce

the premium under section 1839 of each enrollee in

such plan as provided in section 1840(i).’’.

(2) REVISION OF PREMIUM TERMINOLOGY.—Section

1854(b)(2) (42 U.S.C. 1395w–24(b)(2)) is amended—

(A) in the heading, by inserting ‘‘AND BID’’ after ‘‘PREMIUM’’;

(B) by redesignating subparagraph (C) as subparagraph (D);

(C) by striking subparagraphs (A) and (B) and inserting

the following:

‘‘(A) MA MONTHLY BASIC BENEFICIARY PREMIUM.—The

term ‘MA monthly basic beneficiary premium’ means, with

respect to an MA plan—

‘‘(i) described in section 1853(a)(1)(B)(i) (relating

to plans providing rebates), zero; or

‘‘(ii) described in section 1853(a)(1)(B)(ii), the

amount (if any) by which the unadjusted MA statutory

non-drug monthly bid amount (as defined in subparagraph (E)) exceeds the applicable unadjusted MA areaspecific non-drug monthly benchmark amount (as

defined in section 1853(j)).

‘‘(B) MA MONTHLY PRESCRIPTION DRUG BENEFICIARY

PREMIUM.—The term ‘MA monthly prescription drug beneficiary premium’ means, with respect to an MA plan, the

base beneficiary premium (as determined under section

1860D–13(a)(2) and as adjusted under section 1860D–

13(a)(1)(B)), less the amount of rebate credited toward such

amount under section 1854(b)(1)(C)(ii)(II).

‘‘(C) MA MONTHLY SUPPLEMENTAL BENEFICIARY PREMIUM.—The term ‘MA monthly supplemental beneficiary

premium’ means, with respect to an MA 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 clause (ii)(III) of such subsection to the provision of supplemental health care benefits, less the amount

of rebate credited toward such portion under section

1854(b)(1)(C)(ii)(I).’’; and

(D) by adding at the end the following:

‘‘(E) UNADJUSTED MA STATUTORY NON-DRUG MONTHLY

BID AMOUNT.—The term ‘unadjusted MA statutory nondrug monthly bid amount’ means the portion of the bid

amount submitted under clause (i) of subsection (a)(6)(A)

for the year that is attributable under clause (ii)(I) of

such subsection to the provision of benefits under the

original medicare fee-for-service program option (as defined

in section 1852(a)(1)(B)).’’.

(3) COMPUTATION OF SAVINGS.—Section 1854(b) (42 U.S.C.

1395w–24(b)) is further amended by adding at the end the

following new paragraphs:

‘‘(3) COMPUTATION OF AVERAGE PER CAPITA MONTHLY

SAVINGS FOR LOCAL PLANS.—For purposes of paragraph (1)(C)(i),

117 STAT. 2198 PUBLIC LAW 108–173—DEC. 8, 2003

the average per capita monthly savings referred to in such

paragraph for an MA local plan and year is computed as follows:

‘‘(A) DETERMINATION OF STATEWIDE AVERAGE RISK

ADJUSTMENT FOR LOCAL PLANS.— ‘‘(i) IN GENERAL.—Subject to clause (iii), the Secretary shall determine, at the same time rates are

promulgated under section 1853(b)(1) (beginning with

2006) for each State, the average of the risk adjustment

factors to be applied under section 1853(a)(1)(C) to

payment for enrollees in that State for MA local plans.

‘‘(ii) TREATMENT OF STATES FOR FIRST YEAR IN

WHICH LOCAL PLAN OFFERED.—In the case of a State

in which no MA local plan was offered in the previous

year, the Secretary shall estimate such average. In

making such estimate, the Secretary may use average

risk adjustment factors applied to comparable States

or applied on a national basis.

‘‘(iii) AUTHORITY TO DETERMINE RISK ADJUSTMENT

FOR AREAS OTHER THAN STATES.—The Secretary may

provide for the determination and application of risk

adjustment factors under this subparagraph on the

basis of areas other than States or on a plan-specific

basis.

‘‘(B) DETERMINATION OF RISK ADJUSTED BENCHMARK

AND RISK-ADJUSTED BID FOR LOCAL PLANS.—For each MA

plan offered in a local area in a State, the Secretary shall—

‘‘(i) adjust the applicable MA area-specific nondrug monthly benchmark amount (as defined in section

1853(j)(1)) for the area by the average risk adjustment

factor computed under subparagraph (A); and

‘‘(ii) adjust the unadjusted MA statutory 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 for an MA local plan 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).

‘‘(4) COMPUTATION OF AVERAGE PER CAPITA MONTHLY

SAVINGS FOR REGIONAL PLANS.—For purposes of paragraph

(1)(C)(i), the average per capita monthly savings referred to

in such paragraph for an MA regional plan and year is computed as follows:

‘‘(A) DETERMINATION OF REGIONWIDE AVERAGE RISK

ADJUSTMENT FOR REGIONAL PLANS.—

‘‘(i) IN GENERAL.—The Secretary shall determine,

at the same time rates are promulgated under section

1853(b)(1) (beginning with 2006) for each MA region

the average of the risk adjustment factors to be applied

under section 1853(a)(1)(C) to payment for enrollees

in that region for MA regional plans.

‘‘(ii) TREATMENT OF REGIONS FOR FIRST YEAR IN

WHICH REGIONAL PLAN OFFERED.—In the case of an

MA region in which no MA regional plan was offered

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2199

in the previous year, the Secretary shall estimate such

average. In making such estimate, the Secretary may

use average risk adjustment factors applied to comparable regions or applied on a national basis.

‘‘(iii) AUTHORITY TO DETERMINE RISK ADJUSTMENT

FOR AREAS OTHER THAN REGIONS.—The Secretary may

provide for the determination and application of risk

adjustment factors under this subparagraph on the

basis of areas other than MA regions or on a planspecific basis.

‘‘(B) DETERMINATION OF RISK-ADJUSTED BENCHMARK

AND RISK-ADJUSTED BID FOR REGIONAL PLANS.—For each

MA regional plan offered in a region, the Secretary shall—

‘‘(i) adjust the applicable MA area-specific nondrug monthly benchmark amount (as defined in section

1853(j)(2)) for the region by the average risk adjustment factor computed under subparagraph (A); and

‘‘(ii) adjust the unadjusted MA statutory 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 for an MA regional plan

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).’’.

(c) COLLECTION OF PREMIUMS.—Section 1854(d) (42 U.S.C.

1395w–24(d)) is amended—

(1) by striking ‘‘PREMIUMS.—Each’’ and inserting ‘‘PREMIUMS.—

‘‘(1) IN GENERAL.—Each’’; and

(2) by adding at the end the following new paragraphs:

‘‘(2) BENEFICIARY’S OPTION OF PAYMENT THROUGH WITHHOLDING FROM SOCIAL SECURITY PAYMENT OR USE OF ELECTRONIC FUNDS TRANSFER MECHANISM.—In accordance with regulations, an MA organization shall permit each enrollee, at the

enrollee’s option, to make payment of premiums (if any) under

this part to the organization through—

‘‘(A) withholding from benefit payments in the manner

provided under section 1840 with respect to monthly premiums under section 1839;

‘‘(B) an electronic funds transfer mechanism (such as

automatic charges of an account at a financial institution

or a credit or debit card account); or

‘‘(C) such other means as the Secretary may specify,

including payment by an employer or under employmentbased retiree health coverage (as defined in section 1860D–

22(c)(1)) on behalf of an employee or former employee (or

dependent).

All premium payments that are withheld under subparagraph

(A) shall be credited to the appropriate Trust Fund (or Account

thereof), as specified by the Secretary, under this title and

shall be paid to the MA organization involved. No charge may

be imposed under an MA plan with respect to the election

117 STAT. 2200 PUBLIC LAW 108–173—DEC. 8, 2003

of the payment option described in subparagraph (A). The Secretary shall consult with the Commissioner of Social Security

and the Secretary of the Treasury regarding methods for allocating premiums withheld under subparagraph (A) among the

appropriate Trust Funds and Account.

‘‘(3) INFORMATION NECESSARY FOR COLLECTION.—In order

to carry out paragraph (2)(A) with respect to an enrollee who

has elected such paragraph to apply, the Secretary shall

transmit to the Commissioner of Social Security—

‘‘(A) by the beginning of each year, the name, social

security account number, consolidated monthly beneficiary

premium described in paragraph (4) owed by such enrollee

for each month during the year, and other information

determined appropriate by the Secretary, in consultation

with the Commissioner of Social Security; and

‘‘(B) periodically throughout the year, information to

update the information previously transmitted under this

paragraph for the year.

‘‘(4) CONSOLIDATED MONTHLY BENEFICIARY PREMIUM.—In

the case of an enrollee in an MA plan, the Secretary shall

provide a mechanism for the consolidation of—

‘‘(A) the MA monthly basic beneficiary premium (if

any);

‘‘(B) the MA monthly supplemental beneficiary premium (if any); and

‘‘(C) the MA monthly prescription drug beneficiary premium (if any).’’.

(d) COMPUTATION OF MA 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 BENCHMARK AMOUNTS.—For purposes of

this part, the term ‘MA area-specific non-drug monthly benchmark

amount’ means for a month in a year—

‘‘(1) with respect to—

‘‘(A) a service area that is entirely within an MA local

area, an amount equal to 1⁄12 of the annual MA capitation

rate under section 1853(c)(1) for the area for the year,

adjusted as appropriate for the purpose of risk adjustment;

or

‘‘(B) a service area that includes more than one MA

local area, an amount equal to the average of the amounts

described in subparagraph (A) for each such local MA area,

weighted by the projected number of enrollees in the plan

residing in the respective local MA areas (as used by the

plan for purposes of the bid and disclosed to the Secretary

under section 1854(a)(6)(A)(iii)), adjusted as appropriate

for the purpose of risk adjustment; or

‘‘(2) with respect to an MA region for a month in a year,

the MA region-specific non-drug monthly benchmark amount,

as defined in section 1858(f) for the region for the year.’’.

(e) PAYMENT OF PLANS BASED ON BID AMOUNTS.—

(1) IN GENERAL.—Section 1853(a)(1) (42 U.S.C. 1395w–

23(a)(1)) (42 U.S.C. 1395w–23) is amended—

(A) by redesignating subparagraph (B) as subparagraph (H); and

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2201

(B) in subparagraph (A), by striking ‘‘in an amount’’

and all that follows and inserting the following: ‘‘in an

amount determined as follows:

‘‘(i) PAYMENT BEFORE 2006.—For years before 2006,

the payment amount shall be equal to 1⁄12 of the annual

MA capitation rate (as calculated under subsection

(c)(1)) with respect to that individual for that area,

adjusted under subparagraph (C) and reduced by the

amount of any reduction elected under section

1854(f )(1)(E).

‘‘(ii) PAYMENT FOR ORIGINAL FEE-FOR-SERVICE

BENEFITS BEGINNING WITH 2006.—For years beginning

with 2006, the amount specified in subparagraph (B).

‘‘(B) PAYMENT AMOUNT FOR ORIGINAL FEE-FOR-SERVICE

BENEFITS BEGINNING WITH 2006.—

‘‘(i) PAYMENT OF BID FOR 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 1854(b)(4)(C), as the case may

be, the amount specified in this subparagraph is equal

to the unadjusted MA statutory non-drug monthly bid

amount, adjusted under subparagraph (C) and (if

applicable) under subparagraphs (F) and (G), plus the

amount (if any) of any rebate under subparagraph

(E).

‘‘(ii) PAYMENT OF BENCHMARK FOR 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 1854(b)(4)(C), as

the case may be, the amount specified in this subparagraph is equal to the MA area-specific non-drug

monthly benchmark amount, adjusted under subparagraph (C) and (if applicable) under subparagraphs (F)

and (G).

‘‘(iii) PAYMENT OF BENCHMARK FOR MSA PLANS.—

Notwithstanding clauses (i) and (ii), in the case of

an MSA plan, the amount specified in this subparagraph is equal to the MA area-specific non-drug

monthly benchmark amount, adjusted under subparagraph (C).

‘‘(C) DEMOGRAPHIC ADJUSTMENT, INCLUDING ADJUSTMENT FOR HEALTH STATUS.—The Secretary shall adjust the

payment amount under subparagraph (A)(i) and the

amount specified under subparagraph (B)(i), (B)(ii), and

(B)(iii) for such risk factors as age, disability status, gender,

institutional status, and such other factors as the Secretary

determines to be appropriate, including adjustment for

health status under paragraph (3), so as to ensure actuarial

equivalence. The Secretary may add to, modify, or substitute for such adjustment factors if such changes will

improve the determination of actuarial equivalence.

‘‘(D) SEPARATE PAYMENT FOR FEDERAL DRUG SUBSIDIES.—In the case of an enrollee in an MA–PD plan,

the MA organization offering such plan also receives—

‘‘(i) subsidies under section 1860D–15 (other than

under subsection (g)); and

117 STAT. 2202 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(ii) reimbursement for premium and cost-sharing

reductions for low-income individuals under section

1860D–14(c)(1)(C).

‘‘(E) PAYMENT OF REBATE FOR 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 1854(b)(4)(C), as the case may be, the

amount specified in this subparagraph is the amount of

the monthly rebate computed under section 1854(b)(1)(C)(i)

for that plan and year (as reduced by the amount of any

credit provided under section 1854(b)(1)(C)(iv)).

‘‘(F) ADJUSTMENT FOR INTRA-AREA VARIATIONS.— ‘‘(i) INTRA-REGIONAL VARIATIONS.—In the case of

payment with respect to an MA regional plan for an

MA region, the Secretary shall also adjust the amounts

specified under subparagraphs (B)(i) and (B)(ii) in a

manner to take into account variations in MA local

payment rates under this part among the different

MA local areas included in such region.

‘‘(ii) INTRA-SERVICE AREA VARIATIONS.—In the case

of payment with respect to an MA local plan for a

service area that covers more than one MA local area,

the Secretary shall also adjust the amounts specified

under subparagraphs (B)(i) and (B)(ii) in a manner

to take into account variations in MA local payment

rates under this part among the different MA local

areas included in such service area.

‘‘(G) ADJUSTMENT RELATING TO RISK ADJUSTMENT.—

The Secretary shall adjust payments with respect to MA

plans as necessary to ensure that—

‘‘(i) the sum of—

‘‘(I) the monthly payment made under

subparagraph (A)(ii); and

‘‘(II) the MA monthly basic beneficiary premium under section 1854(b)(2)(A); equals

‘‘(ii) the unadjusted MA statutory non-drug

monthly bid amount, adjusted in the manner described

in subparagraph (C) and, for an MA regional plan,

subparagraph (F).’’.

(f) CONFORMING CHANGES TO ANNUAL ANNOUNCEMENT

PROCESS.—Section 1853(b) (42 U.S.C. 1395w–23(b)(1)) is amended—

(1) by amending paragraph (1) to read as follows:

‘‘(1) ANNUAL ANNOUNCEMENTS.—

‘‘(A) FOR 2005.—The Secretary shall determine, and

shall announce (in a manner intended to provide notice

to interested parties), not later than the second Monday

in May of 2004, with respect to each MA payment area,

the following:

‘‘(i) MA CAPITATION RATES.—The annual MA capitation rate for each MA payment area for 2005.

‘‘(ii) ADJUSTMENT FACTORS.—The risk and other

factors to be used in adjusting such rates under subsection (a)(1)(C) for payments for months in 2005.

‘‘(B) FOR 2006 AND SUBSEQUENT YEARS.—For a year

after 2005—

‘‘(i) INITIAL ANNOUNCEMENT.—The Secretary shall

determine, and shall announce (in a manner intended

Deadline.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2203

to provide notice to interested parties), not later than

the first Monday in April before the calendar year

concerned, with respect to each MA payment area,

the following:

‘‘(I) MA CAPITATION RATES; MA LOCAL AREA

BENCHMARK.—The annual MA capitation rate for

each MA payment area for the year.

‘‘(II) ADJUSTMENT FACTORS.—The risk and

other factors to be used in adjusting such rates

under subsection (a)(1)(C) for payments for months

in such year.

‘‘(ii) REGIONAL BENCHMARK ANNOUNCEMENT.—The

Secretary shall determine, and shall announce (in a

manner intended to provide notice to interested parties), on a timely basis before the calendar year concerned, with respect to each MA region and each MA

regional plan for which a bid was submitted under

section 1854, the MA region-specific non-drug monthly

benchmark amount for that region for the year

involved.’’; and

(2) in paragraph (3), by striking ‘‘in the announcement’’

and all that follows and inserting ‘‘in such announcement.’’.

(g) OTHER AMENDMENTS RELATING TO PREMIUMS AND BID

AMOUNTS.—

(1) IN GENERAL.—Section 1854 (42 U.S.C. 1395w–24) is

amended—

(A) by amending the section heading to read as follows:

‘‘PREMIUMS AND BID AMOUNTS’’;

(B) in the heading of subsection (a), by inserting ‘‘,

BID AMOUNTS,’’ after ‘‘PREMIUMS’’;

(C) in subsection (a)(2)—

(i) by inserting ‘‘BEFORE 2006’’ after ‘‘FOR COORDI- NATED CARE PLANS’’; and

(ii) by inserting ‘‘for a year before 2006’’ after

‘‘section 1851(a)(2)(A)’’;

(D) in subsection (a)(3), by striking ‘‘described’’ and

inserting ‘‘for any year’’;

(E) in subsection (a)(4)—

(i) by inserting ‘‘BEFORE 2006’’ after ‘‘FOR PRIVATE

FEE-FOR-SERVICE PLANS’’; and

(ii) by inserting ‘‘for a year before 2006’’ after

‘‘section 1852(a)(1)(A)’’;

(F) in subsection (a)(5)(A), by inserting ‘‘paragraphs

(2) and (4) of’’ after ‘‘filed under’’;

(G) in subsection (a)(5)(B), by inserting after ‘‘paragraph (3) or’’ the following: ‘‘, in the case of an MA private

fee-for-service plan,’’; and

(H) in subsection (b)(1)(A) by striking ‘‘and’’ and

inserting a comma and by inserting before the period at

the end the following: ‘‘, and, if the plan provides qualified

prescription drug coverage, the MA monthly prescription

drug beneficiary premium’’.

(2) UNIFORMITY.—Section 1854(c) (42 U.S.C. 1395w–24(c))

is amended to read as follows:

‘‘(c) UNIFORM PREMIUM AND BID AMOUNTS.—Except as permitted under section 1857(i), the MA monthly bid amount submitted

117 STAT. 2204 PUBLIC LAW 108–173—DEC. 8, 2003

under subsection (a)(6), the amounts of the MA monthly basic,

prescription drug, and supplemental beneficiary premiums, and

the MA monthly MSA premium charged under subsection (b) of

an MA organization under this part may not vary among individuals

enrolled in the plan.’’.

(3) PREMIUMS.—Section 1854(d)(1) (42 U.S.C. 1395w–

24(d)(1)), as amended by subsection (c)(1), is amended by

inserting ‘‘, prescription drug,’’ after ‘‘basic’’.

(4) LIMITATION ON ENROLLEE LIABILITY.—Section 1854(e)

(42 U.S.C. 1395w–24(e)) is amended—

(A) in paragraph (1), by striking ‘‘.—In’’ and inserting

‘‘BEFORE 2006.—For periods before 2006, in’’;

(B) in paragraph (2), by striking ‘‘.—If’’ and insert

‘‘BEFORE 2006.—For periods before 2006, if’’;

(C) in paragraph (3), by striking ‘‘or (2)’’ and inserting

‘‘, (2), or (4)’’; and

(D) in paragraph (4)—

(i) by inserting ‘‘AND FOR BASIC BENEFITS BEGINNING IN 2006’’ after ‘‘PLANS’’;

(ii) in the matter before subparagraph (A), by

inserting ‘‘and for periods beginning with 2006, with

respect to an MA plan described in section

1851(a)(2)(A)’’ after ‘‘MSA plan)’’;

(iii) in subparagraph (A), by striking ‘‘required

benefits described in section 1852(a)(1)’’ and inserting

‘‘benefits under the original medicare fee-for-service

program option’’; and

(iv) in subparagraph (B), by inserting ‘‘with respect

to such benefits’’ after ‘‘would be applicable’’.

(5) MODIFICATION OF ACR PROCESS.—Section 1854(f) (42

U.S.C. 1395w–24(f)) is amended—

(A) in the heading, by inserting ‘‘BEFORE 2006’’ after

‘‘ADDITIONAL BENEFITS’’; and

(B) in paragraph (1)(A), by striking ‘‘Each’’ and

inserting ‘‘For years before 2006, each’’.

(h) PLAN INCENTIVES.—Section 1852(j)(4) (42 U.S.C. 1395w–

22(j)(4)) is amended—

(1) by inserting ‘‘the organization provides assurances satisfactory to the Secretary that’’ after ‘‘unless’’;

(2) in clause (ii)—

(A) by striking ‘‘the organization—’’ and all that follows

through ‘‘(I) provides’’ and inserting ‘‘the organization provides’’;

(B) by striking ‘‘, and’’ and inserting a period; and

(C) by striking subclause (II); and

(3) by striking clause (iii).

(i) CONTINUATION OF TREATMENT OF ENROLLEES WITH ENDSTAGE RENAL DISEASE.—Section 1853(a)(1)(H), as redesignated

under subsection (d)(1)(A), is amended—

(1) by amending the second sentence to read as follows:

‘‘Such rates of payment shall be actuarially equivalent to rates

that would have been paid with respect to other enrollees

in the MA payment area (or such other area as specified by

the Secretary) under the provisions of this section as in effect

before the date of the enactment of the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003.’’; and

42 USC

1395w–23.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2205

(2) by adding at the end the following new sentence: ‘‘The

Secretary may apply the competitive bidding methodology provided for in this section, with appropriate adjustments to

account for the risk adjustment methodology applied to end

stage renal disease payments.’’.

(j) FACILITATION OF EMPLOYER SPONSORSHIP OF MA PLANS.— Section 1857(i) (42 U.S.C. 1395w–27(i)) is amended—

(1) by designating the matter following the heading as

a paragraph (1) with the heading ‘‘CONTRACTS WITH MA

ORGANIZATIONS.—’’ and appropriate indentation; and

(2) by adding at the end the following new paragraph:

‘‘(2) EMPLOYER SPONSORED MA PLANS.—To facilitate the

offering of MA plans by employers, labor organizations, or

the trustees of a fund established by one or more employers

or labor organizations (or combination thereof ) to furnish benefits to the entity’s employees, former employees (or combination

thereof ) or members or former members (or combination

thereof ) of the labor organizations, the Secretary may waive

or modify requirements that hinder the design of, the offering

of, or the enrollment in such MA plans. Notwithstanding section

1851(g), an MA plan described in the previous sentence may

restrict the enrollment of individuals under this part to individuals who are beneficiaries and participants in such plan.’’.

(k) EXPANSION OF MEDICARE BENEFICIARY EDUCATION AND

INFORMATION CAMPAIGN.—Section 1857(e)(2) (42 U.S.C. 1395w–

27(e)(2)) is amended—

(1) in subparagraph (A) by inserting ‘‘and a PDP sponsor

under part D’’ after ‘‘organization’’;

(2) in subparagraph (B)—

(A) by inserting ‘‘and each PDP sponsor with a contract

under part D’’ after ‘‘contract under this part’’;

(B) by inserting ‘‘or sponsor’s’’ after ‘‘organization’s’’;

and

(C) by inserting ‘‘, section 1860D–1(c),’’ after ‘‘information)’’;

(3) in subparagraph (C)—

(A) by inserting ‘‘and ending with fiscal year 2005’’

after ‘‘beginning with fiscal year 2001’’;

(B) by inserting ‘‘and for each fiscal year beginning

with fiscal year 2006 an amount equal to $200,000,000,’’

after ‘‘$100,000,000,’’; and

(C) by inserting ‘‘and section 1860D–12(b)(3)(D)’’ after

‘‘under this paragraph’’;

(4) in subparagraph (D)—

(A) in clause (i) by inserting ‘‘and section 1860D–1(c)’’

after ‘‘section 1851’’;

(B) in clause (ii)(III), by striking ‘‘and’’ at the end

of subclause (III);

(C) in clause (ii)(IV), by striking ‘‘each succeeding fiscal

year.’’ and inserting ‘‘each succeeding fiscal year before

fiscal year 2006; and’’; and

(D) in clause (ii), by adding at the end the following

new subclause:

‘‘(V) the applicable portion (as defined in subparagraph (F)) of $200,000,000 in fiscal year 2006 and

each succeeding fiscal year.’’; and

(5) by adding at the end the following new subparagraph:

117 STAT. 2206 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(F) APPLICABLE PORTION DEFINED.—In this paragraph,

the term ‘applicable portion’ means, for a fiscal year—

‘‘(i) with respect to MA organizations, the Secretary’s estimate of the total proportion of expenditures

under this title that are attributable to expenditures

made under this part (including payments under part

D that are made to such organizations); or

‘‘(ii) with respect to PDP sponsors, the Secretary’s

estimate of the total proportion of expenditures under

this title that are attributable to expenditures made

to such sponsors under part D.’’.

(l) 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 Secretary shall not

approve a plan of an organization if the Secretary determines

that the design of the plan and its benefits are likely to substantially discourage enrollment by certain MA eligible individuals

with the organization.’’.

(2) RELATING TO REBATES.—

(A) Section 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is

amended by striking ‘‘80 percent of any reduction elected

under section 1854(f )(1)(E)’’ and inserting ‘‘any credit provided under section 1854(b)(1)(C)(ii)(III)’’.

(B) The first sentence of section 1840(i) (42 U.S.C.

1395s(i)) is amended by inserting ‘‘and to reflect any credit

provided under section 1854(b)(1)(C)(iv)’’ after ‘‘section

1854(f )(1)(E)’’.

(C) Section 1844(c) (42 U.S.C. 1395w(c)) is amended

by inserting ‘‘or any credits provided under section

1854(b)(1)(C)(iv)’’ after ‘‘section 1854(f )(1)(E)’’.

(3) OTHER CONFORMING AND TECHNICAL AMENDMENTS.—

(A) Section 1851(b)(1) (42 U.S.C. 1395w–21(b)(1)) is

amended—

(i) in subparagraph (B), by striking ‘‘a plan’’ and

inserting ‘‘an MA local plan’’;

(ii) in subparagraph (B), by striking ‘‘basic benefits

described in section 1852(a)(1)(A)’’ and inserting ‘‘benefits under the original medicare fee-for-service program

option’’; and

(iii) in subparagraph (C), by striking ‘‘in a

Medicare+Choice plan’’ and inserting ‘‘in an MA local

plan’’.

(B) Section 1851(d) (42 U.S.C. 1395w–21(d)) is

amended—

(i) in paragraph (3), by adding at the end the

following new subparagraph:

‘‘(F) CATASTROPHIC COVERAGE AND SINGLE DEDUCTIBLE.—In the case of an MA regional plan, a description

of the catastrophic coverage and single deductible

applicable under the plan.’’;

(ii) in paragraph (4)(A)(ii), by inserting ‘‘, including

information on the single deductible (if applicable)

under section 1858(b)(1)’’ after ‘‘cost sharing’’;

(iii) in paragraph (4)(B)(i), by striking

‘‘Medicare+Choice monthly basic’’ and all that follows

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2207

and inserting ‘‘monthly amount of the premium

charged to an individual.’’; and

(iv) by amending subparagraph (E) of subsection

(d)(4) to read as follows:

‘‘(E) SUPPLEMENTAL BENEFITS.—Supplemental health

care benefits, including any reductions in cost-sharing

under section 1852(a)(3) and the terms and conditions

(including premiums) for such benefits.’’.

(C) Section 1857(d)(1) (42 U.S.C. 1395w–27(d)(1)) is

amended by striking ‘‘, costs, and computation of the

adjusted community rate’’ and inserting ‘‘and costs,

including allowable costs under section 1858(c)’’.

(D) Section 1851(a)(3)(B)(ii) (42 U.S.C. 1395w–

21(a)(3)(B)(ii)) is amended by striking ‘‘section

1851(e)(4)(A)’’ and inserting ‘‘subsection (e)(4)(A)’’.

(E) Section 1851(f)(1) (42 U.S.C. 1395w–21(f)(1)) is

amended by striking ‘‘subsection (e)(1)(A)’’ and inserting

‘‘subsection (e)(1)’’.

SEC. 223. EFFECTIVE DATE.

(a) EFFECTIVE DATE.—The amendments made by this subtitle

shall apply with respect to plan years beginning on or after January

1, 2006.

(b) ISSUANCE OF REGULATIONS.—The Secretary shall revise the

regulations previously promulgated to carry out part C of title

XVIII of the Social Security Act to carry out the provisions of

this Act.

Subtitle D—Additional Reforms

SEC. 231. SPECIALIZED MA PLANS FOR SPECIAL NEEDS INDIVIDUALS.

(a) TREATMENT AS COORDINATED CARE PLAN.—Section

1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)), as amended by section

221(a), is amended by adding at the end the following new clause:

‘‘(ii) SPECIALIZED MA PLANS FOR SPECIAL NEEDS

INDIVIDUALS.—Specialized MA plans for special needs

individuals (as defined in section 1859(b)(6)) may be

any type of coordinated care plan.’’.

(b) SPECIALIZED MA PLAN FOR SPECIAL NEEDS INDIVIDUALS

DEFINED.—Section 1859(b) (42 U.S.C. 1395w–29(b)), as amended

by section 221(b), is amended by adding at the end the following

new paragraph:

‘‘(6) SPECIALIZED MA PLANS FOR SPECIAL NEEDS INDIVIDUALS.—

‘‘(A) IN GENERAL.—The term ‘specialized MA plan for

special needs individuals’ means an MA plan that exclusively serves special needs individuals (as defined in

subparagraph (B)).

‘‘(B) SPECIAL NEEDS INDIVIDUAL.—The term ‘special

needs individual’ means an MA 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

42 USC

1395w–28.

42 USC

1395w–21 note.

42 USC

1395w–21 note.

117 STAT. 2208 PUBLIC LAW 108–173—DEC. 8, 2003

a specialized MA plan described in subparagraph (A)

for individuals with severe or disabling chronic conditions.

The Secretary may waive application of section

1851(a)(3)(B) in the case of an individual described in

clause (i), (ii), or (iii) of this subparagraph and may apply

rules similar to the rules of section 1894(c)(4) for continued

eligibility of special needs individuals.’’.

(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 MA PLANS

FOR SPECIAL NEEDS INDIVIDUALS.—In the case of a specialized

MA plan for special needs individuals (as defined in subsection

(b)(6)), notwithstanding any other provision of this part and in

accordance with regulations of the Secretary and for periods before

January 1, 2009, the plan may restrict the enrollment of individuals

under the plan to individuals who are within one or more classes

of special needs individuals.’’.

(d) AUTHORITY TO DESIGNATE OTHER PLANS AS SPECIALIZED

MA PLANS.—In promulgating regulations to carry out section

1851(a)(2)(A)(ii) of the Social Security Act (as added by subsection

(a)) and section 1859(b)(6) of such Act (as added by subsection

(b)), the Secretary may provide (notwithstanding section

1859(b)(6)(A) of such Act) for the offering of specialized MA plans

for special needs individuals by MA plans that disproportionately

serve special needs individuals.

(e) REPORT TO CONGRESS.—Not later than December 31, 2007,

the Secretary shall submit to Congress a report that assesses the

impact of specialized MA plans for special needs individuals 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).

(f) 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 INDIVIDUALS; TRANSITION.—No later than 1 year after

the date of the enactment of this Act, the Secretary shall

issue final regulations to establish requirements for special

needs individuals under section 1859(b)(6)(B)(iii) of the Social

Security Act, as added by subsection (b).

SEC. 232. 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 part shall supersede any State law or regulation

(other than State licensing laws or State laws relating to plan

solvency) with respect to MA plans which are offered by MA

organizations under this part.’’.

(b) CONFORMING AMENDMENT.—Section 1854(g) (42 U.S.C.

1395w–24(g)) is amended by inserting ‘‘or premiums paid to such

organizations under this part’’ after ‘‘section 1853’’.

Regulations.

42 USC

1395w–28 note.

42 USC

1395w–21 note.

Deadline.

42 USC

1395w–21 note.

42 USC

1395w–21 note.

42 USC

1395w–28.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2209

(c) EFFECTIVE DATE.—The amendments made by this subsection

shall take effect on the date of the enactment of this Act.

SEC. 233. MEDICARE MSAS.

(a) EXEMPTION FROM REPORTING REQUIREMENT.— (1) IN GENERAL.—Section 1852(e)(1) (42 U.S.C. 1395w–

22(e)(1)) is amended by inserting ‘‘(other than MSA plans)’’

after ‘‘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’’;

(B) in subsection (e)(2)(A), by striking ‘‘, a non-network

MSA plan,’’; and

(C) in subsection (e)(2)(B), by striking ‘‘, NON-NETWORK

MSA PLANS,’’ and ‘‘, a non-network MSA plan,’’.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply on and after the date of the enactment

of this Act but shall not apply to contract years beginning

on or after January 1, 2006.

(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 an 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. 234. EXTENSION OF REASONABLE COST CONTRACTS.

Subparagraph (C) of section 1876(h)(5) (42 U.S.C.

1395mm(h)(5)) is amended to read as follows:

‘‘(C)(i) Subject to clause (ii), a reasonable cost reimbursement

contract under this subsection may be extended or renewed indefinitely.

‘‘(ii) For any period beginning on or after January 1, 2008,

a reasonable cost reimbursement contract under this subsection

may not be extended or renewed for a service area insofar as

such area during the entire previous year was within the service

area of—

‘‘(I) 2 or more MA regional plans described in clause (iii);

or

‘‘(II) 2 or more MA local plans described in clause (iii).

‘‘(iii) A plan described in this clause for a year for a service

area is a plan described in section 1851(a)(2)(A)(i) if the service

area for the year meets the following minimum enrollment requirements:

‘‘(I) With respect to any portion of the area involved that

is within a Metropolitan Statistical Area with a population

42 USC

1395w–22 note.

42 USC

1395w–24 note.

117 STAT. 2210 PUBLIC LAW 108–173—DEC. 8, 2003

of more than 250,000 and counties contiguous to such Metropolitan Statistical Area, 5,000 individuals.

‘‘(II) With respect to any other portion of such area, 1,500

individuals.’’.

SEC. 235. TWO-YEAR 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 amended by section 6135 of the Omnibus Budget Reconciliation

Act of 1989, section 13557 of the Omnibus Budget Reconciliation

Act of 1993, section 4017 of BBA, section 534 of BBRA (113 Stat.

1501A–390), and section 633 of BIPA, is amended by striking

‘‘December 31, 2004’’ and inserting ‘‘December 31, 2006’’.

SEC. 236. PAYMENT BY PACE PROVIDERS FOR MEDICARE AND MEDICAID SERVICES FURNISHED BY NONCONTRACT PROVIDERS.

(a) MEDICARE SERVICES.—

(1) MEDICARE SERVICES FURNISHED BY PROVIDERS OF SERVICES.—Section 1866(a)(1)(O) (42 U.S.C. 1395cc(a)(1)(O)) is

amended—

(A) by striking ‘‘part C or’’ and inserting ‘‘part C,

with a PACE provider under section 1894 or 1934, or’’;

(B) by striking ‘‘(i)’’;

(C) by striking ‘‘and (ii)’’;

(D) by inserting ‘‘(or, in the case of a PACE provider,

contract or other agreement)’’ after ‘‘have a contract’’; and

(E) by striking ‘‘members of the organization’’ and

inserting ‘‘members of the organization or PACE program

eligible individuals enrolled with the PACE provider,’’.

(2) MEDICARE SERVICES FURNISHED BY PHYSICIANS AND

OTHER ENTITIES.—Section 1894(b) (42 U.S.C. 1395eee(b)) is

amended by adding at the end the following new paragraphs:

‘‘(3) TREATMENT OF MEDICARE SERVICES FURNISHED BY NONCONTRACT PHYSICIANS AND OTHER ENTITIES.—

‘‘(A) APPLICATION OF MEDICARE ADVANTAGE REQUIREMENT WITH RESPECT TO MEDICARE SERVICES FURNISHED BY

NONCONTRACT PHYSICIANS AND OTHER ENTITIES.—Section

1852(k)(1) (relating to limitations on balance billing against

MA organizations for noncontract physicians and other

entities with respect to services covered under this title)

shall apply to PACE providers, PACE program eligible

individuals enrolled with such PACE providers, and physicians and other entities that do not have a contract or

other agreement establishing payment amounts for services

furnished to such an individual in the same manner as

such section applies to MA organizations, individuals

enrolled with such organizations, and physicians and other

entities referred to in such section.

‘‘(B) REFERENCE TO RELATED PROVISION FOR NONCONTRACT PROVIDERS OF SERVICES.—For the provision relating

to limitations on balance billing against PACE providers

for services covered under this title furnished by noncontract providers of services, see section 1866(a)(1)(O).

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2211

‘‘(4) REFERENCE TO RELATED PROVISION FOR SERVICES COVERED UNDER TITLE XIX BUT NOT UNDER THIS TITLE.—For provisions relating to limitations on payments to providers participating under the State plan under title XIX that do not have

a contract or other agreement with a PACE provider establishing payment amounts for services covered under such plan

(but not under this title) when such services are furnished

to enrollees of that PACE provider, see section 1902(a)(66).’’.

(b) MEDICAID SERVICES.—

(1) REQUIREMENT UNDER STATE PLAN.—Section 1902(a) (42

U.S.C. 1396a(a)), as amended by section 103(a), is amended—

(A) in paragraph (65), by striking ‘‘and’’ at the end;

(B) in paragraph (66), by striking the period at the

end and inserting ‘‘; and’’; and

(C) by inserting after paragraph (66) the following

new paragraph:

‘‘(67) provide, with respect to services covered under the

State plan (but not under title XVIII) that are furnished to

a PACE program eligible individual enrolled with a PACE

provider by a provider participating under the State plan that

does not have a contract or other agreement with the PACE

provider that establishes payment amounts for such services,

that such participating provider may not require the PACE

provider to pay the participating provider an amount greater

than the amount that would otherwise be payable for the

service to the participating provider under the State plan for

the State where the PACE provider is located (in accordance

with regulations issued by the Secretary).’’.

(2) APPLICATION UNDER MEDICAID.—Section 1934(b) (42

U.S.C. 1396u–4(b)) is amended by adding at the end the following new paragraphs:

‘‘(3) TREATMENT OF MEDICARE SERVICES FURNISHED BY NONCONTRACT PHYSICIANS AND OTHER ENTITIES.—

‘‘(A) APPLICATION OF MEDICARE ADVANTAGE REQUIREMENT WITH RESPECT TO MEDICARE SERVICES FURNISHED BY

NONCONTRACT PHYSICIANS AND OTHER ENTITIES.—Section

1852(k)(1) (relating to limitations on balance billing against

MA organizations for noncontract physicians and other

entities with respect to services covered under title XVIII)

shall apply to PACE providers, PACE program eligible

individuals enrolled with such PACE providers, and physicians and other entities that do not have a contract or

other agreement establishing payment amounts for services

furnished to such an individual in the same manner as

such section applies to MA organizations, individuals

enrolled with such organizations, and physicians and other

entities referred to in such section.

‘‘(B) REFERENCE TO RELATED PROVISION FOR NONCONTRACT PROVIDERS OF SERVICES.—For the provision relating

to limitations on balance billing against PACE providers

for services covered under title XVIII furnished by noncontract providers of services, see section 1866(a)(1)(O).

‘‘(4) REFERENCE TO RELATED PROVISION FOR SERVICES COVERED UNDER THIS TITLE BUT NOT UNDER TITLE XVIII.—For provisions relating to limitations on payments to providers participating under the State plan under this title that do not have

117 STAT. 2212 PUBLIC LAW 108–173—DEC. 8, 2003

a contract or other agreement with a PACE provider establishing payment amounts for services covered under such plan

(but not under title XVIII) when such services are furnished

to enrollees of that PACE provider, see section 1902(a)(67).’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to services furnished on or after January 1, 2004.

SEC. 237. REIMBURSEMENT FOR FEDERALLY QUALIFIED HEALTH CENTERS PROVIDING SERVICES UNDER MA PLANS.

(a) REIMBURSEMENT.—Section 1833(a)(3) (42 U.S.C. 1395l(a)(3))

is amended to read as follows:

‘‘(3) in the case of services described in section

1832(a)(2)(D)—

‘‘(A) except as provided in subparagraph (B), the costs

which are reasonable and related to the cost of furnishing

such services or which are based on such other tests of

reasonableness as the Secretary may prescribe in regulations, including those authorized under section

1861(v)(1)(A), less the amount a provider may charge as

described in clause (ii) of section 1866(a)(2)(A), but in no

case may the payment for such services (other than for

items and services described in section 1861(s)(10)(A))

exceed 80 percent of such costs; or

‘‘(B) with respect to the services described in clause

(ii) of section 1832(a)(2)(D) that are furnished to an individual enrolled with a MA plan under part C pursuant

to a written agreement described in section 1853(a)(4),

the amount (if any) by which—

‘‘(i) the amount of payment that would have otherwise been provided under subparagraph (A) (calculated

as if ‘100 percent’ were substituted for ‘80 percent’

in such subparagraph) for such services if the individual had not been so enrolled; exceeds

‘‘(ii) the amount of the payments received under

such written agreement for such services (not including

any financial incentives provided for in such agreement

such as risk pool payments, bonuses, or withholds),

less the amount the federally qualified health center may

charge as described in section 1857(e)(3)(B);’’.

(b) CONTINUATION OF MONTHLY PAYMENTS.—

(1) IN GENERAL.—Section 1853(a) (42 U.S.C. 1395w–23(a))

is amended by adding at the end the following new paragraph:

‘‘(4) PAYMENT RULE FOR FEDERALLY QUALIFIED HEALTH

CENTER SERVICES.—If an individual who is enrolled with an

MA plan under this part receives a service from a federally

qualified health center that has a written agreement with the

MA organization that offers such plan for providing such a

service (including any agreement required under section

1857(e)(3))—

‘‘(A) the Secretary shall pay the amount determined

under section 1833(a)(3)(B) directly to the federally qualified health center not less frequently than quarterly; and

‘‘(B) the Secretary shall not reduce the amount of the

monthly payments under this subsection as a result of

the application of subparagraph (A).’’.

(2) CONFORMING AMENDMENTS.—

42 USC 1395cc

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2213

(A) Section 1851(i) (42 U.S.C. 1395w–21(i)) is

amended—

(i) in paragraph (1), by inserting ‘‘1853(a)(4),’’ after

‘‘Subject to sections 1852(a)(5),’’; and

(ii) in paragraph (2), by inserting ‘‘1853(a)(4),’’ after

‘‘Subject to sections’’.

(B) Section 1853(c)(5) is amended by striking ‘‘subsections (a)(3)(C)(iii) and (i)’’ and inserting ‘‘subsections

(a)(3)(C)(iii), (a)(4), and (i)’’.

(c) ADDITIONAL CONTRACT REQUIREMENTS.—Section 1857(e) (42

U.S.C. 1395w–27(e)) is amended by adding at the end the following

new paragraph:

‘‘(3) AGREEMENTS WITH FEDERALLY QUALIFIED HEALTH CEN- TERS.— ‘‘(A) PAYMENT LEVELS AND AMOUNTS.—A contract under

this section with an MA organization shall require the

organization to provide, in any written agreement described

in section 1853(a)(4) between the organization and a federally qualified health center, for a level and amount of

payment to the federally qualified health center for services

provided by such health center that is not less than the

level and amount of payment that the plan would make

for such services if the services had been furnished by

a entity providing similar services that was not a federally

qualified health center.

‘‘(B) COST-SHARING.—Under the written agreement

referred to in subparagraph (A), a federally qualified health

center must accept the payment amount referred to in

such subparagraph plus the Federal payment provided for

in section 1833(a)(3)(B) as payment in full for services

covered by the agreement, except that such a health center

may collect any amount of cost-sharing permitted under

the contract under this section, so long as the amounts

of any deductible, coinsurance, or copayment comply with

the requirements under section 1854(e).’’.

(d) SAFE HARBOR.—Section 1128B(b)(3) (42 U.S.C. 1320a–

7b(b)(3)), as amended by section 101(f)(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 federally qualified

health center (or an entity controlled by such a health

center) and an MA organization pursuant to a written

agreement described in section 1853(a)(4).’’.

(e) EFFECTIVE DATE.—The amendments made by this section

shall apply to services provided on or after January 1, 2006, and

contract years beginning on or after such date.

SEC. 238. INSTITUTE OF MEDICINE EVALUATION AND REPORT ON

HEALTH CARE PERFORMANCE MEASURES.

(a) EVALUATION.—

(1) IN GENERAL.—Not later than the date that is 2 months

after the date of the enactment of this Act, the Secretary

shall enter into an arrangement under which the Institute

of Medicine of the National Academy of Sciences (in this section

Deadline.

Contracts.

42 USC 1395ll

note.

42 USC

1320a–7b note.

42 USC

1395w–23.

117 STAT. 2214 PUBLIC LAW 108–173—DEC. 8, 2003

referred to as the ‘‘Institute’’) shall conduct an evaluation of

leading health care performance measures in the public and

private sectors and options to implement policies that align

performance with payment under the medicare program under

title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.).

(2) SPECIFIC MATTERS EVALUATED.—In conducting the

evaluation under paragraph (1), the Institute shall—

(A) catalogue, review, and evaluate the validity of

leading health care performance measures;

(B) catalogue and evaluate the success and utility of

alternative performance incentive programs in public or

private sector settings; and

(C) identify and prioritize options to implement policies

that align performance with payment under the medicare

program that indicate—

(i) the performance measurement set to be used

and how that measurement set will be updated;

(ii) the payment policy that will reward performance; and

(iii) the key implementation issues (such as data

and information technology requirements) that must

be addressed.

(3) SCOPE OF HEALTH CARE PERFORMANCE MEASURES.—The

health care performance measures described in paragraph

(2)(A) shall encompass a variety of perspectives, including

physicians, hospitals, other health care providers, health plans,

purchasers, and patients.

(4) CONSULTATION WITH MEDPAC.—In evaluating the matters described in paragraph (2)(C), the Institute shall consult

with the Medicare Payment Advisory Commission established

under section 1805 of the Social Security Act (42 U.S.C. 1395b–

6).

(b) REPORT.—Not later than the date that is 18 months after

the date of enactment of this Act, the Institute shall submit to

the Secretary and appropriate committees of jurisdiction of the

Senate and House of Representatives a report on the evaluation

conducted under subsection (a)(1) describing the findings of such

evaluation and recommendations for an overall strategy and

approach for aligning payment with performance, including options

for updating performance measures, in the original medicare feefor-service program under parts A and B of title XVIII of the

Social Security Act, the Medicare Advantage program under part

C of such title, and any other programs under such title XVIII.

(c) AUTHORIZATION OF APPROPRIATIONS.—There are authorized

to be appropriated such sums as may be necessary for purposes

of conducting the evaluation and preparing the report required

by this section.

Subtitle E—Comparative Cost Adjustment

(CCA) Program

SEC. 241. COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM.

(a) IN GENERAL.—Part C of title XVIII is amended by adding

at the end the following new section:

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2215

‘‘COMPARATIVE COST ADJUSTMENT (CCA) PROGRAM

‘‘SEC. 1860C–1. (a) ESTABLISHMENT OF PROGRAM.—

‘‘(1) IN GENERAL.—The Secretary shall establish a program

under this section (in this section referred to as the ‘CCA

program’) for the application of comparative cost adjustment

in CCA areas selected under this section.

‘‘(2) DURATION.—The CCA program shall begin January

1, 2010, and shall extend over a period of 6 years, and end

on December 31, 2015.

‘‘(3) REPORT.—Upon the completion of the CCA program,

the Secretary shall submit a report to Congress. Such report

shall include the following, with respect to both this part and

the original medicare fee-for-service program:

‘‘(A) An evaluation of the financial impact of the CCA

program.

‘‘(B) An evaluation of changes in access to physicians

and other health care providers.

‘‘(C) Beneficiary satisfaction.

‘‘(D) Recommendations regarding any extension or

expansion of the CCA program.

‘‘(b) REQUIREMENTS FOR SELECTION OF CCA AREAS.—

‘‘(1) CCA AREA DEFINED.—

‘‘(A) IN GENERAL.—For purposes of this section, the

term ‘CCA area’ means an MSA that meets the requirements of paragraph (2) and is selected by the Secretary

under subsection (c).

‘‘(B) MSA DEFINED.—For purposes of this section, the

term ‘MSA’ means a Metropolitan Statistical Area (or such

similar area as the Secretary recognizes).

‘‘(2) REQUIREMENTS FOR CCA AREAS.—The requirements of

this paragraph for an MSA to be a CCA area are as follows:

‘‘(A) MA ENROLLMENT REQUIREMENT.—For the reference month (as defined under section 1858(f)(4)(B)) with

respect to 2010, at least 25 percent of the total number

of MA eligible individuals who reside in the MSA were

enrolled in an MA local plan described in section

1851(a)(2)(A)(i).

‘‘(B) 2 PLAN REQUIREMENT.—There will be offered in

the MSA during the annual, coordinated election period

under section 1851(e)(3)(B) before the beginning of 2010

at least 2 MA local plans described in section

1851(a)(2)(A)(i) (in addition to the fee-for-service program

under parts A and B), each offered by a different MA

organization and each of which met the minimum enrollment requirements of paragraph (1) of section 1857(b) (as

applied without regard to paragraph (3) thereof) as of the

reference month.

‘‘(c) SELECTION OF CCA AREAS.—

‘‘(1) GENERAL SELECTION CRITERIA.—The Secretary shall

select CCA areas from among those MSAs qualifying under

subsection (b) in a manner that—

‘‘(A) seeks to maximize the opportunity to test the

application of comparative cost adjustment under this title;

‘‘(B) does not seek to maximize the number of MA

eligible individuals who reside in such areas; and

42 USC

1395w–29.

117 STAT. 2216 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(C) provides for geographic diversity consistent with

the criteria specified in paragraph (2).

‘‘(2) SELECTION CRITERIA.—With respect to the selection

of MSAs that qualify to be CCA areas under subsection (b),

the following rules apply, to the maximum extent feasible:

‘‘(A) MAXIMUM NUMBER.—The number of such MSAs

selected may not exceed the lesser of (i) 6, or (ii) 25 percent

of the number of MSAs that meet the requirement of subsection (b)(2)(A).

‘‘(B) ONE OF 4 LARGEST AREAS BY POPULATION.—At

least one such qualifying MSA shall be selected from among

the 4 such qualifying MSAs with the largest total population of MA eligible individuals.

‘‘(C) ONE OF 4 AREAS WITH LOWEST POPULATION DENSITY.—At least one such qualifying MSA shall be selected

from among the 4 such qualifying MSAs with the lowest

population density (as measured by residents per square

mile or similar measure of density).

‘‘(D) MULTISTATE AREA.—At least one such qualifying

MSA shall be selected that includes a multi-State area.

Such an MSA may be an MSA described in subparagraph

(B) or (C).

‘‘(E) LIMITATION WITHIN SAME GEOGRAPHIC REGION.—

No more than 2 such MSAs shall be selected that are,

in whole or in part, within the same geographic region

(as specified by the Secretary) of the United States.

‘‘(F) PRIORITY TO AREAS NOT WITHIN CERTAIN DEMONSTRATION PROJECTS.—Priority shall be provided for those

qualifying MSAs that do not have a demonstration project

in effect as of the date of the enactment of this section

for medicare preferred provider organization plans under

this part.

‘‘(d) APPLICATION OF COMPARATIVE COST ADJUSTMENT.—

‘‘(1) IN GENERAL.—In the case of a CCA area for a year—

‘‘(A) for purposes of applying this part with respect

to payment for MA local plans, any reference to an MA

area-specific non-drug monthly benchmark amount shall

be treated as a reference to such benchmark computed

as if the CCA area-specific non-drug monthly benchmark

amount (as defined in subsection (e)(1)) were substituted

for the amount described in section 1853(j)(1)(A) for the

CCA area and year involved, as phased in under paragraph

(3); and

‘‘(B) with respect to months in the year for individuals

residing in the CCA area who are not enrolled in an MA

plan, the amount of the monthly premium under section

1839 is subject to adjustment under subsection (f).

‘‘(2) EXCLUSION OF MA LOCAL AREAS WITH FEWER THAN

2 ORGANIZATIONS OFFERING MA PLANS.—

‘‘(A) IN GENERAL.—In no case shall an MA local area

that is within an MSA be included as part of a CCA

area unless for 2010 (and, except as provided in subparagraph (B), for a subsequent year) there is offered in each

part of such MA local area at least 2 MA local plans

described in section 1851(a)(2)(A)(i) each of which is offered

by a different MA organization.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2217

‘‘(B) CONTINUATION.—If an MA local area meets the

requirement of subparagraph (A) and is included in a CCA

area for 2010, such local area shall continue to be included

in such CCA area for a subsequent year notwithstanding

that it no longer meets such requirement so long as there

is at least one MA local plan described in section

1851(a)(2)(A)(i) that is offered in such local area.

‘‘(3) PHASE-IN OF CCA BENCHMARK.—

‘‘(A) IN GENERAL.—In applying this section for a year

before 2013, paragraph (1)(A) shall be applied as if the

phase-in fraction under subparagraph (B) of the CCA nondrug monthly benchmark amount for the year were substituted for such fraction of the MA area-specific non-drug

monthly benchmark amount.

‘‘(B) PHASE-IN FRACTION.—The phase-in fraction under

this subparagraph is—

‘‘(i) for 2010 1⁄4; and

‘‘(ii) for a subsequent year is the phase-in fraction

under this subparagraph for the previous year

increased by 1⁄4, but in no case more than 1.

‘‘(e) COMPUTATION OF CCA BENCHMARK AMOUNT.—

‘‘(1) CCA NON-DRUG MONTHLY BENCHMARK AMOUNT.—For

purposes of this section, the term ‘CCA non-drug monthly

benchmark amount’ means, with respect to a CCA area for

a month in a year, the sum of the 2 components described

in paragraph (2) for the area and year. The Secretary shall

compute such benchmark amount for each such CCA area

before the beginning of each annual, coordinated election period

under section 1851(e)(3)(B) for each year (beginning with 2010)

in which the CCA area is so selected.

‘‘(2) 2 COMPONENTS.—For purposes of paragraph (1), the

2 components described in this paragraph for a CCA area

and a year are the following:

‘‘(A) MA LOCAL COMPONENT.—The product of the following:

‘‘(i) WEIGHTED AVERAGE OF MEDICARE ADVANTAGE

PLAN BIDS IN AREA.—The weighted average of the plan

bids for the area and year (as determined under paragraph (3)(A)).

‘‘(ii) NON-FFS MARKET SHARE.—One minus the feefor-service market share percentage, determined under

paragraph (4) for the area and year.

‘‘(B) FEE-FOR-SERVICE COMPONENT.—The product of the

following:

‘‘(i) FEE-FOR-SERVICE AREA-SPECIFIC NON-DRUG

AMOUNT.—The fee-for-service area-specific non-drug

amount (as defined in paragraph (5)) for the area and

year.

‘‘(ii) FEE-FOR-SERVICE MARKET SHARE.—The fee-forservice market share percentage, determined under

paragraph (4) for the area and year.

‘‘(3) DETERMINATION OF WEIGHTED AVERAGE MA BIDS FOR

A CCA AREA.—

‘‘(A) IN GENERAL.—For purposes of paragraph (2)(A)(i),

the weighted average of plan bids for a CCA area and

a year is, subject to subparagraph (D), the sum of the

Applicability.

117 STAT. 2218 PUBLIC LAW 108–173—DEC. 8, 2003

following products for MA local plans described in subparagraph (C) in the area and year:

‘‘(i) MONTHLY MEDICARE ADVANTAGE STATUTORY

NON-DRUG BID AMOUNT.—The accepted unadjusted MA

statutory non-drug monthly bid amount.

‘‘(ii) PLAN’S SHARE OF MEDICARE ADVANTAGE

ENROLLMENT IN AREA.—The number of individuals

described in subparagraph (B), divided by the total

number of such individuals for all MA plans described

in subparagraph (C) for that area and year.

‘‘(B) COUNTING OF INDIVIDUALS.—The Secretary shall

count, for each MA local 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 the reference month for that year.

‘‘(C) EXCLUSION OF PLANS NOT OFFERED IN PREVIOUS

YEAR.—For an area and year, the MA local plans described

in this subparagraph are MA local plans described in section 1851(a)(2)(A)(i) that are offered in the area and year

and were offered in the CCA area in the reference month.

‘‘(D) COMPUTATION OF WEIGHTED AVERAGE OF PLAN

BIDS.—In calculating the weighted average of plan bids

for a CCA area under subparagraph (A)—

‘‘(i) in the case of an MA local plan that has

a service area only part of which is within such CCA

area, the MA organization offering such plan shall

submit a separate bid for such plan for the portion

within such CCA area; and

‘‘(ii) the Secretary shall adjust such separate bid

(or, in the case of an MA local plan that has a service

area entirely within such CCA area, the plan bid)

as may be necessary to take into account differences

between the service area of such plan within the CCA

area and the entire CCA area and the distribution

of plan enrollees of all MA local plans offered within

the CCA area.

‘‘(4) COMPUTATION OF FEE-FOR-SERVICE MARKET SHARE

PERCENTAGE.—The Secretary shall determine, for a year and

a CCA area, the proportion (in this subsection referred to

as the ‘fee-for-service market share percentage’) equal to—

‘‘(A) the total number of MA eligible individuals

residing in such area who during the reference month

for the year were not enrolled in any MA plan; divided

by

‘‘(B) the sum of such number and the total number

of MA eligible individuals residing in such area who during

such reference month were enrolled in an MA local plan

described in section 1851(a)(2)(A)(i),

or, if greater, such proportion determined for individuals nationally.

‘‘(5) FEE-FOR-SERVICE AREA-SPECIFIC NON-DRUG AMOUNT.— ‘‘(A) IN GENERAL.—For purposes of paragraph (2)(B)(i)

and subsection (f)(2)(A), subject to subparagraph (C), the

term ‘fee-for-service area-specific non-drug amount’ means,

for a CCA area and a year, the adjusted average per

capita cost for such area and year involved, determined

under section 1876(a)(4) and adjusted as appropriate for

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2219

the purpose of risk adjustment for benefits under the

original medicare fee-for-service program option for individuals entitled to benefits under part A and enrolled under

part B who are not enrolled in an MA plan for the year,

but adjusted to exclude costs attributable to payments

under section 1886(h).

‘‘(B) USE OF FULL RISK ADJUSTMENT TO STANDARDIZE

FEE-FOR-SERVICE COSTS TO TYPICAL BENEFICIARY.—In determining the adjusted average per capita cost for an area

and year under subparagraph (A), such costs shall be

adjusted to fully take into account the demographic and

health status risk factors established under section

1853(a)(1)(A)(iv) so that such per capita costs reflect the

average costs for a typical beneficiary residing in the CCA

area.

‘‘(C) INCLUSION OF COSTS OF VA AND DOD MILITARY

FACILITY SERVICES TO MEDICARE-ELIGIBLE BENEFICIARIES.—

In determining the adjusted average per capita cost under

subparagraph (A) 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.

‘‘(f) PREMIUM ADJUSTMENT.—

‘‘(1) APPLICATION.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), in the case of an individual who is enrolled under

part B, who resides in a CCA area, and who is not enrolled

in an MA plan under this part, the monthly premium

otherwise applied under part B (determined without regard

to subsections (b), (f), and (i) of section 1839 or any adjustment under this subsection) shall be adjusted in accordance

with paragraph (2), but only in the case of premiums

for months during the period in which the CCA program

under this section for such area is in effect.

‘‘(B) NO PREMIUM ADJUSTMENT FOR SUBSIDY ELIGIBLE

BENEFICIARIES.—No premium adjustment shall be made

under this subsection for a premium for a month if the

individual is determined to be a subsidy eligible individual

(as defined in section 1860D–14(a)(3)(A)) for the month.

‘‘(2) AMOUNT OF ADJUSTMENT.—

‘‘(A) IN GENERAL.—Under this paragraph, subject to

the exemption under paragraph (1)(B) and the limitation

under subparagraph (B), if the fee-for-service area-specific

non-drug amount (as defined in section (e)(5)) for a CCA

area in which an individual resides for a month—

‘‘(i) does not exceed the CCA non-drug monthly

benchmark amount (as determined under subsection

(e)(1)) for such area and month, 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 CCA benchmark exceeds such

fee-for-service area-specific non-drug amount; or

117 STAT. 2220 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(ii) exceeds such CCA 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 CCA non-drug benchmark for

the area; is equal to

‘‘(II) the sum of the unadjusted premium plus

the amount of such fee-for-service area-specific

non-drug amount for the area.

‘‘(B) LIMITATION.—In no case shall the actual amount

of an adjustment under subparagraph (A) for an area and

month in a year result in an adjustment that exceeds

the maximum adjustment permitted under subparagraph

(C) for the area and year, or, if less, the maximum annual

adjustment permitted under subparagraph (D) for the area

and year.

‘‘(C) PHASE-IN OF ADJUSTMENT.—The amount of an

adjustment under subparagraph (A) for a CCA area and

year may not exceed the product of the phase-in fraction

for the year under subsection (d)(3)(B) multiplied by the

amount of the adjustment otherwise computed under

subparagraph (A) for the area and year, determined without regard to this subparagraph and subparagraph (D).

‘‘(D) 5-PERCENT LIMITATION ON ADJUSTMENT.—The

amount of the adjustment under this subsection for months

in a year shall not exceed 5 percent of the amount of

the monthly premium amount determined for months in

the year under section 1839 without regard to subsections

(b), (f), and (i) of such section and this subsection.’’.

(b) CONFORMING AMENDMENTS.—

(1) MA LOCAL PLANS.—

(A) Section 1853(j)(1)(A) (42 U.S.C. 1395w–23(j)(1)(A)),

as added by section 222(d), is amended by inserting ‘‘subject

to section 1860C–1(d)(2)(A),’’ after ‘‘within an MA local

area,’’.

(B) Section 1853(b)(1)(B), as amended by section

222(f)(1), is amended by adding at the end the following

new clause:

‘‘(iii) BENCHMARK ANNOUNCEMENT FOR CCA LOCAL

AREAS.—The Secretary shall determine, and shall

announce (in a manner intended to provide notice to

interested parties), on a timely basis before the calendar year concerned, with respect to each CCA area

(as defined in section 1860C–1(b)(1)(A)), the CCA nondrug monthly benchmark amount under section

1860C–1(e)(1) for that area for the year involved.’’.

(2) PREMIUM ADJUSTMENT.—

(A) Section 1839 (42 U.S.C. 1395r) is amended by

adding at the end the following new subsection:

‘‘(h) POTENTIAL APPLICATION OF COMPARATIVE COST ADJUSTMENT IN CCA AREAS.— ‘‘(1) IN GENERAL.—Certain individuals who are residing

in a CCA area under section 1860C–1 who are not enrolled

in an MA plan under part C may be subject to a premium

adjustment under subsection (f) of such section for months

in which the CCA program under such section is in effect

in such area.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2221

‘‘(2) NO EFFECT ON LATE ENROLLMENT PENALTY OR INCOME- RELATED ADJUSTMENT IN SUBSIDIES.—Nothing in this subsection

or section 1860C–1(f) shall be construed as affecting the amount

of any premium adjustment under subsection (b) or (i). Subsection (f) shall be applied without regard to any premium

adjustment referred to in paragraph (1).

‘‘(3) IMPLEMENTATION.—In order to carry out a premium

adjustment under this subsection and section 1860C–1(f)

(insofar as it is effected through the manner of collection of

premiums under section 1840(a)), the Secretary 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 premium

adjustment (if any) 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.’’.

(B) Section 1844(c) (42 U.S.C. 1395w(c)) is amended

by inserting ‘‘and without regard to any premium adjustment effected under sections 1839(h) and 1860C–1(f)’’

before the period at the end.

(c) NO CHANGE IN MEDICARE’S DEFINED BENEFIT PACKAGE.—

Nothing in this part (or the amendments made by this part) shall

be construed as changing the entitlement to defined benefits under

parts A and B of title XVIII of the Social Security Act.

TITLE III—COMBATTING WASTE,

FRAUD, AND ABUSE

SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVISIONS.

(a) TECHNICAL AMENDMENT CONCERNING SECRETARY’S

AUTHORITY TO MAKE CONDITIONAL PAYMENT WHEN CERTAIN PRI- MARY PLANS DO NOT PAY PROMPTLY.—Section 1862(b)(2) (42 U.S.C.

1395y(b)(2)) is amended—

(1) in subparagraph (A)(ii), by striking ‘‘promptly (as determined in accordance with regulations)’’; and

(2) in subparagraph (B)—

(A) by redesignating clauses (i) through (v) as clauses

(ii) through (vi), respectively; and

(B) by inserting before clause (ii), as so redesignated,

the following new clause:

‘‘(i) AUTHORITY TO MAKE CONDITIONAL PAYMENT.—

The Secretary may make payment under this title

with respect to an item or service if a primary plan

described in subparagraph (A)(ii) has not made or

cannot reasonably be expected to make payment with

respect to such item or service promptly (as determined

in accordance with regulations). Any such payment

by the Secretary shall be conditioned on reimbursement to the appropriate Trust Fund in accordance

with the succeeding provisions of this subsection.’’.

(b) CLARIFYING AMENDMENTS TO CONDITIONAL PAYMENT PROVISIONS.—Section 1862(b)(2) (42 U.S.C. 1395y(b)(2)), as amended by

subsection (a), is amended—

42 USC

1395w–29 note.

Applicability.

117 STAT. 2222 PUBLIC LAW 108–173—DEC. 8, 2003

(1) in subparagraph (A), in the matter following clause

(ii), by inserting the following sentence at the end: ‘‘An entity

that engages in a business, trade, or profession shall be deemed

to have a self-insured plan if it carries its own risk (whether

by a failure to obtain insurance, or otherwise) in whole or

in part.’’;

(2) in subparagraph (B)(ii), as redesignated by subsection

(a)(2)(A)—

(A) by striking the first sentence and inserting the

following: ‘‘A primary plan, and an entity that receives

payment from a primary plan, shall reimburse the appropriate Trust Fund for any payment made by the Secretary

under this title with respect to an item or service if it

is demonstrated that such primary plan has or had a

responsibility to make payment with respect to such item

or service. A primary plan’s responsibility for such payment

may be demonstrated by a judgment, a payment conditioned upon the recipient’s compromise, waiver, or release

(whether or not there is a determination or admission

of liability) of payment for items or services included in

a claim against the primary plan or the primary plan’s

insured, or by other means.’’; and

(B) in the final sentence, by striking ‘‘on the date

such notice or other information is received’’ and inserting

‘‘on the date notice of, or information related to, a primary

plan’s responsibility for such payment or other information

is received’’; and

(3) in subparagraph (B)(iii), as redesignated by subsection

(a)(2)(A), by striking the first sentence and inserting the following: ‘‘In order to recover payment made under this title

for an item or service, the United States may bring an action

against any or all entities that are or were required or responsible (directly, as an insurer or self-insurer, as a third-party

administrator, as an employer that sponsors or contributes

to a group health plan, or large group health plan, or otherwise)

to make payment with respect to the same item or service

(or any portion thereof) under a primary plan. The United

States may, in accordance with paragraph (3)(A) collect double

damages against any such entity. In addition, the United States

may recover under this clause from any entity that has received

payment from a primary plan or from the proceeds of a primary

plan’s payment to any entity.’’.

(c) CLERICAL AMENDMENTS.—Section 1862(b) (42 U.S.C.

1395y(b)) is amended—

(1) in paragraph (1)(A), by moving the indentation of

clauses (ii) through (v) 2 ems to the left; and

(2) in paragraph (3)(A), by striking ‘‘such’’ before ‘‘paragraphs’’.

(d) EFFECTIVE DATES.—The amendments made by this section

shall be effective—

(1) in the case of subsection (a), as if included in the

enactment of title III of the Medicare and Medicaid Budget

Reconciliation Amendments of 1984 (Public Law 98–369); and

(2) in the case of subsections (b) and (c), as if included

in the enactment of section 953 of the Omnibus Reconciliation

Act of 1980 (Public Law 96–499; 94 Stat. 2647).

42 USC 1395y

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2223

SEC. 302. PAYMENT FOR DURABLE MEDICAL EQUIPMENT; COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND SERVICES.

(a) QUALITY ENHANCEMENT AND FRAUD REDUCTION.—

(1) ESTABLISHMENT OF QUALITY STANDARDS AND ACCREDITATION REQUIREMENTS FOR DURABLE MEDICAL EQUIPMENT SUPPLIERS.—Section 1834(a) (42 U.S.C. 1395m(a)) is amended—

(A) by transferring paragraph (17), as added by section

4551(c)(1) of the Balanced Budget Act of 1997 (111 Stat.

458), to the end of such section and redesignating such

paragraph as paragraph (19); and

(B) by adding at the end the following new paragraph:

‘‘(20) IDENTIFICATION OF QUALITY STANDARDS.—

‘‘(A) IN GENERAL.—Subject to subparagraph (C), the

Secretary shall establish and implement quality standards

for suppliers of items and services described in subparagraph (D) to be applied by recognized independent accreditation organizations (as designated under subparagraph

(B)) and with which such suppliers shall be required to

comply in order to—

‘‘(i) furnish any such item or service for which

payment is made under this part; and

‘‘(ii) receive or retain a provider or supplier number

used to submit claims for reimbursement for any such

item or service for which payment may be made under

this title.

‘‘(B) DESIGNATION OF INDEPENDENT ACCREDITATION

ORGANIZATIONS.—Not later than the date that is 1 year

after the date on which the Secretary implements the

quality standards under subparagraph (A), notwithstanding section 1865(b), the Secretary shall designate and

approve one or more independent accreditation organizations for purposes of such subparagraph.

‘‘(C) QUALITY STANDARDS.—The quality standards

described in subparagraph (A) may not be less stringent

than the quality standards that would otherwise apply

if this paragraph did not apply and shall include consumer

services standards.

‘‘(D) ITEMS AND SERVICES DESCRIBED.—The items and

services described in this subparagraph are the following

items and services, as the Secretary determines appropriate:

‘‘(i) Covered items (as defined in paragraph (13))

for which payment may otherwise be made under this

subsection.

‘‘(ii) Prosthetic devices and orthotics and prosthetics described in section 1834(h)(4).

‘‘(iii) Items and services described in section

1842(s)(2).

‘‘(E) IMPLEMENTATION.—The Secretary may establish

by program instruction or otherwise the quality standards

under this paragraph, after consultation with representatives of relevant parties. Such standards shall be applied

prospectively and shall be published on the Internet

website of the Centers for Medicare & Medicaid Services.’’.

Publication.

Deadline.

117 STAT. 2224 PUBLIC LAW 108–173—DEC. 8, 2003

(2) ESTABLISHMENT OF CLINICAL CONDITIONS OF COVERAGE

STANDARDS FOR ITEMS OF DURABLE MEDICAL EQUIPMENT.—Section 1834(a)(1) (42 U.S.C. 1395m(a)(1)) is amended by adding

at the end the following new subparagraph:

‘‘(E) CLINICAL CONDITIONS FOR COVERAGE.— ‘‘(i) IN GENERAL.—The Secretary shall establish

standards for clinical conditions for payment for covered items under this subsection.

‘‘(ii) REQUIREMENTS.—The standards established

under clause (i) shall include the specification of types

or classes of covered items that require, as a condition

of payment under this subsection, a face-to-face examination of the individual by a physician (as defined

in section 1861(r)(1)), a physician assistant, nurse

practitioner, or a clinical nurse specialist (as those

terms are defined in section 1861(aa)(5)) and a

prescription for the item.

‘‘(iii) PRIORITY OF ESTABLISHMENT OF STANDARDS.— In establishing the standards under this subparagraph,

the Secretary shall first establish standards for those

covered items for which the Secretary determines there

has been a proliferation of use, consistent findings

of charges for covered items that are not delivered,

or consistent findings of falsification of documentation

to provide for payment of such covered items under

this part.

‘‘(iv) STANDARDS FOR POWER WHEELCHAIRS.—Effective on the date of the enactment of this subparagraph,

in the case of a covered item consisting of a motorized

or power wheelchair for an individual, payment may

not be made for such covered item unless a physician

(as defined in section 1861(r)(1)), a physician assistant,

nurse practitioner, or a clinical nurse specialist (as

those terms are defined in section 1861(aa)(5)) has

conducted a face-to-face examination of the individual

and written a prescription for the item.

‘‘(v) LIMITATION ON PAYMENT FOR COVERED

ITEMS.—Payment may not be made for a covered item

under this subsection unless the item meets any standards established under this subparagraph for clinical

condition of coverage.’’.

(b) COMPETITIVE ACQUISITION.— (1) 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—

Contracts.

Effective date.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2225

‘‘(i) shall be phased in among competitive acquisition areas in a manner so that the competition under

the programs occurs in—

‘‘(I) 10 of the largest metropolitan statistical

areas in 2007;

‘‘(II) 80 of the largest metropolitan statistical

areas in 2009; and

‘‘(III) additional areas after 2009; and

‘‘(ii) may be phased in first among the highest

cost and highest volume items and services or those

items and services that the Secretary determines have

the largest savings potential.

‘‘(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 MEDICAL SUPPLIES.—Covered items (as defined in section 1834(a)(13))

for which payment would otherwise be made under section

1834(a), including items used in infusion and drugs (other

than inhalation drugs) and supplies used in conjunction

with durable medical equipment, but excluding class III

devices under the Federal Food, Drug, and Cosmetic Act.

‘‘(B) OTHER EQUIPMENT AND SUPPLIES.—Items and services described in section 1842(s)(2)(D), other than parenteral nutrients, equipment, and supplies.

‘‘(C) OFF-THE-SHELF ORTHOTICS.—Orthotics described

in section 1861(s)(9) for which payment would otherwise

be made under section 1834(h) which require minimal selfadjustment for appropriate use and do not require expertise

in trimming, bending, molding, assembling, or customizing

to fit to the individual.

‘‘(3) EXCEPTION AUTHORITY.—In carrying out the programs

under this section, the Secretary may exempt—

‘‘(A) rural areas and areas with low population density

within urban areas that are not competitive, unless there

is a significant national market through mail order for

a particular item or service; and

‘‘(B) items and services for which the application of

competitive acquisition is not likely to result in significant

savings.

‘‘(4) SPECIAL RULE FOR CERTAIN RENTED ITEMS OF DURABLE

MEDICAL EQUIPMENT AND OXYGEN.—In the case of a covered

item for which payment is made on a rental basis under section

1834(a) and in the case of payment for oxygen under section

1834(a)(5), the Secretary shall establish a process by which

rental agreements for the covered items and supply arrangements with oxygen suppliers entered into before the application

of the competitive acquisition program under this section for

the item may be continued notwithstanding this section. In

the case of any such continuation, the supplier involved shall

117 STAT. 2226 PUBLIC LAW 108–173—DEC. 8, 2003

provide for appropriate servicing and replacement, as required

under section 1834(a).

‘‘(5) PHYSICIAN AUTHORIZATION.—

‘‘(A) IN GENERAL.—With respect to items or services

included within a particular HCPCS code, the Secretary

may establish a process for certain items and services

under which a physician may prescribe a particular brand

or mode of delivery of an item or service within such

code if the physician determines that use of the particular

item or service would avoid an adverse medical outcome

on the individual, as determined by the Secretary.

‘‘(B) NO EFFECT ON PAYMENT AMOUNT.—A prescription

under subparagraph (A) shall not affect the amount of

payment otherwise applicable for the item or service under

the code involved.

‘‘(6) APPLICATION.—For each competitive acquisition area

in which the program is implemented under this subsection

with respect to items and services, the payment basis determined under the competition conducted under subsection (b)

shall be substituted for the payment basis otherwise applied

under section 1834(a), section 1834(h), or section 1842(s), as

appropriate.

‘‘(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 applicable quality standards

specified by the Secretary under section 1834(a)(20).

‘‘(ii) The entity meets applicable financial standards specified by the Secretary, taking into account

the needs of small providers.

‘‘(iii) The total amounts to be paid to contractors

in a competitive acquisition area are expected to be

less than the total amounts that would otherwise be

paid.

‘‘(iv) Access of individuals to a choice of multiple

suppliers in the area is maintained.

‘‘(B) TIMELY IMPLEMENTATION OF PROGRAM.—Any delay

in the implementation of quality standards under section

1834(a)(20) or delay in the receipt of advice from the program oversight committee established under subsection (c)

shall not delay the implementation of the competitive

acquisition program under this section.

‘‘(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.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2227

‘‘(B) TERM OF CONTRACTS.—The Secretary shall recompete 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 individuals 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 multiple entities submitting bids in each area

for an item or service.

‘‘(5) PAYMENT.—

‘‘(A) IN GENERAL.—Payment under this part for

competitively priced items and services described in subsection (a)(2) shall be based on bids submitted and accepted

under this section for such items and services. Based on

such bids the Secretary shall determine a single payment

amount for each item or service in each competitive acquisition area.

‘‘(B) REDUCED BENEFICIARY COST-SHARING.—

‘‘(i) APPLICATION OF COINSURANCE.—Payment

under this section for items and services shall be in

an amount equal to 80 percent of the payment basis

described in subparagraph (A).

‘‘(ii) APPLICATION OF DEDUCTIBLE.—Before applying

clause (i), the individual shall be required to meet

the deductible described in section 1833(b).

‘‘(C) PAYMENT ON ASSIGNMENT-RELATED BASIS.—Payment for any item or service furnished by the entity may

only be made under this section on an assignment-related

basis.

‘‘(D) CONSTRUCTION.—Nothing in this section shall be

construed as precluding the use of an advanced beneficiary

notice with respect to a competitively priced item and

service.

‘‘(6) PARTICIPATING CONTRACTORS.—

‘‘(A) IN GENERAL.—Except as provided in subsection

(a)(4), 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—

‘‘(i) the contractor has submitted a bid for such

items and services under this section; and

‘‘(ii) the Secretary has awarded a contract to the

contractor for such items and services under this section.

‘‘(B) BID DEFINED.—In this section, the term ‘bid’ means

an offer to furnish an item or service for a particular

price and time period that includes, where appropriate,

any services that are attendant to the furnishing of the

item or service.

117 STAT. 2228 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(C) RULES FOR MERGERS AND ACQUISITIONS.—In

applying subparagraph (A) to a contractor, the contractor

shall include a successor entity in the case of a merger

or acquisition, if the successor entity assumes such contract

along with any liabilities that may have occurred thereunder.

‘‘(D) PROTECTION OF SMALL SUPPLIERS.—In developing

procedures relating to bids and the awarding of contracts

under this section, the Secretary shall take appropriate

steps to ensure that small suppliers of items and services

have an opportunity to be considered for participation in

the program under this section.

‘‘(7) CONSIDERATION IN DETERMINING CATEGORIES FOR

BIDS.—The Secretary may consider the clinical efficiency and

value of specific items within codes, including whether some

items have a greater therapeutic advantage to individuals.

‘‘(8) AUTHORITY TO CONTRACT FOR EDUCATION, MONITORING,

OUTREACH, AND COMPLAINT SERVICES.—The Secretary may

enter into contracts with appropriate entities to address complaints from individuals who receive items and services from

an entity with a contract under this section and to conduct

appropriate education of and outreach to such individuals and

monitoring quality of services with respect to the program.

‘‘(9) AUTHORITY TO CONTRACT FOR IMPLEMENTATION.—The

Secretary may contract with appropriate entities to implement

the competitive bidding program under this section.

‘‘(10) NO ADMINISTRATIVE OR JUDICIAL REVIEW.—There shall

be no administrative or judicial review under section 1869,

section 1878, or otherwise, of—

‘‘(A) the establishment of payment amounts under

paragraph (5);

‘‘(B) the awarding of contracts under this section;

‘‘(C) the designation of competitive acquisition areas

under subsection (a)(1)(A);

‘‘(D) the phased-in implementation under subsection

(a)(1)(B);

‘‘(E) the selection of items and services for competitive

acquisition under subsection (a)(2); or

‘‘(F) the bidding structure and number of contractors

selected under this section.

‘‘(c) PROGRAM ADVISORY AND OVERSIGHT COMMITTEE.—

‘‘(1) ESTABLISHMENT.—The Secretary shall establish a Program Advisory and Oversight Committee (hereinafter in this

section referred to as the ‘Committee’).

‘‘(2) MEMBERSHIP; TERMS.—The Committee shall consist of

such members as the Secretary may appoint who shall serve

for such term as the Secretary may specify.

‘‘(3) DUTIES.—

‘‘(A) ADVICE.—The Committee shall provide advice to

the Secretary with respect to the following functions:

‘‘(i) The implementation of the program under this

section.

‘‘(ii) The establishment of financial standards for

purposes of subsection (b)(2)(A)(ii).

‘‘(iii) The establishment of requirements for collection of data for the efficient management of the program.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2229

‘‘(iv) The development of proposals for efficient

interaction among manufacturers, providers of services,

suppliers (as defined in section 1861(d)), and individuals.

‘‘(v) The establishment of quality standards under

section 1834(a)(20).

‘‘(B) ADDITIONAL DUTIES.—The Committee shall perform such additional functions to assist the Secretary in

carrying out this section as the Secretary may specify.

‘‘(4) INAPPLICABILITY OF FACA.—The provisions of the Federal Advisory Committee Act (5 U.S.C. App.) shall not apply.

‘‘(5) TERMINATION.—The Committee shall terminate on

December 31, 2009.

‘‘(d) REPORT.—Not later than July 1, 2009, the Secretary shall

submit to Congress a report on the programs under this section.

The report shall include information on savings, reductions in costsharing, access to and quality of items and services, and satisfaction

of individuals.

‘‘(e) 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 would otherwise be made under

section 1833(h) (other than for pap smear laboratory tests

under paragraph (7) of such section) or section 1834(d)(1)

(relating to colorectal cancer screening tests); and

‘‘(B) which are furnished by entities that did not have

a face-to-face encounter with the individual.

‘‘(2) TERMS AND CONDITIONS.—

‘‘(A) IN GENERAL.—Except as provided in subparagraph

(B), such project shall be under the same conditions as

are applicable to items and services described in subsection

(a)(2), excluding subsection (b)(5)(B) and other conditions

as the Secretary determines to be appropriate.

‘‘(B) APPLICATION OF CLIA QUALITY STANDARDS.—The

quality standards established by the Secretary under section 353 of the Public Health Service Act for clinical diagnostic laboratory tests shall apply to such tests under the

demonstration project under this section in lieu of quality

standards described in subsection (b)(2)(A)(i).

‘‘(3) REPORT.—The Secretary shall submit to Congress—

‘‘(A) an initial report on the project not later than

December 31, 2005; and

‘‘(B) such progress and final reports on the project

after such date as the Secretary determines appropriate.’’.

(2) CONFORMING AMENDMENTS.—Section 1833(a)(1) (42

U.S.C. 1395l(a)(1)) is amended—

(A) by striking ‘‘and (U)’’ and inserting ‘‘(U)’’;

(B) by inserting before the semicolon at the end the

following: ‘‘, and (V) notwithstanding subparagraphs (I)

(relating to durable medical equipment), (M) (relating to

prosthetic devices and orthotics and prosthetics), and (Q)

(relating to 1842(s) items), with respect to competitively

priced items and services (described in section 1847(a)(2))

that are furnished in a competitive area, the amounts

Deadline.

Deadline.

117 STAT. 2230 PUBLIC LAW 108–173—DEC. 8, 2003

paid shall be the amounts described in section 1847(b)(5)’’;

and

(C) in clause (D)—

(i) by striking ‘‘or (ii)’’ and inserting ‘‘(ii)’’; and

(ii) by adding at the end the following: ‘‘or (iii)

on the basis of a rate established under a demonstration project under section 1847(e), the amount paid

shall be equal to 100 percent of such rate,’’.

(3) GAO REPORT ON IMPACT OF COMPETITIVE ACQUISITION

ON SUPPLIERS.— (A) STUDY.—The Comptroller General of the United

States shall conduct a study on the impact of competitive

acquisition of durable medical equipment under section

1847 of the Social Security Act, as amended by paragraph

(1), on suppliers and manufacturers of such equipment

and on patients. Such study shall specifically examine the

impact of such competitive acquisition on access to, and

quality of, such equipment and service related to such

equipment.

(B) REPORT.—Not later than January 1, 2009, the

Comptroller General shall submit to Congress a report

on the study conducted under subparagraph (A) and shall

include in the report such recommendations as the Comptroller General determines appropriate.

(c) TRANSITIONAL FREEZE.—

(1) DME.—

(A) IN GENERAL.—Section 1834(a)(14) (42 U.S.C.

1395m(a)(14)) is amended—

(i) in subparagraph (E), by striking ‘‘and’’ at the

end;

(ii) in subparagraph (F)—

(I) by striking ‘‘a subsequent year’’ and

inserting ‘‘2003’’; and

(II) by striking ‘‘the previous year.’’ and

inserting ‘‘2002;’’; and

(iii) by adding at the end the following new subparagraphs:

‘‘(G) for 2004 through 2006—

‘‘(i) subject to clause (ii), in the case of class III

medical devices described in section 513(a)(1)(C) of the

Federal Food, Drug, and Cosmetic Act (21 U.S.C.

360(c)(1)(C)), the percentage increase described in

subparagraph (B) for the year involved; and

‘‘(ii) in the case of covered items not described

in clause (i), 0 percentage points;

‘‘(H) for 2007—

‘‘(i) subject to clause (ii), in the case of class III

medical devices described in section 513(a)(1)(C) of the

Federal Food, Drug, and Cosmetic Act (21 U.S.C.

360(c)(1)(C)), the percentage change determined by the

Secretary to be appropriate taking into account recommendations contained in the report of the Comptroller General of the United States under section

302(c)(1)(B) of the Medicare Prescription Drug,

Improvement, and Modernization Act of 2003; and

‘‘(ii) in the case of covered items not described

in clause (i), 0 percentage points; and

Deadline.

42 USC 1395w–3

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2231

‘‘(I) for 2008—

‘‘(i) subject to clause (ii), in the case of class III

medical devices described in section 513(a)(1)(C) of the

Federal Food, Drug, and Cosmetic Act (21 U.S.C.

360(c)(1)(C)), the percentage increase described in

subparagraph (B) (as applied to the payment amount

for 2007 determined after the application of the

percentage change under subparagraph (H)(i)); and

‘‘(ii) in the case of covered items not described

in clause (i), 0 percentage points; and

‘‘(J) for a subsequent year, the percentage increase

in the consumer price index for all urban consumers (U.S.

urban average) for the 12-month period ending with June

of the previous year.’’.

(B) GAO REPORT ON CLASS III MEDICAL DEVICES.—Not

later than March 1, 2006, the Comptroller General of the

United States shall submit to Congress, and transmit to

the Secretary, a report containing recommendations on the

appropriate update percentage under section 1834(a)(14)

of the Social Security Act (42 U.S.C. 1395m(a)(14)) for

class III medical devices described in section 513(a)(1)(C)

of the Federal Food, Drug, and Cosmetic Act (21 U.S.C.

360(a)(1)(C)) furnished to medicare beneficiaries during

2007 and 2008.

(2) PAYMENT RULE FOR SPECIFIED ITEMS.—Section 1834(a)

(42 U.S.C. 1395m(a)), as amended by subsection (a), is further

amended by adding at the end the following new paragraph:

‘‘(21) SPECIAL PAYMENT RULE FOR SPECIFIED ITEMS AND

SUPPLIES.—

‘‘(A) IN GENERAL.—Notwithstanding the preceding

provisions of this subsection, for specified items and supplies (described in subparagraph (B)) furnished during

2005, the payment amount otherwise determined under

this subsection for such specified items and supplies shall

be reduced by the percentage difference between—

‘‘(i) the amount of payment otherwise determined

for the specified item or supply under this subsection

for 2002, and

‘‘(ii) the amount of payment for the specified item

or supply under chapter 89 of title 5, United States

Code, as identified in the column entitled ‘Median

FEHP Price’ in the table entitled ‘SUMMARY OF

MEDICARE PRICES COMPARED TO VA, MEDICAID, RETAIL, AND FEHP PRICES FOR 16 ITEMS’

included in the Testimony of the Inspector General

before the Senate Committee on Appropriations, June

12, 2002, or any subsequent report by the Inspector

General.

‘‘(B) SPECIFIED ITEM OR SUPPLY DESCRIBED.—For purposes of subparagraph (A), a specified item or supply means

oxygen and oxygen equipment, standard wheelchairs

(including standard power wheelchairs), nebulizers,

diabetic supplies consisting of lancets and testing strips,

hospital beds, and air mattresses, but only if the HCPCS

code for the item or supply is identified in a table referred

to in subparagraph (A)(ii).

Deadline.

42 USC 1395m

note.

117 STAT. 2232 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(C) APPLICATION OF UPDATE TO SPECIAL PAYMENT

AMOUNT.—The covered item update under paragraph (14)

for specified items and supplies for 2006 and each subsequent year shall be applied to the payment amount under

subparagraph (A) unless payment is made for such items

and supplies under section 1847.’’.

(3) PROSTHETIC DEVICES AND ORTHOTICS AND PROSTHETICS.—Section 1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is

amended—

(A) in clause (vii), by striking ‘‘and’’ at the end;

(B) in clause (viii), by striking ‘‘a subsequent year’’

and inserting ‘‘2003’’; and

(C) by adding at the end the following new clauses:

‘‘(ix) for 2004, 2005, and 2006, 0 percent; and

‘‘(x) for a subsequent year, the percentage increase

in the consumer price index for all urban consumers

(United States city average) for the 12-month period

ending with June of the previous year;’’.

(d) CONFORMING AMENDMENTS.—

(1) DURABLE MEDICAL EQUIPMENT; LIMITATION OF INHERENT

REASONABLENESS AUTHORITY.—Section 1834(a) (42 U.S.C.

1395m(a)) is amended—

(A) in paragraph (1)(B), by striking ‘‘The payment

basis’’ and inserting ‘‘Subject to subparagraph (F)(i), the

payment basis’’;

(B) in paragraph (1)(C), by striking ‘‘This subsection’’

and inserting ‘‘Subject to subparagraph (F)(ii), this subsection’’;

(C) by adding at the end of paragraph (1) the following

new subparagraph:

‘‘(F) APPLICATION OF COMPETITIVE ACQUISITION; LIMITATION OF INHERENT REASONABLENESS AUTHORITY.—In the

case of covered items furnished on or after January 1,

2009, that are included in a competitive acquisition program in a competitive acquisition area under section

1847(a)—

‘‘(i) the payment basis under this subsection for

such items and services furnished in such area shall

be the payment basis determined under such competitive acquisition program; and

‘‘(ii) the Secretary may use information on the

payment determined under such competitive acquisition programs to adjust the payment amount otherwise

recognized under subparagraph (B)(ii) for an area that

is not a competitive acquisition area under section

1847 and in the case of such adjustment, paragraph

(10)(B) shall not be applied.’’; and

(D) in paragraph (10)(B), by inserting ‘‘in an area and

with respect to covered items and services for which the

Secretary does not make a payment amount adjustment

under paragraph (1)(F)’’ after ‘‘under this subsection’’.

(2) OFF-THE-SHELF ORTHOTICS; LIMITATION OF INHERENT

REASONABLENESS AUTHORITY.—Section 1834(h) (42 U.S.C.

1395m(h)) is amended—

(A) in paragraph (1)(B), by striking ‘‘and (E)’’ and

inserting ‘‘, (E), and (H)(i)’’;

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2233

(B) in paragraph (1)(D), by striking ‘‘This subsection’’

and inserting ‘‘Subject to subparagraph (H)(ii), this subsection’’; and

(C) by adding at the end of paragraph (1) the following

new subparagraph:

‘‘(H) APPLICATION OF COMPETITIVE ACQUISITION TO

ORTHOTICS; LIMITATION OF INHERENT REASONABLENESS

AUTHORITY.—In the case of orthotics described in paragraph

(2)(C) of section 1847(a) furnished on or after January

1, 2009, that are included in a competitive acquisition

program in a competitive acquisition area under such

section—

‘‘(i) the payment basis under this subsection for

such orthotics furnished in such area shall be the

payment basis determined under such competitive

acquisition program; and

‘‘(ii) the Secretary may use information on the

payment determined under such competitive acquisition programs to adjust the payment amount otherwise

recognized under subparagraph (B)(ii) for an area that

is not a competitive acquisition area under section

1847, and in the case of such adjustment, paragraphs

(8) and (9) of section 1842(b) shall not be applied.’’.

(3) OTHER ITEMS AND SERVICES; LIMITATION OF INHERENT

REASONABLENESS AUTHORITY.—Section 1842(s) (42 U.S.C.

1395u(s)) is amended—

(A) in the first sentence of paragraph (1), by striking

‘‘The Secretary’’ and inserting ‘‘Subject to paragraph (3),

the Secretary’’; and

(B) by adding at the end the following new paragraph:

‘‘(3) In the case of items and services described in paragraph

(2)(D) that are included in a competitive acquisition program in

a competitive acquisition area under section 1847(a)—

‘‘(A) the payment basis under this subsection for such items

and services furnished in such area shall be the payment basis

determined under such competitive acquisition program; and

‘‘(B) the Secretary may use information on the payment

determined under such competitive acquisition programs to

adjust the payment amount otherwise applicable under paragraph (1) for an area that is not a competitive acquisition

area under section 1847, and in the case of such adjustment,

paragraphs (8) and (9) of section 1842(b) shall not be applied.’’.

(e) REPORT ON ACTIVITIES OF SUPPLIERS.—The Inspector General of the Department of Health and Human Services shall conduct

a study to determine the extent to which (if any) suppliers of

covered items of durable medical equipment that are subject to

the competitive acquisition program under section 1847 of the Social

Security Act, as amended by subsection (a), are soliciting physicians

to prescribe certain brands or modes of delivery of covered items

based on profitability. Not later than July 1, 2009, the Inspector

General shall submit to Congress a report on such study.

SEC. 303. PAYMENT REFORM FOR COVERED OUTPATIENT DRUGS AND

BIOLOGICALS.

(a) ADJUSTMENT TO PHYSICIAN FEE SCHEDULE.—

Deadline.

42 USC 1395w–3

note.

117 STAT. 2234 PUBLIC LAW 108–173—DEC. 8, 2003

(1) ADJUSTMENT IN PRACTICE EXPENSE RELATIVE VALUE

UNITS.—Section 1848(c)(2) (42 U.S.C. 1395w–4(c)(2)) is

amended—

(A) in subparagraph (B)—

(i) in clause (ii)(II), by striking ‘‘The adjustments’’

and inserting ‘‘Subject to clause (iv), the adjustments’’;

and

(ii) by adding at the end of subparagraph (B),

the following new clause:

‘‘(iv) EXEMPTION FROM BUDGET NEUTRALITY.—The

additional expenditures attributable to—

‘‘(I) subparagraph (H) shall not be taken into

account in applying clause (ii)(II) for 2004;

‘‘(II) subparagraph (I) insofar as it relates to

a physician fee schedule for 2005 or 2006 shall

not be taken into account in applying clause (ii)(II)

for drug administration services under the fee

schedule for such year for a specialty described

in subparagraph (I)(ii)(II); and

‘‘(III) subparagraph (J) insofar as it relates

to a physician fee schedule for 2005 or 2006 shall

not be taken into account in applying clause (ii)(II)

for drug administration services under the fee

schedule for such year.’’; and

(B) by adding at the end the following new subparagraphs:

‘‘(H) ADJUSTMENTS IN PRACTICE EXPENSE RELATIVE

VALUE UNITS FOR CERTAIN DRUG ADMINISTRATION SERVICES

BEGINNING IN 2004.—

‘‘(i) USE OF SURVEY DATA.—In establishing the

physician fee schedule under subsection (b) with

respect to payments for services furnished on or after

January 1, 2004, the Secretary shall, in determining

practice expense relative value units under this subsection, utilize a survey submitted to the Secretary

as of January 1, 2003, by a physician specialty

organization pursuant to section 212 of the Medicare,

Medicaid, and SCHIP Balanced Budget Refinement Act

of 1999 if the survey—

‘‘(I) covers practice expenses for oncology drug

administration services; and

‘‘(II) meets criteria established by the Secretary for acceptance of such surveys.

‘‘(ii) PRICING OF CLINICAL ONCOLOGY NURSES IN

PRACTICE EXPENSE METHODOLOGY.—If the survey

described in clause (i) includes data on wages, salaries,

and compensation of clinical oncology nurses, the Secretary shall utilize such data in the methodology for

determining practice expense relative value units

under subsection (c).

‘‘(iii) WORK RELATIVE VALUE UNITS FOR CERTAIN

DRUG ADMINISTRATION SERVICES.—In establishing the

relative value units under this paragraph for drug

administration services described in clause (iv) furnished on or after January 1, 2004, the Secretary shall

establish work relative value units equal to the work

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2235

relative value units for a level 1 office medical visit

for an established patient.

‘‘(iv) DRUG ADMINISTRATION SERVICES DESCRIBED.—

The drug administration services described in this

clause are physicians’ services—

‘‘(I) which are classified as of October 1, 2003,

within any of the following groups of procedures:

therapeutic or diagnostic infusions (excluding

chemotherapy); chemotherapy administration services; and therapeutic, prophylactic, or diagnostic

injections;

‘‘(II) for which there are no work relative value

units assigned under this subsection as of such

date; and

‘‘(III) for which national relative value units

have been assigned under this subsection as of

such date.

‘‘(I) ADJUSTMENTS IN PRACTICE EXPENSE RELATIVE

VALUE UNITS FOR CERTAIN DRUG ADMINISTRATION SERVICES

BEGINNING WITH 2005.—

‘‘(i) IN GENERAL.—In establishing the physician fee

schedule under subsection (b) with respect to payments

for services furnished on or after January 1, 2005

or 2006, the Secretary shall adjust the practice expense

relative value units for such year consistent with clause

(ii).

‘‘(ii) USE OF SUPPLEMENTAL SURVEY DATA.—

‘‘(I) IN GENERAL.—Subject to subclause (II),

if a specialty submits to the Secretary by not later

than March 1, 2004, for 2005, or March 1, 2005,

for 2006, data that includes expenses for the

administration of drugs and biologicals for which

the payment amount is determined pursuant to

section 1842(o), the Secretary shall use such

supplemental survey data in carrying out this

subparagraph for the years involved insofar as

they are collected and provided by entities and

organizations consistent with the criteria established by the Secretary pursuant to section 212(a)

of the Medicare, Medicaid, and SCHIP Balanced

Budget Refinement Act of 1999.

‘‘(II) LIMITATION ON SPECIALTY.—Subclause (I)

shall apply to a specialty only insofar as not less

than 40 percent of payments for the specialty

under this title in 2002 are attributable to the

administration of drugs and biologicals, as determined by the Secretary.

‘‘(III) APPLICATION.—This clause shall not

apply with respect to a survey to which subparagraph (H)(i) applies.

‘‘(J) PROVISIONS FOR APPROPRIATE REPORTING AND

BILLING FOR PHYSICIANS’ SERVICES ASSOCIATED WITH THE

ADMINISTRATION OF COVERED OUTPATIENT DRUGS AND

BIOLOGICALS.—

‘‘(i) EVALUATION OF CODES.—The Secretary shall

promptly evaluate existing drug administration codes

for physicians’ services to ensure accurate reporting

117 STAT. 2236 PUBLIC LAW 108–173—DEC. 8, 2003

and billing for such services, taking into account levels

of complexity of the administration and resource

consumption.

‘‘(ii) USE OF EXISTING PROCESSES.—In carrying out

clause (i), the Secretary shall use existing processes

for the consideration of coding changes and, to the

extent coding changes are made, shall use such processes in establishing relative values for such services.

‘‘(iii) IMPLEMENTATION.—In carrying out clause (i),

the Secretary shall consult with representatives of

physician specialties affected by the implementation

of section 1847A or section 1847B, and shall take such

steps within the Secretary’s authority to expedite such

considerations under clause (ii).

‘‘(iv) SUBSEQUENT, BUDGET NEUTRAL ADJUSTMENTS

PERMITTED.—Nothing in subparagraph (H) or (I) or

this subparagraph shall be construed as preventing

the Secretary from providing for adjustments in practice expense relative value units under (and consistent

with) subparagraph (B) for years after 2004, 2005,

or 2006, respectively.’’.

(2) TREATMENT OF OTHER SERVICES CURRENTLY IN THE NONPHYSICIAN WORK POOL.—The Secretary shall make adjustments

to the nonphysician work pool methodology (as such term is

used in the final rule promulgated by the Secretary in the

Federal Register on December 31, 2002 (67 Fed. Reg. 251)),

for the determination of practice expense relative value units

under the physician fee schedule under section 1848(c)(2)(C)(ii)

of the Social Security Act (42 U.S.C. 1395w–4(c)(2)(C)(ii)), so

that the practice expense relative value units for services determined under such methodology are not affected relative to

the practice expense relative value units of services not determined under such methodology, as a result of the amendments

made by paragraph (1).

(3) PAYMENT FOR MULTIPLE CHEMOTHERAPY AGENTS FUR- NISHED ON A SINGLE DAY THROUGH THE PUSH TECHNIQUE.—

(A) REVIEW OF POLICY.—The Secretary shall review

the policy, as in effect on October 1, 2003, with respect

to payment under section 1848 of the Social Security Act

(42 U.S.C. 1395w–4) for the administration of more than

1 drug or biological to an individual on a single day through

the push technique.

(B) MODIFICATION OF POLICY.—After conducting the

review under subparagraph (A), the Secretary shall modify

such payment policy as the Secretary determines to be

appropriate.

(C) EXEMPTION FROM BUDGET NEUTRALITY UNDER

PHYSICIAN FEE SCHEDULE.—If the Secretary modifies such

payment policy pursuant to subparagraph (B), any

increased expenditures under title XVIII of the Social Security Act resulting from such modification shall be treated

as additional expenditures attributable to subparagraph

(H) of section 1848(c)(2) of the Social Security Act (42

U.S.C. 1395w–4(c)(2)), as added by paragraph (1)(B), for

purposes of applying the exemption to budget neutrality

under subparagraph (B)(iv) of such section, as added by

paragraph (1)(A).

42 USC 1395w–4

note.

42 USC 1395w–4

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2237

(4) TRANSITIONAL ADJUSTMENT.—

(A) IN GENERAL.—In order to provide for a transition

during 2004 and 2005 to the payment system established

under the amendments made by this section, in the case

of physicians’ services consisting of drug administration

services described in subparagraph (H)(iv) of section

1848(c)(2) of the Social Security Act (42 U.S.C. 1395w–

4(c)(2)), as added by paragraph (1)(B), furnished on or

after January 1, 2004, and before January 1, 2006, in

addition to the amount determined under the fee schedule

under section 1848(b) of such Act (42 U.S.C. 1395w–4(b))

there also shall be paid to the physician from the Federal

Supplementary Medical Insurance Trust Fund an amount

equal to the applicable percentage specified in subparagraph (B) of such fee schedule amount for the services

so determined.

(B) APPLICABLE PERCENTAGE.—The applicable percentage specified in this subparagraph for services furnished—

(i) during 2004, is 32 percent; and

(ii) during 2005, is 3 percent.

(5) MEDPAC REVIEW AND REPORTS; SECRETARIAL

RESPONSE.—

(A) REVIEW.—The Medicare Payment Advisory

Commission shall review the payment changes made under

this section insofar as they affect payment under part

B of title XVIII of the Social Security Act—

(i) for items and services furnished by oncologists;

and

(ii) for drug administration services furnished by

other specialists.

(B) OTHER MATTERS STUDIED.—In conducting the

review under subparagraph (A), the Commission shall also

review such changes as they affect—

(i) the quality of care furnished to individuals

enrolled under part B and the satisfaction of such

individuals with that care;

(ii) the adequacy of reimbursement as applied in,

and the availability in, different geographic areas and

to different physician practice sizes; and

(iii) the impact on physician practices.

(C) REPORTS.—The Commission shall submit to the

Secretary and Congress—

(i) not later than January 1, 2006, a report on

the review conducted under subparagraph (A)(i); and

(ii) not later than January 1, 2007, a report on

the review conducted under subparagraph (A)(ii).

Each such report may include such recommendations

regarding further adjustments in such payments as the

Commission deems appropriate.

(D) SECRETARIAL RESPONSE.—As part of the rulemaking with respect to payment for physicians services

under section 1848 of the Social Security Act (42 U.S.C.

1395w–4) for 2007, the Secretary may make appropriate

adjustments to payment for items and services described

in subparagraph (A)(i), taking into account the report submitted under such subparagraph (C)(i).

Deadlines.

42 USC 1395w–4

note.

42 USC 1395w–4

note.

117 STAT. 2238 PUBLIC LAW 108–173—DEC. 8, 2003

(b) APPLICATION OF MARKET-BASED PAYMENT SYSTEMS.—Section 1842(o) (42 U.S.C. 1395u(o)) is amended—

(1) in paragraph (1), by striking ‘‘equal to 95 percent of

the average wholesale price.’’ and inserting ‘‘equal to the following:

‘‘(A) In the case of any of the following drugs or biologicals,

95 percent of the average wholesale price:

‘‘(i) A drug or biological furnished before January 1,

2004.

‘‘(ii) Blood clotting factors furnished during 2004.

‘‘(iii) A drug or biological furnished during 2004 that

was not available for payment under this part as of April

1, 2003.

‘‘(iv) A vaccine described in subparagraph (A) or (B)

of section 1861(s)(10) furnished on or after January 1,

2004.

‘‘(v) A drug or biological furnished during 2004 in

connection with the furnishing of renal dialysis services

if separately billed by renal dialysis facilities.

‘‘(B) In the case of a drug or biological furnished during

2004 that is not described in—

‘‘(i) clause (ii), (iii), (iv), or (v) of subparagraph (A),

‘‘(ii) subparagraph (D)(i), or

‘‘(iii) subparagraph (F),

the amount determined under paragraph (4).

‘‘(C) In the case of a drug or biological that is not described

in subparagraph (A)(iv), (D)(i), or (F) furnished on or after

January 1, 2005, the amount provided under section 1847,

section 1847A, section 1847B, or section 1881(b)(13), as the

case may be for the drug or biological.

‘‘(D)(i) Except as provided in clause (ii), in the case of

infusion drugs furnished through an item of durable medical

equipment covered under section 1861(n) on or after January

1, 2004, 95 percent of the average wholesale price for such

drug in effect on October 1, 2003.

‘‘(ii) In the case of such infusion drugs furnished in a

competitive acquisition area under section 1847 on or after

January 1, 2007, the amount provided under section 1847.

‘‘(E) In the case of a drug or biological, consisting of intravenous immune globulin, furnished—

‘‘(i) in 2004, the amount of payment provided under

paragraph (4); and

‘‘(ii) in 2005 and subsequent years, the amount of

payment provided under section 1847A.

‘‘(F) In the case of blood and blood products (other than

blood clotting factors), the amount of payment shall be determined in the same manner as such amount of payment was

determined on October 1, 2003.

‘‘(G) The provisions of subparagraphs (A) through (F) of

this paragraph shall not apply to an inhalation drug or

biological furnished through durable medical equipment covered

under section 1861(n).’’; and

(2) by adding at the end the following new paragraph:

‘‘(4)(A) Subject to the succeeding provisions of this paragraph,

the amount of payment for a drug or biological under this paragraph

furnished in 2004 is equal to 85 percent of the average wholesale

price (determined as of April 1, 2003) for the drug or biological.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2239

‘‘(B) The Secretary shall substitute for the percentage under

subparagraph (A) for a drug or biological the percentage that would

apply to the drug or biological under the column entitled ‘Average

of GAO and OIG data (percent)’ in the table entitled ‘Table 3.—

Medicare Part B Drugs in the Most Recent GAO and OIG Studies’

published on August 20, 2003, in the Federal Register (68 Fed.

Reg. 50445).

‘‘(C)(i) The Secretary may substitute for the percentage under

subparagraph (A) a percentage that is based on data and information submitted by the manufacturer of the drug or biological by

October 15, 2003.

‘‘(ii) The Secretary may substitute for the percentage under

subparagraph (A) with respect to drugs and biologicals furnished

during 2004 on or after April 1, 2004, a percentage that is based

on data and information submitted by the manufacturer of the

drug or biological after October 15, 2003, and before January 1,

2004.

‘‘(D) In no case may the percentage substituted under subparagraph (B) or (C) be less than 80 percent.’’.

(c) APPLICATION OF AVERAGE SALES PRICE METHODS BEGINNING

IN 2005.—

(1) IN GENERAL.—Title XVIII is amended by inserting after

section 1847 (42 U.S.C. 1395w–3), as amended by section 302(b),

the following new section:

‘‘USE OF AVERAGE SALES PRICE PAYMENT METHODOLOGY

‘‘SEC. 1847A. (a) APPLICATION.— ‘‘(1) IN GENERAL.—Except as provided in paragraph (2),

this section shall apply to payment for drugs and biologicals

that are described in section 1842(o)(1)(C) and that are furnished on or after January 1, 2005.

‘‘(2) ELECTION.—This section shall not apply in the case

of a physician who elects under subsection (a)(1)(A)(ii) of section

1847B for that section to apply instead of this section for

the payment for drugs and biologicals.

‘‘(b) PAYMENT AMOUNT.— ‘‘(1) IN GENERAL.—Subject to subsections (d)(3)(C) and (e),

the amount of payment determined under this section for the

billing and payment code for a drug or biological (based on

a minimum dosage unit) is, subject to applicable deductible

and coinsurance—

‘‘(A) in the case of a multiple source drug (as defined

in subsection (c)(6)(C)), 106 percent of the amount determined under paragraph (3); or

‘‘(B) in the case of a single source drug or biological

(as defined in subsection (c)(6)(D)), 106 percent of the

amount determined under paragraph (4).

‘‘(2) SPECIFICATION OF UNIT.— ‘‘(A) SPECIFICATION BY MANUFACTURER.—The manufacturer of a drug or biological shall specify the unit associated

with each National Drug Code (including package size)

as part of the submission of data under section

1927(b)(3)(A)(iii).

‘‘(B) UNIT DEFINED.—In this section, the term ‘unit’

means, with respect to each National Drug Code (including

package size) associated with a drug or biological, the

lowest identifiable quantity (such as a capsule or tablet,

42 USC

1395w–3a.

117 STAT. 2240 PUBLIC LAW 108–173—DEC. 8, 2003

milligram of molecules, or grams) of the drug or biological

that is dispensed, exclusive of any diluent without reference

to volume measures pertaining to liquids. For years after

2004, the Secretary may establish the unit for a manufacturer to report and methods for counting units as the

Secretary determines appropriate to implement this section.

‘‘(3) MULTIPLE SOURCE DRUG.—For all drug products

included within the same multiple source drug billing and

payment code, the amount specified in this paragraph is the

volume-weighted average of the average sales prices reported

under section 1927(b)(3)(A)(iii) determined by—

‘‘(A) computing the sum of the products (for each

National Drug Code assigned to such drug products) of—

‘‘(i) the manufacturer’s average sales price (as

defined in subsection (c)); and

‘‘(ii) the total number of units specified under paragraph (2) sold; and

‘‘(B) dividing the sum determined under subparagraph

(A) by the sum of the total number of units under subparagraph (A)(ii) for all National Drug Codes assigned to such

drug products.

‘‘(4) SINGLE SOURCE DRUG OR BIOLOGICAL.—The amount

specified in this paragraph for a single source drug or biological

is the lesser of the following:

‘‘(A) AVERAGE SALES PRICE.—The average sales price

as determined using the methodology applied under paragraph (3) for all National Drug Codes assigned to such

drug or biological product.

‘‘(B) WHOLESALE ACQUISITION COST (WAC).—The wholesale acquisition cost (as defined in subsection (c)(6)(B))

using the methodology applied under paragraph (3) for

all National Drug Codes assigned to such drug or biological

product.

‘‘(5) BASIS FOR PAYMENT AMOUNT.—The payment amount

shall be determined under this subsection based on information

reported under subsection (f) and without regard to any special

packaging, labeling, or identifiers on the dosage form or product

or package.

‘‘(c) MANUFACTURER’S AVERAGE SALES PRICE.—

‘‘(1) IN GENERAL.—For purposes of this section, subject

to paragraphs (2) and (3), the manufacturer’s ‘average sales

price’ means, of a drug or biological for a National Drug Code

for a calendar quarter for a manufacturer for a unit—

‘‘(A) the manufacturer’s sales to all purchasers

(excluding sales exempted in paragraph (2)) in the United

States for such drug or biological in the calendar quarter;

divided by

‘‘(B) the total number of such units of such drug or

biological sold by the manufacturer in such quarter.

‘‘(2) CERTAIN SALES EXEMPTED FROM COMPUTATION.—In calculating the manufacturer’s average sales price under this subsection, the following sales shall be excluded:

‘‘(A) SALES EXEMPT FROM BEST PRICE.—Sales exempt

from the inclusion in the determination of ‘best price’ under

section 1927(c)(1)(C)(i).

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2241

‘‘(B) SALES AT NOMINAL CHARGE.—Such other sales as

the Secretary identifies as sales to an entity that are merely

nominal in amount (as applied for purposes of section

1927(c)(1)(C)(ii)(III), except as the Secretary may otherwise

provide).

‘‘(3) SALE PRICE NET OF DISCOUNTS.—In calculating the

manufacturer’s average sales price under this subsection, such

price shall include volume discounts, prompt pay discounts,

cash discounts, free goods that are contingent on any purchase

requirement, chargebacks, and rebates (other than rebates

under section 1927). For years after 2004, the Secretary may

include in such price other price concessions, which may be

based on recommendations of the Inspector General, that would

result in a reduction of the cost to the purchaser.

‘‘(4) PAYMENT METHODOLOGY IN CASES WHERE AVERAGE

SALES PRICE DURING FIRST QUARTER OF SALES IS UNAVAILABLE.— In the case of a drug or biological during an initial period

(not to exceed a full calendar quarter) in which data on the

prices for sales for the drug or biological is not sufficiently

available from the manufacturer to compute an average sales

price for the drug or biological, the Secretary may determine

the amount payable under this section for the drug or biological

based on—

‘‘(A) the wholesale acquisition cost; or

‘‘(B) the methodologies in effect under this part on

November 1, 2003, to determine payment amounts for

drugs or biologicals.

‘‘(5) FREQUENCY OF DETERMINATIONS.—

‘‘(A) IN GENERAL ON A QUARTERLY BASIS.—The manufacturer’s average sales price, for a drug or biological of

a manufacturer, shall be calculated by such manufacturer

under this subsection on a quarterly basis. In making

such calculation insofar as there is a lag in the reporting

of the information on rebates and chargebacks under paragraph (3) so that adequate data are not available on a

timely basis, the manufacturer shall apply a methodology

based on a 12-month rolling average for the manufacturer

to estimate costs attributable to rebates and chargebacks.

For years after 2004, the Secretary may establish a uniform

methodology under this subparagraph to estimate and

apply such costs.

‘‘(B) UPDATES IN PAYMENT AMOUNTS.—The payment

amounts under subsection (b) shall be updated by the Secretary on a quarterly basis and shall be applied based

upon the manufacturer’s average sales price calculated for

the most recent calendar quarter for which data is available.

‘‘(C) USE OF CONTRACTORS; IMPLEMENTATION.—The Secretary may contract with appropriate entities to calculate

the payment amount under subsection (b). Notwithstanding

any other provision of law, the Secretary may implement,

by program instruction or otherwise, any of the provisions

of this section.

‘‘(6) DEFINITIONS AND OTHER RULES.—In this section:

‘‘(A) MANUFACTURER.—The term ‘manufacturer’ means,

with respect to a drug or biological, the manufacturer (as

defined in section 1927(k)(5)).

117 STAT. 2242 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(B) WHOLESALE ACQUISITION COST.—The term ‘wholesale acquisition cost’ means, with respect to a drug or

biological, the manufacturer’s list price for the drug or

biological to wholesalers or direct purchasers in the United

States, not including prompt pay or other discounts, rebates

or reductions in price, for the most recent month for which

the information is available, as reported in wholesale price

guides or other publications of drug or biological pricing

data.

‘‘(C) MULTIPLE SOURCE DRUG.—

‘‘(i) IN GENERAL.—The term ‘multiple source drug’

means, for a calendar quarter, a drug for which there

are 2 or more drug products which—

‘‘(I) are rated as therapeutically equivalent

(under the Food and Drug Administration’s most

recent publication of ‘Approved Drug Products with

Therapeutic Equivalence Evaluations’),

‘‘(II) except as provided in subparagraph (E),

are pharmaceutically equivalent and bioequivalent, as determined under subparagraph (F) and

as determined by the Food and Drug Administration, and

‘‘(III) are sold or marketed in the United States

during the quarter.

‘‘(ii) EXCEPTION.—With respect to single source

drugs or biologicals that are within the same billing

and payment code as of October 1, 2003, the Secretary

shall treat such single source drugs or biologicals as

if the single source drugs or biologicals were multiple

source drugs.

‘‘(D) SINGLE SOURCE DRUG OR BIOLOGICAL.—The term

‘single source drug or biological’ means—

‘‘(i) a biological; or

‘‘(ii) a drug which is not a multiple source drug

and which is produced or distributed under a new

drug application approved by the Food and Drug

Administration, including a drug product marketed by

any cross-licensed producers or distributors operating

under the new drug application.

‘‘(E) EXCEPTION FROM PHARMACEUTICAL EQUIVALENCE

AND BIOEQUIVALENCE REQUIREMENT.—Subparagraph (C)(ii)

shall not apply if the Food and Drug Administration

changes by regulation the requirement that, for purposes

of the publication described in subparagraph (C)(i), in order

for drug products to be rated as therapeutically equivalent,

they must be pharmaceutically equivalent and bioequivalent, as defined in subparagraph (F).

‘‘(F) DETERMINATION OF PHARMACEUTICAL EQUIVALENCE

AND BIOEQUIVALENCE.—For purposes of this paragraph—

‘‘(i) drug products are pharmaceutically equivalent

if the products contain identical amounts of the same

active drug ingredient in the same dosage form and

meet compendial or other applicable standards of

strength, quality, purity, and identity; and

‘‘(ii) drugs are bioequivalent if they do not present

a known or potential bioequivalence problem, or, if

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2243

they do present such a problem, they are shown to

meet an appropriate standard of bioequivalence.

‘‘(G) INCLUSION OF VACCINES.—In applying provisions

of section 1927 under this section, ‘other than a vaccine’

is deemed deleted from section 1927(k)(2)(B).

‘‘(d) MONITORING OF MARKET PRICES.— ‘‘(1) IN GENERAL.—The Inspector General of the Department

of Health and Human Services shall conduct studies, which

may include surveys, to determine the widely available market

prices of drugs and biologicals to which this section applies,

as the Inspector General, in consultation with the Secretary,

determines to be appropriate.

‘‘(2) COMPARISON OF PRICES.—Based upon such studies and

other data for drugs and biologicals, the Inspector General

shall compare the average sales price under this section for

drugs and biologicals with—

‘‘(A) the widely available market price for such drugs

and biologicals (if any); and

‘‘(B) the average manufacturer price (as determined

under section 1927(k)(1)) for such drugs and biologicals.

‘‘(3) LIMITATION ON AVERAGE SALES PRICE.—

‘‘(A) IN GENERAL.—The Secretary may disregard the

average sales price for a drug or biological that exceeds

the widely available market price or the average manufacturer price for such drug or biological by the applicable

threshold percentage (as defined in subparagraph (B)).

‘‘(B) APPLICABLE THRESHOLD PERCENTAGE DEFINED.—

In this paragraph, the term ‘applicable threshold percentage’ means—

‘‘(i) in 2005, in the case of an average sales price

for a drug or biological that exceeds widely available

market price or the average manufacturer price, 5

percent; and

‘‘(ii) in 2006 and subsequent years, the percentage

applied under this subparagraph subject to such

adjustment as the Secretary may specify for the widely

available market price or the average manufacturer

price, or both.

‘‘(C) AUTHORITY TO ADJUST AVERAGE SALES PRICE.—

If the Inspector General finds that the average sales price

for a drug or biological exceeds such widely available

market price or average manufacturer price for such drug

or biological by the applicable threshold percentage, the

Inspector General shall inform the Secretary (at such times

as the Secretary may specify to carry out this subparagraph) and the Secretary shall, effective as of the next

quarter, substitute for the amount of payment otherwise

determined under this section for such drug or biological

the lesser of—

‘‘(i) the widely available market price for the drug

or biological (if any); or

‘‘(ii) 103 percent of the average manufacturer price

(as determined under section 1927(k)(1)) for the drug

or biological.

‘‘(4) CIVIL MONEY PENALTY.— ‘‘(A) IN GENERAL.—If the Secretary determines that

a manufacturer has made a misrepresentation in the

117 STAT. 2244 PUBLIC LAW 108–173—DEC. 8, 2003

reporting of the manufacturer’s average sales price for a

drug or biological, the Secretary may apply a civil money

penalty in an amount of up to $10,000 for each such price

misrepresentation and for each day in which such price

misrepresentation was applied.

‘‘(B) PROCEDURES.—The provisions of section 1128A

(other than subsections (a) and (b)) shall apply to civil

money penalties under subparagraph (B) in the same

manner as they apply to a penalty or proceeding under

section 1128A(a).

‘‘(5) WIDELY AVAILABLE MARKET PRICE.—

‘‘(A) IN GENERAL.—In this subsection, the term ‘widely

available market price’ means the price that a prudent

physician or supplier would pay for the drug or biological.

In determining such price, the Inspector General shall

take into account the discounts, rebates, and other price

concessions routinely made available to such prudent physicians or suppliers for such drugs or biologicals.

‘‘(B) CONSIDERATIONS.—In determining the price under

subparagraph (A), the Inspector General shall consider

information from one or more of the following sources:

‘‘(i) Manufacturers.

‘‘(ii) Wholesalers.

‘‘(iii) Distributors.

‘‘(iv) Physician supply houses.

‘‘(v) Specialty pharmacies.

‘‘(vi) Group purchasing arrangements.

‘‘(vii) Surveys of physicians.

‘‘(viii) Surveys of suppliers.

‘‘(ix) Information on such market prices from

insurers.

‘‘(x) Information on such market prices from private health plans.

‘‘(e) AUTHORITY TO USE ALTERNATIVE PAYMENT IN RESPONSE

TO PUBLIC HEALTH EMERGENCY.—In the case of a public health

emergency under section 319 of the Public Health Service Act

in which there is a documented inability to access drugs and

biologicals, and a concomitant increase in the price, of a drug

or biological which is not reflected in the manufacturer’s average

sales price for one or more quarters, the Secretary may use the

wholesale acquisition cost (or other reasonable measure of drug

or biological price) instead of the manufacturer’s average sales

price for such quarters and for subsequent quarters until the price

and availability of the drug or biological has stabilized and is

substantially reflected in the applicable manufacturer’s average

sales price.

‘‘(f) QUARTERLY REPORT ON AVERAGE SALES PRICE.—For

requirements for reporting the manufacturer’s average sales price

(and, if required to make payment, the manufacturer’s wholesale

acquisition cost) for the drug or biological under this section, see

section 1927(b)(3).

‘‘(g) JUDICIAL REVIEW.—There shall be no administrative or

judicial review under section 1869, section 1878, or otherwise, of—

‘‘(1) determinations of payment amounts under this section,

including the assignment of National Drug Codes to billing

and payment codes;

Definition.

Applicability.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2245

‘‘(2) the identification of units (and package size) under

subsection (b)(2);

‘‘(3) the method to allocate rebates, chargebacks, and other

price concessions to a quarter if specified by the Secretary;

‘‘(4) the manufacturer’s average sales price when it is used

for the determination of a payment amount under this section;

and

‘‘(5) the disclosure of the average manufacturer price by

reason of an adjustment under subsection (d)(3)(C) or (e).’’.

(2) REPORT ON SALES TO PHARMACY BENEFIT MANAGERS.— (A) STUDY.—The Secretary shall conduct a study on

sales of drugs and biologicals to large volume purchasers,

such as pharmacy benefit managers and health maintenance organizations, for purposes of determining whether

the price at which such drugs and biologicals are sold

to such purchasers does not represent the price such drugs

and biologicals are made available for purchase to prudent

physicians.

(B) REPORT.—Not later than January 1, 2006, the Secretary shall submit to Congress a report on the study

conducted under paragraph (1), and shall include recommendations on whether such sales to large volume purchasers should be excluded from the computation of a

manufacturer’s average sales price under section 1847A

of the Social Security Act, as added by paragraph (1).

(3) INSPECTOR GENERAL REPORT ON ADEQUACY OF

REIMBURSEMENT RATE UNDER AVERAGE SALES PRICE METHOD- OLOGY.—(A) STUDY.—The Inspector General of the Department

of Health and Human Services shall conduct a study on

the ability of physician practices in the specialties of hematology, hematology/oncology, and medical oncology of different sizes, especially particularly large practices, to obtain

drugs and biologicals for the treatment of cancer patients

at 106 percent of the average sales price for the drugs

and biologicals. In conducting the study, the Inspector General shall conduct an audit of a representative sample

of such practices to determine the adequacy of reimbursement under section 1847A of the Social Security Act, as

added by paragraph (1).

(B) REPORT.—Not later October 1, 2005, the Inspector

General shall submit to Congress a report on the study

conducted under subparagraph (A), and shall include recommendations on the adequacy of reimbursement for such

drugs and biologicals under such section 1847A.

(d) PAYMENT BASED ON COMPETITION.— (1) IN GENERAL.—Title XVIII is amended by inserting after

section 1847A, as added by subsection (c), the following new

section:

‘‘COMPETITIVE ACQUISITION OF OUTPATIENT DRUGS AND BIOLOGICALS

‘‘SEC. 1847B. (a) IMPLEMENTATION OF COMPETITIVE ACQUISI- TION.— ‘‘(1) IMPLEMENTATION OF PROGRAM.— ‘‘(A) IN GENERAL.—The Secretary shall establish and

implement a competitive acquisition program under

which—

42 USC

1395w–3b.

Deadline.

42 USC

1395w–3a note.

Deadline.

42 USC

1395w–3a note.

117 STAT. 2246 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(i) competitive acquisition areas are established

for contract award purposes for acquisition of and payment for categories of competitively biddable drugs

and biologicals (as defined in paragraph (2)) under

this part;

‘‘(ii) each physician is given the opportunity

annually to elect to obtain drugs and biologicals under

the program, rather than under section 1847A; and

‘‘(iii) each physician who elects to obtain drugs

and biologicals under the program makes an annual

selection under paragraph (5) of the contractor through

which drugs and biologicals within a category of drugs

and biologicals will be acquired and delivered to the

physician under this part.

This section shall not apply in the case of a physician

who elects section 1847A to apply.

‘‘(B) IMPLEMENTATION.—For purposes of implementing

the program, the Secretary shall establish categories of

competitively biddable drugs and biologicals. The Secretary

shall phase in the program with respect to those categories

beginning in 2006 in such manner as the Secretary determines to be appropriate.

‘‘(C) WAIVER OF CERTAIN PROVISIONS.—In order to promote competition, in carrying out the program 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.

‘‘(D) EXCLUSION AUTHORITY.—The Secretary may

exclude competitively biddable drugs and biologicals

(including a class of such drugs and biologicals) from the

competitive bidding system under this section if the

application of competitive bidding to such drugs or

biologicals—

‘‘(i) is not likely to result in significant savings;

or

‘‘(ii) is likely to have an adverse impact on access

to such drugs or biologicals.

‘‘(2) COMPETITIVELY BIDDABLE DRUGS AND BIOLOGICALS AND

PROGRAM DEFINED.—For purposes of this section—

‘‘(A) COMPETITIVELY BIDDABLE DRUGS AND BIOLOGICALS

DEFINED.—The term ‘competitively biddable drugs and

biologicals’ means a drug or biological described in section

1842(o)(1)(C) and furnished on or after January 1, 2006.

‘‘(B) PROGRAM.—The term ‘program’ means the

competitive acquisition program under this section.

‘‘(C) COMPETITIVE ACQUISITION AREA; AREA.—The terms

‘competitive acquisition area’ and ‘area’ mean an appropriate geographic region established by the Secretary under

the program.

‘‘(D) CONTRACTOR.—The term ‘contractor’ means an

entity that has entered into a contract with the Secretary

under this section.

‘‘(3) APPLICATION OF PROGRAM PAYMENT METHODOLOGY.— ‘‘(A) IN GENERAL.—With respect to competitively biddable drugs and biologicals which are supplied under the

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2247

program in an area and which are prescribed by a physician

who has elected this section to apply—

‘‘(i) the claim for such drugs and biologicals shall

be submitted by the contractor that supplied the drugs

and biologicals;

‘‘(ii) collection of amounts of any deductible and

coinsurance applicable with respect to such drugs and

biologicals shall be the responsibility of such contractor

and shall not be collected unless the drug or biological

is administered to the individual involved; and

‘‘(iii) the payment under this section (and related

amounts of any applicable deductible and coinsurance)

for such drugs and biologicals—

‘‘(I) shall be made only to such contractor;

and

‘‘(II) shall be conditioned upon the administration of such drugs and biologicals.

‘‘(B) PROCESS FOR ADJUSTMENTS.—The Secretary shall

provide a process for adjustments to payments in the case

in which payment is made for drugs and biologicals which

were billed at the time of dispensing but which were not

actually administered.

‘‘(C) INFORMATION FOR PURPOSES OF COST-SHARING.—

The Secretary shall provide a process by which physicians

submit information to contractors for purposes of the collection of any applicable deductible or coinsurance amounts

under subparagraph (A)(ii).

‘‘(4) CONTRACT REQUIRED.—Payment may not be made

under this part for competitively biddable drugs and biologicals

prescribed by a physician who has elected this section to apply

within a category and a competitive acquisition area with

respect to which the program applies unless—

‘‘(A) the drugs or biologicals are supplied by a contractor with a contract under this section for such category

of drugs and biologicals and area; and

‘‘(B) the physician has elected such contractor under

paragraph (5) for such category and area.

‘‘(5) CONTRACTOR SELECTION PROCESS.—

‘‘(A) ANNUAL SELECTION.—

‘‘(i) IN GENERAL.—The Secretary shall provide a

process for the selection of a contractor, on an annual

basis and in such exigent circumstances as the Secretary may provide and with respect to each category

of competitively biddable drugs and biologicals for an

area by selecting physicians.

‘‘(ii) TIMING OF SELECTION.—The selection of a contractor under clause (i) shall be made at the time

of the election described in section 1847A(a) for this

section to apply and shall be coordinated with agreements entered into under section 1842(h).

‘‘(B) INFORMATION ON CONTRACTORS.—The Secretary

shall make available to physicians on an ongoing basis,

through a directory posted on the Internet website of the

Centers for Medicare & Medicaid Services or otherwise

and upon request, a list of the contractors under this section in the different competitive acquisition areas.

Internet.

Procedures.

117 STAT. 2248 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(C) SELECTING PHYSICIAN DEFINED.—For purposes of

this section, the term ‘selecting physician’ means, with

respect to a contractor and category and competitive

acquisition area, a physician who has elected this section

to apply and has selected to apply under this section such

contractor for such category and area.

‘‘(b) PROGRAM REQUIREMENTS.— ‘‘(1) CONTRACT FOR COMPETITIVELY BIDDABLE DRUGS AND

BIOLOGICALS.—The Secretary shall conduct a competition

among entities for the acquisition of competitively biddable

drugs and biologicals. Notwithstanding any other provision of

this title, in the case of a multiple source drug, the Secretary

shall conduct such competition among entities for the acquisition of at least one competitively biddable drug and biological

within each billing and payment code within each category

for each competitive acquisition area.

‘‘(2) CONDITIONS FOR AWARDING CONTRACT.—

‘‘(A) IN GENERAL.—The Secretary may not award a

contract to any entity under the competition conducted

in a competitive acquisition area pursuant to paragraph

(1) with respect to the acquisition of competitively biddable

drugs and biologicals within a category unless the Secretary

finds that the entity meets all of the following with respect

to the contract period involved:

‘‘(i) CAPACITY TO SUPPLY COMPETITIVELY BIDDABLE

DRUG OR BIOLOGICAL WITHIN CATEGORY.—

‘‘(I) IN GENERAL.—The entity has sufficient

arrangements to acquire and to deliver competitively biddable drugs and biologicals within such

category in the area specified in the contract.

‘‘(II) SHIPMENT METHODOLOGY.—The entity

has arrangements in effect for the shipment at

least 5 days each week of competitively biddable

drugs and biologicals under the contract and for

the timely delivery (including for emergency situations) of such drugs and biologicals in the area

under the contract.

‘‘(ii) QUALITY, SERVICE, FINANCIAL PERFORMANCE

AND SOLVENCY STANDARDS.—The entity meets quality,

service, financial performance, and solvency standards

specified by the Secretary, including—

‘‘(I) the establishment of procedures for the

prompt response and resolution of complaints of

physicians and individuals and of inquiries

regarding the shipment of competitively biddable

drugs and biologicals; and

‘‘(II) a grievance and appeals process for the

resolution of disputes.

‘‘(B) ADDITIONAL CONSIDERATIONS.—The Secretary may

refuse to award a contract under this section, and may

terminate such a contract, with an entity based upon—

‘‘(i) the suspension or revocation, by the Federal

Government or a State government, of the entity’s

license for the distribution of drugs or biologicals

(including controlled substances); or

‘‘(ii) the exclusion of the entity under section 1128

from participation under this title.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2249

‘‘(C) APPLICATION OF MEDICARE PROVIDER OMBUDSMAN.—For provision providing for a program-wide Medicare

Provider Ombudsman to review complaints, see section

1868(b), as added by section 923 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

‘‘(3) AWARDING MULTIPLE CONTRACTS FOR A CATEGORY AND

AREA.—The Secretary may limit (but not below 2) the number

of qualified entities that are awarded such contracts for any

category and area. The Secretary shall select among qualified

entities based on the following:

‘‘(A) The bid prices for competitively biddable drugs

and biologicals within the category and area.

‘‘(B) Bid price for distribution of such drugs and

biologicals.

‘‘(C) Ability to ensure product integrity.

‘‘(D) Customer service.

‘‘(E) Past experience in the distribution of drugs and

biologicals, including controlled substances.

‘‘(F) Such other factors as the Secretary may specify.

‘‘(4) TERMS OF CONTRACTS.—

‘‘(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 consistent with this section.

‘‘(B) PERIOD OF CONTRACTS.—A contract under this section shall be for a term of 3 years, but may be terminated

by the Secretary or the entity with appropriate, advance

notice.

‘‘(C) INTEGRITY OF DRUG AND BIOLOGICAL DISTRIBUTION

SYSTEM.—A contractor (as defined in subsection (a)(2)(D))

shall—

‘‘(i) acquire all drug and biological products it

distributes directly from the manufacturer or from a

distributor that has acquired the products directly from

the manufacturer; and

‘‘(ii) comply with any product integrity safeguards

as may be determined to be appropriate by the Secretary.

Nothing in this subparagraph shall be construed to relieve

or exempt any contractor from the provisions of the Federal

Food, Drug, and Cosmetic Act that relate to the wholesale

distribution of prescription drugs or biologicals.

‘‘(D) COMPLIANCE WITH CODE OF CONDUCT AND FRAUD

AND ABUSE RULES.—Under the contract—

‘‘(i) the contractor shall comply with a code of

conduct, specified or recognized by the Secretary, that

includes standards relating to conflicts of interest; and

‘‘(ii) the contractor shall comply with all applicable

provisions relating to prevention of fraud and abuse,

including compliance with applicable guidelines of the

Department of Justice and the Inspector General of

the Department of Health and Human Services.

‘‘(E) DIRECT DELIVERY OF DRUGS AND BIOLOGICALS TO

PHYSICIANS.—Under the contract the contractor shall only

supply competitively biddable drugs and biologicals directly

to the selecting physicians and not directly to individuals,

117 STAT. 2250 PUBLIC LAW 108–173—DEC. 8, 2003

except under circumstances and settings where an individual currently receives a drug or biological in the individual’s home or other non-physician office setting as the

Secretary may provide. The contractor shall not deliver

drugs and biologicals to a selecting physician except upon

receipt of a prescription for such drugs and biologicals,

and such necessary data as may be required by the Secretary to carry out this section. This section does not—

‘‘(i) require a physician to submit a prescription

for each individual treatment; or

‘‘(ii) change a physician’s flexibility in terms of

writing a prescription for drugs or biologicals for a

single treatment or a course of treatment.

‘‘(5) PERMITTING ACCESS TO DRUGS AND BIOLOGICALS.—The

Secretary shall establish rules under this section under which

drugs and biologicals which are acquired through a contractor

under this section may be used to resupply inventories of such

drugs and biologicals which are administered consistent with

safe drug practices and with adequate safeguards against fraud

and abuse. The previous sentence shall apply if the physicians

can demonstrate to the Secretary all of the following:

‘‘(A) The drugs or biologicals are required immediately.

‘‘(B) The physician could not have reasonably anticipated the immediate requirement for the drugs or

biologicals.

‘‘(C) The contractor could not deliver to the physician

the drugs or biologicals in a timely manner.

‘‘(D) The drugs or biologicals were administered in

an emergency situation.

‘‘(6) CONSTRUCTION.—Nothing in this section shall be construed as waiving applicable State requirements relating to

licensing of pharmacies.

‘‘(c) BIDDING PROCESS.—

‘‘(1) IN GENERAL.—In awarding a contract for a category

of drugs and biologicals in an area under the program, the

Secretary shall consider with respect to each entity seeking

to be awarded a contract the bid price and the other factors

referred to in subsection (b)(3).

‘‘(2) BID DEFINED.—In this section, the term ‘bid’ means

an offer to furnish a competitively biddable drug or biological

for a particular price and time period.

‘‘(3) BIDDING ON A NATIONAL OR REGIONAL BASIS.—Nothing

in this section shall be construed as precluding a bidder from

bidding for contracts in all areas of the United States or as

requiring a bidder to submit a bid for all areas of the United

States.

‘‘(4) UNIFORMITY OF BIDS WITHIN AREA.—The amount of

the bid submitted under a contract offer for any competitively

biddable drug or biological for an area shall be the same for

that drug or biological for all portions of that area.

‘‘(5) CONFIDENTIALITY OF BIDS.—The provisions of subparagraph (D) of section 1927(b)(3) shall apply to periods during

which a bid is submitted with respect to a competitively biddable drug or biological under this section in the same manner

as it applies to information disclosed under such section, except

that any reference—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2251

‘‘(A) in that subparagraph to a ‘manufacturer or wholesaler’ is deemed a reference to a ‘bidder’ under this section;

‘‘(B) in that section to ‘prices charged for drugs’ is

deemed a reference to a ‘bid’ submitted under this section;

and

‘‘(C) in clause (i) of that section to ‘this section’, is

deemed a reference to ‘part B of title XVIII’.

‘‘(6) INCLUSION OF COSTS.—The bid price submitted in a

contract offer for a competitively biddable drug or biological

shall—

‘‘(A) include all costs related to the delivery of the

drug or biological to the selecting physician (or other point

of delivery); and

‘‘(B) include the costs of dispensing (including shipping)

of such drug or biological and management fees, but shall

not include any costs related to the administration of the

drug or biological, or wastage, spillage, or spoilage.

‘‘(7) PRICE ADJUSTMENTS DURING CONTRACT PERIOD; DISCLOSURE OF COSTS.—Each contract awarded shall provide for—

‘‘(A) disclosure to the Secretary the contractor’s reasonable, net acquisition costs for periods specified by the Secretary, not more often than quarterly, of the contract; and

‘‘(B) appropriate price adjustments over the period of

the contract to reflect significant increases or decreases

in a contractor’s reasonable, net acquisition costs, as so

disclosed.

‘‘(d) COMPUTATION OF PAYMENT AMOUNTS.—

‘‘(1) IN GENERAL.—Payment under this section for competitively biddable drugs or biologicals shall be based on bids

submitted and accepted under this section for such drugs or

biologicals in an area. Based on such bids the Secretary shall

determine a single payment amount for each competitively

biddable drug or biological in the area.

‘‘(2) SPECIAL RULES.—The Secretary shall establish rules

regarding the use under this section of the alternative payment

amount provided under section 1847A to the use of a price

for specific competitively biddable drugs and biologicals in the

following cases:

‘‘(A) NEW DRUGS AND BIOLOGICALS.—A competitively

biddable drug or biological for which a payment and billing

code has not been established.

‘‘(B) OTHER CASES.—Such other exceptional cases as

the Secretary may specify in regulations.

‘‘(e) COST-SHARING.—

‘‘(1) APPLICATION OF COINSURANCE.—Payment under this

section for competitively biddable drugs and biologicals shall

be in an amount equal to 80 percent of the payment basis

described in subsection (d)(1).

‘‘(2) DEDUCTIBLE.—Before applying paragraph (1), the individual shall be required to meet the deductible described in

section 1833(b).

‘‘(3) COLLECTION.—Such coinsurance and deductible shall

be collected by the contractor that supplies the drug or

biological involved. Subject to subsection (a)(3)(B), such coinsurance and deductible may be collected in a manner similar

to the manner in which the coinsurance and deductible are

collected for durable medical equipment under this part.

117 STAT. 2252 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(f) SPECIAL PAYMENT RULES.— ‘‘(1) USE IN EXCLUSION CASES.—If the Secretary excludes

a drug or biological (or class of drugs or biologicals) under

subsection (a)(1)(D), the Secretary may provide for payment

to be made under this part for such drugs and biologicals

(or class) using the payment methodology under section 1847A.

‘‘(2) APPLICATION OF REQUIREMENT FOR ASSIGNMENT.—For

provision requiring assignment of claims for competitively biddable drugs and biologicals, see section 1842(o)(3).

‘‘(3) PROTECTION FOR BENEFICIARY IN CASE OF MEDICAL

NECESSITY DENIAL.—For protection of individuals against

liability in the case of medical necessity determinations, see

section 1842(b)(3)(B)(ii)(III).

‘‘(g) JUDICIAL REVIEW.—There shall be no administrative or

judicial review under section 1869, section 1878, or otherwise, of—

‘‘(1) the establishment of payment amounts under subsection (d)(1);

‘‘(2) the awarding of contracts under this section;

‘‘(3) the establishment of competitive acquisition areas

under subsection (a)(2)(C);

‘‘(4) the phased-in implementation under subsection

(a)(1)(B);

‘‘(5) the selection of categories of competitively biddable

drugs and biologicals for competitive acquisition under such

subsection or the selection of a drug in the case of multiple

source drugs; or

‘‘(6) the bidding structure and number of contractors

selected under this section.’’.

(2) REPORT.—Not later than July 1, 2008, the Secretary

shall submit to Congress a report on the program conducted

under section 1847B of the Social Security Act, as added by

paragraph (1). Such report shall include information on savings,

reductions in cost-sharing, access to competitively biddable

drugs and biologicals, the range of choices of contractors available to physicians, the satisfaction of physicians and of individuals enrolled under this part, and information comparing prices

for drugs and biologicals under such section and section 1847A

of such Act, as added by subsection (c).

(e) ADJUSTMENTS TO PAYMENT AMOUNTS FOR ADMINISTRATION

OF DRUGS AND BIOLOGICALS.—

(1) ITEMS AND SERVICES RELATING TO FURNISHING OF BLOOD

CLOTTING FACTORS.—Section 1842(o) (42 U.S.C. 1395u(o)), as

amended by subsection (b)(2), is amended by adding at the

end the following new paragraph:

‘‘(5)(A) Subject to subparagraph (B), in the case of clotting

factors furnished on or after January 1, 2005, the Secretary shall,

after reviewing the January 2003 report to Congress by the Comptroller General of the United States entitled ‘Payment for Blood

Clotting Factor Exceeds Providers Acquisition Cost’, provide for

a separate payment, to the entity which furnishes to the patient

blood clotting factors, for items and services related to the furnishing of such factors in an amount that the Secretary determines

to be appropriate. Such payment amount may take into account

any or all of the following:

‘‘(i) The mixing (if appropriate) and delivery of factors

to an individual, including special inventory management and

storage requirements.

Deadline.

42 USC

1395w–3b note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2253

‘‘(ii) Ancillary supplies and patient training necessary for

the self-administration of such factors.

‘‘(B) In determining the separate payment amount under

subparagraph (A) for blood clotting factors furnished in 2005, the

Secretary shall ensure that the total amount of payments under

this part (as estimated by the Secretary) for such factors under

paragraph (1)(C) and such separate payments for such factors does

not exceed the total amount of payments that would have been

made for such factors under this part (as estimated by the Secretary) if the amendments made by section 303 of the Medicare

Prescription Drug, Improvement, and Modernization Act of 2003

had not been enacted.

‘‘(C) The separate payment amount under this subparagraph

for blood clotting factors furnished in 2006 or a subsequent year

shall be equal to the separate payment amount determined under

this paragraph for the previous year increased by the percentage

increase in the consumer price index for medical care for the 12-

month period ending with June of the previous year.’’.

(2) PHARMACY SUPPLYING FEE FOR CERTAIN DRUGS AND

BIOLOGICALS.—Section 1842(o) (42 U.S.C. 1395u(o)), as previously amended, is amended by adding at the end the following

new paragraph:

‘‘(6) In the case of an immunosuppressive drug described in

subparagraph (J) of section 1861(s)(2) and an oral drug described

in subparagraph (Q) or (T) of such section, the Secretary shall

pay to the pharmacy a supplying fee for such a drug determined

appropriate by the Secretary (less the applicable deductible and

coinsurance amounts).’’.

(f) LINKAGE OF REVISED DRUG PAYMENTS AND INCREASES FOR

DRUG ADMINISTRATION.—The Secretary shall not implement the

revisions in payment amounts for drugs and biologicals administered by physicians as a result of the amendments made by subsection (b) with respect to 2004 unless the Secretary concurrently

makes adjustments to the practice expense payment adjustment

under the amendments made by subsection (a).

(g) PROHIBITION OF ADMINISTRATIVE AND JUDICIAL REVIEW.—

(1) DRUGS.—Section 1842(o) (42 U.S.C. 1395u(o)), as previously amended, is amended by adding at the end the following

new paragraph:

‘‘(7) There shall be no administrative or judicial review under

section 1869, section 1878, or otherwise, of determinations of payment amounts, methods, or adjustments under paragraphs (4)

through (6).’’.

(2) PHYSICIAN FEE SCHEDULE.—Section 1848(i)(1)(B) (42

U.S.C. 1395w–4(i)(1)(B)) is amended by striking ‘‘subsection

(c)(2)(F)’’ and inserting ‘‘subsections (c)(2)(F), (c)(2)(H), and

(c)(2)(I)’’.

(3) MULTIPLE CHEMOTHERAPY AGENTS, OTHER SERVICES

CURRENTLY ON THE NON-PHYSICIAN WORK POOL, AND TRANSITIONAL ADJUSTMENT.—There shall be no administrative or

judicial review under section 1869, section 1878, or otherwise,

of determinations of payment amounts, methods, or adjustments under paragraphs (2) through (4) of subsection (a).

(h) CONTINUATION OF PAYMENT METHODOLOGY FOR RADIOPHARMACEUTICALS.—Nothing in the amendments made by this section shall be construed as changing the payment methodology under

42 USC 1395u

note.

42 USC 1395w–4

note.

42 USC 1395u

note.

117 STAT. 2254 PUBLIC LAW 108–173—DEC. 8, 2003

part B of title XVIII of the Social Security Act for radiopharmaceuticals, including the use by carriers of invoice pricing methodology.

(i) CONFORMING AMENDMENTS.— (1) APPLICATION OF ASP AND COMPETITIVE BIDDING.—Section

1842(o)(2) (42 U.S.C. 1395u(o)(2)) is amended by adding at

the end the following: ‘‘This paragraph shall not apply in the

case of payment under paragraph (1)(C).’’.

(2) NO CHANGE IN COVERAGE BASIS.—Section 1861(s)(2)(A)

(42 U.S.C. 1395x(s)(2)(A)) is amended by inserting ‘‘(or would

have been so included but for the application of section 1847B)’’

after ‘‘included in the physicians’ bills’’.

(3) PAYMENT.—(A) Section 1833(a)(1)(S) (42 U.S.C.

1395l(a)(1)(S)) is amended by inserting ‘‘(or, if applicable, under

section 1847, 1847A, or 1847B)’’ after ‘‘1842(o)’’.

(B) Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) is amended—

(i) by striking ‘‘and’’ at the end of subparagraph (H);

(ii) by striking the semicolon at the end of subparagraph (I) and inserting ‘‘, and’’; and

(iii) by adding at the end the following new subparagraph:

‘‘(J) in the case of a drug or biological specified in section

1847A(c)(6)(C) for which payment is made under part B that

is furnished in a competitive area under section 1847B, that

is not furnished by an entity under a contract under such

section;’’.

(4) CONSOLIDATED REPORTING OF PRICING INFORMATION.—

Section 1927 (42 U.S.C. 1396r–8) is amended—

(A) in subsection (a)(1), by inserting ‘‘or under part

B of title XVIII’’ after ‘‘section 1903(a)’’;

(B) in subsection (b)(3)(A)—

(i) in clause (i), by striking ‘‘and’’ at the end and

inserting a semicolon;

(ii) in clause (ii), by striking the period and

inserting ‘‘; and’’; and

(iii) by adding at the end the following:

‘‘(iii) for calendar quarters beginning on or after

January 1, 2004, in conjunction with reporting required

under clause (i) and by National Drug Code (including

package size)—

‘‘(I) the manufacturer’s average sales price (as

defined in section 1847A(c)) and the total number

of units specified under section 1847A(b)(2)(A);

‘‘(II) if required to make payment under section 1847A, the manufacturer’s wholesale acquisition cost, as defined in subsection (c)(6) of such

section; and

‘‘(III) information on those sales that were

made at a nominal price or otherwise described

in section 1847A(c)(2)(B);

for a drug or biological described in subparagraph (C),

(D), (E), or (G) of section 1842(o)(1) or section

1881(b)(13)(A)(ii).

Information reported under this subparagraph is subject

to audit by the Inspector General of the Department of

Health and Human Services.’’;

(C) in subsection (b)(3)(B)—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2255

(i) in the heading, by inserting ‘‘AND MANUFACTUR- ER’S AVERAGE SALES PRICE’’ after ‘‘PRICE’’; and

(ii) by inserting ‘‘and manufacturer’s average sales

prices (including wholesale acquisition cost) if required

to make payment’’ after ‘‘manufacturer prices’’; and

(D) in subsection (b)(3)(D)—

(i) in the matter preceding clause (i), by inserting

‘‘(other than the wholesale acquisition cost for purposes

of carrying out section 1847A)’’ after ‘‘subsection

(a)(6)(A)(ii)’’; and

(ii) in clause (i), by inserting ‘‘, to carry out section

1847A (including the determination and implementation of the payment amount), or to carry out section

1847B’’ after ‘‘this section’’.

(5) IMPLEMENTATION.—The provisions of chapter 8 of title

5, United States Code, shall not apply with respect to regulations implementing the amendments made by subsections (a),

(b), and (e)(3), to regulations implementing section 304, and

to regulations implementing the amendment made by section

305(a), insofar as such regulations apply in 2004.

(6) REPEAL OF STUDY.—Section 4556 of the Balanced Budget

Act of 1997 (42 U.S.C. 1395u note) is amended by striking

subsection (c).

(j) APPLICATION TO CERTAIN PHYSICIAN SPECIALTIES.—Insofar

as the amendments made by this section apply to payments for

drugs or biologicals and drug administration services furnished

by physicians, such amendments shall only apply to physicians

in the specialties of hematology, hematology/oncology, and medical

oncology under title XVIII of the Social Security Act.

SEC. 304. EXTENSION OF APPLICATION OF PAYMENT REFORM FOR

COVERED OUTPATIENT DRUGS AND BIOLOGICALS TO

OTHER PHYSICIAN SPECIALTIES.

Notwithstanding section 303(j), the amendments made by section 303 shall also apply to payments for drugs or biologicals

and drug administration services furnished by physicians in specialties other than the specialties of hematology, hematology/oncology,

and medical oncology.

SEC. 305. PAYMENT FOR INHALATION DRUGS.

(a) IN GENERAL.—Section 1842(o)(1)(G) (42 U.S.C.

1395u(o)(1)(G)), as added by section 303(b), is amended to read

as follows:

‘‘(G) In the case of inhalation drugs or biologicals furnished

through durable medical equipment covered under section

1861(n) that are furnished—

‘‘(i) in 2004, the amount provided under paragraph

(4) for the drug or biological; and

‘‘(ii) in 2005 and subsequent years, the amount provided under section 1847A for the drug or biological.’’.

(b) GAO STUDY OF MEDICARE PAYMENT FOR INHALATION

THERAPY.—

(1) STUDY.—The Comptroller General of the United States

shall conduct a study to examine the adequacy of current

reimbursements for inhalation therapy under the medicare program.

(2) REPORT.—Not later than 1 year after the date of the

enactment of this Act, the Comptroller General shall submit

Deadline.

42 USC 1395l

note.

42 USC 1395u

note.

42 USC 1395u

note.

42 USC 1395u

note.

117 STAT. 2256 PUBLIC LAW 108–173—DEC. 8, 2003

to Congress a report on the study conducted under paragraph

(1).

SEC. 306. DEMONSTRATION PROJECT FOR USE OF RECOVERY AUDIT

CONTRACTORS.

(a) IN GENERAL.—The Secretary 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 underpayments and overpayments and recouping overpayments under the medicare program

for services for which payment is made under part A or B 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) such percentage as the Secretary may specify of the

amount recovered shall 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.—

(1) SCOPE.—The project shall cover at least 2 States that

are among the States with—

(A) the highest per capita utilization rates of medicare

services, and

(B) at least 3 contractors.

(2) DURATION.—The project shall last for not longer than

3 years.

(c) WAIVER.—The Secretary 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 the appropriate clinical 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.—In awarding contracts to recovery audit contractors

under this section, the Secretary shall give preference to those

risk entities that the Secretary determines have demonstrated

more than 3 years direct management experience and a proficiency for cost control or recovery audits with private insurers,

health care providers, health plans, or under the medicaid

program under title XIX of the Social Security Act.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2257

(e) CONSTRUCTION RELATING TO CONDUCT OF INVESTIGATION

OF FRAUD.—A recovery of an overpayment to a provider by a

recovery audit contractor shall not be construed to prohibit the

Secretary or the Attorney General from investigating and prosecuting, if appropriate, allegations of fraud or abuse arising from

such overpayment.

(f) REPORT.—The Secretary 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.information’ means information about a conviction for a

relevant crime or a finding of patient or resident abuse.

SEC. 307. PILOT PROGRAM FOR NATIONAL AND STATE BACKGROUND

CHECKS ON DIRECT PATIENT ACCESS EMPLOYEES OF

LONG-TERM CARE FACILITIES OR PROVIDERS.

(a) AUTHORITY TO CONDUCT PROGRAM.—The Secretary, in consultation with the Attorney General, shall establish a pilot program

to identify efficient, effective, and economical procedures for long

term care facilities or providers to conduct background checks on

prospective direct patient access employees.

(b) REQUIREMENTS.—

(1) IN GENERAL.—Under the pilot program, a long-term

care facility or provider in a participating State, prior to

employing a direct patient access employee that is first hired

on or after the commencement date of the pilot program in

the State, shall conduct a background check on the employee

in accordance with such procedures as the participating State

shall establish.

(2) PROCEDURES.—

(A) IN GENERAL.—The procedures established by a

participating State under paragraph (1) should be designed

to—

(i) give a prospective direct access patient employee

notice that the long-term care facility or provider is

required to perform background checks with respect

to new employees;

(ii) require, as a condition of employment, that

the employee—

(I) provide a written statement disclosing any

disqualifying information;

(II) provide a statement signed by the

employee authorizing the facility to request

national and State criminal history background

checks;

(III) provide the facility with a rolled set of

the employee’s fingerprints; and

(IV) provide any other identification information the participating State may require;

(iii) require the facility or provider to check any

available registries that would be likely to contain

disqualifying information about a prospective employee

of a long-term care facility or provider; and

(iv) permit the facility or provider to obtain State

and national criminal history background checks on

the prospective employee through a 10-fingerprint

42 USC 1395aa

note.

Deadline.

117 STAT. 2258 PUBLIC LAW 108–173—DEC. 8, 2003

check that utilizes State criminal records and the

Integrated Automated Fingerprint Identification

System of the Federal Bureau of Investigation.

(B) ELIMINATION OF UNNECESSARY CHECKS.—The procedures established by a participating State under paragraph

(1) shall permit a long-term care facility or provider to

terminate the background check at any stage at which

the facility or provider obtains disqualifying information

regarding a prospective direct patient access employee.

(3) PROHIBITION ON HIRING OF ABUSIVE WORKERS.—

(A) IN GENERAL.—A long-term care facility or provider

may not knowingly employ any direct patient access

employee who has any disqualifying information.

(B) PROVISIONAL EMPLOYMENT.—

(i) IN GENERAL.—Under the pilot program, a

participating State may permit a long-term care facility

or provider to provide for a provisional period of

employment for a direct patient access employee

pending completion of a background check, subject to

such supervision during the employee’s provisional

period of employment as the participating State determines appropriate.

(ii) SPECIAL CONSIDERATION FOR CERTAIN FACILITIES AND PROVIDERS.—In determining what constitutes

appropriate supervision of a provisional employee, a

participating State shall take into account cost or other

burdens that would be imposed on small rural longterm care facilities or providers, as well as the nature

of care delivered by such facilities or providers that

are home health agencies or providers of hospice care.

(4) USE OF INFORMATION; IMMUNITY FROM LIABILITY.—

(A) USE OF INFORMATION.—A participating State shall

ensure that a long-term care facility or provider that

obtains information about a direct patient access employee

pursuant to a background check uses such information

only for the purpose of determining the suitability of the

employee for employment.

(B) IMMUNITY FROM LIABILITY.—A participating State

shall ensure that a long-term care facility or provider that,

in denying employment for an individual selected for hire

as a direct patient access employee (including during any

period of provisional employment), reasonably relies upon

information obtained through a background check of the

individual, shall not be liable in any action brought by

the individual based on the employment determination

resulting from the information.

(5) AGREEMENTS WITH EMPLOYMENT AGENCIES.—A participating State may establish procedures for facilitating the conduct of background checks on prospective direct patient access

employees that are hired by a long-term care facility or provider

through an employment agency (including a temporary employment agency).

(6) PENALTIES.—A participating State may impose such

penalties as the State determines appropriate to enforce the

requirements of the pilot program conducted in that State.

(c) PARTICIPATING STATES.—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2259

(1) IN GENERAL.—The Secretary shall enter into agreements

with not more than 10 States to conduct the pilot program

under this section in such States.

(2) REQUIREMENTS FOR STATES.—An agreement entered into

under paragraph (1) shall require that a participating State—

(A) be responsible for monitoring compliance with the

requirements of the pilot program;

(B) have procedures by which a provisional employee

or an employee may appeal or dispute the accuracy of

the information obtained in a background check performed

under the pilot program; and

(C) agree to—

(i) review the results of any State or national

criminal history background checks conducted

regarding a prospective direct patient access employee

to determine whether the employee has any conviction

for a relevant crime;

(ii) immediately report to the entity that requested

the criminal history background checks the results of

such review; and

(iii) in the case of an employee with a conviction

for a relevant crime that is subject to reporting under

section 1128E of the Social Security Act (42 U.S.C.

1320a–7e), report the existence of such conviction to

the database established under that section.

(3) APPLICATION AND SELECTION CRITERIA.—

(A) APPLICATION.—A State seeking to participate in

the pilot program established under this section, shall

submit an application to the Secretary containing such

information and at such time as the Secretary may specify.

(B) SELECTION CRITERIA.—

(i) IN GENERAL.—In selecting States to participate

in the pilot program, the Secretary shall establish criteria to ensure—

(I) geographic diversity;

(II) the inclusion of a variety of long-term

care facilities or providers;

(III) the evaluation of a variety of payment

mechanisms for covering the costs of conducting

the background checks required under the pilot

program; and

(IV) the evaluation of a variety of penalties

(monetary and otherwise) used by participating

States to enforce the requirements of the pilot

program in such States.

(ii) ADDITIONAL CRITERIA.—The Secretary shall, to

the greatest extent practicable, select States to participate in the pilot program in accordance with the following:

(I) At least one participating State should

permit long-term care facilities or providers to provide for a provisional period of employment

pending completion of a background check and

at least one such State should not permit such

a period of employment.

(II) At least one participating State should

establish procedures under which employment

Contracts.

117 STAT. 2260 PUBLIC LAW 108–173—DEC. 8, 2003

agencies (including temporary employment agencies) may contact the State directly to conduct

background checks on prospective direct patient

access employees.

(III) At least one participating State should

include patient abuse prevention training

(including behavior training and interventions) for

managers and employees of long-term care facilities and providers as part of the pilot program

conducted in that State.

(iii) INCLUSION OF STATES WITH EXISTING PROGRAMS.—Nothing in this section shall be construed

as prohibiting any State which, as of the date of the

enactment of this Act, has procedures for conducting

background checks on behalf of any entity described

in subsection (g)(5) from being selected to participate

in the pilot program conducted under this section.

(d) PAYMENTS.—Of the amounts made available under subsection (f) to conduct the pilot program under this section, the

Secretary shall—

(1) make payments to participating States for the costs

of conducting the pilot program in such States; and

(2) reserve up to 4 percent of such amounts to conduct

the evaluation required under subsection (e).

(e) EVALUATION.—The Secretary, in consultation with the

Attorney General, shall conduct by grant, contract, or interagency

agreement an evaluation of the pilot program conducted under

this section. Such evaluation shall—

(1) review the various procedures implemented by participating States for long-term care facilities or providers to conduct background checks of direct patient access employees and

identify the most efficient, effective, and economical procedures

for conducting such background checks;

(2) assess the costs of conducting such background checks

(including start-up and administrative costs);

(3) consider the benefits and problems associated with

requiring employees or facilities or providers to pay the costs

of conducting such background checks;

(4) consider whether the costs of conducting such background checks should be allocated between the medicare and

medicaid programs and if so, identify an equitable methodology

for doing so;

(5) determine the extent to which conducting such background checks leads to any unintended consequences, including

a reduction in the available workforce for such facilities or

providers;

(6) review forms used by participating States in order to

develop, in consultation with the Attorney General, a model

form for such background checks;

(7) determine the effectiveness of background checks conducted by employment agencies; and

(8) recommend appropriate procedures and payment

mechanisms for implementing a national criminal background

check program for such facilities and providers.

(f) FUNDING.—Out of any funds in the Treasury not otherwise

appropriated, there are appropriated to the Secretary to carry out

Grants.

Contracts.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2261

the pilot program under this section for the period of fiscal years

2004 through 2007, $25,000,000.

(g) DEFINITIONS.—In this section:

(1) CONVICTION FOR A RELEVANT CRIME.—The term ‘‘conviction for a relevant crime’’ means any Federal or State criminal

conviction for—

(A) any offense described in section 1128(a) of the

Social Security Act (42 U.S.C. 1320a–7); and

(B) such other types of offenses as a participating

State may specify for purposes of conducting the pilot program in such State.

(2) DISQUALIFYING INFORMATION.—The term ‘‘disqualifying

information’’ means a conviction for a relevant crime or a

finding of patient or resident abuse.

(3) FINDING OF PATIENT OR RESIDENT ABUSE.—The term

‘‘finding of patient or resident abuse’’ means any substantiated

finding by a State agency under section 1819(g)(1)(C) or

1919(g)(1)(C) of the Social Security Act (42 U.S.C. 1395i–

3(g)(1)(C), 1396r(g)(1)(C)) or a Federal agency that a direct

patient access employee has committed—

(A) an act of patient or resident abuse or neglect or

a misappropriation of patient or resident property; or

(B) such other types of acts as a participating State

may specify for purposes of conducting the pilot program

in such State.

(4) DIRECT PATIENT ACCESS EMPLOYEE.—The term ‘‘direct

patient access employee’’ means any individual (other than

a volunteer) that has access to a patient or resident of a

long-term care facility or provider through employment or

through a contract with such facility or provider, as determined

by a participating State for purposes of conducting the pilot

program in such State.

(5) LONG-TERM CARE FACILITY OR PROVIDER.—

(A) IN GENERAL.—The term ‘‘long-term care facility

or provider’’ means the following facilities or providers

which receive payment for services under title XVIII or

XIX of the Social Security Act:

(i) A skilled nursing facility (as defined in section

1819(a) of the Social Security Act) (42 U.S.C. 1395i–

3(a)).

(ii) A nursing facility (as defined in section 1919(a)

in such Act) (42 U.S.C. 1396r(a)).

(iii) A home health agency.

(iv) A provider of hospice care (as defined in section

1861(dd)(1) of such Act) (42 U.S.C. 1395x(dd)(1)).

(v) A long-term care hospital (as described in section 1886(d)(1)(B)(iv) of such Act) (42 U.S.C.

1395ww(d)(1)(B)(iv)).

(vi) A provider of personal care services.

(vii) A residential care provider that arranges for,

or directly provides, long-term care services.

(viii) An intermediate care facility for the mentally

retarded (as defined in section 1905(d) of such Act)

42 U.S.C. 1396d(d)).

(B) ADDITIONAL FACILITIES OR PROVIDERS.—During the

first year in which a pilot program under this section

is conducted in a participating State, the State may expand

117 STAT. 2262 PUBLIC LAW 108–173—DEC. 8, 2003

the list of facilities or providers under subparagraph (A)

(on a phased-in basis or otherwise) to include such other

facilities or providers of long-term care services under such

titles as the participating State determines appropriate.

(C) EXCEPTIONS.—Such term does not include—

(i) any facility or entity that provides, or is a

provider of, services described in subparagraph (A) that

are exclusively provided to an individual pursuant to

a self-directed arrangement that meets such requirements as the participating State may establish in

accordance with guidance from the Secretary; or

(ii) any such arrangement that is obtained by a

patient or resident functioning as an employer.

(6) PARTICIPATING STATE.—The term ‘‘participating State’’

means a State with an agreement under subsection (c)(1).

TITLE IV—RURAL PROVISIONS

Subtitle A—Provisions Relating to Part A

Only

SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT

AMOUNTS UNDER THE MEDICARE INPATIENT HOSPITAL

PROSPECTIVE PAYMENT SYSTEM.

(a) IN GENERAL.—Section 1886(d)(3)(A)(iv) (42 U.S.C.

1395ww(d)(3)(A)(iv)) is amended—

(1) by striking ‘‘(iv) For discharges’’ and inserting ‘‘(iv)(I)

Subject to subclause (II), for discharges’’; and

(2) by adding at the end the following new subclause:

‘‘(II) For discharges occurring in a fiscal year (beginning

with fiscal year 2004), the Secretary shall compute a standardized amount for hospitals located in any area within the United

States and within each region equal to the 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 all hospitals in the previous fiscal year)

increased by the applicable percentage increase under subsection (b)(3)(B)(i) for the fiscal year involved.’’.

(b) CONFORMING AMENDMENTS.—

(1) COMPUTING DRG-SPECIFIC RATES.—Section 1886(d)(3)(D)

(42 U.S.C. 1395ww(d)(3)(D)) is amended—

(A) in the heading, by striking ‘‘IN DIFFERENT AREAS’’;

(B) in the matter preceding clause (i), by striking ‘‘,

each of’’;

(C) in clause (i)—

(i) in the matter preceding subclause (I), by

inserting ‘‘for fiscal years before fiscal year 2004,’’

before ‘‘for hospitals’’; and

(ii) in subclause (II), by striking ‘‘and’’ after the

semicolon at the end;

(D) in clause (ii)—

(i) in the matter preceding subclause (I), by

inserting ‘‘for fiscal years before fiscal year 2004,’’

before ‘‘for hospitals’’; and

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2263

(ii) in subclause (II), by striking the period at

the end and inserting ‘‘; and’’; and

(E) by adding at the end the following new clause:

‘‘(iii) for a fiscal year beginning after fiscal year 2003,

for hospitals located in all areas, to the product of—

‘‘(I) the applicable standardized amount (computed

under subparagraph (A)), reduced under subparagraph

(B), and adjusted or reduced under subparagraph (C)

for the fiscal year; and

‘‘(II) the weighting factor (determined under paragraph (4)(B)) for that diagnosis-related group.’’.

(2) TECHNICAL CONFORMING SUNSET.—Section 1886(d)(3)

(42 U.S.C. 1395ww(d)(3)) is amended—

(A) in the matter preceding subparagraph (A), by

inserting ‘‘, for fiscal years before fiscal year 1997,’’ before

‘‘a regional adjusted DRG prospective payment rate’’; and

(B) in subparagraph (D), in the matter preceding clause

(i), by inserting ‘‘, for fiscal years before fiscal year 1997,’’

before ‘‘a regional DRG prospective payment rate for each

region,’’.

(3) ADDITIONAL TECHNICAL AMENDMENT.—Section

1886(d)(3)(A)(iii) (42 U.S.C. 1395ww(d)(3)(A)(iii)) is amended

by striking ‘‘in an other urban area’’ and inserting ‘‘in an

urban area’’.

(c) EQUALIZING URBAN AND RURAL STANDARDIZED PAYMENT

AMOUNTS UNDER THE MEDICARE INPATIENT HOSPITAL PROSPECTIVE

PAYMENT SYSTEM FOR HOSPITALS IN PUERTO RICO.—

(1) IN GENERAL.—Section 1886(d)(9)(A) (42 U.S.C.

1395ww(d)(9)(A)), as amended by section 504, is amended—

(A) in clause (i), by striking ‘‘and’’ after the comma

at the end; and

(B) by striking clause (ii) and inserting the following

new clause:

‘‘(ii) the applicable Federal percentage (specified in

subparagraph (E)) of—

‘‘(I) for discharges beginning in a fiscal year beginning

on or after October 1, 1997, and before October 1, 2003,

the discharge-weighted average of—

‘‘(aa) the national adjusted DRG prospective payment rate (determined under paragraph (3)(D)) for hospitals located in a large urban area,

‘‘(bb) such rate for hospitals located in other urban

areas, and

‘‘(cc) such rate for hospitals located in a rural

area,

for such discharges, adjusted in the manner provided in

paragraph (3)(E) for different area wage levels; and

‘‘(II) for discharges in a fiscal year beginning on or

after October 1, 2003, the national DRG prospective payment rate determined under paragraph (3)(D)(iii) for hospitals located in any area for such discharges, adjusted

in the manner provided in paragraph (3)(E) for different

area wage levels.

As used in this section, the term ‘subsection (d) Puerto Rico hospital’

means a hospital that is located in Puerto Rico and that would

be a subsection (d) hospital (as defined in paragraph (1)(B)) if

it were located in one of the 50 States.’’.

117 STAT. 2264 PUBLIC LAW 108–173—DEC. 8, 2003

(2) APPLICATION OF PUERTO RICO STANDARDIZED AMOUNT

BASED ON LARGE URBAN AREAS.—Section 1886(d)(9)(C) (42

U.S.C. 1395ww(d)(9)(C)) is amended—

(A) in clause (i)—

(i) by striking ‘‘(i) The Secretary’’ and inserting

‘‘(i)(I) For discharges in a fiscal year after fiscal year

1988 and before fiscal year 2004, the Secretary’’; and

(ii) by adding at the end the following new subclause:

‘‘(II) 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 of Puerto

Rico that is equal to the average standardized amount computed

under subclause (I) for fiscal year 2003 for hospitals in a

large urban area (or, beginning with fiscal year 2005, for all

hospitals in the previous fiscal year) increased by the applicable

percentage increase under subsection (b)(3)(B) for the fiscal

year involved.’’;

(B) in clause (ii), by inserting ‘‘(or for fiscal year 2004

and thereafter, the average standardized amount)’’ after

‘‘each of the average standardized amounts’’; and

(C) in clause (iii)(I), by striking ‘‘for hospitals located

in an urban or rural area, respectively’’.

(d) IMPLEMENTATION.—

(1) IN GENERAL.—The amendments made by subsections

(a), (b), and (c)(1) of this section shall have no effect on the

authority of the Secretary, under subsection (b)(2) of section

402 of Public Law 108–89, to delay implementation of the

extension of provisions equalizing urban and rural standardized

inpatient hospital payments under subsection (a) of such section

402.

(2) APPLICATION OF PUERTO RICO STANDARDIZED AMOUNT

BASED ON LARGE URBAN AREAS.—The authority of the Secretary

referred to in paragraph (1) shall apply with respect to the

amendments made by subsection (c)(2) of this section in the

same manner as that authority applies with respect to the

extension of provisions equalizing urban and rural standardized

inpatient hospital payments under subsection (a) of such section

402, except that any reference in subsection (b)(2)(A) of such

section 402 is deemed to be a reference to April 1, 2004.

SEC. 402. ENHANCED DISPROPORTIONATE SHARE HOSPITAL (DSH)

TREATMENT FOR RURAL HOSPITALS AND URBAN HOSPITALS WITH FEWER THAN 100 BEDS.

(a) DOUBLING THE CAP.—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 occurring on or after April

1, 2004, 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 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 12 percent for a hospital that is not

classified as a rural referral center under subparagraph (C).’’.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2265

(b) CONFORMING AMENDMENTS.—Section 1886(d) (42 U.S.C.

1395ww(d)) is amended—

(1) in paragraph (5)(F)—

(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’’; and

(2) in paragraph (2)(C)(iv)—

(A) by striking ‘‘or’’ before ‘‘the enactment of section

303’’; and

(B) by inserting before the period at the end the following: ‘‘, or the enactment of section 402(a)(1) of the Medicare Prescription Drug, Improvement, and Modernization

Act of 2003’’.

SEC. 403. ADJUSTMENT TO THE MEDICARE INPATIENT HOSPITAL

PROSPECTIVE PAYMENT SYSTEM WAGE INDEX TO

REVISE THE LABOR-RELATED SHARE OF SUCH INDEX.

(a) ADJUSTMENT.—

(1) IN GENERAL.—Section 1886(d)(3)(E) (42 U.S.C.

1395ww(d)(3)(E)) is amended—

(A) by striking ‘‘WAGE LEVELS.—The Secretary’’ and

inserting ‘‘WAGE LEVELS.—

‘‘(i) IN GENERAL.—Except as provided in clause (ii),

the Secretary’’; and

(B) by adding at the end the following new clause:

‘‘(ii) ALTERNATIVE PROPORTION TO BE ADJUSTED BEGINNING IN FISCAL YEAR 2005.—For discharges occurring on

or after October 1, 2004, the Secretary shall substitute

‘62 percent’ for the proportion described in the first sentence of clause (i), unless the application of this clause

would result in lower payments to a hospital than would

otherwise be made.’’.

(2) WAIVING BUDGET NEUTRALITY.—Section 1886(d)(3)(E)

(42 U.S.C. 1395ww(d)(3)(E)), as amended by subsection (a),

is amended by adding at the end of clause (i) the following

new sentence: ‘‘The Secretary shall apply the previous sentence

for any period as if the amendments made by section 403(a)(1)

of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 had not been enacted.’’.

(b) APPLICATION TO PUERTO RICO HOSPITALS.—Section

1886(d)(9)(C)(iv) (42 U.S.C. 1395ww(d)(9)(C)(iv)) is amended—

(1) by inserting ‘‘(I)’’ after ‘‘(iv)’’;

(2) by striking ‘‘paragraph (3)(E)’’ and inserting ‘‘paragraph

(3)(E)(i)’’; and

(3) by adding at the end the following new subclause:

‘‘(II) For discharges occurring on or after October 1, 2004,

the Secretary shall substitute ‘62 percent’ for the proportion

described in the first sentence of clause (i), unless the application of this subclause would result in lower payments to a

hospital than would otherwise be made.’’.

117 STAT. 2266 PUBLIC LAW 108–173—DEC. 8, 2003

SEC. 404. 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,

including the labor share, in such market basket to reflect the

most current data available more frequently than once every 5

years.

(b) INCORPORATION OF EXPLANATION IN RULEMAKING.—The Secretary shall include in the publication of the final rule for payment

for inpatient hospital services under section 1886(d) of the Social

Security Act (42 U.S.C. 1395ww(d)) for fiscal year 2006, an explanation of the reasons for, and options considered, in determining

frequency established under subsection (a).

SEC. 405. IMPROVEMENTS TO CRITICAL ACCESS HOSPITAL PROGRAM.

(a) INCREASE IN PAYMENT AMOUNTS.—

(1) IN GENERAL.—Sections 1814(l), 1834(g)(1), and

1883(a)(3) (42 U.S.C. 1395f(l), 1395m(g)(1), and 1395tt(a)(3))

are each amended by inserting ‘‘equal to 101 percent of’’ before

‘‘the reasonable costs’’.

(2) EFFECTIVE DATE.—The amendments made by paragraph

(1) shall apply to payments for services furnished during cost

reporting periods beginning on or after January 1, 2004.

(b) COVERAGE OF COSTS FOR CERTAIN EMERGENCY ROOM ONCALL PROVIDERS.—

(1) IN GENERAL.—Section 1834(g)(5) (42 U.S.C. 1395m(g)(5))

is amended—

(A) in the heading—

(i) by inserting ‘‘CERTAIN’’ before ‘‘EMERGENCY’’; and

(ii) by striking ‘‘PHYSICIANS’’ and inserting ‘‘PROVIDERS’’;

(B) by striking ‘‘emergency room physicians who are

on-call (as defined by the Secretary)’’ and inserting ‘‘physicians, physician assistants, nurse practitioners, and clinical

nurse specialists who are on-call (as defined by the Secretary) to provide emergency services’’; and

(C) by striking ‘‘physicians’ services’’ and inserting

‘‘services covered under this title’’.

(2) EFFECTIVE DATE.—The amendments made by paragraph

(1) shall apply with respect to costs incurred for services furnished on or after January 1, 2005.

(c) AUTHORIZATION OF PERIODIC INTERIM PAYMENT (PIP).—

(1) IN GENERAL.—Section 1815(e)(2) (42 U.S.C. 1395g(e)(2))

is amended—

(A) in the matter before subparagraph (A), by inserting

‘‘, in the cases described in subparagraphs (A) through

(D)’’ after ‘‘1986’’;

(B) by striking ‘‘and’’ at the end of subparagraph (C);

(C) by adding ‘‘and’’ at the end of subparagraph (D);

and

(D) by inserting after subparagraph (D) the following

new subparagraph:

‘‘(E) inpatient critical access hospital services;’’.

42 USC 1395m

note.

42 USC 1395f

note.

42 USC 1395ww

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2267

(2) DEVELOPMENT OF ALTERNATIVE TIMING METHODS OF

PERIODIC INTERIM PAYMENTS.—With respect to periodic interim

payments to critical access hospitals for inpatient critical access

hospital services under section 1815(e)(2)(E) of the Social Security Act, as added by paragraph (1), the Secretary shall develop

alternative methods for the timing of such payments.

(3) AUTHORIZATION OF PIP.—The amendments made by

paragraph (1) shall apply to payments made on or after July

1, 2004.

(d) CONDITION FOR APPLICATION OF SPECIAL PROFESSIONAL

SERVICE PAYMENT ADJUSTMENT.— (1) IN GENERAL.—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 or other practitioner 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 and practitioners who have not assigned

such billing rights.’’.

(2) EFFECTIVE DATE.—

(A) IN GENERAL.—Except as provided in subparagraph

(B), the amendment made by paragraph (1) shall apply

to cost reporting periods beginning on or after July 1,

2004.

(B) RULE OF APPLICATION.—In the case of a critical

access hospital that made an election under section

1834(g)(2) of the Social Security Act (42 U.S.C. 1395m(g)(2))

before November 1, 2003, the amendment made by paragraph (1) shall apply to cost reporting periods beginning

on or after July 1, 2001.

(e) REVISION OF BED LIMITATION FOR HOSPITALS.—

(1) IN GENERAL.—Section 1820(c)(2)(B)(iii) (42 U.S.C.

1395i–4(c)(2)(B)(iii)) is amended by striking ‘‘15 (or, in the

case of a facility under an agreement described in subsection

(f), 25)’’ and inserting ‘‘25’’.

(2) CONFORMING AMENDMENT.—Section 1820(f) (42 U.S.C.

1395i–4(f)) is amended by striking ‘‘and the number of beds

used at any time for acute care inpatient services does not

exceed 15 beds’’.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to designations made before, on, or after

January 1, 2004, but any election made pursuant to regulations

promulgated to carry out such amendments shall only apply

prospectively.

(f) PROVISIONS RELATING TO FLEX GRANTS.—

(1) ADDITIONAL 4-YEAR PERIOD OF FUNDING.—Section

1820(j) (42 U.S.C. 1395i–4(j)) is amended by inserting before

the period at the end the following: ‘‘, and for making grants

to all States under paragraphs (1) and (2) of subsection (g),

$35,000,000 in each of fiscal years 2005 through 2008’’.

(2) ADDITIONAL REQUIREMENTS AND ADMINISTRATION.—Section 1820(g) (42 U.S.C. 1395i–4(g)) is amended by adding at

the end the following new paragraphs:

‘‘(4) ADDITIONAL REQUIREMENTS WITH RESPECT TO FLEX

GRANTS.—With respect to grants awarded under paragraph (1)

Applicability.

42 USC 1395i–4

note.

42 USC 1395m

note.

Effective date.

42 USC 1395g

note.

42 USC 1395g

note.

117 STAT. 2268 PUBLIC LAW 108–173—DEC. 8, 2003

or (2) from funds appropriated for fiscal year 2005 and subsequent fiscal years—

‘‘(A) CONSULTATION WITH THE STATE HOSPITAL ASSOCIATION AND RURAL HOSPITALS ON THE MOST APPROPRIATE WAYS

TO USE GRANTS.—A State shall consult with the hospital

association of such State and rural hospitals located in

such State on the most appropriate ways to use the funds

under such grant.

‘‘(B) LIMITATION ON USE OF GRANT FUNDS FOR ADMINIS- TRATIVE EXPENSES.—A State may not expend more than

the lesser of—

‘‘(i) 15 percent of the amount of the grant for

administrative expenses; or

‘‘(ii) the State’s federally negotiated indirect rate

for administering the grant.

‘‘(5) USE OF FUNDS FOR FEDERAL ADMINISTRATIVE

EXPENSES.—Of the total amount appropriated for grants under

paragraphs (1) and (2) for a fiscal year (beginning with fiscal

year 2005), up to 5 percent of such amount shall be available

to the Health Resources and Services Administration for purposes of administering such grants.’’.

(g) AUTHORITY TO ESTABLISH PSYCHIATRIC AND REHABILITATION

DISTINCT PART UNITS.—

(1) IN GENERAL.—Section 1820(c)(2) (42 U.S.C. 1395i–

4(c)(2)) is amended by adding at the end the following:

‘‘(E) AUTHORITY TO ESTABLISH PSYCHIATRIC AND

REHABILITATION DISTINCT PART UNITS.—

‘‘(i) IN GENERAL.—Subject to the succeeding provisions of this subparagraph, a critical access hospital

may establish—

‘‘(I) a psychiatric unit of the hospital that is

a distinct part of the hospital; and

‘‘(II) a rehabilitation unit of the hospital that

is a distinct part of the hospital,

if the distinct part meets the requirements (including

conditions of participation) that would otherwise apply

to the distinct part if the distinct part were established

by a subsection (d) hospital in accordance with the

matter following clause (v) of section 1886(d)(1)(B),

including any regulations adopted by the Secretary

under such section.

‘‘(ii) LIMITATION ON NUMBER OF BEDS.—The total

number of beds that may be established under clause

(i) for a distinct part unit may not exceed 10.

‘‘(iii) EXCLUSION OF BEDS FROM BED COUNT.—In

determining the number of beds of a critical access

hospital for purposes of applying the bed limitations

referred to in subparagraph (B)(iii) and subsection (f),

the Secretary shall not take into account any bed established under clause (i).

‘‘(iv) EFFECT OF FAILURE TO MEET REQUIREMENTS.— If a psychiatric or rehabilitation unit established under

clause (i) does not meet the requirements described

in such clause with respect to a cost reporting period,

no payment may be made under this title to the hospital for services furnished in such unit during such

period. Payment to the hospital for services furnished

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2269

in the unit may resume only after the hospital has

demonstrated to the Secretary that the unit meets

such requirements.’’.

(2) PAYMENT ON A PROSPECTIVE PAYMENT BASIS.—Section

1814(l) (42 U.S.C. 1395f(l)) is amended—

(A) by striking ‘‘(l) The amount’’ and inserting ‘‘(l)(1)

Except as provided in paragraph (2), the amount’’; and

(B) by adding at the end the following new paragraph:

‘‘(2) In the case of a distinct part psychiatric or rehabilitation

unit of a critical access hospital described in section 1820(c)(2)(E),

the amount of payment for inpatient critical access hospital services

of such unit shall be equal to the amount of the payment that

would otherwise be made if such services were inpatient hospital

services of a distinct part psychiatric or rehabilitation unit, respectively, described in the matter following clause (v) of section

1886(d)(1)(B).’’.

(3) EFFECTIVE DATE.—The amendments made by this subsection shall apply to cost reporting periods beginning on or

after October 1, 2004.

(h) WAIVER AUTHORITY.—

(1) IN GENERAL.—Section 1820(c)(2)(B)(i)(II) (42 U.S.C.

1395i–4(c)(2)(B)(i)(II)) is amended by inserting ‘‘before January

1, 2006,’’ after ‘‘is certified’’.

(2) GRANDFATHERING WAIVER AUTHORITY FOR CERTAIN

FACILITIES.—Section 1820(h) (42 U.S.C. 1395i–4(h)) is

amended—

(A) in the heading preceding paragraph (1), by striking

‘‘OF CERTAIN FACILITIES’’ and inserting ‘‘PROVISIONS’’; and

(B) by adding at the end the following new paragraph:

‘‘(3) STATE AUTHORITY TO WAIVE 35-MILE RULE.—In the case

of a facility that was designated as a critical access hospital

before January 1, 2006, and was certified by the State as

being a necessary provider of health care services to residents

in the area under subsection (c)(2)(B)(i)(II), as in effect before

such date, the authority under such subsection with respect

to any redesignation of such facility shall continue to apply

notwithstanding the amendment made by section 405(h)(1) of

the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.’’.

SEC. 406. MEDICARE INPATIENT HOSPITAL PAYMENT ADJUSTMENT

FOR LOW-VOLUME HOSPITALS.

(a) IN GENERAL.—Section 1886(d) (42 U.S.C. 1395ww(d)) is

amended by adding at the end the following new paragraph:

‘‘(12) PAYMENT ADJUSTMENT FOR LOW-VOLUME HOSPITALS.—

‘‘(A) IN GENERAL.—In addition to any payments calculated under this section for a subsection (d) hospital,

for discharges occurring during a fiscal year (beginning

with fiscal year 2005), the Secretary shall provide for an

additional payment amount to each low-volume hospital

(as defined in subparagraph (C)(i)) for discharges occurring

during that fiscal year that is equal to the applicable

percentage increase (determined under subparagraph (B)

for the hospital involved) in the amount paid to such hospital under this section for such discharges (determined

without regard to this paragraph).

Applicability.

42 USC 1395f

note.

117 STAT. 2270 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(B) APPLICABLE PERCENTAGE INCREASE.—The Secretary shall determine an applicable percentage increase

for purposes of subparagraph (A) as follows:

‘‘(i) The Secretary shall determine the empirical

relationship for subsection (d) hospitals between the

standardized cost-per-case for such hospitals and the

total number of discharges of such hospitals and the

amount of the additional incremental costs (if any)

that are associated with such number of discharges.

‘‘(ii) The applicable percentage increase shall be

determined based upon such relationship in a manner

that reflects, based upon the number of such discharges

for a subsection (d) hospital, such additional incremental costs.

‘‘(iii) In no case shall the applicable percentage

increase exceed 25 percent.

‘‘(C) DEFINITIONS.— ‘‘(i) LOW-VOLUME HOSPITAL.—For purposes of this

paragraph, the term ‘low-volume hospital’ means, for

a fiscal year, a subsection (d) hospital (as defined in

paragraph (1)(B)) that the Secretary determines is

located more than 25 road miles from another subsection (d) hospital and has less than 800 discharges

during the fiscal year.

‘‘(ii) DISCHARGE.—For purposes of subparagraph

(B) and clause (i), the term ‘discharge’ means an

inpatient acute care discharge of an individual regardless of whether the individual is entitled to benefits

under part A.’’.

(b) JUDICIAL REVIEW.—Section 1886(d)(7)(A) (42 U.S.C.

1395ww(d)(7)(A)) is amended by inserting after ‘‘to subsection (e)(1)’’

the following: ‘‘or the determination of the applicable percentage

increase under paragraph (12)(A)(ii)’’.

SEC. 407. TREATMENT OF MISSING COST REPORTING PERIODS FOR

SOLE COMMUNITY HOSPITALS.

(a) IN GENERAL.—Section 1886(b)(3)(I) (42 U.S.C.

1395ww(b)(3)(I)) is amended by adding at the end the following

new clause:

‘‘(iii) In no case shall a hospital be denied treatment as a

sole community hospital or payment (on the basis of a target rate

as such as a hospital) because data are unavailable for any cost

reporting period due to changes in ownership, changes in fiscal

intermediaries, or other extraordinary circumstances, so long as

data for at least one applicable base cost reporting period is available.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall apply to cost reporting periods beginning on or after January

1, 2004.

SEC. 408. RECOGNITION OF ATTENDING NURSE PRACTITIONERS AS

ATTENDING PHYSICIANS TO SERVE HOSPICE PATIENTS.

(a) IN GENERAL.—Section 1861(dd)(3)(B) (42 U.S.C.

1395x(dd)(3)(B)) is amended by inserting ‘‘or nurse practitioner

(as defined in subsection (aa)(5))’’ after ‘‘the physician (as defined

in subsection (r)(1))’’.

(b) CLARIFICATION OF HOSPICE ROLE OF NURSE PRACTI- TIONERS.—Section 1814(a)(7)(A)(i)(I) (42 U.S.C. 1395f(a)(7)(A)(i)(I))

42 USC 1395ww

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2271

is amended by inserting ‘‘(which for purposes of this subparagraph

does not include a nurse practitioner)’’ after ‘‘attending physician

(as defined in section 1861(dd)(3)(B))’’.

SEC. 409. 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 facility 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.

SEC. 410. EXCLUSION OF CERTAIN RURAL HEALTH CLINIC AND FEDERALLY QUALIFIED HEALTH CENTER SERVICES FROM THE

PROSPECTIVE PAYMENT SYSTEM FOR SKILLED NURSING

FACILITIES.

(a) IN GENERAL.—Section 1888(e)(2)(A) (42 U.S.C.

1395yy(e)(2)(A)) is amended—

(1) in clause (i)(II), by striking ‘‘clauses (ii) and (iii)’’ and

inserting ‘‘clauses (ii), (iii), and (iv)’’; and

(2) by adding at the end the following new clause:

‘‘(iv) EXCLUSION OF CERTAIN RURAL HEALTH CLINIC

AND FEDERALLY QUALIFIED HEALTH CENTER SERVICES.—

Services described in this clause are—

‘‘(I) rural health clinic services (as defined in

paragraph (1) of section 1861(aa)); and

‘‘(II) federally qualified health center services

(as defined in paragraph (3) of such section);

that would be described in clause (ii) if such services

were furnished by an individual not affiliated with

a rural health clinic or a federally qualified health

center.’’.

(b) EFFECTIVE DATE.—The amendments made by subsection

(a) shall apply to services furnished on or after January 1, 2005.

42 USC 1395yy

note.

42 USC 1395d

note.

117 STAT. 2272 PUBLIC LAW 108–173—DEC. 8, 2003

SEC. 410A. RURAL COMMUNITY HOSPITAL DEMONSTRATION PROGRAM.

(a) ESTABLISHMENT OF RURAL COMMUNITY HOSPITAL (RCH)

DEMONSTRATION PROGRAM.— (1) IN GENERAL.—The Secretary shall establish a demonstration program to test the feasibility and advisability of

the establishment of rural community hospitals (as defined

in subsection (f)(1)) to furnish covered inpatient hospital services (as defined in subsection (f)(2)) to medicare beneficiaries.

(2) DEMONSTRATION AREAS.—The program shall be conducted in rural areas selected by the Secretary in States with

low population densities, as determined by the Secretary.

(3) APPLICATION.—Each rural community hospital that is

located in a demonstration area selected under paragraph (2)

that desires to participate in the demonstration program under

this section shall submit an application to the Secretary at

such time, in such manner, and containing such information

as the Secretary may require.

(4) SELECTION OF HOSPITALS.—The Secretary shall select

from among rural community hospitals submitting applications

under paragraph (3) not more than 15 of such hospitals to

participate in the demonstration program under this section.

(5) DURATION.—The Secretary shall conduct the demonstration program under this section for a 5-year period.

(6) IMPLEMENTATION.—The Secretary shall implement the

demonstration program not later than January 1, 2005, but

may not implement the program before October 1, 2004.

(b) PAYMENT.—

(1) IN GENERAL.—The amount of payment under the demonstration program for covered inpatient hospital services furnished in a rural community hospital, other than such services

furnished in a psychiatric or rehabilitation unit of the hospital

which is a distinct part, is—

(A) for discharges occurring in the first cost reporting

period beginning on or after the implementation of the

demonstration program, the reasonable costs of providing

such services; and

(B) for discharges occurring in a subsequent cost

reporting period under the demonstration program, the

lesser of—

(i) the reasonable costs of providing such services

in the cost reporting period involved; or

(ii) the target amount (as defined in paragraph

(2), applicable to the cost reporting period involved.

(2) TARGET AMOUNT.—For purposes of paragraph (1)(B)(ii),

the term ‘‘target amount’’ means, with respect to a rural

community hospital for a particular 12-month cost reporting

period—

(A) in the case of the second such reporting period

for which this subsection is in effect, the reasonable costs

of providing such covered inpatient hospital services as

determined under paragraph (1)(A), and

(B) in the case of a later reporting period, the target

amount for the preceding 12-month cost reporting period,

increased by the applicable percentage increase (under clause

(i) of section 1886(b)(3)(B) of the Social Security Act (42 U.S.C.

1395ww(b)(3)(B))) in the market basket percentage increase

Deadline.

42 USC 1395ww

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2273

(as defined in clause (iii) of such section) for that particular

cost reporting period.

(c) FUNDING.—

(1) IN GENERAL.—The Secretary shall provide for the

transfer from the Federal Hospital Insurance Trust Fund under

section 1817 of the Social Security Act (42 U.S.C. 1395i) of

such funds as are necessary for the costs of carrying out the

demonstration program under this section.

(2) BUDGET NEUTRALITY.—In conducting the demonstration

program under this section, the Secretary shall ensure that

the aggregate payments made by the Secretary do not exceed

the amount which the Secretary would have paid if the demonstration program under this section was not implemented.

(d) WAIVER AUTHORITY.—The Secretary may waive such

requirements of title XVIII of the Social Security Act (42 U.S.C.

1395 et seq.) as may be necessary for the purpose of carrying

out the demonstration program under this section.

(e) REPORT.—Not later than 6 months after the completion

of the demonstration program under this section, the Secretary

shall submit to Congress a report on such program, together with

recommendations for such legislation and administrative action as

the Secretary determines to be appropriate.

(f) DEFINITIONS.—In this section:

(1) RURAL COMMUNITY HOSPITAL DEFINED.—

(A) IN GENERAL.—The term ‘‘rural community hospital’’

means a hospital (as defined in section 1861(e) of the

Social Security Act (42 U.S.C. 1395x(e))) that—

(i) is located in a rural area (as defined in section

1886(d)(2)(D) of such Act (42 U.S.C. 1395ww(d)(2)(D)))

or treated as being so located pursuant to section

1886(d)(8)(E) of such Act (42 U.S.C. 1395ww(d)(8)(E));

(ii) subject to paragraph (2), has fewer than 51

acute care inpatient beds, as reported in its most recent

cost report;

(iii) makes available 24-hour emergency care services; and

(iv) is not eligible for designation, or has not been

designated, as a critical access hospital under section

1820.

(B) TREATMENT OF PSYCHIATRIC AND REHABILITATION

UNITS.—For purposes of paragraph (1)(B), beds in a psychiatric or rehabilitation unit of the hospital which is a

distinct part of the hospital shall not be counted.

(2) COVERED INPATIENT HOSPITAL SERVICES.—The term

‘‘covered inpatient hospital services’’ means inpatient hospital

services, and includes extended care services furnished under

an agreement under section 1883 of the Social Security Act

(42 U.S.C. 1395tt).

Deadline.

117 STAT. 2274 PUBLIC LAW 108–173—DEC. 8, 2003

Subtitle B—Provisions Relating to Part B

Only

SEC. 411. TWO-YEAR EXTENSION OF HOLD HARMLESS PROVISIONS FOR

SMALL RURAL HOSPITALS AND SOLE COMMUNITY HOSPITALS UNDER THE PROSPECTIVE PAYMENT SYSTEM

FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES.

(a) HOLD HARMLESS PROVISIONS.—

(1) IN GENERAL.—Section 1833(t)(7)(D)(i) (42 U.S.C.

1395l(t)(7)(D)(i)) is amended—

(A) in the heading, by striking ‘‘SMALL’’ and inserting

‘‘CERTAIN’’;

(B) by inserting ‘‘or a sole community hospital (as

defined in section 1886(d)(5)(D)(iii)) located in a rural area’’

after ‘‘100 beds’’; and

(C) by striking ‘‘2004’’ and inserting ‘‘2006’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1)(B) shall apply with respect to cost reporting periods beginning on and after January 1, 2004.

(b) STUDY; AUTHORIZATION OF ADJUSTMENT.—Section 1833(t)

(42 U.S.C. 1395l(t)) is amended—

(1) by redesignating paragraph (13) as paragraph (16);

and

(2) by inserting after paragraph (12) the following new

paragraph:

‘‘(13) AUTHORIZATION OF ADJUSTMENT FOR RURAL HOSPITALS.—

‘‘(A) STUDY.—The Secretary shall conduct a study to

determine if, under the system under this subsection, costs

incurred by hospitals located in rural areas by ambulatory

payment classification groups (APCs) exceed those costs

incurred by hospitals located in urban areas.

‘‘(B) AUTHORIZATION OF ADJUSTMENT.—Insofar as the

Secretary determines under subparagraph (A) that costs

incurred by hospitals located in rural areas exceed those

costs incurred by hospitals located in urban areas, the

Secretary shall provide for an appropriate adjustment

under paragraph (2)(E) to reflect those higher costs by

January 1, 2006.’’.

SEC. 412. ESTABLISHMENT OF FLOOR ON WORK GEOGRAPHIC ADJUSTMENT.

Section 1848(e)(1) (42 U.S.C. 1395w–4(e)(1)) is amended—

(1) in subparagraph (A), by striking ‘‘subparagraphs (B)

and (C)’’ and inserting ‘‘subparagraphs (B), (C), and (E)’’; and

(2) by adding at the end the following new subparagraph:

‘‘(E) FLOOR AT 1.0 ON WORK GEOGRAPHIC INDEX.—After

calculating the work geographic index in subparagraph

(A)(iii), for purposes of payment for services furnished on

or after January 1, 2004, and before January 1, 2007,

the Secretary shall increase the work geographic index

to 1.00 for any locality for which such work geographic

index is less than 1.00.’’.

42 USC 1395l

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2275

SEC. 413. MEDICARE INCENTIVE PAYMENT PROGRAM IMPROVEMENTS

FOR PHYSICIAN SCARCITY.

(a) ADDITIONAL INCENTIVE PAYMENT FOR CERTAIN PHYSICIAN

SCARCITY AREAS.—Section 1833 (42 U.S.C. 1395l) is amended by

adding at the end the following new subsection:

‘‘(u) INCENTIVE PAYMENTS FOR PHYSICIAN SCARCITY AREAS.— ‘‘(1) IN GENERAL.—In the case of physicians’ services furnished on or after January 1, 2005, and before January 1,

2008—

‘‘(A) by a primary care physician in a primary care

scarcity county (identified under paragraph (4)); or

‘‘(B) by a physician who is not a primary care physician

in a specialist care scarcity county (as so identified),

in addition to the amount of payment that would otherwise

be made for such services under this part, there also shall

be paid an amount equal to 5 percent of the payment amount

for the service under this part.

‘‘(2) DETERMINATION OF RATIOS OF PHYSICIANS TO MEDICARE

BENEFICIARIES IN AREA.—Based upon available data, the Secretary shall establish for each county or equivalent area in

the United States, the following:

‘‘(A) NUMBER OF PHYSICIANS PRACTICING IN THE AREA.—

The number of physicians who furnish physicians’ services

in the active practice of medicine or osteopathy in that

county or area, other than physicians whose practice is

exclusively for the Federal Government, physicians who

are retired, or physicians who only provide administrative

services. Of such number, the number of such physicians

who are—

‘‘(i) primary care physicians; or

‘‘(ii) physicians who are not primary care physicians.

‘‘(B) NUMBER OF MEDICARE BENEFICIARIES RESIDING IN

THE AREA.—The number of individuals who are residing

in the county and are entitled to benefits under part A

or enrolled under this part, or both (in this subsection

referred to as ‘individuals’).

‘‘(C) DETERMINATION OF RATIOS.—

‘‘(i) PRIMARY CARE RATIO.—The ratio (in this paragraph referred to as the ‘primary care ratio’) of the

number of primary care physicians (determined under

subparagraph (A)(i)), to the number of individuals

determined under subparagraph (B).

‘‘(ii) SPECIALIST CARE RATIO.—The ratio (in this

paragraph referred to as the ‘specialist care ratio’)

of the number of other physicians (determined under

subparagraph (A)(ii)), to the number of individuals

determined under subparagraph (B).

‘‘(3) RANKING OF COUNTIES.—The Secretary shall rank each

such county or area based separately on its primary care ratio

and its specialist care ratio.

‘‘(4) IDENTIFICATION OF COUNTIES.—

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

‘‘(i) those counties and areas (in this paragraph

referred to as ‘primary care scarcity counties’) with

the lowest primary care ratios that represent, if each

such county or area were weighted by the number

117 STAT. 2276 PUBLIC LAW 108–173—DEC. 8, 2003

of individuals determined under paragraph (2)(B), an

aggregate total of 20 percent of the total of the individuals determined under such paragraph; and

‘‘(ii) those counties and areas (in this subsection

referred to as ‘specialist care scarcity counties’) with

the lowest specialist care ratios that represent, if each

such county or area were weighted by the number

of individuals determined under paragraph (2)(B), an

aggregate total of 20 percent of the total of the individuals determined under such paragraph.

‘‘(B) PERIODIC REVISIONS.—The Secretary shall periodically revise the counties or areas identified in subparagraph

(A) (but not less often than once every three years) unless

the Secretary determines that there is no new data available on the number of physicians practicing in the county

or area or the number of individuals residing in the county

or area, as identified in paragraph (2).

‘‘(C) IDENTIFICATION OF COUNTIES WHERE SERVICE IS

FURNISHED.—For purposes of paying the additional amount

specified in paragraph (1), if the Secretary uses the 5-

digit postal ZIP Code where the service is furnished, the

dominant county of the postal ZIP Code (as determined

by the United States Postal Service, or otherwise) shall

be used to determine whether the postal ZIP Code is in

a scarcity county identified in subparagraph (A) or revised

in subparagraph (B).

‘‘(D) JUDICIAL REVIEW.—There shall be no administrative or judicial review under section 1869, 1878, or otherwise, respecting—

‘‘(i) the identification of a county or area;

‘‘(ii) the assignment of a specialty of any physician

under this paragraph;

‘‘(iii) the assignment of a physician to a county

under paragraph (2); or

‘‘(iv) the assignment of a postal ZIP Code to a

county or other area under this subsection.

‘‘(5) RURAL CENSUS TRACTS.—To the extent feasible, the

Secretary shall treat 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)),

as an equivalent area for purposes of qualifying as a primary

care scarcity county or specialist care scarcity county under

this subsection.

‘‘(6) PHYSICIAN DEFINED.—For purposes of this paragraph,

the term ‘physician’ means a physician described in section

1861(r)(1) and the term ‘primary care physician’ means a physician who is identified in the available data as a general practitioner, family practice practitioner, general internist, or

obstetrician or gynecologist.

‘‘(7) PUBLICATION OF LIST OF COUNTIES; POSTING ON

WEBSITE.—With respect to a year for which a county or area

is identified or revised under paragraph (4), the Secretary shall

identify such counties or areas as part of the proposed and

final rule to implement the physician fee schedule under section

1848 for the applicable year. The Secretary shall post the

list of counties identified or revised under paragraph (4) on

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2277

the Internet website of the Centers for Medicare & Medicaid

Services.’’.

(b) IMPROVEMENT TO MEDICARE INCENTIVE PAYMENT PROGRAM.—

(1) IN GENERAL.—Section 1833(m) (42 U.S.C. 1395l(m)) is

amended—

(A) by inserting ‘‘(1)’’ after ‘‘(m)’’;

(B) in paragraph (1), as designated by subparagraph

(A)—

(i) by inserting ‘‘in a year’’ after ‘‘In the case of

physicians’ services furnished’’; and

(ii) by inserting ‘‘as identified by the Secretary

prior to the beginning of such year’’ after ‘‘as a health

professional shortage area’’; and

(C) by adding at the end the following new paragraphs:

‘‘(2) For each health professional shortage area identified in

paragraph (1) that consists of an entire county, the Secretary shall

provide for the additional payment under paragraph (1) without

any requirement on the physician to identify the health professional

shortage area involved. The Secretary may implement the previous

sentence using the method specified in subsection (u)(4)(C).

‘‘(3) The Secretary shall post on the Internet website of the

Centers for Medicare & Medicaid Services a list of the health

professional shortage areas identified in paragraph (1) that consist

of a partial county to facilitate the additional payment under paragraph (1) in such areas.

‘‘(4) There shall be no administrative or judicial review under

section 1869, section 1878, or otherwise, respecting—

‘‘(A) the identification of a county or area;

‘‘(B) the assignment of a specialty of any physician under

this paragraph;

‘‘(C) the assignment of a physician to a county under this

subsection; or

‘‘(D) the assignment of a postal ZIP Code to a county

or other area under this subsection.’’.

(2) EFFECTIVE DATE.—The amendments made by paragraph

(1) shall apply to physicians’ services furnished on or after

January 1, 2005.

(c) GAO STUDY OF GEOGRAPHIC DIFFERENCES IN PAYMENTS

FOR PHYSICIANS’ SERVICES.—

(1) 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—

(A) an assessment of the validity of the geographic

adjustment factors used for each component of the fee

schedule;

(B) an evaluation of the measures used for such adjustment, including the frequency of revisions;

(C) 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

42 USC 1395w–4

note.

42 USC 1395l

note.

117 STAT. 2278 PUBLIC LAW 108–173—DEC. 8, 2003

index and relative weights for the malpractice component;

and

(D) an evaluation of the effect of the adjustment to

the physician work geographic index under section

1848(e)(1)(E) of the Social Security Act, as added by section

412, on physician location and retention in areas affected

by such adjustment, taking into account—

(i) differences in recruitment costs and retention

rates for physicians, including specialists, between

large urban areas and other areas; and

(ii) the mobility of physicians, including specialists,

over the last decade.

(2) 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 paragraph

(1). 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. 414. PAYMENT FOR RURAL AND URBAN 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 (11)’’ after ‘‘in an efficient and fair manner’’; and

(2) by redesignating paragraph (8), as added by section

221(a) of BIPA (114 Stat. 2763A–486), 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 ground service

furnished in a year, the portion of the payment amount that

is based on the fee schedule shall be the greater of the amount

determined under such fee schedule (without regard to this

paragraph) or the following blended rate of the fee schedule

under paragraph (1) and of a regional fee schedule for the

region involved:

‘‘(A) For 2004 (for services furnished on or after July

1, 2004), 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 2005, 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 2006, 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 2007, 2008, and 2009, the blended rate shall

be based 80 percent on the fee schedule under paragraph

(1) and 20 percent on the regional fee schedule.

‘‘(E) For 2010 and each succeeding year, the blended

rate shall be based 100 percent on the fee schedule under

paragraph (1).

For purposes of this paragraph, the Secretary shall establish

a regional fee schedule for each of the nine census divisions

(referred to in section 1886(d)(2)) using the methodology (used

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2279

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 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

July 1, 2004, and before January 1, 2009, 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 miles in excess

of 50 miles in such trip.’’.

(c) IMPROVEMENT IN PAYMENTS TO RETAIN EMERGENCY

CAPACITY FOR AMBULANCE SERVICES IN RURAL AREAS.—

(1) IN GENERAL.—Section 1834(l) (42 U.S.C. 1395m(l)), as

amended by subsections (a) and (b), is amended by adding

at the end the following new paragraph:

‘‘(12) ASSISTANCE FOR RURAL PROVIDERS FURNISHING SERVICES IN LOW POPULATION DENSITY AREAS.—

‘‘(A) IN GENERAL.—In the case of ground ambulance

services furnished on or after July 1, 2004, and before

January 1, 2010, for which the transportation originates

in a qualified rural area (identified under subparagraph

(B)(iii)), the Secretary shall provide for a percent increase

in the base rate of the fee schedule for a trip established

under this subsection. In establishing such percent

increase, the Secretary shall estimate the average cost

per trip for such services (not taking into account mileage)

in the lowest quartile as compared to the average cost

per trip for such services (not taking into account mileage)

in the highest quartile of all rural county populations.

‘‘(B) IDENTIFICATION OF QUALIFIED RURAL AREAS.—

‘‘(i) DETERMINATION OF POPULATION DENSITY IN

AREA.—Based upon data from the United States decennial census for the year 2000, the Secretary shall determine, for each rural area, the population density for

that area.

‘‘(ii) RANKING OF AREAS.—The Secretary shall rank

each such area based on such population density.

‘‘(iii) IDENTIFICATION OF QUALIFIED RURAL AREAS.—

The Secretary shall identify those areas (in subparagraph (A) referred to as ‘qualified rural areas’) with

the lowest population densities that represent, if each

such area were weighted by the population of such

area (as used in computing such population densities),

an aggregate total of 25 percent of the total of the

population of all such areas.

‘‘(iv) RURAL AREA.—For purposes of this paragraph,

the term ‘rural area’ has the meaning given such term

in section 1886(d)(2)(D). If feasible, the Secretary shall

treat a rural census tract of a metropolitan statistical

area (as determined under the most recent modification

117 STAT. 2280 PUBLIC LAW 108–173—DEC. 8, 2003

of the Goldsmith Modification, originally published in

the Federal Register on February 27, 1992 (57 Fed.

Reg. 6725) as a rural area for purposes of this paragraph.

‘‘(v) JUDICIAL REVIEW.—There shall be no administrative or judicial review under section 1869, 1878,

or otherwise, respecting the identification of an area

under this subparagraph.’’.

(2) USE OF DATA.—In order to promptly implement section

1834(l)(12) of the Social Security Act, as added by paragraph

(1), the Secretary may use data furnished by the Comptroller

General of the United States.

(d) TEMPORARY INCREASE FOR GROUND AMBULANCE SERVICES.—

Section 1834(l) (42 U.S.C. 1395m(l)), as amended by subsections

(a), (b), and (c), is amended by adding at the end the following

new paragraph:

‘‘(13) TEMPORARY INCREASE FOR GROUND AMBULANCE SERVICES.—

‘‘(A) IN GENERAL.—After computing the rates with

respect to ground ambulance services under the other

applicable provisions of this subsection, in the case of such

services furnished on or after July 1, 2004, and before

January 1, 2007, for which the transportation originates

in—

‘‘(i) a rural area described in paragraph (9) or

in a rural census tract described in such paragraph,

the fee schedule established under this section shall

provide that the rate for the service otherwise established, after the application of any increase under paragraphs (11) and (12), shall be increased by 2 percent;

and

‘‘(ii) an area not described in clause (i), the fee

schedule established under this subsection shall provide that the rate for the service otherwise established,

after the application of any increase under paragraph

(11), shall be increased by 1 percent.

‘‘(B) APPLICATION OF INCREASED PAYMENTS AFTER

2006.—The increased payments under subparagraph (A)

shall not be taken into account in calculating payments

for services furnished after the period specified in such

subparagraph.’’.

(e) IMPLEMENTATION.—The Secretary may implement the

amendments made by this section, and revise the conversion factor

applicable under section 1834(l) of the Social Security Act (42 U.S.C.

1395m(l)) for purposes of implementing such amendments, on an

interim final basis, or by program instruction.

(f) GAO REPORT ON COSTS AND ACCESS.—Not later than

December 31, 2005, the Comptroller General of the United States

shall submit to Congress an initial report on how costs differ among

the types of ambulance providers and on access, supply, and quality

of ambulance services in those regions and States that have a

reduction in payment under the medicare ambulance fee schedule

(under section 1834(l) of the Social Security Act, as amended by

this Act). Not later than December 31, 2007, the Comptroller General shall submit to Congress a final report on such access and

supply.

Deadlines.

42 USC 1395m

note.

42 USC 1395m

note.

42 USC 1395m

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2281

(g) TECHNICAL AMENDMENTS.—(1) Section 221(c) of BIPA (114

Stat. 2763A–487) is amended by striking ‘‘subsection (b)(2)’’ and

inserting ‘‘subsection (b)(3)’’.

(2) Section 1861(v)(1) (42 U.S.C. 1395x(v)(1)) is amended by

moving subparagraph (U) 4 ems to the left.

SEC. 415. PROVIDING APPROPRIATE COVERAGE OF RURAL AIR AMBULANCE SERVICES.

(a) COVERAGE.—Section 1834(l) (42 U.S.C. 1395m(l)), as

amended by subsections (a), (b), (c), and (d) of section 414, is

amended by adding at the end the following new paragraph:

‘‘(14) PROVIDING APPROPRIATE COVERAGE OF RURAL AIR

AMBULANCE SERVICES.— ‘‘(A) IN GENERAL.—The regulations described in section

1861(s)(7) shall provide, to the extent that any ambulance

services (whether ground or air) may be covered under

such section, that a rural air ambulance service (as defined

in subparagraph (C)) is reimbursed under this subsection

at the air ambulance rate if the air ambulance service—

‘‘(i) is reasonable and necessary based on the

health condition of the individual being transported

at or immediately prior to the time of the transport;

and

‘‘(ii) complies with equipment and crew requirements established by the Secretary.

‘‘(B) SATISFACTION OF REQUIREMENT OF MEDICALLY NEC- ESSARY.—The requirement of subparagraph (A)(i) is deemed

to be met for a rural air ambulance service if—

‘‘(i) subject to subparagraph (D), such service is

requested by a physician or other qualified medical

personnel (as specified by the Secretary) who reasonably determines or certifies that the individual’s condition is such that the time needed to transport the

individual by land or the instability of transportation

by land poses a threat to the individual’s survival

or seriously endangers the individual’s health; or

‘‘(ii) such service is furnished pursuant to a protocol that is established by a State or regional emergency medical service (EMS) agency and recognized

or approved by the Secretary under which the use

of an air ambulance is recommended, if such agency

does not have an ownership interest in the entity furnishing such service.

‘‘(C) RURAL AIR AMBULANCE SERVICE DEFINED.—For

purposes of this paragraph, the term ‘rural air ambulance

service’ means fixed wing and rotary wing air ambulance

service in which the point of pick up of the individual

occurs 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)).

‘‘(D) LIMITATION.—

‘‘(i) IN GENERAL.—Subparagraph (B)(i) shall not

apply if there is a financial or employment relationship

between the person requesting the rural air ambulance

service and the entity furnishing the ambulance

42 USC 1395m

note.

117 STAT. 2282 PUBLIC LAW 108–173—DEC. 8, 2003

service, or an entity under common ownership with

the entity furnishing the air ambulance service, or

a financial relationship between an immediate family

member of such requester and such an entity.

‘‘(ii) EXCEPTION.—Where a hospital and the entity

furnishing rural air ambulance services are under

common ownership, clause (i) shall not apply to remuneration (through employment or other relationship)

by the hospital of the requester or immediate family

member if the remuneration is for provider-based

physician services furnished in a hospital (as described

in section 1887) which are reimbursed under part A

and the amount of the remuneration is unrelated

directly or indirectly to the provision of rural air ambulance services.’’.

(b) CONFORMING AMENDMENT.—Section 1861(s)(7) (42 U.S.C.

1395x(s)(7)) is amended by inserting ‘‘, subject to section

1834(l)(14),’’ after ‘‘but’’.

(c) EFFECTIVE DATE.—The amendments made by this subsection

shall apply to services furnished on or after January 1, 2005.

SEC. 416. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC LABORATORY TESTS FURNISHED TO HOSPITAL OUTPATIENTS IN

CERTAIN RURAL AREAS.

(a) IN GENERAL.—Notwithstanding subsections (a), (b), and (h)

of section 1833 of the Social Security Act (42 U.S.C. 1395l) and

section 1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in the case

of a clinical diagnostic laboratory test covered under part B of

title XVIII of such Act that is furnished during a cost reporting

period described in subsection (b) by a hospital with fewer than

50 beds that is located in a qualified rural area (identified under

paragraph (12)(B)(iii) of section 1834(l) of the Social Security Act

(42 U.S.C. 1395m(l)), as added by section 414(c)) as part of outpatient services of the hospital, the amount of payment for such

test shall be 100 percent of the reasonable costs of the hospital

in furnishing such test.

(b) APPLICATION.—A cost reporting period described in this

subsection is a cost reporting period beginning during the 2-year

period beginning on July 1, 2004.

(c) PROVISION AS PART OF OUTPATIENT HOSPITAL SERVICES.—

For purposes of subsection (a), in determining whether clinical

diagnostic laboratory services are furnished as part of outpatient

services of a hospital, the Secretary shall apply the same rules

that are used to determine whether clinical diagnostic laboratory

services are furnished as an outpatient critical access hospital

service under section 1834(g)(4) of the Social Security Act (42 U.S.C.

1395m(g)(4)).

SEC. 417. EXTENSION OF TELEMEDICINE DEMONSTRATION PROJECT.

Section 4207 of the Balanced Budget Act of 1997 (Public Law

105–33) is amended—

(1) in subsection (a)(4), by striking ‘‘4-year’’ and inserting

‘‘8-year’’; and

(2) in subsection (d)(3), by striking ‘‘$30,000,000’’ and

inserting ‘‘$60,000,000’’.

42 USC 1395b–1

note.

Applicability.

42 USC 1395l–4.

42 USC 1395b–1.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2283

SEC. 418. REPORT ON DEMONSTRATION PROJECT PERMITTING

SKILLED NURSING FACILITIES TO BE ORIGINATING

TELEHEALTH SITES; AUTHORITY TO IMPLEMENT.

(a) EVALUATION.—The Secretary, acting through the Administrator of the Health Resources and Services Administration in consultation with the Administrator of the Centers for Medicare &

Medicaid Services, shall evaluate demonstration projects conducted

by the Secretary under which skilled nursing facilities (as defined

in section 1819(a) of the Social Security Act (42 U.S.C. 1395i–

3(a)) are treated as originating sites for telehealth services.

(b) REPORT.—Not later than January 1, 2005, the Secretary

shall submit to Congress a report on the evaluation conducted

under subsection (a). Such report shall include recommendations

on mechanisms to ensure that permitting a skilled nursing facility

to serve as an originating site for the use of telehealth services

or any other service delivered via a telecommunications system

does not serve as a substitute for in-person visits furnished by

a physician, or for in-person visits furnished by a physician assistant, nurse practitioner or clinical nurse specialist, as is otherwise

required by the Secretary.

(c) AUTHORITY TO EXPAND ORIGINATING TELEHEALTH SITES TO

INCLUDE SKILLED NURSING FACILITIES.—Insofar as the Secretary

concludes in the report required under subsection (b) that it is

advisable to permit a skilled nursing facility to be an originating

site for telehealth services under section 1834(m) of the Social

Security Act (42 U.S.C. 1395m(m)), and that the Secretary can

establish the mechanisms to ensure such permission does not serve

as a substitute for in-person visits furnished by a physician, or

for in-person visits furnished by a physician assistant, nurse practitioner or clinical nurse specialist, the Secretary may deem a skilled

nursing facility to be an originating site under paragraph (4)(C)(ii)

of such section beginning on January 1, 2006.

Subtitle C—Provisions Relating to Parts A

and B

SEC. 421. ONE-YEAR INCREASE FOR HOME HEALTH SERVICES FURNISHED IN A RURAL AREA.

(a) IN GENERAL.—With respect to episodes and visits ending

on or after April 1, 2004, and before April 1, 2005, 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))), the Secretary shall increase the payment amount

otherwise made under section 1895 of such Act (42 U.S.C. 1395fff )

for such services by 5 percent.

(b) WAIVING BUDGET NEUTRALITY.—The Secretary shall not

reduce the standard prospective payment amount (or amounts)

under section 1895 of the Social Security Act (42 U.S.C. 1395fff )

applicable to home health services furnished during a period to

offset the increase in payments resulting from the application of

subsection (a).

(c) NO EFFECT ON SUBSEQUENT PERIODS.—The payment

increase provided under subsection (a) for a period under such

subsection—

42 USC 1395fff

note.

Deadline.

42 USC 1395m

note.

117 STAT. 2284 PUBLIC LAW 108–173—DEC. 8, 2003

(1) shall not apply to episodes and visits ending after

such period; and

(2) shall not be taken into account in calculating the payment amounts applicable for episodes and visits occurring after

such period.

SEC. 422. REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.

(a) IN GENERAL.—Section 1886(h) (42 U.S.C. 1395ww(h)(4)) is

amended—

(1) in paragraph (4)(F)(i), by inserting ‘‘subject to paragraph

(7),’’ after ‘‘October 1, 1997,’’;

(2) in paragraph (4)(H)(i), by inserting ‘‘and subject to

paragraph (7)’’ after ‘‘subparagraphs (F) and (G)’’; and

(3) by adding at the end the following new paragraph:

‘‘(7) REDISTRIBUTION OF UNUSED RESIDENT POSITIONS.— ‘‘(A) REDUCTION IN LIMIT BASED ON UNUSED POSITIONS.—

‘‘(i) PROGRAMS SUBJECT TO REDUCTION.—

‘‘(I) IN GENERAL.—Except as provided in subclause (II), if a hospital’s reference resident level

(specified in clause (ii)) is less than the otherwise

applicable resident limit (as defined in subparagraph (C)(ii)), effective for portions of cost reporting

periods occurring on or after July 1, 2005, the

otherwise applicable resident limit shall be

reduced by 75 percent of the difference between

such otherwise applicable resident limit and such

reference resident level.

‘‘(II) EXCEPTION FOR SMALL RURAL HOSPITALS.—This subparagraph shall not apply to a

hospital located in a rural area (as defined in

subsection (d)(2)(D)(ii)) with fewer than 250 acute

care inpatient beds.

‘‘(ii) REFERENCE RESIDENT LEVEL.—

‘‘(I) IN GENERAL.—Except as otherwise provided in subclauses (II) and (III), the reference

resident level specified in this clause for a hospital

is the resident level for the most recent cost

reporting period of the hospital ending on or before

September 30, 2002, for which a cost report has

been settled (or, if not, submitted (subject to

audit)), as determined by the Secretary.

‘‘(II) USE OF MOST RECENT ACCOUNTING PERIOD

TO RECOGNIZE EXPANSION OF EXISTING PROGRAMS.—If a hospital submits a timely request

to increase its resident level due to an expansion

of an existing residency training program that is

not reflected on the most recent settled cost report,

after audit and subject to the discretion of the

Secretary, the reference resident level for such

hospital is the resident level for the cost reporting

period that includes July 1, 2003, as determined

by the Secretary.

‘‘(III) EXPANSIONS UNDER NEWLY APPROVED

PROGRAMS.—Upon the timely request of a hospital,

the Secretary shall adjust the reference resident

level specified under subclause (I) or (II) to include

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2285

the number of medical residents that were

approved in an application for a medical residency

training program that was approved by an appropriate accrediting organization (as determined by

the Secretary) before January 1, 2002, but which

was not in operation during the cost reporting

period used under subclause (I) or (II), as the

case may be, as determined by the Secretary.

‘‘(iii) AFFILIATION.—The provisions of clause (i)

shall be applied to hospitals which are members of

the same affiliated group (as defined by the Secretary

under paragraph (4)(H)(ii)) as of July 1, 2003.

‘‘(B) REDISTRIBUTION.—

‘‘(i) IN GENERAL.—The Secretary is authorized to

increase the otherwise applicable resident limit for

each qualifying hospital that submits a timely application under this subparagraph by such number as the

Secretary may approve for portions of cost reporting

periods occurring on or after July 1, 2005. The aggregate number of increases in the otherwise applicable

resident limits under this subparagraph may not

exceed the Secretary’s estimate of the aggregate reduction in such limits attributable to subparagraph (A).

‘‘(ii) CONSIDERATIONS IN REDISTRIBUTION.—In

determining for which hospitals the increase in the

otherwise applicable resident limit is provided under

clause (i), the Secretary shall take into account the

demonstrated likelihood of the hospital filling the positions within the first 3 cost reporting periods beginning

on or after July 1, 2005, made available under this

subparagraph, as determined by the Secretary.

‘‘(iii) 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 clause (i),

the Secretary shall distribute the increase to programs

of hospitals located in the following priority order:

‘‘(I) First, to hospitals located in rural areas

(as defined in subsection (d)(2)(D)(ii)).

‘‘(II) Second, to hospitals located in urban

areas that are not large urban areas (as defined

for purposes of subsection (d)).

‘‘(III) Third, to other hospitals in a State if

the residency training program involved is in a

specialty for which there are not other residency

training programs in the State.

Increases of residency limits within the same priority

category under this clause shall be determined by the

Secretary.

‘‘(iv) LIMITATION.—In no case shall more than 25

full-time equivalent additional residency positions be

made available under this subparagraph 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

117 STAT. 2286 PUBLIC LAW 108–173—DEC. 8, 2003

to the increase provided under this subparagraph, 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 paragraph (4)(E) for

that hospital.

‘‘(vi) CONSTRUCTION.—Nothing in this subparagraph shall be construed as permitting the redistribution of reductions in residency positions attributable

to voluntary reduction programs under paragraph (6),

under a demonstration project approved as of October

31, 2003, under the authority of section 402 of Public

Law 90–248, or as affecting the ability of a hospital

to establish new medical residency training programs

under paragraph (4)(H).

‘‘(C) RESIDENT LEVEL AND LIMIT DEFINED.—In this

paragraph:

‘‘(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 paragraph

(4)), 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) of paragraph (4)

on the resident level for the hospital determined without regard to this paragraph.

‘‘(D) JUDICIAL REVIEW.—There shall be no administrative or judicial review under section 1869, 1878, or otherwise, with respect to determinations made under this paragraph.’’.

(b) CONFORMING PROVISIONS.—(1) Section 1886(d)(5)(B) (42

U.S.C. 1395ww(d)(5)(B)) is amended—

(A) in the second sentence of clause (ii), by striking ‘‘For

discharges’’ and inserting ‘‘Subject to clause (ix), for discharges’’;

(B) in clause (v), by adding at the end the following: ‘‘The

provisions of subsection (h)(7) shall apply with respect to the

first sentence of this clause in the same manner as it applies

with respect to subsection (h)(4)(F)(i).’’; and

(C) by adding at the end the following new clause:

‘‘(ix) For discharges occurring on or after July 1, 2005,

insofar as an additional payment amount under this subparagraph is attributable to resident positions redistributed to a

hospital under subsection (h)(7)(B), in computing the indirect

teaching adjustment factor under clause (ii) the adjustment

shall be computed in a manner as if ‘c’ were equal to 0.66

with respect to such resident positions.’’.

(2) Chapter 35 of title 44, United States Code, shall not apply

with respect to applications under section 1886(h)(7) of the Social

Security Act, as added by subsection (a)(3).

(c) REPORT ON EXTENSION OF APPLICATIONS UNDER REDISTRIBUTION PROGRAM.—Not later than July 1, 2005, the Secretary shall

submit to Congress a report containing recommendations regarding

whether to extend the deadline for applications for an increase

Deadline.

42 USC 1395ww

note.

42 USC 1395ww

note.

Applicability.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2287

in resident limits under section 1886(h)(4)(I)(ii)(II) of the Social

Security Act (as added by subsection (a)).

Subtitle D—Other Provisions

SEC. 431. 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(e)(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 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, 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 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

an individual’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) DEADLINE.—Not later than 1 year after the date of

the enactment of this Act the Secretary shall publish final

regulations establishing the standards described in paragraph

(1).

Regulations.

42 USC

1320a–7b note.

42 USC

1320a–7b.

117 STAT. 2288 PUBLIC LAW 108–173—DEC. 8, 2003

SEC. 432. OFFICE OF RURAL HEALTH POLICY IMPROVEMENTS.

Section 711(b) (42 U.S.C. 912(b)) is amended—

(1) in paragraph (3), by striking ‘‘and’’ after the comma

at the end;

(2) in paragraph (4), by striking the period at the end

and inserting ‘‘, and’’; and

(3) by inserting after paragraph (4) the following new paragraph:

‘‘(5) administer grants, cooperative agreements, and contracts to provide technical assistance and other activities as

necessary to support activities related to improving health care

in rural areas.’’.

SEC. 433. MEDPAC STUDY ON RURAL HOSPITAL PAYMENT ADJUSTMENTS.

(a) IN GENERAL.—The Medicare Payment Advisory Commission

shall conduct a study of the impact of sections 401 through 406,

411, 416, and 505. The Commission shall analyze the effect on

total payments, growth in costs, capital spending, and such other

payment effects under those sections.

(b) REPORTS.—

(1) INTERIM REPORT.—Not later than 18 months after the

date of the enactment of this Act, the Commission shall submit

to Congress an interim report on the matters studied under

subsection (a) with respect only to changes to the critical access

hospital provisions under section 405.

(2) FINAL REPORT.—Not later than 3 years after the date

of the enactment of this Act, the Commission shall submit

to Congress a final report on all matters studied under subsection (a).

SEC. 434. FRONTIER EXTENDED STAY CLINIC DEMONSTRATION

PROJECT.

(a) AUTHORITY TO CONDUCT DEMONSTRATION PROJECT.—The

Secretary shall waive such provisions of the medicare program

established under title XVIII of the Social Security Act (42 U.S.C.

1395 et seq.) as are necessary to conduct a demonstration project

under which frontier extended stay clinics described in subsection

(b) in isolated rural areas are treated as providers of items and

services under the medicare program.

(b) CLINICS DESCRIBED.—A frontier extended stay clinic is

described in this subsection if the clinic—

(1) is located in a community where the closest shortterm acute care hospital or critical access hospital is at least

75 miles away from the community or is inaccessible by public

road; and

(2) is designed to address the needs of—

(A) seriously or critically ill or injured patients who,

due to adverse weather conditions or other reasons, cannot

be transferred quickly to acute care referral centers; or

(B) patients who need monitoring and observation for

a limited period of time.

(c) SPECIFICATION OF CODES.—The Secretary shall determine

the appropriate life-safety codes for such clinics that treat patients

for needs referred to in subsection (b)(2).

(d) FUNDING.—

42 USC 1395x

note.

Deadlines.

42 USC 1395ww

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2289

(1) IN GENERAL.—Subject to paragraph (2), there are

authorized to be appropriated, in appropriate part from the

Federal Hospital Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund, such sums as are

necessary to conduct the demonstration project under this section.

(2) BUDGET NEUTRAL IMPLEMENTATION.—In conducting the

demonstration project under this section, the Secretary shall

ensure that the aggregate payments made by the Secretary

under the medicare program do not exceed the amount which

the Secretary would have paid under the medicare program

if the demonstration project under this section was not implemented.

(e) THREE-YEAR PERIOD.—The Secretary shall conduct the demonstration under this section for a 3-year period.

(f) REPORT.—Not later than the date that is 1 year after the

date on which the demonstration project concludes, the Secretary

shall submit to Congress a report on the demonstration project,

together with such recommendations for legislation or administrative action as the Secretary determines appropriate.

(g) DEFINITIONS.—In this section, the terms ‘‘hospital’’ and ‘‘critical access hospital’’ have the meanings given such terms in subsections (e) and (mm), respectively, of section 1861 of the Social

Security Act (42 U.S.C. 1395x).

TITLE V—PROVISIONS RELATING TO

PART A

Subtitle A—Inpatient Hospital Services

SEC. 501. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATES.

(a) IN GENERAL.—Section 1886(b)(3)(B)(i) (42 U.S.C.

1395ww(b)(3)(B)(i)) is amended—

(1) by striking ‘‘and’’ at the end of subclause (XVIII);

(2) by striking subclause (XIX); and

(3) by inserting after subclause (XVIII) the following new

subclauses:

‘‘(XIX) for each of fiscal years 2004 through 2007, subject

to clause (vii), the market basket percentage increase for hospitals in all areas; and

‘‘(XX) for fiscal year 2008 and each subsequent fiscal year,

the market basket percentage increase for hospitals in all

areas.’’.

(b) SUBMISSION OF HOSPITAL QUALITY DATA.—Section

1886(b)(3)(B) (42 U.S.C. 1395ww(b)(3)(B)) is amended by adding

at the end the following new clause:

‘‘(vii)(I) For purposes of clause (i)(XIX) for each of fiscal years

2005 through 2007, in a case of a subsection (d) hospital that

does not submit data to the Secretary in accordance with subclause

(II) with respect to such a fiscal year, the applicable percentage

increase under such clause for such fiscal year shall be reduced

by 0.4 percentage points. Such reduction shall apply only with

respect to the fiscal year involved, and the Secretary shall not

take into account such reduction in computing the applicable

Applicability.

Deadline.

117 STAT. 2290 PUBLIC LAW 108–173—DEC. 8, 2003

percentage increase under clause (i)(XIX) for a subsequent fiscal

year.

‘‘(II) Each subsection (d) hospital shall submit to the Secretary

quality data (for a set of 10 indicators established by the Secretary

as of November 1, 2003) that relate to the quality of care furnished

by the hospital in inpatient settings in a form and manner, and

at a time, specified by the Secretary for purposes of this clause,

but with respect to fiscal year 2005, the Secretary shall provide

for a 30-day grace period for the submission of data by a hospital.’’.

(c) GAO STUDY AND REPORT ON APPROPRIATENESS OF PAYMENTS

UNDER THE PROSPECTIVE PAYMENT SYSTEM FOR INPATIENT HOSPITAL SERVICES.—

(1) STUDY.—The Comptroller General of the United States,

using the most current data available, shall conduct a study

to determine—

(A) the appropriate level and distribution of payments

in relation to costs under the prospective payment system

under section 1886 of the Social Security Act (42 U.S.C.

1395ww) for inpatient hospital services furnished by subsection (d) hospitals (as defined in subsection (d)(1)(B) of

such section); and

(B) whether there is a need to adjust such payments

under such system to reflect legitimate differences in costs

across different geographic areas, kinds of hospitals, and

types of cases.

(2) REPORT.—Not later than 24 months after the date of

the enactment of this Act, the Comptroller General of the

United States shall submit to Congress a report on the study

conducted under paragraph (1) together with such recommendations for legislative and administrative action as the Comptroller General determines appropriate.

SEC. 502. REVISION OF THE INDIRECT MEDICAL EDUCATION (IME)

ADJUSTMENT PERCENTAGE.

(a) IN GENERAL.—Section 1886(d)(5)(B)(ii) (42 U.S.C.

1395ww(d)(5)(B)(ii)) is amended—

(1) in subclause (VI), by striking ‘‘and’’ after the semicolon

at the end;

(2) in subclause (VII)—

(A) by inserting ‘‘and before April 1, 2004,’’ after ‘‘on

or after October 1, 2002,’’; and

(B) by striking the period at the end and inserting

a semicolon; and

(3) by adding at the end the following new subclauses:

‘‘(VIII) on or after April 1, 2004, and before October

1, 2004, ‘c’ is equal to 1.47;

‘‘(IX) during fiscal year 2005, ‘c’ is equal to 1.42;

‘‘(X) during fiscal year 2006, ‘c’ is equal to 1.37;

‘‘(XI) during fiscal year 2007, ‘c’ is equal to 1.32; and

‘‘(XII) on or after October 1, 2007, ‘c’ is equal to 1.35.’’.

(b) CONFORMING AMENDMENT RELATING TO DETERMINATION OF

STANDARDIZED AMOUNT.—Section 1886(d)(2)(C)(i) (42 U.S.C.

1395ww(d)(2)(C)(i)) is amended—

(1) by striking ‘‘1999 or’’ and inserting ‘‘1999,’’; and

(2) by inserting ‘‘, or the Medicare Prescription Drug,

Improvement, and Modernization Act of 2003’’ after ‘‘2000’’.

Deadline.

42 USC 1395ww

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2291

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to discharges occurring on or after April 1, 2004.

SEC. 503. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER

INPATIENT HOSPITAL PROSPECTIVE PAYMENT SYSTEM.

(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 diagnosisrelated group classification) under this subsection until the fiscal

year that begins after such date.’’.

(b) ELIGIBILITY STANDARD FOR TECHNOLOGY OUTLIERS.—

(1) 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 75 percent of the standardized amount

(increased to reflect the difference between cost and charges)

or 75 percent of one standard deviation for the diagnosisrelated group involved)’’ after ‘‘is inadequate’’.

(2) PROCESS FOR PUBLIC INPUT.—Section 1886(d)(5)(K) (42

U.S.C. 1395ww(d)(5)(K)), as amended by subsection (a), 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 represents an advance in medical technology that substantially

improves the diagnosis or treatment of individuals entitled to benefits under part A 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, such individuals, 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)), as amended by subsections (a) and (b), is 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

Public

information.

Records.

42 USC 1395ww

note.

117 STAT. 2292 PUBLIC LAW 108–173—DEC. 8, 2003

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. 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) ESTABLISHMENT OF NEW FUNDING FOR HOSPITAL INPATIENT

TECHNOLOGY.—

(1) IN GENERAL.—Section 1886(d)(5)(K)(ii)(III) (42 U.S.C.

1395ww(d)(5)(K)(ii)(III)) is amended by striking ‘‘subject to

paragraph (4)(C)(iii),’’.

(2) NOT BUDGET NEUTRAL.—There shall be no reduction

or other adjustment in payments under section 1886 of the

Social Security Act because an additional payment is provided

under subsection (d)(5)(K)(ii)(III) of such section.

(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 2005.

(2) RECONSIDERATIONS OF APPLICATIONS FOR FISCAL YEAR

2004 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 2004 and that is denied—

(A) the Secretary shall automatically reconsider the

application as an application for fiscal year 2005 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. 504. INCREASE IN 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) on or after October 1, 1987, and before October 1,

1997, the applicable Puerto Rico percentage is 75 percent and

the applicable Federal percentage is 25 percent;

Extension date.

42 USC 1395ww

note.

42 USC 1395ww

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2293

‘‘(ii) on or after October 1, 1997, and before April 1, 2004,

the applicable Puerto Rico percentage is 50 percent and the

applicable Federal percentage is 50 percent;

‘‘(iii) on or after April 1, 2004, and before October 1, 2004,

the applicable Puerto Rico percentage is 37.5 percent and the

applicable Federal percentage is 62.5 percent; and

‘‘(iv) on or after October 1, 2004, the applicable Puerto

Rico percentage is 25 percent and the applicable Federal

percentage is 75 percent.’’.

SEC. 505. WAGE INDEX ADJUSTMENT RECLASSIFICATION REFORM.

(a) IN GENERAL.—Section 1886(d) (42 U.S.C. 1395ww(d)), as

amended by section 406, is amended by adding at the end the

following new paragraph:

‘‘(13)(A) In order to recognize commuting patterns among

geographic areas, the Secretary shall establish a process through

application or otherwise for an increase of the wage index applied

under paragraph (3)(E) for subsection (d) hospitals located in a

qualifying county described in subparagraph (B) in the amount

computed under subparagraph (D) based on out-migration of hospital employees who reside in that county to any higher wage

index area.

‘‘(B) The Secretary shall establish criteria for a qualifying

county under this subparagraph based on the out-migration referred

to in subparagraph (A) and differences in the area wage indices.

Under such criteria the Secretary shall, utilizing such data as

the Secretary determines to be appropriate, establish—

‘‘(i) a threshold percentage, established by the Secretary,

of the weighted average of the area wage index or indices

for the higher wage index areas involved;

‘‘(ii) a threshold (of not less than 10 percent) for minimum

out-migration to a higher wage index area or areas; and

‘‘(iii) a requirement that the average hourly wage of the

hospitals in the qualifying county equals or exceeds the average

hourly wage of all the hospitals in the area in which the

qualifying county is located.

‘‘(C) For purposes of this paragraph, the term ‘higher wage

index area’ means, with respect to a county, an area with a wage

index that exceeds that of the county.

‘‘(D) The increase in the wage index under subparagraph (A)

for a qualifying county shall be equal to the percentage of the

hospital employees residing in the qualifying county who are

employed in any higher wage index area multiplied by the sum

of the products, for each higher wage index area of—

‘‘(i) the difference between—

‘‘(I) the wage index for such higher wage index area,

and

‘‘(II) the wage index of the qualifying county; and

‘‘(ii) the number of hospital employees residing in the qualifying county who are employed in such higher wage index

area divided by the total number of hospital employees residing

in the qualifying county who are employed in any higher wage

index area.

‘‘(E) The process under this paragraph may be based upon

the process used by the Medicare Geographic Classification Review

Board under paragraph (10). As the Secretary determines to be

appropriate to carry out such process, the Secretary may require

Guidelines.

Procedures.

117 STAT. 2294 PUBLIC LAW 108–173—DEC. 8, 2003

hospitals (including subsection (d) hospitals and other hospitals)

and critical access hospitals, as required under section 1866(a)(1)(T),

to submit data regarding the location of residence, or the Secretary

may use data from other sources.

‘‘(F) A wage index increase under this paragraph shall be

effective for a period of 3 fiscal years, except that the Secretary

shall establish procedures under which a subsection (d) hospital

may elect to waive the application of such wage index increase.

‘‘(G) A hospital in a county that has a wage index increase

under this paragraph for a period and that has not waived the

application of such an increase under subparagraph (F) is not

eligible for reclassification under paragraph (8) or (10) during that

period.

‘‘(H) Any increase in a wage index under this paragraph for

a county shall not be taken into account for purposes of—

‘‘(i) computing the wage index for portions of the wage

index area (not including the county) in which the county

is located; or

‘‘(ii) applying any budget neutrality adjustment with

respect to such index under paragraph (8)(D).

‘‘(I) The thresholds described in subparagraph (B), data on

hospital employees used under this paragraph, and any determination of the Secretary under the process described in subparagraph

(E) shall be final and shall not be subject to judicial review.’’.

(b) CONFORMING AMENDMENTS.—Section 1866(a)(1) (42 U.S.C.

1395cc(a)(1)) is amended—

(1) in subparagraph (R), by striking ‘‘and’’ at the end;

(2) in subparagraph (S), by striking the period at the end

and inserting ‘‘, and’’; and

(3) by inserting after subparagraph (S) the following new

subparagraph:

‘‘(T) in the case of hospitals and critical access hospitals,

to furnish to the Secretary such data as the Secretary determines appropriate pursuant to subparagraph (E) of section

1886(d)(12) to carry out such section.’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall first apply to the wage index for discharges occurring on

or after October 1, 2004. In initially implementing such amendments, the Secretary may modify the deadlines otherwise applicable

under clauses (ii) and (iii)(I) of section 1886(d)(10)(C) of the Social

Security Act (42 U.S.C. 1395ww(d)(10)(C)), for submission of, and

actions on, applications relating to changes in hospital geographic

reclassification.

SEC. 506. LIMITATION ON CHARGES FOR INPATIENT HOSPITAL CONTRACT HEALTH SERVICES PROVIDED TO INDIANS BY

MEDICARE PARTICIPATING HOSPITALS.

(a) IN GENERAL.—Section 1866(a)(1) (42 U.S.C. 1395cc(a)(1)),

as amended by section 505(b), is amended—

(1) in subparagraph (S), by striking ‘‘and’’ at the end;

(2) in subparagraph (T), by striking the period and inserting

‘‘, and’’; and

(3) by inserting after subparagraph (T) the following new

subparagraph:

‘‘(U) in the case of hospitals which furnish inpatient hospital services for which payment may be made under this

title, to be a participating provider of medical care both—

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2295

‘‘(i) under the contract health services program funded

by the Indian Health Service and operated by the Indian

Health Service, an Indian tribe, or tribal organization (as

those terms are defined in section 4 of the Indian Health

Care Improvement Act), with respect to items and services

that are covered under such program and furnished to

an individual eligible for such items and services under

such program; and

‘‘(ii) under any program funded by the Indian Health

Service and operated by an urban Indian organization with

respect to the purchase of items and services for an eligible

urban Indian (as those terms are defined in such section

4),

in accordance with regulations promulgated by the Secretary

regarding admission practices, payment methodology, and rates

of payment (including the acceptance of no more than such

payment rate as payment in full for such items and services.’’.

(b) EFFECTIVE DATE.—The amendments made by this section

shall apply as of a date specified by the Secretary of Health and

Human Services (but in no case later than 1 year after the date

of enactment of this Act) to medicare participation agreements

in effect (or entered into) on or after such date.

(c) PROMULGATION OF REGULATIONS.—The Secretary shall

promulgate regulations to carry out the amendments made by subsection (a).

SEC. 507. CLARIFICATIONS TO CERTAIN EXCEPTIONS TO MEDICARE

LIMITS ON PHYSICIAN REFERRALS.

(a) LIMITS ON PHYSICIAN REFERRALS.—

(1) OWNERSHIP AND INVESTMENT INTERESTS IN WHOLE HOSPITALS.—

(A) IN GENERAL.—Section 1877(d)(3) (42 U.S.C.

1395nn(d)(3)) is amended—

(i) by striking ‘‘, and’’ at the end of subparagraph

(A) and inserting a semicolon; and

(ii) by redesignating subparagraph (B) as subparagraph (C) and inserting after subparagraph (A) the

following new subparagraph:

‘‘(B) effective for the 18-month period beginning on

the date of the enactment of the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003, the

hospital is not a specialty hospital (as defined in subsection

(h)(7)); and’’.

(B) DEFINITION.—Section 1877(h) (42 U.S.C. 1395nn(h))

is amended by adding at the end the following:

‘‘(7) SPECIALTY HOSPITAL.—

‘‘(A) IN GENERAL.—For purposes of this section, except

as provided in subparagraph (B), the term ‘specialty hospital’ means a subsection (d) hospital (as defined in section

1886(d)(1)(B)) that is primarily or exclusively engaged in

the care and treatment of one of the following categories:

‘‘(i) Patients with a cardiac condition.

‘‘(ii) Patients with an orthopedic condition.

‘‘(iii) Patients receiving a surgical procedure.

Effective date.

42 USC 1395cc

note.

42 USC 1395cc

note.

117 STAT. 2296 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(iv) Any other specialized category of services that

the Secretary designates as inconsistent with the purpose of permitting physician ownership and investment

interests in a hospital under this section.

‘‘(B) EXCEPTION.—For purposes of this section, the term

‘specialty hospital’ does not include any hospital—

‘‘(i) determined by the Secretary—

‘‘(I) to be in operation before November 18,

2003; or

‘‘(II) under development as of such date;

‘‘(ii) for which the number of physician investors

at any time on or after such date is no greater than

the number of such investors as of such date;

‘‘(iii) for which the type of categories described

in subparagraph (A) at any time on or after such

date is no different than the type of such categories

as of such date;

‘‘(iv) for which any increase in the number of beds

occurs only in the facilities on the main campus of

the hospital and does not exceed 50 percent of the

number of beds in the hospital as of November 18,

2003, or 5 beds, whichever is greater; and

‘‘(v) that meets such other requirements as the

Secretary may specify.’’.

(2) OWNERSHIP AND INVESTMENT INTERESTS IN A RURAL

PROVIDER.—Section 1877(d)(2) (42 U.S.C. 1395nn(d)(2)) is

amended to read as follows:

‘‘(2) RURAL PROVIDERS.—In the case of designated health

services furnished in a rural area (as defined in section

1886(d)(2)(D)) by an entity, if—

‘‘(A) substantially all of the designated health services

furnished by the entity are furnished to individuals residing

in such a rural area; and

‘‘(B) effective for the 18-month period beginning on

the date of the enactment of the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003, the

entity is not a specialty hospital (as defined in subsection

(h)(7)).’’.

(b) APPLICATION OF EXCEPTION FOR HOSPITALS UNDER

DEVELOPMENT.—For purposes of section 1877(h)(7)(B)(i)(II) of the

Social Security Act, as added by subsection (a)(1)(B), in determining

whether a hospital is under development as of November 18, 2003,

the Secretary shall consider—

(1) whether architectural plans have been completed,

funding has been received, zoning requirements have been met,

and necessary approvals from appropriate State agencies have

been received; and

(2) any other evidence the Secretary determines would

indicate whether a hospital is under development as of such

date.

(c) STUDIES.— (1) MEDPAC STUDY.—The Medicare Payment Advisory

Commission, in consultation with the Comptroller General of

the United States, shall conduct a study to determine—

(A) any differences in the costs of health care services

furnished to patients by physician-owned specialty hospitals and the costs of such services furnished by local

42 USC 1395nn

note.

Effective date.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2297

full-service community hospitals within specific diagnosisrelated groups;

(B) the extent to which specialty hospitals, relative

to local full-service community hospitals, treat patients

in certain diagnosis-related groups within a category, such

as cardiology, and an analysis of the selection;

(C) the financial impact of physician-owned specialty

hospitals on local full-service community hospitals;

(D) how the current diagnosis-related group system

should be updated to better reflect the cost of delivering

care in a hospital setting; and

(E) the proportions of payments received, by type of

payer, between the specialty hospitals and local full-service

community hospitals.

(2) HHS STUDY.—The Secretary shall conduct a study of

a representative sample of specialty hospitals—

(A) to determine the percentage of patients admitted

to physician-owned specialty hospitals who are referred

by physicians with an ownership interest;

(B) to determine the referral patterns of physician

owners, including the percentage of patients they referred

to physician-owned specialty hospitals and the percentage

of patients they referred to local full-service community

hospitals for the same condition;

(C) to compare the quality of care furnished in physician-owned specialty hospitals and in local full-service

community hospitals for similar conditions and patient

satisfaction with such care; and

(D) to assess the differences in uncompensated care,

as defined by the Secretary, between the specialty hospital

and local full-service community hospitals, and the relative

value of any tax exemption available to such hospitals.

(3) REPORTS.—Not later than 15 months after the date

of the enactment of this Act, the Commission and the Secretary,

respectively, shall each submit to Congress a report on the

studies conducted under paragraphs (1) and (2), respectively,

and shall include any recommendations for legislation or

administrative changes.

SEC. 508. ONE-TIME APPEALS PROCESS FOR HOSPITAL WAGE INDEX

CLASSIFICATION.

(a) ESTABLISHMENT OF PROCESS.—

(1) IN GENERAL.—The Secretary shall establish not later

than January 1, 2004, by instruction or otherwise a process

under which a hospital may appeal the wage index classification

otherwise applicable to the hospital and select another area

within the State (or, at the discretion of the Secretary, within

a contiguous State) to which to be reclassified.

(2) PROCESS REQUIREMENTS.—The process established

under paragraph (1) shall be consistent with the following:

(A) Such an appeal may be filed as soon as possible

after the date of the enactment of this Act but shall be

filed by not later than February 15, 2004.

(B) Such an appeal shall be heard by the Medicare

Geographic Reclassification Review Board.

(C) There shall be no further administrative or judicial

review of a decision of such Board.

Deadline.

Deadline.

42 USC 1395ww

note.

Deadline.

117 STAT. 2298 PUBLIC LAW 108–173—DEC. 8, 2003

(3) RECLASSIFICATION UPON SUCCESSFUL APPEAL.—If the

Medicare Geographic Reclassification Review Board determines

that the hospital is a qualifying hospital (as defined in subsection (c)), the hospital shall be reclassified to the area selected

under paragraph (1). Such reclassification shall apply with

respect to discharges occurring during the 3-year period beginning with April 1, 2004.

(4) INAPPLICABILITY OF CERTAIN PROVISIONS.—Except as the

Secretary may provide, the provisions of paragraphs (8) and

(10) of section 1886(d) of the Social Security Act (42 U.S.C.

1395ww(d)) shall not apply to an appeal under this section.

(b) APPLICATION OF RECLASSIFICATION.—In the case of an

appeal decided in favor of a qualifying hospital under subsection

(a), the wage index reclassification shall not affect the wage index

computation for any area or for any other hospital and shall not

be effected in a budget neutral manner. The provisions of this

section shall not affect payment for discharges occurring after the

end of the 3-year-period referred to in subsection (a).

(c) QUALIFYING HOSPITAL DEFINED.—For purposes of this section, the term ‘‘qualifying hospital’’ means 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—

(1) does not qualify for a change in wage index classification

under paragraph (8) or (10) of section 1886(d) of the Social

Security Act (42 U.S.C. 1395ww(d)) on the basis of requirements

relating to distance or commuting; and

(2) meets such other criteria, such as quality, as the Secretary may specify by instruction or otherwise.

The Secretary may modify the wage comparison guidelines promulgated under section 1886(d)(10)(D) of such Act (42 U.S.C.

1395ww(d)(10)(D)) in carrying out this section.

(d) WAGE INDEX CLASSIFICATION.—For purposes of this section,

the term ‘‘wage index classification’’ means the geographic area

in which it is classified for purposes of determining for a fiscal

year the factor used to adjust the DRG prospective payment rate

under section 1886(d) of the Social Security Act (42 U.S.C.

1395ww(d)) for area differences in hospital wage levels that applies

to such hospital under paragraph (3)(E) of such section.

(e) LIMITATION ON EXPENDITURES.—The aggregate amount of

additional expenditures resulting from the application of this section

shall not exceed $900,000,000.

(f) TRANSITIONAL EXTENSION.—Any reclassification of a county

or other area made by Act of Congress for purposes of making

payments under section 1886(d) of the Social Security Act (42

U.S.C. 1395ww(d)) that expired on September 30, 2003, shall be

deemed to be in effect during the period beginning on January

1, 2004, and ending on September 30, 2004.

Subtitle B—Other Provisions

SEC. 511. PAYMENT FOR COVERED SKILLED NURSING FACILITY SERVICES.

(a) ADJUSTMENT TO RUGS FOR AIDS RESIDENTS.—Paragraph

(12) of section 1888(e) (42 U.S.C. 1395yy(e)) is amended to read

as follows:

‘‘(12) ADJUSTMENT FOR RESIDENTS WITH AIDS.—

Effective date.

Termination

date.

Effective date.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2299

‘‘(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 (determined without regard to any increase

under section 101 of the Medicare, Medicaid, and SCHIP

Balanced Budget Refinement Act of 1999, or under section

314(a) of Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000), 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.’’.

(b) EFFECTIVE DATE.—The amendment made by paragraph (1)

shall apply to services furnished on or after October 1, 2004.

SEC. 512. 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 (as defined in section 1861(r)(1)) who

is either the medical director or an employee of a hospice

program and that—

‘‘(A) consist of—

‘‘(i) an evaluation of the individual’s need for pain

and symptom management, including the individual’s

need for hospice care; and

‘‘(ii) counseling the individual with respect to hospice care and other care options; and

‘‘(B) may include advising the individual regarding

advanced care planning.’’.

(b) PAYMENT.—Section 1814(i) (42 U.S.C. 1395f(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 established

for an office or other outpatient visit for evaluation and management

associated with presenting problems of moderate severity and

requiring medical decisionmaking of low complexity 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)’’.

42 USC 1395yy

note.

117 STAT. 2300 PUBLIC LAW 108–173—DEC. 8, 2003

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to services provided by a hospice program on or after

January 1, 2005.

SEC. 513. STUDY ON PORTABLE DIAGNOSTIC ULTRASOUND SERVICES

FOR BENEFICIARIES IN SKILLED NURSING FACILITIES.

(a) STUDY.—The Comptroller General of the United States shall

conduct a study of portable diagnostic ultrasound services furnished

to medicare beneficiaries in skilled nursing facilities. Such study

shall consider the following:

(1) TYPES OF EQUIPMENT; TRAINING.—The types of portable

diagnostic ultrasound services furnished to such beneficiaries,

the types of portable ultrasound equipment used to furnish

such services, and the technical skills, or training, or both,

required for technicians to furnish such services.

(2) CLINICAL APPROPRIATENESS.—The clinical appropriateness of transporting portable diagnostic ultrasound diagnostic

and technicians to patients in skilled nursing facilities as

opposed to transporting such patients to a hospital or other

facility that furnishes diagnostic ultrasound services.

(3) FINANCIAL IMPACT.—The financial impact if Medicare

were make a separate payment for portable ultrasound diagnostic services, including the impact of separate payments—

(A) for transportation and technician services for residents during a resident in a part A stay, that would otherwise be paid for under the prospective payment system

for covered skilled nursing facility services (under section

1888(e) of the Social Security Act (42 U.S.C. 1395yy(e));

and

(B) for such services for residents in a skilled nursing

facility after a part A stay.

(4) CREDENTIALING REQUIREMENTS.—Whether the Secretary should establish credentialing or other requirements for

technicians that furnish diagnostic ultrasound services to medicare beneficiaries.

(b) REPORT.—Not later than 2 years 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 any recommendations for legislation or administrative change as the Comptroller General determines appropriate.

TITLE VI—PROVISIONS RELATING TO

PART B

Subtitle A—Provisions Relating to

Physicians’ Services

SEC. 601. REVISION OF UPDATES FOR PHYSICIANS’ SERVICES.

(a) UPDATE FOR 2004 AND 2005.—

(1) IN GENERAL.—Section 1848(d) (42 U.S.C. 1395w–4(d))

is amended by adding at the end the following new paragraph:

‘‘(5) UPDATE FOR 2004 AND 2005.—The update to the single

conversion factor established in paragraph (1)(C) for each of

2004 and 2005 shall be not less than 1.5 percent.’’.

Deadline.

42 USC 1395yy

note.

42 USC 1395d

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2301

(2) CONFORMING AMENDMENT.—Paragraph (4)(B) of such

section is amended, in the matter before clause (i), by inserting

‘‘and paragraph (5)’’ 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 amendments made by paragraph

(1) shall apply to computations of the sustainable growth rate

for years beginning with 2003.

SEC. 602. TREATMENT OF PHYSICIANS’ SERVICES FURNISHED IN

ALASKA.

Section 1848(e)(1) (42 U.S.C. 1395w–4(e)(1)), as amended by

section 421, is amended—

(1) in subparagraph (A), by striking ‘‘subparagraphs (B),

(C), (E), and (F)’’ and inserting ‘‘subparagraphs (B), (C), (E),

(F) and (G)’’; and

(2) by adding at the end the following new subparagraph:

‘‘(G) FLOOR FOR PRACTICE EXPENSE, MALPRACTICE, AND

WORK GEOGRAPHIC INDICES FOR SERVICES FURNISHED IN

ALASKA.—For purposes of payment for services furnished

in Alaska on or after January 1, 2004, and before January

1, 2006, after calculating the practice expense, malpractice,

and work geographic indices in clauses (i), (ii), and (iii)

of subparagraph (A) and in subparagraph (B), the Secretary

shall increase any such index to 1.67 if such index would

otherwise be less than 1.67.’’.

SEC. 603. INCLUSION OF PODIATRISTS, DENTISTS, AND OPTOMETRISTS

UNDER PRIVATE CONTRACTING AUTHORITY.

Section 1802(b)(5)(B) (42 U.S.C. 1395a(b)(5)(B)) is amended by

striking ‘‘section 1861(r)(1)’’ and inserting ‘‘paragraphs (1), (2), (3),

and (4) of section 1861(r)’’.

SEC. 604. GAO STUDY ON ACCESS TO PHYSICIANS’ SERVICES.

(a) 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—

(1) 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;

(2) an examination of changes in the use by beneficiaries

of physicians’ services over time; and

(3) an examination of the extent to which physicians are

not accepting new medicare beneficiaries as patients.

42 USC 1395ll

note.

42 USC 1395w–4

note.

42 USC 1395w–4

note.

117 STAT. 2302 PUBLIC LAW 108–173—DEC. 8, 2003

(b) 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 subsection (a).

The report shall include a determination whether—

(1) 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

(2) access by medicare beneficiaries to physicians’ services

may have improved, remained constant, or deteriorated over

time.

SEC. 605. COLLABORATIVE DEMONSTRATION-BASED REVIEW OF

PHYSICIAN PRACTICE EXPENSE GEOGRAPHIC ADJUSTMENT DATA.

(a) IN GENERAL.—Not later than January 1, 2005, the Secretary

shall, in collaboration with State and other appropriate organizations representing physicians, and other appropriate persons, review

and consider alternative data sources than those currently used

in establishing the geographic index for the practice expense component under the medicare physician fee schedule under section

1848(e)(1)(A)(i) of the Social Security Act (42 U.S.C. 1395w–

4(e)(1)(A)(i)).

(b) SITES.—The Secretary shall select two physician payment

localities in which to carry out subsection (a). One locality shall

include rural areas and at least one locality shall be a statewide

locality that includes both urban and rural areas.

(c) REPORT AND RECOMMENDATIONS.— (1) REPORT.—Not later than January 1, 2006, the Secretary

shall submit to Congress a report on the review and consideration conducted under subsection (a). Such report shall include

information on the alternative developed data sources considered by the Secretary under subsection (a), including the

accuracy and validity of the data as measures of the elements

of the geographic index for practice expenses under the medicare physician fee schedule as well as the feasibility of using

such alternative data nationwide in lieu of current proxy data

used in such index, and the estimated impacts of using such

alternative data.

(2) RECOMMENDATIONS.—The report submitted under paragraph (1) shall contain recommendations on which data sources

reviewed and considered under subsection (a) are appropriate

for use in calculating the geographic index for practice expenses

under the medicare physician fee schedule.

SEC. 606. MEDPAC REPORT ON PAYMENT FOR PHYSICIANS’ SERVICES.

(a) PRACTICE EXPENSE COMPONENT.—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, after the transition to a full resourcebased 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.

Deadlines.

42 USC 1395w–4

note.

Deadlines.

42 USC 1395w–4

note.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2303

(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.

(b) VOLUME OF 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

extent to which increases in the volume of physicians’ services

under part B of the medicare program are a result of care that

improves the health and well-being of medicare beneficiaries. The

study shall include the following:

(1) An analysis of recent and historic growth in the components that the Secretary includes under the sustainable growth

rate (under section 1848(f) of the Social Security Act (42 U.S.C.

1395w–4(f))).

(2) An examination of the relative growth of volume in

physicians’ services between medicare beneficiaries and other

populations.

(3) An analysis of the degree to which new technology,

including coverage determinations of the Centers for Medicare

& Medicaid Services, has affected the volume of physicians’

services.

(4) An examination of the impact on volume of demographic

changes.

(5) An examination of shifts in the site of service or services

that influence the number and intensity of services furnished

in physicians’ offices and the extent to which changes in

reimbursement rates to other providers have effected these

changes.

(6) An evaluation of the extent to which the Centers for

Medicare & Medicaid Services takes into account the impact

of law and regulations on the sustainable growth rate.

Subtitle B—Preventive Services

SEC. 611. 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)(iii), 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)(1) The term ‘initial preventive physical examination’

means physicians’ services consisting of a physical examination

(including measurement of height, weight, and blood pressure, and

an electrocardiogram) with the goal of health promotion and disease

Deadline.

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117 STAT. 2304 PUBLIC LAW 108–173—DEC. 8, 2003

detection and includes education, counseling, and referral with

respect to screening and other preventive services described in

paragraph (2), but does not include clinical laboratory tests.

‘‘(2) The screening and other preventive services described in

this paragraph include the following:

‘‘(A) Pneumococcal, influenza, and hepatitis B vaccine and

administration under subsection (s)(10).

‘‘(B) Screening mammography as defined in subsection (jj).

‘‘(C) Screening pap smear and screening pelvic exam as

defined in subsection (nn).

‘‘(D) Prostate cancer screening tests as defined in subsection

(oo).

‘‘(E) Colorectal cancer screening tests as defined in subsection (pp).

‘‘(F) Diabetes outpatient self-management training services

as defined in subsection (qq)(1).

‘‘(G) Bone mass measurement as defined in subsection (rr).

‘‘(H) Screening for glaucoma as defined in subsection (uu).

‘‘(I) Medical nutrition therapy services as defined in subsection (vv).

‘‘(J) Cardiovascular screening blood tests as defined in subsection (xx)(1).

‘‘(K) Diabetes screening tests as defined in subsection (yy).’’.

(c) 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),’’.

(d) OTHER CONFORMING AMENDMENTS.—(1) Section 1862(a) (42

U.S.C. 1395y(a)), as amended by section 303(i)(3)(B), is amended—

(A) in paragraph (1)—

(i) by striking ‘‘and’’ at the end of subparagraph (I);

(ii) by striking the semicolon at the end of subparagraph (J) and inserting ‘‘, and’’; and

(iii) by adding at the end the following new subparagraph:

‘‘(K) 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

(B) in paragraph (7), by striking ‘‘or (H)’’ and inserting

‘‘(H), or (K)’’.

(2) Clauses (i) and (ii) of section 1861(s)(2)(K) (42 U.S.C.

1395x(s)(2)(K)) are each amended by inserting ‘‘and services

described in subsection (ww)(1)’’ after ‘‘services which would be

physicians’ services’’.

(e) EFFECTIVE DATE.—The amendments made by this section

shall apply to services furnished on or after January 1, 2005,

but only for individuals whose coverage period under part B begins

on or after such date.

SEC. 612. COVERAGE OF CARDIOVASCULAR SCREENING BLOOD TESTS.

(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as

amended by section 611(a), is amended—

(1) in subparagraph (V)(iii), 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:

Applicability.

42 USC 1395w–4

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2305

‘‘(X) cardiovascular screening blood tests (as defined in

subsection (xx)(1));’’.

(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 1395x) is

amended by adding at the end the following new subsection:

‘‘Cardiovascular Screening Blood Test

‘‘(xx)(1) The term ‘cardiovascular screening blood test’ means

a blood test for the early detection of cardiovascular disease (or

abnormalities associated with an elevated risk of cardiovascular

disease) that tests for the following:

‘‘(A) Cholesterol levels and other lipid or triglyceride levels.

‘‘(B) Such other indications associated with the presence

of, or an elevated risk for, cardiovascular disease as the Secretary may approve for all individuals (or for some individuals

determined by the Secretary to be at risk for cardiovascular

disease), including indications measured by noninvasive testing.

The Secretary may not approve an indication under subparagraph

(B) for any individual unless a blood test for such is recommended

by the United States Preventive Services Task Force.

‘‘(2) The Secretary shall establish standards, in consultation

with appropriate organizations, regarding the frequency for each

type of cardiovascular screening blood 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 611(d), is amended—

(1) by striking ‘‘and’’ at the end of subparagraph (J);

(2) by striking the semicolon at the end of subparagraph

(K) and inserting ‘‘, and’’; and

(3) by adding at the end the following new subparagraph:

‘‘(L) in the case of cardiovascular screening blood tests

(as defined in section 1861(xx)(1)), which are 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, 2005.

SEC. 613. COVERAGE OF DIABETES SCREENING TESTS.

(a) COVERAGE.—Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), as

amended by section 612(a), is amended—

(1) in subparagraph (W), by striking ‘‘and’’ at the end;

(2) in subparagraph (X), by adding ‘‘and’’ at the end; and

(3) by adding at the end the following new subparagraph:

‘‘(Y) diabetes screening tests (as defined in subsection

(yy));’’.

(b) SERVICES DESCRIBED.—Section 1861 (42 U.S.C. 1395x), as

amended by section 612(b), is amended by adding at the end the

following new subsection:

‘‘Diabetes Screening Tests

‘‘(yy)(1) The term ‘diabetes screening tests’ means testing furnished to an individual at risk for diabetes (as defined in paragraph

(2)) for the purpose of early detection of diabetes, including—

‘‘(A) a fasting plasma glucose test; and

‘‘(B) such other tests, and modifications to tests, as the

Secretary determines appropriate, in consultation with appropriate organizations.

42 USC 1395x

note.

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117 STAT. 2306 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(2) For purposes of paragraph (1), the term ‘individual at

risk for diabetes’ means an individual who has any of the following

risk factors for diabetes:

‘‘(A) Hypertension.

‘‘(B) Dyslipidemia.

‘‘(C) Obesity, defined as a body mass index greater than

or equal to 30 kg/m2.

‘‘(D) Previous identification of an elevated impaired fasting

glucose.

‘‘(E) Previous identification of impaired glucose tolerance.

‘‘(F) A risk factor consisting of at least 2 of the following

characteristics:

‘‘(i) Overweight, defined as a body mass index greater

than 25, but less than 30, kg/m2.

‘‘(ii) A family history of diabetes.

‘‘(iii) A history of gestational diabetes mellitus or

delivery of a baby weighing greater than 9 pounds.

‘‘(iv) 65 years of age or older.

‘‘(3) The Secretary shall establish standards, in consultation

with appropriate organizations, regarding the frequency of diabetes

screening tests, except that such frequency may not be more often

than twice within the 12-month period following the date of the

most recent diabetes screening test of that individual.’’.

(c) FREQUENCY.—Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)), as

amended by section 612(c), is amended—

(1) by striking ‘‘and’’ at the end of subparagraph (K);

(2) by striking the semicolon at the end of subparagraph

(L) and inserting ‘‘, and’’; and

(3) by adding at the end the following new subparagraph:

‘‘(M) in the case of a diabetes screening test (as defined

in section 1861(yy)(1)), which is performed more frequently

than is covered under section 1861(yy)(3);’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to tests furnished on or after January 1, 2005.

SEC. 614. 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 diagnostic mammography’’.

(b) CONFORMING AMENDMENT.—Section 1833(a)(2)(E)(i) (42

U.S.C. 1395l(a)(2)(E)(i)) is amended by inserting ‘‘and, for services

furnished on or after January 1, 2005, diagnostic mammography’’

after ‘‘screening mammography’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply—

(1) in the case of screening mammography, to services

furnished on or after the date of the enactment of this Act;

and

(2) in the case of diagnostic mammography, to services

furnished on or after January 1, 2005.

Applicability.

42 USC 1395l

note.

42 USC 1395x

note.

Standards.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2307

Subtitle C—Other Provisions

SEC. 621. HOSPITAL OUTPATIENT DEPARTMENT (HOPD) PAYMENT

REFORM.

(a) PAYMENT FOR DRUGS.—

(1) SPECIAL RULES FOR CERTAIN DRUGS AND BIOLOGICALS.—

Section 1833(t) (42 U.S.C. 1395l(t)), as amended by section

411(b), is amended by inserting after paragraph (13) the following new paragraphs:

‘‘(14) DRUG APC PAYMENT RATES.—

‘‘(A) IN GENERAL.—The amount of payment under this

subsection for a specified covered outpatient drug (defined

in subparagraph (B)) that is furnished as part of a covered

OPD service (or group of services)—

‘‘(i) in 2004, in the case of—

‘‘(I) a sole source drug shall in no case be

less than 88 percent, or exceed 95 percent, of the

reference average wholesale price for the drug;

‘‘(II) an innovator multiple source drug shall

in no case exceed 68 percent of the reference average wholesale price for the drug; or

‘‘(III) a noninnovator multiple source drug

shall in no case exceed 46 percent of the reference

average wholesale price for the drug;

‘‘(ii) in 2005, in the case of—

‘‘(I) a sole source drug shall in no case be

less than 83 percent, or exceed 95 percent, of the

reference average wholesale price for the drug;

‘‘(II) an innovator multiple source drug shall

in no case exceed 68 percent of the reference average wholesale price for the drug; or

‘‘(III) a noninnovator multiple source drug

shall in no case exceed 46 percent of the reference

average wholesale price for the drug; or

‘‘(iii) in a subsequent year, shall be equal, subject

to subparagraph (E)—

‘‘(I) to the average acquisition cost for the drug

for that year (which, at the option of the Secretary,

may vary by hospital group (as defined by the

Secretary based on volume of covered OPD services

or other relevant characteristics)), as determined

by the Secretary taking into account the hospital

acquisition cost survey data under subparagraph

(D); or

‘‘(II) if hospital acquisition cost data are not

available, the average price for the drug in the

year established under section 1842(o), section

1847A, or section 1847B, as the case may be, as

calculated and adjusted by the Secretary as necessary for purposes of this paragraph.

‘‘(B) SPECIFIED COVERED OUTPATIENT DRUG DEFINED.—

‘‘(i) IN GENERAL.—In this paragraph, the term

‘specified covered outpatient drug’ means, subject to

clause (ii), a covered outpatient drug (as defined in

section 1927(k)(2)) for which a separate ambulatory

117 STAT. 2308 PUBLIC LAW 108–173—DEC. 8, 2003

payment classification group (APC) has been established and that is—

‘‘(I) a radiopharmaceutical; or

‘‘(II) a drug or biological for which payment

was made under paragraph (6) (relating to passthrough payments) on or before December 31,

2002.

‘‘(ii) EXCEPTION.—Such term does not include—

‘‘(I) a drug or biological for which payment

is first made on or after January 1, 2003, under

paragraph (6);

‘‘(II) a drug or biological for which a temporary

HCPCS code has not been assigned; or

‘‘(III) during 2004 and 2005, an orphan drug

(as designated by the Secretary).

‘‘(C) PAYMENT FOR DESIGNATED ORPHAN DRUGS DURING

2004 AND 2005.—The amount of payment under this subsection for an orphan drug designated by the Secretary

under subparagraph (B)(ii)(III) that is furnished as part

of a covered OPD service (or group of services) during

2004 and 2005 shall equal such amount as the Secretary

may specify.

‘‘(D) ACQUISITION COST SURVEY FOR HOSPITAL OUTPATIENT DRUGS.—

‘‘(i) ANNUAL GAO SURVEYS IN 2004 AND 2005.—

‘‘(I) IN GENERAL.—The Comptroller General of

the United States shall conduct a survey in each

of 2004 and 2005 to determine the hospital acquisition cost for each specified covered outpatient drug.

Not later than April 1, 2005, the Comptroller General shall furnish data from such surveys to the

Secretary for use in setting the payment rates

under subparagraph (A) for 2006.

‘‘(II) RECOMMENDATIONS.—Upon the completion of such surveys, the Comptroller General shall

recommend to the Secretary the frequency and

methodology of subsequent surveys to be conducted

by the Secretary under clause (ii).

‘‘(ii) SUBSEQUENT SECRETARIAL SURVEYS.—The Secretary, taking into account such recommendations,

shall conduct periodic subsequent surveys to determine

the hospital acquisition cost for each specified covered

outpatient drug for use in setting the payment rates

under subparagraph (A).

‘‘(iii) SURVEY REQUIREMENTS.—The surveys conducted under clauses (i) and (ii) shall have a large

sample of hospitals that is sufficient to generate a

statistically significant estimate of the average hospital

acquisition cost for each specified covered outpatient

drug. With respect to the surveys conducted under

clause (i), the Comptroller General shall report to Congress on the justification for the size of the sample

used in order to assure the validity of such estimates.

‘‘(iv) DIFFERENTIATION IN COST.—In conducting

surveys under clause (i), the Comptroller General shall

determine and report to Congress if there is (and the

extent of any) variation in hospital acquisition costs

Reports.

Reports.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2309

for drugs among hospitals based on the volume of

covered OPD services performed by such hospitals or

other relevant characteristics of such hospitals (as

defined by the Comptroller General).

‘‘(v) COMMENT ON PROPOSED RATES.—Not later

than 30 days after the date the Secretary promulgated

proposed rules setting forth the payment rates under

subparagraph (A) for 2006, the Comptroller General

shall evaluate such proposed rates and submit to Congress a report regarding the appropriateness of such

rates based on the surveys the Comptroller General

has conducted under clause (i).

‘‘(E) ADJUSTMENT IN PAYMENT RATES FOR OVERHEAD

COSTS.—‘‘(i) MEDPAC REPORT ON DRUG APC DESIGN.—The

Medicare Payment Advisory Commission shall submit

to the Secretary, not later than July 1, 2005, a report

on adjustment of payment for ambulatory payment

classifications for specified covered outpatient drugs

to take into account overhead and related expenses,

such as pharmacy services and handling costs. Such

report shall include—

‘‘(I) a description and analysis of the data

available with regard to such expenses;

‘‘(II) a recommendation as to whether such

a payment adjustment should be made; and

‘‘(III) if such adjustment should be made, a

recommendation regarding the methodology for

making such an adjustment.

‘‘(ii) ADJUSTMENT AUTHORIZED.—The Secretary

may adjust the weights for ambulatory payment classifications for specified covered outpatient drugs to take

into account the recommendations contained in the

report submitted under clause (i).

‘‘(F) CLASSES OF DRUGS.—For purposes of this paragraph:

‘‘(i) SOLE SOURCE DRUGS.—The term ‘sole source

drug’ means—

‘‘(I) a biological product (as defined under section 1861(t)(1)); or

‘‘(II) a single source drug (as defined in section

1927(k)(7)(A)(iv)).

‘‘(ii) INNOVATOR MULTIPLE SOURCE DRUGS.—The

term ‘innovator multiple source drug’ has the meaning

given such term in section 1927(k)(7)(A)(ii).

‘‘(iii) NONINNOVATOR MULTIPLE SOURCE DRUGS.—

The term ‘noninnovator multiple source drug’ has the

meaning given such term in section 1927(k)(7)(A)(iii).

‘‘(G) REFERENCE AVERAGE WHOLESALE PRICE.—The

term ‘reference average wholesale price’ means, with

respect to a specified covered outpatient drug, the average

wholesale price for the drug as determined under section

1842(o) as of May 1, 2003.

‘‘(H) INAPPLICABILITY OF EXPENDITURES IN DETERMINING CONVERSION, WEIGHTING, AND OTHER ADJUSTMENT

FACTORS.—Additional expenditures resulting from this

paragraph shall not be taken into account in establishing

Deadline.

Deadline.

Reports.

117 STAT. 2310 PUBLIC LAW 108–173—DEC. 8, 2003

the conversion, weighting, and other adjustment factors

for 2004 and 2005 under paragraph (9), but shall be taken

into account for subsequent years.

‘‘(15) PAYMENT FOR NEW DRUGS AND BIOLOGICALS UNTIL

HCPCS CODE ASSIGNED.—With respect to payment under this

part for an outpatient drug or biological that is covered under

this part and is furnished as part of covered OPD services

for which a HCPCS code has not been assigned, the amount

provided for payment for such drug or biological under this

part shall be equal to 95 percent of the average wholesale

price for the drug or biological.’’.

(2) REDUCTION IN THRESHOLD FOR SEPARATE APCS FOR

DRUGS.—Section 1833(t)(16), as redesignated section 411(b), is

amended by adding at the end the following new subparagraph:

‘‘(B) THRESHOLD FOR ESTABLISHMENT OF SEPARATE APCS

FOR DRUGS.—The Secretary shall reduce the threshold for

the establishment of separate ambulatory payment classification groups (APCs) with respect to drugs or biologicals

to $50 per administration for drugs and biologicals furnished in 2005 and 2006.’’.

(3) EXCLUSION OF SEPARATE DRUG APCS FROM OUTLIER PAYMENTS.—Section 1833(t)(5) is amended by adding at the end

the following new subparagraph:

‘‘(E) EXCLUSION OF SEPARATE DRUG AND BIOLOGICAL

APCS FROM OUTLIER PAYMENTS.—No additional payment

shall be made under subparagraph (A) in the case of

ambulatory payment classification groups established separately for drugs or biologicals.’’.

(4) PAYMENT FOR PASS THROUGH DRUGS.—Section

1833(t)(6)(D)(i) (42 U.S.C. 1395l(t)(6)(D)(i)) is amended by

inserting after ‘‘under section 1842(o)’’ the following: ‘‘(or if

the drug or biological is covered under a competitive acquisition

contract under section 1847B, an amount determined by the

Secretary equal to the average price for the drug or biological

for all competitive acquisition areas and year established under

such section as calculated and adjusted by the Secretary for

purposes of this paragraph)’’.

(5) CONFORMING AMENDMENT TO BUDGET NEUTRALITY

REQUIREMENT.—Section 1833(t)(9)(B) (42 U.S.C. 1395l(t)(9)(B))

is amended by adding at the end the following: ‘‘In determining

adjustments under the preceding sentence for 2004 and 2005,

the Secretary shall not take into account under this subparagraph or paragraph (2)(E) any expenditures that would not

have been made but for the application of paragraph (14).’’.

(6) EFFECTIVE DATE.—The amendments made by this subsection shall apply to items and services furnished on or after

January 1, 2004.

(b) SPECIAL PAYMENT FOR BRACHYTHERAPY.—

(1) IN GENERAL.—Section 1833(t)(16), as redesignated by

section 411(b) and as amended by subsection (a)(2), is amended

by adding at the end the following new subparagraph:

‘‘(C) PAYMENT FOR DEVICES OF BRACHYTHERAPY AT

CHARGES ADJUSTED TO COST.—Notwithstanding the preceding provisions of this subsection, for a device of

brachytherapy consisting of a seed or seeds (or radioactive

source) furnished on or after January 1, 2004, and before

January 1, 2007, the payment basis for the device under

42 USC 1395l

note.

42 USC 1935l.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2311

this subsection shall be equal to the hospital’s charges

for each device furnished, adjusted to cost. Charges for

such devices shall not be included in determining any

outlier payment under this subsection.’’.

(2) SPECIFICATION OF GROUPS FOR BRACHYTHERAPY

DEVICES.—Section 1833(t)(2) (42 U.S.C. 1395l(t)(2)) is

amended—

(A) in subparagraph (F), by striking ‘‘and’’ at the end;

(B) in subparagraph (G), by striking the period at

the end and inserting ‘‘; and’’; and

(C) by adding at the end the following new subparagraph:

‘‘(H) with respect to devices of brachytherapy consisting

of a seed or seeds (or radioactive source), the Secretary

shall create additional groups of covered OPD services that

classify such devices separately from the other services

(or group of services) paid for under this subsection in

a manner reflecting the number, isotope, and radioactive

intensity of such devices furnished, including separate

groups for palladium-103 and iodine-125 devices.’’.

(3) GAO REPORT.—The Comptroller General of the United

States shall conduct a study to determine appropriate payment

amounts under section 1833(t)(16)(C) of the Social Security

Act, as added by paragraph (1), for devices of brachytherapy.

Not later than January 1, 2005, the Comptroller General shall

submit to Congress and the Secretary a report on the study

conducted under this paragraph, and shall include specific recommendations for appropriate payments for such devices.

SEC. 622. LIMITATION OF APPLICATION OF FUNCTIONAL EQUIVALENCE STANDARD.

Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amended by adding

at the end the following new subparagraph:

‘‘(F) LIMITATION OF APPLICATION OF FUNCTIONAL

EQUIVALENCE STANDARD.—

‘‘(i) IN GENERAL.—The Secretary may not publish

regulations that apply a functional equivalence

standard to a drug or biological under this paragraph.

‘‘(ii) APPLICATION.—Clause (i) shall apply to the

application of a functional equivalence standard to a

drug or biological on or after the date of enactment

of the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003 unless—

‘‘(I) such application was being made to such

drug or biological prior to such date of enactment;

and

‘‘(II) the Secretary applies such standard to

such drug or biological only for the purpose of

determining eligibility of such drug or biological

for additional payments under this paragraph and

not for the purpose of any other payments under

this title.

‘‘(iii) RULE OF CONSTRUCTION.—Nothing in this

subparagraph shall be construed to effect the Secretary’s authority to deem a particular drug to be

Deadline.

42 USC 1395l

note.

117 STAT. 2312 PUBLIC LAW 108–173—DEC. 8, 2003

identical to another drug if the 2 products are pharmaceutically equivalent and bioequivalent, as determined

by the Commissioner of Food and Drugs.’’.

SEC. 623. PAYMENT FOR RENAL DIALYSIS SERVICES.

(a) INCREASE IN RENAL DIALYSIS COMPOSITE RATE FOR SERVICES

FURNISHED.—The last sentence of section 1881(b)(7) (42 U.S.C.

1395rr(b)(7)) is amended—

(1) by striking ‘‘and’’ before ‘‘for such services’’ the second

place it appears;

(2) by inserting ‘‘and before January 1, 2005,’’ after

‘‘January 1, 2001,’’; and

(3) by inserting before the period at the end the following:

‘‘, and for such services furnished on or after January 1, 2005,

by 1.6 percent above such composite rate payment amounts

for such services furnished on December 31, 2004’’.

(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) INSPECTOR GENERAL STUDIES ON ESRD DRUGS.—

(1) IN GENERAL.—The Inspector General of the Department

of Health and Human Services shall conduct two studies with

respect to drugs and biologicals (including erythropoietin) furnished to end-stage renal disease patients under the medicare

program which are separately billed by end stage renal disease

facilities.

(2) STUDIES ON ESRD DRUGS.—

(A) EXISTING DRUGS.—The first study under paragraph

(1) shall be conducted with respect to such drugs and

biologicals for which a billing code exists prior to January

1, 2004.

(B) NEW DRUGS.—The second study under paragraph

(1) shall be conducted with respect to such drugs and

biologicals for which a billing code does not exist prior

to January 1, 2004.

(3) MATTERS STUDIED.—Under each study conducted under

paragraph (1), the Inspector General shall—

(A) determine the difference between the amount of

payment made to end stage renal disease facilities under

42 USC 1395rr

note.

42 USC 1395rr

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2313

title XVIII of the Social Security Act for such drugs and

biologicals and the acquisition costs of such facilities for

such drugs and biologicals and which are separately billed

by end stage renal disease facilities, and

(B) estimate the rates of growth of expenditures for

such drugs and biologicals billed by such facilities.

(4) REPORTS.— (A) EXISTING ESRD DRUGS.—Not later than April 1,

2004, the Inspector General shall report to the Secretary

on the study described in paragraph (2)(A).

(B) NEW ESRD DRUGS.—Not later than April 1, 2006,

the Inspector General shall report to the Secretary on

the study described in paragraph (2)(B).

(d) BASIC CASE-MIX ADJUSTED COMPOSITE RATE FOR RENAL

DIALYSIS FACILITY SERVICES.—(1) Section 1881(b) (42 U.S.C.

1395rr(b)) is amended by adding at the end the following new

paragraphs:

‘‘(12)(A) In lieu of payment under paragraph (7) beginning

with services furnished on January 1, 2005, the Secretary shall

establish a basic case-mix adjusted prospective payment system

for dialysis services furnished by providers of services and renal

dialysis facilities in a year to individuals in a facility and to such

individuals at home. The case-mix under such system shall be

for a limited number of patient characteristics.

‘‘(B) The system described in subparagraph (A) shall include—

‘‘(i) the services comprising the composite rate established

under paragraph (7); and

‘‘(ii) the difference between payment amounts under this

title for separately billed drugs and biologicals (including

erythropoietin) and acquisition costs of such drugs and

biologicals, as determined by the Inspector General reports

to the Secretary as required by section 623(c) of the Medicare

Prescription Drug, Improvement, and Modernization Act of

2003—

‘‘(I) beginning with 2005, for such drugs and biologicals

for which a billing code exists prior to January 1, 2004;

and

‘‘(II) beginning with 2007, for such drugs and

biologicals for which a billing code does not exist prior

to January 1, 2004,

adjusted to 2005, or 2007, respectively, as determined to be

appropriate by the Secretary.

‘‘(C)(i) In applying subparagraph (B)(ii) for 2005, such payment

amounts under this title shall be determined using the methodology

specified in paragraph (13)(A)(i).

‘‘(ii) For 2006, the Secretary shall provide for an adjustment

to the payments under clause (i) to reflect the difference between

the payment amounts using the methodology under paragraph

(13)(A)(i) and the payment amount determined using the methodology applied by the Secretary under paragraph (13)(A)(iii) of such

paragraph, as estimated by the Secretary.

‘‘(D) The Secretary shall adjust the payment rates under such

system by a geographic index as the Secretary determines to be

appropriate. If the Secretary applies a geographic index under

this paragraph that differs from the index applied under paragraph

(7) the Secretary shall phase-in the application of the index under

this paragraph over a multiyear period.

Applicability.

Effective dates.

Deadlines.

117 STAT. 2314 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(E)(i) Such system shall be designed to result in the same

aggregate amount of expenditures for such services, as estimated

by the Secretary, as would have been made for 2005 if this paragraph did not apply.

‘‘(ii) The adjustment made under subparagraph (B)(ii)(II) shall

be done in a manner to result in the same aggregate amount

of expenditures after such adjustment as would otherwise have

been made for such services for 2006 or 2007, respectively, as

estimated by the Secretary, if this paragraph did not apply.

‘‘(F) Beginning with 2006, the Secretary shall annually increase

the basic case-mix adjusted payment amounts established under

this paragraph, by an amount determined by—

‘‘(i) applying the estimated growth in expenditures for drugs

and biologicals (including erythropoietin) that are separately

billable to the component of the basic case-mix adjusted system

described in subparagraph (B)(ii); and

‘‘(ii) converting the amount determined in clause (i) to

an increase applicable to the basic case-mix adjusted payment

amounts established under subparagraph (B).

Nothing in this paragraph shall be construed as providing for

an update to the composite rate component of the basic casemix adjusted system under subparagraph (B).

‘‘(G) There shall be no administrative or judicial review under

section 1869, section 1878, or otherwise, of the case-mix system,

relative weights, payment amounts, the geographic adjustment

factor, or the update for the system established under this paragraph, or the determination of the difference between medicare

payment amounts and acquisition costs for separately billed drugs

and biologicals (including erythropoietin) under this paragraph and

paragraph (13).

‘‘(13)(A) The payment amounts under this title for separately

billed drugs and biologicals furnished in a year, beginning with

2004, are as follows:

‘‘(i) For such drugs and biologicals (other than erythropoietin) furnished in 2004, the amount determined under section 1842(o)(1)(A)(v) for the drug or biological.

‘‘(ii) For such drugs and biologicals (including erythropoietin) furnished in 2005, the acquisition cost of the drug

or biological, as determined by the Inspector General reports

to the Secretary as required by section 623(c) of the Medicare

Prescription Drug, Improvement, and Modernization Act of

2003. Insofar as the Inspector General has not determined

the acquisition cost with respect to a drug or biological, the

Secretary shall determine the payment amount for such drug

or biological.

‘‘(iii) For such drugs and biologicals (including erythropoietin) furnished in 2006 and subsequent years, such acquisition cost or the amount determined under section 1847A for

the drug or biological, as the Secretary may specify.

‘‘(B)(i) Drugs and biologicals (including erythropoietin) which

were separately billed under this subsection on the day before

the date of the enactment of the Medicare Prescription Drug,

Improvement, and Modernization Act of 2003 shall continue to

be separately billed on and after such date.

‘‘(ii) Nothing in this paragraph, section 1842(o), section 1847A,

or section 1847B shall be construed as requiring or authorizing

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2315

the bundling of payment for drugs and biologicals into the basic

case-mix adjusted payment system under this paragraph.’’.

(2) Paragraph (7) of such section is amended in the first sentence by striking ‘‘The Secretary’’ and inserting ‘‘Subject to paragraph (12), the Secretary’’.

(3) Paragraph (11)(B) of such section is amended by inserting

‘‘subject to paragraphs (12) and (13)’’ before ‘‘payment for such

item’’.

(e) DEMONSTRATION OF BUNDLED CASE-MIX ADJUSTED PAYMENT

SYSTEM FOR ESRD SERVICES.— (1) IN GENERAL.—The Secretary shall establish a demonstration project of the use of a fully case-mix adjusted payment system for end stage renal disease services under section

1881 of the Social Security Act (42 U.S.C. 1395rr) for patient

characteristics identified in the report under subsection (f) that

bundles into such payment rates amounts for—

(A) drugs and biologicals (including erythropoietin) furnished to end stage renal disease patients under the medicare program which are separately billed by end stage

renal disease facilities (as of the date of the enactment

of this Act); and

(B) clinical laboratory tests related to such drugs and

biologicals.

(2) FACILITIES INCLUDED IN THE DEMONSTRATION.—In conducting the demonstration under this subsection, the Secretary

shall ensure the participation of a sufficient number of providers of dialysis services and renal dialysis facilities, but in

no case to exceed 500. In selecting such providers and facilities,

the Secretary shall ensure that the following types of providers

are included in the demonstration:

(A) Urban providers and facilities.

(B) Rural providers and facilities.

(C) Not-for-profit providers and facilities.

(D) For-profit providers and facilities.

(E) Independent providers and facilities.

(F) Specialty providers and facilities, including pediatric providers and facilities and small providers and facilities.

(3) TEMPORARY ADD-ON PAYMENT FOR DIALYSIS SERVICES

FURNISHED UNDER THE DEMONSTRATION.—

(A) IN GENERAL.—During the period of the demonstration project, the Secretary shall increase payment rates

that would otherwise apply under section 1881(b) of such

Act (42 U.S.C. 1395rr(b)) by 1.6 percent for dialysis services

furnished in facilities in the demonstration site.

(B) RULES OF CONSTRUCTION.—Nothing in this subsection shall be construed as—

(i) as an annual update under section 1881(b) of

the Social Security Act (42 U.S.C. 1395rr(b));

(ii) as increasing the baseline for payments under

such section; or

(iii) requiring the budget neutral implementation

of the demonstration project under this subsection.

(4) 3-YEAR PERIOD.—The Secretary shall conduct the demonstration under this subsection for the 3-year period beginning

on January 1, 2006.

(5) USE OF ADVISORY BOARD.—

Effective date.

42 USC 1395rr

note.

117 STAT. 2316 PUBLIC LAW 108–173—DEC. 8, 2003

(A) IN GENERAL.—In carrying out the demonstration

under this subsection, the Secretary shall establish an

advisory board comprised of representatives described in

subparagraph (B) to provide advice and recommendations

with respect to the establishment and operation of such

demonstration.

(B) REPRESENTATIVES.—Representatives referred to in

subparagraph (A) include representatives of the following:

(i) Patient organizations.

(ii) Individuals with expertise in end stage renal

dialysis services, such as clinicians, economists, and

researchers.

(iii) The Medicare Payment Advisory Commission,

established under section 1805 of the Social Security

Act (42 U.S.C. 1395b–6).

(iv) The National Institutes of Health.

(v) Network organizations under section 1881(c)

of the Social Security Act (42 U.S.C. 1395rr(c)).

(vi) Medicare contractors to monitor quality of care.

(vii) Providers of services and renal dialysis facilities furnishing end stage renal disease services.

(C) TERMINATION OF ADVISORY PANEL.—The advisory

panel shall terminate on December 31, 2008.

(6) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be appropriated, in appropriate part from the Federal

Hospital Insurance Trust Fund and the Federal Supplementary

Medical Insurance Trust Fund, $5,000,000 in fiscal year 2006

to conduct the demonstration under this subsection.

(f) REPORT ON A BUNDLED PROSPECTIVE PAYMENT SYSTEM FOR

END STAGE RENAL DISEASE SERVICES.—

(1) REPORT.—

(A) IN GENERAL.—Not later than October 1, 2005, the

Secretary shall submit to Congress a report detailing the

elements and features for the design and implementation

of a bundled prospective payment system for services furnished by end stage renal disease facilities including, to

the maximum extent feasible, bundling of drugs, clinical

laboratory tests, and other items that are separately billed

by such facilities. The report shall include a description

of the methodology to be used for the establishment of

payment rates, including components of the new system

described in paragraph (2).

(B) RECOMMENDATIONS.—The Secretary shall include

in such report recommendations on elements, features, and

methodology for a bundled prospective payment system

or other issues related to such system as the Secretary

determines to be appropriate.

(2) ELEMENTS AND FEATURES OF A BUNDLED PROSPECTIVE

PAYMENT SYSTEM.—The report required under paragraph (1)

shall include the following elements and features of a bundled

prospective payment system:

(A) BUNDLE OF ITEMS AND SERVICES.—A description

of the bundle of items and services to be included under

the prospective payment system.

(B) CASE MIX.—A description of the case-mix adjustment to account for the relative resource use of different

types of patients.

Deadline.

42 USC 1395rr

note.

Establishment.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2317

(C) WAGE INDEX.—A description of an adjustment to

account for geographic differences in wages.

(D) RURAL AREAS.—The appropriateness of establishing

a specific payment adjustment to account for additional

costs incurred by rural facilities.

(E) OTHER ADJUSTMENTS.—Such other adjustments as

may be necessary to reflect the variation in costs incurred

by facilities in caring for patients with end stage renal

disease.

(F) UPDATE FRAMEWORK.—A methodology for appropriate updates under the prospective payment system.

(G) ADDITIONAL RECOMMENDATIONS.—Such other matters as the Secretary determines to be appropriate.

SEC. 624. TWO-YEAR MORATORIUM ON THERAPY CAPS; PROVISIONS

RELATING TO REPORTS.

(a) ADDITIONAL MORATORIUM ON THERAPY CAPS.—

(1) 2004 AND 2005.—Section 1833(g)(4) (42 U.S.C. 1395l(g)(4))

is amended by striking ‘‘and 2002’’ and inserting ‘‘2002, 2004,

and 2005’’.

(2) REMAINDER OF 2003.—For the period beginning on the

date of the enactment of this Act and ending of December

31, 2003, the Secretary shall not apply the provisions of paragraphs (1), (2), and (3) of section 1833(g) to expenses incurred

with respect to services described in such paragraphs during

such period. Nothing in the preceding sentence shall be construed as affecting the application of such paragraphs by the

Secretary before the date of the enactment of this Act.

(b) PROMPT SUBMISSION OF OVERDUE REPORTS ON PAYMENT

AND UTILIZATION OF OUTPATIENT THERAPY SERVICES.—Not later

than March 31, 2004, the Secretary shall submit to Congress the

reports required under section 4541(d)(2) of the Balanced Budget

Act of 1997 (Public Law 105–33; 111 Stat. 457) (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 (Appendix F, 113 Stat.

1501A–352), as enacted into law by section 1000(a)(6) of Public

Law 106–113 (relating to utilization patterns for outpatient

therapy).

(c) GAO REPORT IDENTIFYING CONDITIONS AND DISEASES JUSTIFYING WAIVER OF THERAPY CAP.—

(1) STUDY.—The Comptroller General of the United States

shall identify conditions or diseases that may justify waiving

the application of the therapy caps under section 1833(g) of

the Social Security Act (42 U.S.C. 1395l(g)) with respect to

such conditions or diseases.

(2) REPORT TO CONGRESS.—Not later than October 1, 2004,

the Comptroller General shall submit to Congress a report

on the conditions and diseases identified under paragraph (1),

and shall include a recommendation of criteria, with respect

to such conditions and disease, under which a waiver of the

therapy caps would apply.

SEC. 625. WAIVER OF PART B LATE ENROLLMENT PENALTY FOR CERTAIN MILITARY RETIREES; SPECIAL ENROLLMENT

PERIOD.

(a) WAIVER OF PENALTY.—

Deadline.

Deadline.

42 USC 1395l

note.

42 USC 1395l

note.

117 STAT. 2318 PUBLIC LAW 108–173—DEC. 8, 2003

(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 enrolls under this part during

2001, 2002, 2003, or 2004 and who demonstrates to the Secretary before December 31, 2004, 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

2004. The Secretary shall establish a method for providing

rebates of premium penalties paid for months on or after

January 2004 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 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,

2004.

(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. 626. PAYMENT FOR SERVICES FURNISHED IN AMBULATORY SURGICAL CENTERS.

(a) REDUCTIONS IN PAYMENT UPDATES.—Section 1833(i)(2)(C)

(42 U.S.C. 1395l(i)(2)(C)) is amended to read as follows:

‘‘(C)(i) Notwithstanding the second sentence of each of subparagraphs (A) and (B), except as otherwise specified in clauses (ii),

(iii), and (iv), if the Secretary has not updated amounts established

under such subparagraphs or under subparagraph (D), with respect

to facility services furnished during a fiscal year (beginning with

fiscal year 1986 or a calendar year (beginning with 2006)), such

amounts shall be increased by the percentage increase in the Consumer Price Index for all urban consumers (U.S. city average)

as estimated by the Secretary for the 12-month period ending

with the midpoint of the year involved.

‘‘(ii) In each of the fiscal years 1998 through 2002, the increase

under this subparagraph shall be reduced (but not below zero)

by 2.0 percentage points.

‘‘(iii) In fiscal year 2004, beginning with April 1, 2004, the

increase under this subparagraph shall be the Consumer Price

Index for all urban consumers (U.S. city average) as estimated

by the Secretary for the 12-month period ending with March 31,

2003, minus 3.0 percentage points.

Effective date.

Effective date.

Termination

date.

42 USC 1395p

note.

Procedures.

42 USC 1395r

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2319

‘‘(iv) In fiscal year 2005, the last quarter of calendar year

2005, and each of calendar years 2006 through 2009, the increase

under this subparagraph shall be 0 percent.’’.

(b) REPEAL OF SURVEY REQUIREMENT AND IMPLEMENTATION

OF NEW SYSTEM.—Section 1833(i)(2) (42 U.S.C. 1395l(i)(2)) is

amended—

(1) in subparagraph (A)—

(A) in the matter preceding clause (i), by striking ‘‘The’’

and inserting ‘‘For services furnished prior to the

implementation of the system described in subparagraph

(D), the’’; and

(B) in clause (i), by striking ‘‘taken not later than

January 1, 1995, and every 5 years thereafter,’’; and

(2) by adding at the end the following new subparagraph:

‘‘(D)(i) Taking into account the recommendations in the report

under section 626(d) of Medicare Prescription Drug, Improvement,

and Modernization Act of 2003, the Secretary shall implement

a revised payment system for payment of surgical services furnished

in ambulatory surgical centers.

‘‘(ii) In the year the system described in clause (i) is implemented, such system shall be designed to result in the same aggregate amount of expenditures for such services as would be made

if this subparagraph did not apply, as estimated by the Secretary.

‘‘(iii) The Secretary shall implement the system described in

clause (i) for periods in a manner so that it is first effective beginning on or after January 1, 2006, and not later than January

1, 2008.

‘‘(iv) There shall be no administrative or judicial review under

section 1869, 1878, or otherwise, of the classification system, the

relative weights, payment amounts, and the geographic adjustment

factor, if any, under this subparagraph.’’.

(c) CONFORMING AMENDMENT.—Section 1833(a)(1) (42 U.S.C.

1395l(a)(1)) is amended by adding the following new subparagraph:

‘‘(G) with respect to facility services furnished in

connection with a surgical procedure specified pursuant

to subsection (i)(1)(A) and furnished to an individual in

an ambulatory surgical center described in such subsection,

for services furnished beginning with the implementation

date of a revised payment system for such services in

such facilities specified in subsection (i)(2)(D), the amounts

paid shall be 80 percent of the lesser of the actual charge

for the services or the amount determined by the Secretary

under such revised payment system,’’.

(d) GAO STUDY OF AMBULATORY SURGICAL CENTER PAYMENTS.—

(1) STUDY.—

(A) IN GENERAL.—The Comptroller General of the

United States shall conduct a study that compares the

relative costs of procedures furnished in ambulatory surgical centers to the relative costs of procedures furnished

in hospital outpatient departments under section 1833(t)

of the Social Security Act (42 U.S.C. 1395l(t)). The study

shall also examine how accurately ambulatory payment

categories reflect procedures furnished in ambulatory surgical centers.

(B) CONSIDERATION OF ASC DATA.—In conducting the

study under paragraph (1), the Comptroller General shall

42 USC 1395l

note.

Effective date.

117 STAT. 2320 PUBLIC LAW 108–173—DEC. 8, 2003

consider data submitted by ambulatory surgical centers

regarding the matters described in clauses (i) through (iii)

of paragraph (2)(B).

(2) REPORT AND RECOMMENDATIONS.— (A) REPORT.—Not later than January 1, 2005, the

Comptroller General shall submit to Congress a report

on the study conducted under paragraph (1).

(B) RECOMMENDATIONS.—The report submitted under

subparagraph (A) shall include recommendations on the

following matters:

(i) The appropriateness of using the groups of covered services and relative weights established under

the outpatient prospective payment system as the basis

of payment for ambulatory surgical centers.

(ii) If the relative weights under such hospital

outpatient prospective payment system are appropriate

for such purpose—

(I) whether the payment rates for ambulatory

surgical centers should be based on a uniform

percentage of the payment rates or weights under

such outpatient system; or

(II) whether the payment rates for ambulatory

surgical centers should vary, or the weights should

be revised, based on specific procedures or types

of services (such as ophthalmology and pain

management services).

(iii) Whether a geographic adjustment should be

used for payment of services furnished in ambulatory

surgical centers, and if so, the labor and nonlabor

shares of such payment.

SEC. 627. PAYMENT FOR CERTAIN SHOES AND INSERTS UNDER THE

FEE SCHEDULE FOR ORTHOTICS AND PROSTHETICS.

(a) IN GENERAL.—Section 1833(o) (42 U.S.C. 1395l(o)) is

amended—

(1) in paragraph (1)(B), by striking ‘‘no more than the

limits established under paragraph (2)’’ and inserting ‘‘no more

than the amount of payment applicable under paragraph (2)’’;

and

(2) in paragraph (2), to read as follows:

‘‘(2)(A) Except as provided by the Secretary under subparagraphs (B) and (C), the amount of payment under this paragraph

for custom molded shoes, extra-depth shoes, and inserts shall be

the amount determined for such items by the Secretary under

section 1834(h).

‘‘(B) The Secretary may establish payment amounts for shoes

and inserts that are lower than the amount established under

section 1834(h) if the Secretary finds that shoes and inserts of

an appropriate quality are readily available at or below the amount

established under such section.

‘‘(C) In accordance with procedures established by the Secretary,

an individual entitled to benefits with respect to shoes described

in section 1861(s)(12) may substitute modification of such shoes

instead of obtaining one (or more, as specified by the Secretary)

pair of inserts (other than the original pair of inserts with respect

to such shoes). In such case, the Secretary shall substitute, for

the payment amount established under section 1834(h), a payment

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2321

amount that the Secretary estimates will assure that there is no

net increase in expenditures under this subsection as a result

of this subparagraph.’’.

(b) CONFORMING AMENDMENTS.—(1) Section 1834(h)(4)(C) (42

U.S.C. 1395m(h)(4)(C)) is amended by inserting ‘‘(and includes shoes

described in section 1861(s)(12))’’ after ‘‘in section 1861(s)(9)’’.

(2) Section 1842(s)(2) (42 U.S.C. 1395u(s)(2)) is amended by

striking subparagraph (C).

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to items furnished on or after January 1, 2005.

SEC. 628. PAYMENT FOR CLINICAL DIAGNOSTIC LABORATORY TESTS.

Section 1833(h)(2)(A)(ii)(IV) (42 U.S.C. 1395l(h)(2)(A)(ii)(IV)) is

amended by striking ‘‘and 1998 through 2002’’ and inserting ‘‘,

1998 through 2002, and 2004 through 2008’’.

SEC. 629. INDEXING PART B DEDUCTIBLE TO INFLATION.

The first sentence of section 1833(b) (42 U.S.C. 1395l(b)) is

amended by striking ‘‘and $100 for 1991 and subsequent years’’

and inserting the following: ‘‘, $100 for 1991 through 2004, $110

for 2005, and for a subsequent year the amount of such deductible

for the previous year increased by the annual percentage increase

in the monthly actuarial rate under section 1839(a)(1) ending with

such subsequent year (rounded to the nearest $1)’’.

SEC. 630. FIVE-YEAR AUTHORIZATION OF REIMBURSEMENT FOR ALL

MEDICARE PART B SERVICES FURNISHED BY CERTAIN

INDIAN HOSPITALS AND CLINICS.

Section 1880(e)(1)(A) (42 U.S.C. 1395qq(e)(1)(A)) is amended

by inserting ‘‘(and for items and services furnished during the

5-year period beginning on January 1, 2005, all items and services

for which payment may be made under part B)’’ after ‘‘for services

described in paragraph (2)’’.

Subtitle D—Additional Demonstrations,

Studies, and Other Provisions

SEC. 641. DEMONSTRATION PROJECT FOR COVERAGE OF CERTAIN

PRESCRIPTION DRUGS AND BIOLOGICALS.

(a) DEMONSTRATION PROJECT.—The Secretary shall conduct a

demonstration project under part B of title XVIII of the Social

Security Act under which payment is made for drugs or biologicals

that are prescribed as replacements for drugs and biologicals

described in section 1861(s)(2)(A) or 1861(s)(2)(Q) of such Act (42

U.S.C. 1395x(s)(2)(A), 1395x(s)(2)(Q)), or both, for which payment

is made under such part. Such project shall provide for cost-sharing

applicable with respect to such drugs or biologicals in the same

manner as cost-sharing applies with respect to part D drugs under

standard prescription drug coverage (as defined in section 1860D–

2(b) of the Social Security Act, as added by section 101(a)).

(b) DEMONSTRATION PROJECT SITES.—The project established

under this section shall be conducted in sites selected by the Secretary.

(c) DURATION.—The Secretary shall conduct the demonstration

project for the 2-year period beginning on the date that is 90

Effective date.

42 USC 1395l

note.

42 USC 1395l

note.

117 STAT. 2322 PUBLIC LAW 108–173—DEC. 8, 2003

days after the date of the enactment of this Act, but in no case

may the project extend beyond December 31, 2005.

(d) LIMITATION.—Under the demonstration project over the

duration of the project, the Secretary may not provide—

(1) coverage for more than 50,000 patients; and

(2) more than $500,000,000 in funding.

(e) REPORT.—Not later than July 1, 2006, the Secretary shall

submit to Congress a report on the project. The report shall include

an evaluation of patient access to care and patient outcomes under

the project, as well as an analysis of the cost effectiveness of

the project, including an evaluation of the costs savings (if any)

to the medicare program attributable to reduced physicians’ services

and hospital outpatient departments services for administration

of the biological.

SEC. 642. EXTENSION OF COVERAGE OF INTRAVENOUS IMMUNE GLOBULIN (IVIG) FOR THE TREATMENT OF PRIMARY IMMUNE

DEFICIENCY DISEASES IN THE HOME.

(a) IN GENERAL.—Section 1861 (42 U.S.C. 1395x), as amended

by sections 611(a) and 612(a) is amended—

(1) in subsection (s)(2)—

(A) by striking ‘‘and’’ at the end of subparagraph (X);

(B) by adding ‘‘and’’ at the end of subparagraph (Y);

and

(C) by adding at the end the following new subparagraph:

‘‘(Z) intravenous immune globulin for the treatment

of primary immune deficiency diseases in the home (as

defined in subsection (zz));’’; and

(2) by adding at the end the following new subsection:

‘‘Intravenous Immune Globulin

‘‘(zz) The term ‘intravenous immune globulin’ means an

approved pooled plasma derivative for the treatment in the patient’s

home of a patient with a diagnosed primary immune deficiency

disease, but not including items or services related to the administration of the derivative, if a physician determines administration

of the derivative in the patient’s home is medically appropriate.’’.

(b) PAYMENT AS A DRUG OR BIOLOGICAL.—Section 1833(a)(1)(S)

(42 U.S.C. 1395l(a)(1)(S)) is amended by inserting ‘‘(including intravenous immune globulin (as defined in section 1861(zz)))’’ after

‘‘with respect to drugs and biologicals’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to items furnished administered on or after January

1, 2004.

SEC. 643. MEDPAC STUDY OF COVERAGE OF SURGICAL FIRST

ASSISTING SERVICES OF CERTIFIED REGISTERED NURSE

FIRST ASSISTANTS.

(a) STUDY.—The Medicare Payment Advisory Commission (in

this section referred to as the ‘‘Commission’’) shall conduct a study

on the feasibility and advisability of providing for payment under

part B of title XVIII of the Social Security Act for surgical first

assisting services furnished by a certified registered nurse first

assistant to medicare beneficiaries.

(b) REPORT.—Not later than January 1, 2005, the Commission

shall submit to Congress a report on the study conducted under

Deadline.

42 USC 1395x

note.

42 USC 1395l

note.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2323

subsection (a) together with recommendations for such legislation

or administrative action as the Commission determines to be appropriate.

(c) DEFINITIONS.—In this section:

(1) SURGICAL FIRST ASSISTING SERVICES.—The term ‘‘surgical first assisting services’’ means services consisting of first

assisting a physician with surgery and related preoperative,

intraoperative, and postoperative care (as determined by the

Secretary) furnished by a certified registered nurse first assistant (as defined in paragraph (2)) which the certified registered

nurse first assistant is legally authorized to perform by the

State in which the services are performed.

(2) CERTIFIED REGISTERED NURSE FIRST ASSISTANT.—The

term ‘‘certified registered nurse first assistant’’ means an individual who—

(A) is a registered nurse and is licensed to practice

nursing in the State in which the surgical first assisting

services are performed;

(B) has completed a minimum of 2,000 hours of first

assisting a physician with surgery and related preoperative,

intraoperative, and postoperative care; and

(C) is certified as a registered nurse first assistant

by an organization recognized by the Secretary.

SEC. 644. MEDPAC STUDY OF PAYMENT FOR CARDIO-THORACIC SURGEONS.

(a) STUDY.—The Medicare Payment Advisory Commission (in

this section referred to as the ‘‘Commission’’) shall conduct a study

on the practice expense relative values established by the Secretary

of Health and Human Services under the medicare physician fee

schedule under section 1848 of the Social Security Act (42 U.S.C.

1395w–4) for physicians in the specialties of thoracic and cardiac

surgery to determine whether such values adequately take into

account the attendant costs that such physicians incur in providing

clinical staff for patient care in hospitals.

(b) REPORT.—Not later than January 1, 2005, the Commission

shall submit to Congress a report on the study conducted under

subsection (a) together with recommendations for such legislation

or administrative action as the Commission determines to be appropriate.

SEC. 645. STUDIES RELATING TO VISION IMPAIRMENTS.

(a) COVERAGE OF OUTPATIENT VISION SERVICES FURNISHED BY

VISION REHABILITATION PROFESSIONALS UNDER PART B.—

(1) STUDY.—The Secretary shall conduct a study to determine the feasibility and advisability of providing for payment

for vision rehabilitation services furnished by vision rehabilitation professionals.

(2) REPORT.—Not later than January 1, 2005, the Secretary

shall submit to Congress a report on the study conducted under

paragraph (1) together with recommendations for such legislation or administrative action as the Secretary determines to

be appropriate.

(3) VISION REHABILITATION PROFESSIONAL DEFINED.—In this

subsection, the term ‘‘vision rehabilitation professional’’ means

an orientation and mobility specialist, a rehabilitation teacher,

or a low vision therapist.

Deadline.

42 USC 1395x

note.

Deadline.

42 USC 1395w–4

note.

117 STAT. 2324 PUBLIC LAW 108–173—DEC. 8, 2003

(b) REPORT ON APPROPRIATENESS OF A DEMONSTRATION PROJECT

TO TEST FEASIBILITY OF USING PPO NETWORKS TO REDUCE COSTS

OF ACQUIRING EYEGLASSES FOR MEDICARE BENEFICIARIES AFTER

CATARACT SURGERY.—Not later than 1 year after the date of the

enactment of this Act, the Secretary shall submit to Congress

a report on the feasibility of establishing a two-year demonstration

project under which the Secretary enters into arrangements with

vision care preferred provider organization networks to furnish

and pay for conventional eyeglasses subsequent to each cataract

surgery with insertion of an intraocular lens on behalf of Medicare

beneficiaries. In such report, the Secretary shall include an estimate

of potential cost savings to the Medicare program through the

use of such networks, taking into consideration quality of service

and beneficiary access to services offered by vision care preferred

provider organization networks.

SEC. 646. MEDICARE HEALTH CARE QUALITY DEMONSTRATION PROGRAMS.

Title XVIII (42 U.S.C. 1395 et seq.) is amended by inserting

after section 1866B the following new section:

‘‘HEALTH CARE QUALITY DEMONSTRATION PROGRAM

‘‘SEC. 1866C. (a) DEFINITIONS.—In this section:

‘‘(1) BENEFICIARY.—The term ‘beneficiary’ means an individual who is entitled to benefits under part A and enrolled

under part B, including any individual who is enrolled in a

Medicare Advantage plan under part C.

‘‘(2) HEALTH CARE GROUP.—

‘‘(A) IN GENERAL.—The term ‘health care group’

means—

‘‘(i) a group of physicians that is organized at least

in part for the purpose of providing physician’s services

under this title;

‘‘(ii) an integrated health care delivery system that

delivers care through coordinated hospitals, clinics,

home health agencies, ambulatory surgery centers,

skilled nursing facilities, rehabilitation facilities and

clinics, and employed, independent, or contracted

physicians; or

‘‘(iii) an organization representing regional coalitions of groups or systems described in clause (i) or

(ii).

‘‘(B) INCLUSION.—As the Secretary determines appropriate, a health care group may include a hospital or any

other individual or entity furnishing items or services for

which payment may be made under this title that is affiliated with the health care group under an arrangement

structured so that such hospital, individual, or entity

participates in a demonstration project under this section.

‘‘(3) PHYSICIAN.—Except as otherwise provided for by the

Secretary, the term ‘physician’ means any individual who furnishes services that may be paid for as physicians’ services

under this title.

‘‘(b) DEMONSTRATION PROJECTS.—The Secretary shall establish

a 5-year demonstration program under which the Secretary shall

approve demonstration projects that examine health delivery factors

42 USC

1395cc–3.

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2325

that encourage the delivery of improved quality in patient care,

including—

‘‘(1) the provision of incentives to improve the safety of

care provided to beneficiaries;

‘‘(2) the appropriate use of best practice guidelines by providers and services by beneficiaries;

‘‘(3) reduced scientific uncertainty in the delivery of care

through the examination of variations in the utilization and

allocation of services, and outcomes measurement and research;

‘‘(4) encourage shared decision making between providers

and patients;

‘‘(5) the provision of incentives for improving the quality

and safety of care and achieving the efficient allocation of

resources;

‘‘(6) the appropriate use of culturally and ethnically sensitive health care delivery; and

‘‘(7) the financial effects on the health care marketplace

of altering the incentives for care delivery and changing the

allocation of resources.

‘‘(c) ADMINISTRATION BY CONTRACT.—

‘‘(1) IN GENERAL.—Except as otherwise provided in this

section, the Secretary may administer the demonstration program established under this section in a manner that is similar

to the manner in which the demonstration program established

under section 1866A is administered in accordance with section

1866B.

‘‘(2) ALTERNATIVE PAYMENT SYSTEMS.—A health care group

that receives assistance under this section may, with respect

to the demonstration project to be carried out with such assistance, include proposals for the use of alternative payment systems for items and services provided to beneficiaries by the

group that are designed to—

‘‘(A) encourage the delivery of high quality care while

accomplishing the objectives described in subsection (b);

and

‘‘(B) streamline documentation and reporting requirements otherwise required under this title.

‘‘(3) BENEFITS.—A health care group that receives assistance under this section may, with respect to the demonstration

project to be carried out with such assistance, include modifications to the package of benefits available under the original

medicare fee-for-service program under parts A and B or the

package of benefits available through a Medicare Advantage

plan under part C. The criteria employed under the demonstration program under this section to evaluate outcomes and determine best practice guidelines and incentives shall not be used

as a basis for the denial of medicare benefits under the demonstration program to patients against their wishes (or if the

patient is incompetent, against the wishes of the patient’s surrogate) on the basis of the patient’s age or expected length of

life or of the patient’s present or predicted disability, degree

of medical dependency, or quality of life.

‘‘(d) ELIGIBILITY CRITERIA.—To be eligible to receive assistance

under this section, an entity shall—

‘‘(1) be a health care group;

‘‘(2) meet quality standards established by the Secretary,

including—

117 STAT. 2326 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(A) the implementation of continuous quality improvement mechanisms that are aimed at integrating community-based support services, primary care, and referral care;

‘‘(B) the implementation of activities to increase the

delivery of effective care to beneficiaries;

‘‘(C) encouraging patient participation in preferencebased decisions;

‘‘(D) the implementation of activities to encourage the

coordination and integration of medical service delivery;

and

‘‘(E) the implementation of activities to measure and

document the financial impact on the health care marketplace of altering the incentives of health care delivery

and changing the allocation of resources; and

‘‘(3) meet such other requirements as the Secretary may

establish.

‘‘(e) WAIVER AUTHORITY.—The Secretary may waive such

requirements of titles XI and XVIII as may be necessary to carry

out the purposes of the demonstration program established under

this section.

‘‘(f) BUDGET NEUTRALITY.—With respect to the 5-year period

of the demonstration program under subsection (b), the aggregate

expenditures under this title for such period shall not exceed the

aggregate expenditures that would have been expended under this

title if the program established under this section had not been

implemented.

‘‘(g) NOTICE REQUIREMENTS.—In the case of an individual that

receives health care items or services under a demonstration program carried out under this section, the Secretary shall ensure

that such individual is notified of any waivers of coverage or payment rules that are applicable to such individual under this title

as a result of the participation of the individual in such program.

‘‘(h) PARTICIPATION AND SUPPORT BY FEDERAL AGENCIES.—In

carrying out the demonstration program under this section, the

Secretary may direct—

‘‘(1) the Director of the National Institutes of Health to

expand the efforts of the Institutes to evaluate current medical

technologies and improve the foundation for evidence-based

practice;

‘‘(2) the Administrator of the Agency for Healthcare

Research and Quality to, where possible and appropriate, use

the program under this section as a laboratory for the study

of quality improvement strategies and to evaluate, monitor,

and disseminate information relevant to such program; and

‘‘(3) the Administrator of the Centers for Medicare & Medicaid Services and the Administrator of the Center for Medicare

Choices to support linkages of relevant medicare data to registry information from participating health care groups for the

beneficiary populations served by the participating groups, for

analysis supporting the purposes of the demonstration program,

consistent with the applicable provisions of the Health Insurance Portability and Accountability Act of 1996.’’.

SEC. 647. MEDPAC STUDY ON DIRECT ACCESS TO PHYSICAL THERAPY

SERVICES.

(a) STUDY.—The Medicare Payment Advisory Commission (in

this section referred to as the ‘‘Commission’’) shall conduct a study

42 USC 1395n

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2327

on the feasibility and advisability of allowing medicare fee-forservice beneficiaries direct access to outpatient physical therapy

services and physical therapy services furnished as comprehensive

rehabilitation facility services.

(b) REPORT.—Not later than January 1, 2005, the Commission

shall submit to Congress a report on the study conducted under

subsection (a) together with recommendations for such legislation

or administrative action as the Commission determines to be appropriate.

(c) DIRECT ACCESS DEFINED.—The term ‘‘direct access’’ means,

with respect to outpatient physical therapy services and physical

therapy services furnished as comprehensive outpatient rehabilitation facility services, coverage of and payment for such services

in accordance with the provisions of title XVIII of the Social Security

Act, except that sections 1835(a)(2), 1861(p), and 1861(cc) of such

Act (42 U.S.C. 1395n(a)(2), 1395x(p), and 1395x(cc), respectively)

shall be applied—

(1) without regard to any requirement that—

(A) an individual be under the care of (or referred

by) a physician; or

(B) services be provided under the supervision of a

physician; and

(2) by allowing a physician or a qualified physical therapist

to satisfy any requirement for—

(A) certification and recertification; and

(B) establishment and periodic review of a plan of

care.

SEC. 648. DEMONSTRATION PROJECT FOR CONSUMER-DIRECTED

CHRONIC OUTPATIENT SERVICES.

(a) ESTABLISHMENT.—

(1) IN GENERAL.—Subject to the succeeding provisions of

this section, the Secretary shall establish demonstration

projects (in this section referred to as ‘‘demonstration projects’’)

under which the Secretary shall evaluate methods that improve

the quality of care provided to individuals with chronic conditions and that reduce expenditures that would otherwise be

made under the medicare program on behalf of such individuals

for such chronic conditions, such methods to include permitting

those beneficiaries to direct their own health care needs and

services.

(2) INDIVIDUALS WITH CHRONIC CONDITIONS DEFINED.—In

this section, the term ‘‘individuals with chronic conditions’’

means an individual entitled to benefits under part A of title

XVIII of the Social Security Act, and enrolled under part B

of such title, but who is not enrolled under part C of such

title who is diagnosed as having one or more chronic conditions

(as defined by the Secretary), such as diabetes.

(b) DESIGN OF PROJECTS.—

(1) EVALUATION BEFORE IMPLEMENTATION OF PROJECT.—

(A) IN GENERAL.—In establishing the demonstration

projects under this section, the Secretary shall evaluate

best practices employed by group health plans and practices

under State plans for medical assistance under the medicaid program under title XIX of the Social Security Act,

as well as best practices in the private sector or other

areas, of methods that permit patients to self-direct the

42 USC 1395b–8

note.

Deadline.

117 STAT. 2328 PUBLIC LAW 108–173—DEC. 8, 2003

provision of personal care services. The Secretary shall

evaluate such practices for a 1-year period and, based

on such evaluation, shall design the demonstration project.

(B) REQUIREMENT FOR ESTIMATE OF BUDGET NEUTRAL

COSTS.—As part of the evaluation under subparagraph (A),

the Secretary shall evaluate the costs of furnishing care

under the projects. The Secretary may not implement the

demonstration projects under this section unless the Secretary determines that the costs of providing care to

individuals with chronic conditions under the project will

not exceed the costs, in the aggregate, of furnishing care

to such individuals under title XVIII of the Social Security

Act, that would otherwise be paid without regard to the

demonstration projects for the period of the project.

(2) SCOPE OF SERVICES.—The Secretary shall determine

the appropriate scope of personal care services that would

apply under the demonstration projects.

(c) VOLUNTARY PARTICIPATION.—Participation of providers of

services and suppliers, and of individuals with chronic conditions,

in the demonstration projects shall be voluntary.

(d) DEMONSTRATION PROJECTS SITES.—Not later than 2 years

after the date of the enactment of this Act, the Secretary shall

conduct a demonstration project in at least one area that the

Secretary determines has a population of individuals entitled to

benefits under part A of title XVIII of the Social Security Act,

and enrolled under part B of such title, with a rate of incidence

of diabetes that significantly exceeds the national average rate

of all areas.

(e) EVALUATION AND REPORT.—

(1) EVALUATIONS.—The Secretary shall conduct evaluations

of the clinical and cost effectiveness of the demonstration

projects.

(2) REPORTS.—Not later than 2 years after the commencement of the demonstration projects, and biannually thereafter,

the Secretary shall submit to Congress a report on the evaluation, and shall include in the report the following:

(A) An analysis of the patient outcomes and costs of

furnishing care to the individuals with chronic conditions

participating in the projects as compared to such outcomes

and costs to other individuals for the same health conditions.

(B) Evaluation of patient satisfaction under the demonstration projects.

(C) Such recommendations regarding the extension,

expansion, or termination of the projects as the Secretary

determines appropriate.

(f) WAIVER AUTHORITY.—The Secretary shall waive compliance

with the requirements of title XVIII of the Social Security Act

(42 U.S.C. 1395 et seq.) to such extent and for such period as

the Secretary determines is necessary to conduct demonstration

projects.

(g) AUTHORIZATION OF APPROPRIATIONS.—(1) Payments for the

costs of carrying out the demonstration project under this section

shall be made from the Federal Supplementary Medical Insurance

Trust Fund under section 1841 of such Act (42 U.S.C. 1395t).

(2) There are authorized to be appropriated from such Trust

Fund such sums as may be necessary for the Secretary to enter

Deadlines.

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2329

into contracts with appropriate organizations for the deign,

implementation, and evaluation of the demonstration project.

(3) In no case may expenditures under this section exceed

the aggregate expenditures that would otherwise have been made

for the provision of personal care services.

SEC. 649. MEDICARE CARE MANAGEMENT PERFORMANCE DEMONSTRATION.

(a) ESTABLISHMENT.—

(1) IN GENERAL.—The Secretary shall establish a pay-forperformance demonstration program with physicians to meet

the needs of eligible beneficiaries through the adoption and

use of health information technology and evidence-based outcomes measures for—

(A) promoting continuity of care;

(B) helping stabilize medical conditions;

(C) preventing or minimizing acute exacerbations of

chronic conditions; and

(D) reducing adverse health outcomes, such as adverse

drug interactions related to polypharmacy.

(2) SITES.—The Secretary shall designate no more than

4 sites at which to conduct the demonstration program under

this section, of which—

(A) two shall be in an urban area;

(B) one shall be in a rural area; and

(C) one shall be in a State with a medical school

with a Department of Geriatrics that manages rural outreach sites and is capable of managing patients with multiple chronic conditions, one of which is dementia.

(3) DURATION.—The Secretary shall conduct the demonstration program under this section for a 3-year period.

(4) CONSULTATION.—In carrying out the demonstration program under this section, the Secretary shall consult with private sector and non-profit groups that are undertaking similar

efforts to improve quality and reduce avoidable hospitalizations

for chronically ill patients.

(b) PARTICIPATION.—

(1) IN GENERAL.—A physician who provides care for a minimum number of eligible beneficiaries (as specified by the Secretary) may participate in the demonstration program under

this section if such physician agrees, to phase-in over the course

of the 3-year demonstration period and with the assistance

provided under subsection (d)(2)—

(A) the use of health information technology to manage

the clinical care of eligible beneficiaries consistent with

paragraph (3); and

(B) the electronic reporting of clinical quality and outcomes measures in accordance with requirements established by the Secretary under the demonstration program.

(2) SPECIAL RULE.—In the case of the sites referred to

in subparagraphs (B) and (C) of subsection (a)(2), a physician

who provides care for a minimum number of beneficiaries with

two or more chronic conditions, including dementia (as specified

by the Secretary), may participate in the program under this

section if such physician agrees to the requirements in subparagraphs (A) and (B) of paragraph (1).

42 USC 1395b–1

note.

117 STAT. 2330 PUBLIC LAW 108–173—DEC. 8, 2003

(3) PRACTICE STANDARDS.—Each physician participating in

the demonstration program under this section must demonstrate the ability—

(A) to assess each eligible beneficiary for conditions

other than chronic conditions, such as impaired cognitive

ability and co-morbidities, for the purposes of developing

care management requirements;

(B) to serve as the primary contact of eligible beneficiaries in accessing items and services for which payment

may be made under the medicare program;

(C) to establish and maintain health care information

system for such beneficiaries;

(D) to promote continuity of care across providers and

settings;

(E) to use evidence-based guidelines and meet such

clinical quality and outcome measures as the Secretary

shall require;

(F) to promote self-care through the provision of patient

education and support for patients or, where appropriate,

family caregivers;

(G) when appropriate, to refer such beneficiaries to

community service organizations; and

(H) to meet such other complex care management

requirements as the Secretary may specify.

The guidelines and measures required under subparagraph

(E) shall be designed to take into account beneficiaries with

multiple chronic conditions.

(c) PAYMENT METHODOLOGY.—Under the demonstration program under this section the Secretary shall pay a per beneficiary

amount to each participating physician who meets or exceeds specific performance standards established by the Secretary with

respect to the clinical quality and outcome measures reported under

subsection (b)(1)(B). Such amount may vary based on different

levels of performance or improvement.

(d) ADMINISTRATION.— (1) USE OF QUALITY IMPROVEMENT ORGANIZATIONS.—The

Secretary shall contract with quality improvement organizations or such other entities as the Secretary deems appropriate

to enroll physicians and evaluate their performance under the

demonstration program under this section.

(2) TECHNICAL ASSISTANCE.—The Secretary shall require

in such contracts that the contractor be responsible for technical

assistance and education as needed to physicians enrolled in

the demonstration program under this section for the purpose

of aiding their adoption of health information technology,

meeting practice standards, and implementing required clinical

and outcomes measures.

(e) FUNDING.—

(1) IN GENERAL.—The Secretary shall provide for the

transfer from the Federal Supplementary Medical Insurance

Trust Fund established under section 1841 of the Social Security Act (42 U.S.C. 1395t) of such funds as are necessary

for the costs of carrying out the demonstration program under

this section.

(2) BUDGET NEUTRALITY.—In conducting the demonstration

program under this section, the Secretary shall ensure that

the aggregate payments made by the Secretary do not exceed

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2331

the amount which the Secretary estimates would have been

paid if the demonstration program under this section was not

implemented.

(f) WAIVER AUTHORITY.—The Secretary may waive such requirements of titles XI and XVIII of the Social Security Act (42 U.S.C.

1301 et seq. and 1395 et seq.) as may be necessary for the purpose

of carrying out the demonstration program under this section.

(g) REPORT.—Not later than 12 months after the date of completion of the demonstration program under this section, the Secretary

shall submit to Congress a report on such program, together with

recommendations for such legislation and administrative action as

the Secretary determines to be appropriate.

(h) DEFINITIONS.—In this section:

(1) ELIGIBLE BENEFICIARY.—The term ‘‘eligible beneficiary’’

means any individual who—

(A) is entitled to benefits under part A and enrolled

for benefits under part B of title XVIII of the Social Security

Act and is not enrolled in a plan under part C of such

title; and

(B) has one or more chronic medical conditions specified

by the Secretary (one of which may be cognitive impairment).

(2) HEALTH INFORMATION TECHNOLOGY.—The term ‘‘health

information technology’’ means email communication, clinical

alerts and reminders, and other information technology that

meets such functionality, interoperability, and other standards

as prescribed by the Secretary.

SEC. 650. GAO STUDY AND REPORT ON THE PROPAGATION OF CONCIERGE CARE.

(a) STUDY.—

(1) IN GENERAL.—The Comptroller General of the United

States shall conduct a study on concierge care (as defined

in paragraph (2)) to determine the extent to which such care—

(A) is used by medicare beneficiaries (as defined in

section 1802(b)(5)(A) of the Social Security Act (42 U.S.C.

1395a(b)(5)(A))); and

(B) has impacted upon the access of medicare beneficiaries (as so defined) to items and services for which

reimbursement is provided under the medicare program

under title XVIII of the Social Security Act (42 U.S.C.

1395 et seq.).

(2) CONCIERGE CARE.—In this section, the term ‘‘concierge

care’’ means an arrangement under which, as a prerequisite

for the provision of a health care item or service to an individual, a physician, practitioner (as described in section

1842(b)(18)(C) of the Social Security Act (42 U.S.C.

1395u(b)(18)(C))), or other individual—

(A) charges a membership fee or another incidental

fee to an individual desiring to receive the health care

item or service from such physician, practitioner, or other

individual; or

(B) requires the individual desiring to receive the

health care item or service from such physician, practitioner, or other individual to purchase an item or service.

(b) REPORT.—Not later than the date that is 12 months after

the date of enactment of this Act, the Comptroller General of

Deadline.

42 USC 1395cc

note.

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117 STAT. 2332 PUBLIC LAW 108–173—DEC. 8, 2003

the United States shall submit to Congress a report on the study

conducted under subsection (a)(1) together with such recommendations for legislative or administrative action as the Comptroller

General determines to be appropriate.

SEC. 651. DEMONSTRATION OF COVERAGE OF CHIROPRACTIC SERVICES UNDER MEDICARE.

(a) DEFINITIONS.—In this section:

(1) CHIROPRACTIC SERVICES.—The term ‘‘chiropractic services’’ has the meaning given that term by the Secretary for

purposes of the demonstration projects, but shall include, at

a minimum—

(A) care for neuromusculoskeletal conditions typical

among eligible beneficiaries; and

(B) diagnostic and other services that a chiropractor

is legally authorized to perform by the State or jurisdiction

in which such treatment is provided.

(2) DEMONSTRATION PROJECT.—The term ‘‘demonstration

project’’ means a demonstration project established by the Secretary under subsection (b)(1).

(3) ELIGIBLE BENEFICIARY.—The term ‘‘eligible beneficiary’’

means an individual who is enrolled under part B of the medicare program.

(4) MEDICARE PROGRAM.—The term ‘‘medicare program’’

means the health benefits program under title XVIII of the

Social Security Act (42 U.S.C. 1395 et seq.).

(b) DEMONSTRATION OF COVERAGE OF CHIROPRACTIC SERVICES

UNDER MEDICARE.—

(1) ESTABLISHMENT.—The Secretary shall establish demonstration projects in accordance with the provisions of this

section for the purpose of evaluating the feasibility and advisability of covering chiropractic services under the medicare

program (in addition to the coverage provided for services consisting of treatment by means of manual manipulation of the

spine to correct a subluxation described in section 1861(r)(5)

of the Social Security Act (42 U.S.C. 1395x(r)(5))).

(2) NO PHYSICIAN APPROVAL REQUIRED.—In establishing the

demonstration projects, the Secretary shall ensure that an

eligible beneficiary who participates in a demonstration project,

including an eligible beneficiary who is enrolled for coverage

under a Medicare+Choice plan (or, on and after January 1,

2006, under a Medicare Advantage plan), is not required to

receive approval from a physician or other health care provider

in order to receive a chiropractic service under a demonstration

project.

(3) CONSULTATION.—In establishing the demonstration

projects, the Secretary shall consult with chiropractors,

organizations representing chiropractors, eligible beneficiaries,

and organizations representing eligible beneficiaries.

(4) PARTICIPATION.—Any eligible beneficiary may participate in the demonstration projects on a voluntary basis.

(c) CONDUCT OF DEMONSTRATION PROJECTS.—

(1) DEMONSTRATION SITES.—

(A) SELECTION OF DEMONSTRATION SITES.—The Secretary shall conduct demonstration projects at 4 demonstration sites.

42 USC 1395x

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2333

(B) GEOGRAPHIC DIVERSITY.—Of the sites described in

subparagraph (A)—

(i) two shall be in rural areas; and

(ii) two shall be in urban areas.

(C) SITES LOCATED IN HPSAS.—At least 1 site described

in clause (i) of subparagraph (B) and at least 1 site

described in clause (ii) of such subparagraph shall be

located in an area that is designated under section

332(a)(1)(A) of the Public Health Service Act (42 U.S.C.

254e(a)(1)(A)) as a health professional shortage area.

(2) IMPLEMENTATION; DURATION.— (A) IMPLEMENTATION.—The Secretary shall not implement the demonstration projects before October 1, 2004.

(B) DURATION.—The Secretary shall complete the demonstration projects by the date that is 2 years after the

date on which the first demonstration project is implemented.

(d) EVALUATION AND REPORT.—

(1) EVALUATION.—The Secretary shall conduct an evaluation of the demonstration projects—

(A) to determine whether eligible beneficiaries who

use chiropractic services use a lesser overall amount of

items and services for which payment is made under the

medicare program than eligible beneficiaries who do not

use such services;

(B) to determine the cost of providing payment for

chiropractic services under the medicare program;

(C) to determine the satisfaction of eligible beneficiaries

participating in the demonstration projects and the quality

of care received by such beneficiaries; and

(D) to evaluate such other matters as the Secretary

determines is appropriate.

(2) REPORT.—Not later than the date that is 1 year after

the date on which the demonstration projects conclude, the

Secretary shall submit to Congress a report on the evaluation

conducted under paragraph (1) together with such recommendations for legislation or administrative action as the Secretary

determines is appropriate.

(e) WAIVER OF MEDICARE REQUIREMENTS.—The Secretary shall

waive compliance with such requirements of the medicare program

to the extent and for the period the Secretary finds necessary

to conduct the demonstration projects.

(f) FUNDING.—

(1) DEMONSTRATION PROJECTS.—

(A) IN GENERAL.—Subject to subparagraph (B) and

paragraph (2), the Secretary shall provide for the transfer

from the Federal Supplementary Insurance Trust Fund

under section 1841 of the Social Security Act (42 U.S.C.

1395t) of such funds as are necessary for the costs of

carrying out the demonstration projects under this section.

(B) LIMITATION.—In conducting the demonstration

projects under this section, the Secretary shall ensure that

the aggregate payments made by the Secretary under the

medicare program do not exceed the amount which the

Secretary would have paid under the medicare program

if the demonstration projects under this section were not

implemented.

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117 STAT. 2334 PUBLIC LAW 108–173—DEC. 8, 2003

(2) EVALUATION AND REPORT.—There are authorized to be

appropriated such sums as are necessary for the purpose of

developing and submitting the report to Congress under subsection (d).

TITLE VII—PROVISIONS RELATING TO

PARTS A AND B

Subtitle A—Home Health Services

SEC. 701. UPDATE IN HOME HEALTH SERVICES.

(a) CHANGE TO CALENDAR YEAR UPDATE.—Section 1895(b) (42

U.S.C. 1395fff(b)(3)) is amended—

(1) in paragraph (3)(B)(i)—

(A) by striking ‘‘each fiscal year (beginning with fiscal

year 2002)’’ and inserting ‘‘fiscal year 2002 and for fiscal

year 2003 and for each subsequent year (beginning with

2004)’’; and

(B) by inserting ‘‘or year’’ after ‘‘the fiscal year’’;

(2) in paragraph (3)(B)(ii)—

(A) in subclause (I), by striking ‘‘or’’ at the end;

(B) by redesignating subclause (II) as subclause (III);

(C) in subclause (III), as so redesignated, by striking

‘‘any subsequent fiscal year’’ and inserting ‘‘2004 and any

subsequent year’’; and

(D) by inserting after subclause (I) the following new

subclause:

‘‘(II) for the last calendar quarter of 2003 and

the first calendar quarter of 2004, the home health

market basket percentage increase; or’’;

(3) in paragraph (3)(B)(iii), by inserting ‘‘or year’’ after

‘‘fiscal year’’ each place it appears; and

(4) in paragraph (3)(B)(iv)—

(A) by inserting ‘‘or year’’ after ‘‘fiscal year’’ each place

it appears; and

(B) by inserting ‘‘or years’’ after ‘‘fiscal years’’; and

(5) in paragraph (5), by inserting ‘‘or year’’ after ‘‘fiscal

year’’.

(b) ADJUSTMENT TO UPDATES FOR 2004, 2005, AND 2006.—

Section 1895(b)(3)(B)(ii) (42 U.S.C. 1395fff(b)(3)(B)(ii)), as amended

by subsection (a)(2), is amended—

(1) by striking ‘‘or’’ at the end of subclause (II);

(2) by redesignating subclause (III) as subclause (IV);

(3) in subclause (IV), as so redesignated, by striking ‘‘2004’’

and inserting ‘‘2007’’; and

(4) by inserting after subclause (II) the following new subclause:

‘‘(III) the last 3 calendar quarters of 2004,

and each of 2005 and 2006 the home health market

basket percentage increase minus 0.8 percentage

points; or’’.

Appropriation

authorization.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2335

SEC. 702. DEMONSTRATION PROJECT TO CLARIFY THE DEFINITION

OF HOMEBOUND.

(a) DEMONSTRATION PROJECT.—Not later than 180 days after

the date of the enactment of this Act, the Secretary shall conduct

a 2-year demonstration project under part B of title XVIII of the

Social Security Act under which medicare beneficiaries with chronic

conditions described in subsection (b) are deemed to be homebound

for purposes of receiving home health services under the medicare

program.

(b) MEDICARE BENEFICIARY DESCRIBED.—For purposes of subsection (a), a medicare beneficiary is eligible to be deemed to be

homebound, without regard to the purpose, frequency, or duration

of absences from the home, if—

(1) the beneficiary has been certified by one physician

as an individual who has a permanent and severe, disabling

condition that is not expected to improve;

(2) the beneficiary is dependent upon assistance from

another individual with at least 3 out of the 5 activities of

daily living for the rest of the beneficiary’s life;

(3) the beneficiary requires skilled nursing services for

the rest of the beneficiary’s life and the skilled nursing is

more than medication management;

(4) an attendant is required to visit the beneficiary on

a daily basis to monitor and treat the beneficiary’s medical

condition or to assist the beneficiary with activities of daily

living;

(5) the beneficiary requires technological assistance or the

assistance of another person to leave the home; and

(6) the beneficiary does not regularly work in a paid position full-time or part-time outside the home.

(c) DEMONSTRATION PROJECT SITES.—The demonstration project

established under this section shall be conducted in 3 States selected

by the Secretary to represent the Northeast, Midwest, and Western

regions of the United States.

(d) LIMITATION ON NUMBER OF PARTICIPANTS.—The aggregate

number of such beneficiaries that may participate in the project

may not exceed 15,000.

(e) DATA.—The Secretary shall collect such data on the demonstration project with respect to the provision of home health

services to medicare beneficiaries that relates to quality of care,

patient outcomes, and additional costs, if any, to the medicare

program.

(f) REPORT TO CONGRESS.—Not later than 1 year after the

date of the completion of the demonstration project under this

section, the Secretary shall submit to Congress a report on the

project using the data collected under subsection (e). The report

shall include the following:

(1) An examination of whether the provision of home health

services to medicare beneficiaries under the project has had

any of the following effects:

(A) Has adversely affected the provision of home health

services under the medicare program.

(B) Has directly caused an increase of expenditures

under the medicare program for the provision of such services that is directly attributable to such clarification.

Deadline.

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117 STAT. 2336 PUBLIC LAW 108–173—DEC. 8, 2003

(2) The specific data evidencing the amount of any increase

in expenditures that is directly attributable to the demonstration project (expressed both in absolute dollar terms and as

a percentage) above expenditures that would otherwise have

been incurred for home health services under the medicare

program.

(3) Specific recommendations to exempt permanently and

severely disabled homebound beneficiaries from restrictions on

the length, frequency, and purpose of their absences from the

home to qualify for home health services without incurring

additional costs to the medicare program.

(g) WAIVER AUTHORITY.—The Secretary shall waive compliance

with the requirements of title XVIII of the Social Security Act

(42 U.S.C. 1395 et seq.) to such extent and for such period as

the Secretary determines is necessary to conduct demonstration

projects.

(h) CONSTRUCTION.—Nothing in this section shall be construed

as waiving any applicable civil monetary penalty, criminal penalty,

or other remedy available to the Secretary under title XI or title

XVIII of the Social Security Act for acts prohibited under such

titles, including penalties for false certifications for purposes of

receipt of items or services under the medicare program.

(i) AUTHORIZATION OF APPROPRIATIONS.—Payments for the costs

of carrying out the demonstration project under this section shall

be made from the Federal Supplementary Medical Insurance Trust

Fund under section 1841 of such Act (42 U.S.C. 1395t).

(j) DEFINITIONS.—In this section:

(1) MEDICARE BENEFICIARY.—The term ‘‘medicare beneficiary’’ means an individual who is enrolled under part B

of title XVIII of the Social Security Act.

(2) HOME HEALTH SERVICES.—The term ‘‘home health services’’ has the meaning given such term in section 1861(m)

of the Social Security Act (42 U.S.C. 1395x(m)).

(3) ACTIVITIES OF DAILY LIVING DEFINED.—The term ‘‘activities of daily living’’ means eating, toileting, transferring,

bathing, and dressing.

SEC. 703. DEMONSTRATION PROJECT FOR MEDICAL ADULT DAY-CARE

SERVICES.

(a) ESTABLISHMENT.—Subject to the succeeding provisions of

this section, the Secretary 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 daycare 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.—Subject to paragraph (2), the amount

of payment for an episode of care for home health services,

a portion of which consists of substitute medical adult daycare 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

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2337

under arrangements with a home health agency, separately

charge a beneficiary for medical adult day-care services furnished under the plan of care.

(2) ADJUSTMENT IN CASE OF OVERUTILIZATION OF SUBSTITUTE ADULT DAY-CARE SERVICES TO ENSURE BUDGET NEUTRALITY.—The Secretary shall monitor the expenditures under

the demonstration project and under title XVIII of the Social

Security Act for home health services. If the Secretary estimates

that the total expenditures under the demonstration project

and under such title XVIII for home health services for a

period determined by the Secretary exceed expenditures that

would have been made under such title XVIII for home health

services for such period if the demonstration project had not

been conducted, the Secretary shall adjust the rate of payment

to medical adult day-care facilities under paragraph (1) in

order to eliminate such excess.

(c) DEMONSTRATION PROJECT SITES.—The demonstration 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 are currently licensed or certified through common ownership and control

to furnish medical adult day-care services.

(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 than 6 months after the completion 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—

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117 STAT. 2338 PUBLIC LAW 108–173—DEC. 8, 2003

(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) is licensed and certified by the State in which

it operates or 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.

SEC. 704. TEMPORARY SUSPENSION OF OASIS REQUIREMENT FOR

COLLECTION OF DATA ON NON-MEDICARE AND NONMEDICAID PATIENTS.

(a) IN GENERAL.—During the period described in subsection

(b), the Secretary may not require, under section 4602(e) of the

Balanced Budget Act of 1997 (Public Law 105–33; 111 Stat. 467)

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 (such information in this section referred to as ‘‘nonmedicare/medicaid OASIS information’’).

(b) PERIOD OF SUSPENSION.—The period described in this

subsection—

(1) begins on the date of the enactment of this Act; and

(2) ends on the last day of the second month beginning

after the date as of which the Secretary has published final

regulations regarding the collection and use by the Centers

for Medicare & Medicaid Services of non-medicare/medicaid

OASIS information following the submission of the report

required under subsection (c).

(c) REPORT.—

(1) STUDY.—The Secretary shall conduct a study on how

non-medicare/medicaid OASIS information is and can be used

by large home health agencies. Such study shall examine—

(A) whether there are unique benefits from the analysis

of such information that cannot be derived from other

information available to, or collected by, such agencies;

and

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note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2339

(B) the value of collecting such information by small

home health agencies compared to the administrative burden related to such collection.

In conducting the study the Secretary shall obtain recommendations from quality assessment experts in the use of such

information and the necessity of small, as well as large, home

health agencies collecting such information.

(2) REPORT.—The Secretary shall submit to Congress a

report on the study conducted under paragraph (1) by not

later than 18 months after the date of the enactment of this

Act.

(d) CONSTRUCTION.—Nothing in this section shall be construed

as preventing home health agencies from collecting non-medicare/

medicaid OASIS information for their own use.

SEC. 705. 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).

SEC. 706. COVERAGE OF RELIGIOUS NONMEDICAL HEALTH CARE

INSTITUTION SERVICES FURNISHED IN THE HOME.

(a) IN GENERAL.—Section 1821(a) (42 U.S.C. 1395i–5(a)) is

amended—

(1) in the matter preceding paragraph (1), by inserting

‘‘and for home health services furnished an individual by a

religious nonmedical health care institution’’ after ‘‘religious

nonmedical health care institution’’; and

(2) in paragraph (2)—

(A) by striking ‘‘or extended care services’’ and

inserting ‘‘, extended care services, or home health services’’; and

(B) by inserting ‘‘, or receiving services from a home

health agency,’’ after ‘‘skilled nursing facility’’.

(b) DEFINITION.—Section 1861 (42 U.S.C. 1395x), as amended

by section 642, is amended by adding at the end the following

new section:

‘‘Extended Care in Religious Nonmedical Health Care Institutions

‘‘(aaa)(1) The term ‘home health agency’ also includes a religious

nonmedical health care institution (as defined in subsection (ss)(1)),

but only with respect to items and services ordinarily furnished

by such an institution to individuals in their homes, and that

are comparable to items and services furnished to individuals by

a home health agency that is not religious nonmedical health care

institution.

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note.

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117 STAT. 2340 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(2)(A) Subject to subparagraphs (B), payment may be made

with respect to services provided by such an institution only to

such extent and under such conditions, limitations, and requirements (in addition to or in lieu of the conditions, limitations, and

requirements otherwise applicable) as may be provided in regulations consistent with section 1821.

‘‘(B) Notwithstanding any other provision of this title, payment

may not be made under subparagraph (A)— ‘‘(i) in a year insofar as such payments exceed $700,000;

and

‘‘(ii) after December 31, 2006.’’.

Subtitle B—Graduate Medical Education

SEC. 711. 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 inserting ‘‘AND 2004 THROUGH 2013’’ after ‘‘AND

2002’’; and

(B) by inserting ‘‘or during the period beginning with

fiscal year 2004 and ending with fiscal year 2013’’ after

‘‘during fiscal year 2001 or fiscal year 2002’’; and

(2) in subclause (II)—

(A) by striking ‘‘fiscal year 2004, or fiscal year 2005,’’

and

(B) by striking ‘‘For a’’ and inserting ‘‘For the’’.

SEC. 712. EXCEPTION TO INITIAL RESIDENCY PERIOD FOR GERIATRIC

RESIDENCY OR FELLOWSHIP PROGRAMS.

(a) CLARIFICATION OF CONGRESSIONAL INTENT.—Congress

intended section 1886(h)(5)(F)(ii) of the Social Security Act (42

U.S.C. 1395ww(h)(5)(F)(ii)), as added by section 9202 of the Consolidated Omnibus Budget Reconciliation Act of 1985 (Public Law

99–272), to provide an exception to the initial residency period

for geriatric residency or fellowship programs such that, where

a particular approved geriatric training program requires a resident

to complete 2 years of training to initially become board eligible

in the geriatric specialty, the 2 years spent in the geriatric training

program are treated as part of the resident’s initial residency period,

but are not counted against any limitation on the initial residency

period.

(b) INTERIM FINAL REGULATORY AUTHORITY AND EFFECTIVE

DATE.—The Secretary shall promulgate interim final regulations

consistent with the congressional intent expressed in this section

after notice and pending opportunity for public comment to be

effective for cost reporting periods beginning on or after October

1, 2003.

SEC. 713. TREATMENT OF VOLUNTEER SUPERVISION.

(a) MORATORIUM ON CHANGES IN TREATMENT.—During the 1-

year period beginning on January 1, 2004, for purposes of applying

subsections (d)(5)(B) and (h) of section 1886 of the Social Security

Act (42 U.S.C. 1395ww), the Secretary shall allow all hospitals

to count residents in osteopathic and allopathic family practice

programs in existence as of January 1, 2002, who are training

Effective date.

Applicability.

42 USC 1395ww

note.

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note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2341

at non-hospital sites, without regard to the financial arrangement

between the hospital and the teaching physician practicing in the

non-hospital site to which the resident has been assigned.

(b) STUDY AND REPORT.— (1) STUDY.—The Inspector General of the Department of

Health and Human Services shall conduct a study of the appropriateness of alternative payment methodologies under such

sections for the costs of training residents in non-hospital settings.

(2) REPORT.—Not later than 1 year after the date of the

enactment of this Act, the Inspector General shall submit to

Congress a report on the study conducted under paragraph

(1), together with such recommendations as the Inspector General determines appropriate.

Subtitle C—Chronic Care Improvement

SEC. 721. VOLUNTARY CHRONIC CARE IMPROVEMENT UNDER TRADITIONAL FEE-FOR-SERVICE.

(a) IN GENERAL.—Title XVIII is amended by inserting after

section 1806 the following new section:

‘‘CHRONIC CARE IMPROVEMENT

‘‘SEC. 1807. (a) IMPLEMENTATION OF CHRONIC CARE IMPROVE- MENT PROGRAMS.— ‘‘(1) IN GENERAL.—The Secretary shall provide for the

phased-in development, testing, evaluation, and implementation of chronic care improvement programs in accordance with

this section. Each such program shall be designed to improve

clinical quality and beneficiary satisfaction and achieve

spending targets with respect to expenditures under this title

for targeted beneficiaries with one or more threshold conditions.

‘‘(2) DEFINITIONS.—For purposes of this section:

‘‘(A) CHRONIC CARE IMPROVEMENT PROGRAM.—The term

‘chronic care improvement program’ means a program

described in paragraph (1) that is offered under an agreement under subsection (b) or (c).

‘‘(B) CHRONIC CARE IMPROVEMENT ORGANIZATION.—The

term ‘chronic care improvement organization’ means an

entity that has entered into an agreement under subsection

(b) or (c) to provide, directly or through contracts with

subcontractors, a chronic care improvement program under

this section. Such an entity may be a disease management

organization, health insurer, integrated delivery system,

physician group practice, a consortium of such entities,

or any other legal entity that the Secretary determines

appropriate to carry out a chronic care improvement program under this section.

‘‘(C) CARE MANAGEMENT PLAN.—The term ‘care

management plan’ means a plan established under subsection (d) for a participant in a chronic care improvement

program.

‘‘(D) THRESHOLD CONDITION.—The term ‘threshold

condition’ means a chronic condition, such as congestive

heart failure, diabetes, chronic obstructive pulmonary disease (COPD), or other diseases or conditions, as selected

42 USC 1395b–8.

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117 STAT. 2342 PUBLIC LAW 108–173—DEC. 8, 2003

by the Secretary as appropriate for the establishment of

a chronic care improvement program.

‘‘(E) TARGETED BENEFICIARY.—The term ‘targeted beneficiary’ means, with respect to a chronic care improvement

program, an individual who—

‘‘(i) is entitled to benefits under part A and enrolled

under part B, but not enrolled in a plan under part

C;

‘‘(ii) has one or more threshold conditions covered

under such program; and

‘‘(iii) has been identified under subsection (d)(1)

as a potential participant in such program.

‘‘(3) CONSTRUCTION.—Nothing in this section shall be construed as—

‘‘(A) expanding the amount, duration, or scope of benefits under this title;

‘‘(B) providing an entitlement to participate in a chronic

care improvement program under this section;

‘‘(C) providing for any hearing or appeal rights under

section 1869, 1878, or otherwise, with respect to a chronic

care improvement program under this section; or

‘‘(D) providing benefits under a chronic care improvement program for which a claim may be submitted to

the Secretary by any provider of services or supplier (as

defined in section 1861(d)).

‘‘(b) DEVELOPMENTAL PHASE (PHASE I).—

‘‘(1) IN GENERAL.—In carrying out this section, the Secretary shall enter into agreements consistent with subsection

(f) with chronic care improvement organizations for the development, testing, and evaluation of chronic care improvement programs using randomized controlled trials. The first such agreement shall be entered into not later than 12 months after

the date of the enactment of this section.

‘‘(2) AGREEMENT PERIOD.—The period of an agreement

under this subsection shall be for 3 years.

‘‘(3) MINIMUM PARTICIPATION.—

‘‘(A) IN GENERAL.—The Secretary shall enter into agreements under this subsection in a manner so that chronic

care improvement programs offered under this section are

offered in geographic areas that, in the aggregate, consist

of areas in which at least 10 percent of the aggregate

number of medicare beneficiaries reside.

‘‘(B) MEDICARE BENEFICIARY DEFINED.—In this paragraph, the term ‘medicare beneficiary’ means an individual

who is entitled to benefits under part A, enrolled under

part B, or both, and who resides in the United States.

‘‘(4) SITE SELECTION.—In selecting geographic areas in

which agreements are entered into under this subsection, the

Secretary shall ensure that each chronic care improvement

program is conducted in a geographic area in which at least

10,000 targeted beneficiaries reside among other individuals

entitled to benefits under part A, enrolled under part B, or

both to serve as a control population.

‘‘(5) INDEPENDENT EVALUATIONS OF PHASE I PROGRAMS.—

The Secretary shall contract for an independent evaluation

of the programs conducted under this subsection. Such evaluation shall be done by a contractor with knowledge of chronic

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2343

care management programs and demonstrated experience in

the evaluation of such programs. Each evaluation shall include

an assessment of the following factors of the programs:

‘‘(A) Quality improvement measures, such as adherence

to evidence-based guidelines and rehospitalization rates.

‘‘(B) Beneficiary and provider satisfaction.

‘‘(C) Health outcomes.

‘‘(D) Financial outcomes, including any cost savings

to the program under this title.

‘‘(c) EXPANDED IMPLEMENTATION PHASE (PHASE II).—

‘‘(1) IN GENERAL.—With respect to chronic care improvement programs conducted under subsection (b), if the Secretary

finds that the results of the independent evaluation conducted

under subsection (b)(6) indicate that the conditions specified

in paragraph (2) have been met by a program (or components

of such program), the Secretary shall enter into agreements

consistent with subsection (f) to expand the implementation

of the program (or components) to additional geographic areas

not covered under the program as conducted under subsection

(b), which may include the implementation of the program

on a national basis. Such expansion shall begin not earlier

than 2 years after the program is implemented under subsection

(b) and not later than 6 months after the date of completion

of such program.

‘‘(2) CONDITIONS FOR EXPANSION OF PROGRAMS.—The conditions specified in this paragraph are, with respect to a chronic

care improvement program conducted under subsection (b) for

a threshold condition, that the program is expected to—

‘‘(A) improve the clinical quality of care;

‘‘(B) improve beneficiary satisfaction; and

‘‘(C) achieve targets for savings to the program under

this title specified by the Secretary in the agreement within

a range determined to be appropriate by the Secretary,

subject to the application of budget neutrality with respect

to the program and not taking into account any payments

by the organization under the agreement under the program for risk under subsection (f)(3)(B).

‘‘(3) INDEPENDENT EVALUATIONS OF PHASE II PROGRAMS.—

The Secretary shall carry out evaluations of programs expanded

under this subsection as the Secretary determines appropriate.

Such evaluations shall be carried out in the similar manner

as is provided under subsection (b)(5).

‘‘(d) IDENTIFICATION AND ENROLLMENT OF PROSPECTIVE PROGRAM PARTICIPANTS.—

‘‘(1) IDENTIFICATION OF PROSPECTIVE PROGRAM PARTICIPANTS.—The Secretary shall establish a method for identifying

targeted beneficiaries who may benefit from participation in

a chronic care improvement program.

‘‘(2) INITIAL CONTACT BY SECRETARY.—The Secretary shall

communicate with each targeted beneficiary concerning participation in a chronic care improvement program. Such communication may be made by the Secretary and shall include

information on the following:

‘‘(A) A description of the advantages to the beneficiary

in participating in a program.

Procedures.

Effective date.

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117 STAT. 2344 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(B) Notification that the organization offering a program may contact the beneficiary directly concerning such

participation.

‘‘(C) Notification that participation in a program is

voluntary.

‘‘(D) A description of the method for the beneficiary

to participate or for declining to participate and the method

for obtaining additional information concerning such

participation.

‘‘(3) VOLUNTARY PARTICIPATION.—A targeted beneficiary

may participate in a chronic care improvement program on

a voluntary basis and may terminate participation at any time.

‘‘(e) CHRONIC CARE IMPROVEMENT PROGRAMS.—

‘‘(1) IN GENERAL.—Each chronic care improvement program

shall—

‘‘(A) have a process to screen each targeted beneficiary

for conditions other than threshold conditions, such as

impaired cognitive ability and co-morbidities, for the purposes of developing an individualized, goal-oriented care

management plan under paragraph (2);

‘‘(B) provide each targeted beneficiary participating in

the program with such plan; and

‘‘(C) carry out such plan and other chronic care

improvement activities in accordance with paragraph (3).

‘‘(2) ELEMENTS OF CARE MANAGEMENT PLANS.—A care

management plan for a targeted beneficiary shall be developed

with the beneficiary and shall, to the extent appropriate,

include the following:

‘‘(A) A designated point of contact responsible for

communications with the beneficiary and for facilitating

communications with other health care providers under

the plan.

‘‘(B) Self-care education for the beneficiary (through

approaches such as disease management or medical nutrition therapy) and education for primary caregivers and

family members.

‘‘(C) Education for physicians and other providers and

collaboration to enhance communication of relevant clinical

information.

‘‘(D) The use of monitoring technologies that enable

patient guidance through the exchange of pertinent clinical

information, such as vital signs, symptomatic information,

and health self-assessment.

‘‘(E) The provision of information about hospice care,

pain and palliative care, and end-of-life care.

‘‘(3) CONDUCT OF PROGRAMS.—In carrying out paragraph

(1)(C) with respect to a participant, the chronic care improvement organization shall—

‘‘(A) guide the participant in managing the participant’s

health (including all co-morbidities, relevant health care

services, and pharmaceutical needs) and in performing

activities as specified under the elements of the care

management plan of the participant;

‘‘(B) use decision-support tools such as evidence-based

practice guidelines or other criteria as determined by the

Secretary; and

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2345

‘‘(C) develop a clinical information database to track

and monitor each participant across settings and to

evaluate outcomes.

‘‘(4) ADDITIONAL RESPONSIBILITIES.—

‘‘(A) OUTCOMES REPORT.—Each chronic care improvement organization offering a chronic care improvement program shall monitor and report to the Secretary, in a

manner specified by the Secretary, on health care quality,

cost, and outcomes.

‘‘(B) ADDITIONAL REQUIREMENTS.—Each such organization and program shall comply with such additional

requirements as the Secretary may specify.

‘‘(5) ACCREDITATION.—The Secretary may provide that

chronic care improvement programs and chronic care improvement organizations that are accredited by qualified organizations (as defined by the Secretary) may be deemed to meet

such requirements under this section as the Secretary may

specify.

‘‘(f) TERMS OF AGREEMENTS.—

‘‘(1) TERMS AND CONDITIONS.—

‘‘(A) IN GENERAL.—An agreement under this section

with a chronic care improvement organization shall contain

such terms and conditions as the Secretary may specify

consistent with this section.

‘‘(B) CLINICAL, QUALITY IMPROVEMENT, AND FINANCIAL

REQUIREMENTS.—The Secretary may not enter into an

agreement with such an organization under this section

for the operation of a chronic care improvement program

unless—

‘‘(i) the program and organization meet the requirements of subsection (e) and such clinical, quality

improvement, financial, and other requirements as the

Secretary deems to be appropriate for the targeted

beneficiaries to be served; and

‘‘(ii) the organization demonstrates to the satisfaction of the Secretary that the organization is able

to assume financial risk for performance under the

agreement (as applied under paragraph (3)(B)) with

respect to payments made to the organization under

such agreement through available reserves, reinsurance, withholds, or such other means as the Secretary

determines appropriate.

‘‘(2) MANNER OF PAYMENT.—Subject to paragraph (3)(B),

the payment under an agreement under—

‘‘(A) subsection (b) shall be computed on a per-member

per-month basis; or

‘‘(B) subsection (c) may be on a per-member per-month

basis or such other basis as the Secretary and organization

may agree.

‘‘(3) APPLICATION OF PERFORMANCE STANDARDS.—

‘‘(A) SPECIFICATION OF PERFORMANCE STANDARDS.—

Each agreement under this section with a chronic care

improvement organization shall specify performance standards for each of the factors specified in subsection (c)(2),

including clinical quality and spending targets under this

title, against which the performance of the chronic care

117 STAT. 2346 PUBLIC LAW 108–173—DEC. 8, 2003

improvement organization under the agreement is measured.

‘‘(B) ADJUSTMENT OF PAYMENT BASED ON PERFORMANCE.— ‘‘(i) IN GENERAL.—Each such agreement shall provide for adjustments in payment rates to an organization under the agreement insofar as the Secretary

determines that the organization failed to meet the

performance standards specified in the agreement

under subparagraph (A).

‘‘(ii) FINANCIAL RISK FOR PERFORMANCE.—In the

case of an agreement under subsection (b) or (c), the

agreement shall provide for a full recovery for any

amount by which the fees paid to the organization

under the agreement exceed the estimated savings to

the programs under this title attributable to

implementation of such agreement.

‘‘(4) BUDGET NEUTRAL PAYMENT CONDITION.—Under this

section, the Secretary shall ensure that the aggregate sum

of medicare program benefit expenditures for beneficiaries

participating in chronic care improvement programs and funds

paid to chronic care improvement organizations under this section, shall not exceed the medicare program benefit expenditures that the Secretary estimates would have been made for

such targeted beneficiaries in the absence of such programs.

‘‘(g) FUNDING.—(1) Subject to paragraph (2), there are appropriated to the Secretary, in appropriate part from the Federal

Hospital Insurance Trust Fund and the Federal Supplementary

Medical Insurance Trust Fund, such sums as may be necessary

to provide for agreements with chronic care improvement programs

under this section.

‘‘(2) In no case shall the funding under this section exceed

$100,000,000 in aggregate increased expenditures under this title

(after taking into account any savings attributable to the operation

of this section) over the 3-fiscal-year period beginning on October

1, 2003.’’.

(b) REPORTS.—The Secretary shall submit to Congress reports

on the operation of section 1807 of the Social Security Act, as

added by subsection (a), as follows:

(1) Not later than 2 years after the date of the implementation of such section, the Secretary shall submit to Congress

an interim report on the scope of implementation of the programs under subsection (b) of such section, the design of the

programs, and preliminary cost and quality findings with

respect to those programs based on the following measures

of the programs:

(A) Quality improvement measures, such as adherence

to evidence-based guidelines and rehospitalization rates.

(B) Beneficiary and provider satisfaction.

(C) Health outcomes.

(D) Financial outcomes.

(2) Not later than 3 years and 6 months after the date

of the implementation of such section the Secretary shall submit

to Congress an update to the report required under paragraph

(1) on the results of such programs.

(3) The Secretary shall submit to Congress 2 additional

biennial reports on the chronic care improvement programs

Deadlines.

42 USC 1395b–8

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2347

conducted under such section. The first such report shall be

submitted not later than 2 years after the report is submitted

under paragraph (2). Each such report shall include information

on—

(A) the scope of implementation (in terms of both

regions and chronic conditions) of the chronic care improvement programs;

(B) the design of the programs; and

(C) the improvements in health outcomes and financial

efficiencies that result from such implementation.

SEC. 722. MEDICARE ADVANTAGE QUALITY IMPROVEMENT PROGRAMS.

(a) IN GENERAL.—Section 1852(e) (42 U.S.C. 1395w–22(e)) is

amended—

(1) in the heading, by striking ‘‘ASSURANCE’’ and inserting

‘‘IMPROVEMENT’’;

(2) by amending paragraphs (1) through (3) to read as

follows:

‘‘(1) IN GENERAL.—Each MA organization shall have an

ongoing quality improvement program for the purpose of

improving the quality of care provided to enrollees in each

MA plan offered by such organization (other than an MA private

fee-for-service plan or an MSA plan).

‘‘(2) CHRONIC CARE IMPROVEMENT PROGRAMS.—As part of

the quality improvement program under paragraph (1), each

MA organization shall have a chronic care improvement program. Each chronic care improvement program shall have a

method for monitoring and identifying enrollees with multiple

or sufficiently severe chronic conditions that meet criteria established by the organization for participation under the program.

‘‘(3) DATA.—

‘‘(A) COLLECTION, ANALYSIS, AND REPORTING.—

‘‘(i) IN GENERAL.—Except as provided in clauses

(ii) and (iii) with respect to plans described in such

clauses and subject to subparagraph (B), as part of

the quality improvement program under paragraph (1),

each MA organization shall provide for the collection,

analysis, and reporting of data that permits the

measurement of health outcomes and other indices

of quality.

‘‘(ii) APPLICATION TO MA REGIONAL PLANS.—The

Secretary shall establish as appropriate by regulation

requirements for the collection, analysis, and reporting

of data that permits the measurement of health outcomes and other indices of quality for MA organizations

with respect to MA regional plans. Such requirements

may not exceed the requirements under this subparagraph with respect to MA local plans that are preferred

provider organization plans.

‘‘(iii) APPLICATION TO PREFERRED PROVIDER

ORGANIZATIONS.—Clause (i) shall apply to MA

organizations with respect to MA local plans that are

preferred provider organization plans only insofar as

services are furnished by providers or services, physicians, and other health care practitioners and suppliers

that have contracts with such organization to furnish

services under such plans.

Regulations.

117 STAT. 2348 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(iv) DEFINITION OF PREFERRED PROVIDER

ORGANIZATION PLAN.—In this subparagraph, the term

‘preferred provider organization plan’ means an MA

plan that—

‘‘(I) has a network of providers that have

agreed to a contractually specified reimbursement

for covered benefits with the organization offering

the plan;

‘‘(II) provides for reimbursement for all covered

benefits regardless of whether such benefits are

provided within such network of providers; and

‘‘(III) is offered by an organization that is not

licensed or organized under State law as a health

maintenance organization.

‘‘(B) LIMITATIONS.—

‘‘(i) TYPES OF DATA.—The Secretary shall not collect

under subparagraph (A) data on quality, outcomes,

and beneficiary satisfaction to facilitate consumer

choice and program administration other than the

types of data that were collected by the Secretary

as of November 1, 2003.

‘‘(ii) CHANGES IN TYPES OF DATA.—Subject to subclause (iii), the Secretary may only change the types

of data that are required to be submitted under

subparagraph (A) after submitting to Congress a report

on the reasons for such changes that was prepared

in consultation with MA organizations and private

accrediting bodies.

‘‘(iii) CONSTRUCTION.—Nothing in the subsection

shall be construed as restricting the ability of the

Secretary to carry out the duties under section

1851(d)(4)(D).’’;

(3) in paragraph (4)(B)—

(A) by amending clause (i) to read as follows:

‘‘(i) Paragraphs (1) through (3) of this subsection

(relating to quality improvement programs).’’; and

(B) by adding at the end the following new clause:

‘‘(vii) The requirements described in section

1860D–4(j), to the extent such requirements apply

under section 1860D–21(c).’’; and

(4) by striking paragraph (5).

(b) CONFORMING AMENDMENT.—Section 1852(c)(1)(I) (42 U.S.C.

1395w–22(c)(1)(I)) is amended to read as follows:

‘‘(I) QUALITY IMPROVEMENT PROGRAM.—A description

of the organization’s quality improvement program under

subsection (e).’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply with respect to contract years beginning on and after

January 1, 2006.

SEC. 723. CHRONICALLY ILL MEDICARE BENEFICIARY RESEARCH,

DATA, DEMONSTRATION STRATEGY.

(a) DEVELOPMENT OF PLAN.—Not later than 6 months after

the date of the enactment of this Act, the Secretary shall develop

a plan to improve quality of care and reduce the cost of care

for chronically ill medicare beneficiaries.

Deadline.

42 USC 1395b–8

note.

42 USC

1395w–22 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2349

(b) PLAN REQUIREMENTS.—The plan will utilize existing data

and identify data gaps, develop research initiatives, and propose

intervention demonstration programs to provide better health care

for chronically ill medicare beneficiaries. The plan shall—

(1) integrate existing data sets including, the Medicare

Current Beneficiary Survey (MCBS), Minimum Data Set (MDS),

Outcome and Assessment Information Set (OASIS), data from

Quality Improvement Organizations (QIO), and claims data;

(2) identify any new data needs and a methodology to

address new data needs;

(3) plan for the collection of such data in a data warehouse;

and

(4) develop a research agenda using such data.

(c) CONSULTATION.—In developing the plan under this section,

the Secretary shall consult with experts in the fields of care for

the chronically ill (including clinicians).

(d) IMPLEMENTATION.—Not later than 2 years after the date

of the enactment of this Act, the Secretary shall implement the

plan developed under this section. The Secretary may contract

with appropriate entities to implement such plan.

(e) AUTHORIZATION OF APPROPRIATIONS.—There are authorized

to be appropriated to the Secretary such sums as may be necessary

in fiscal years 2004 and 2005 to carry out this section.

Subtitle D—Other Provisions

SEC. 731. IMPROVEMENTS IN NATIONAL AND LOCAL COVERAGE

DETERMINATION PROCESS TO RESPOND TO CHANGES

IN TECHNOLOGY.

(a) NATIONAL AND LOCAL COVERAGE DETERMINATION

PROCESS.—

(1) IN GENERAL.—Section 1862 (42 U.S.C. 1395y), as

amended by sections 948 and 950, is amended—

(A) in the third sentence of subsection (a), by inserting

‘‘consistent with subsection (l)’’ after ‘‘the Secretary shall

ensure’’; and

(B) by adding at the end the following new subsection:

‘‘(l) NATIONAL AND LOCAL COVERAGE DETERMINATION

PROCESS.—

‘‘(1) FACTORS AND EVIDENCE USED IN MAKING NATIONAL

COVERAGE DETERMINATIONS.—The Secretary shall make available to the public the factors considered in making national

coverage determinations of whether an item or service is reasonable and necessary. The Secretary shall develop guidance documents to carry out this paragraph in a manner similar to

the development of guidance documents under section 701(h)

of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 371(h)).

‘‘(2) TIMEFRAME FOR DECISIONS ON REQUESTS FOR NATIONAL

COVERAGE DETERMINATIONS.—In the case of a request for a

national coverage determination that—

‘‘(A) does not require a technology assessment from

an outside entity or deliberation from the Medicare Coverage Advisory Committee, the decision on the request

shall be made not later than 6 months after the date

of the request; or

Deadlines.

Guidelines.

Public

information.

Deadline.

117 STAT. 2350 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(B) requires such an assessment or deliberation and

in which a clinical trial is not requested, the decision

on the request shall be made not later than 9 months

after the date of the request.

‘‘(3) PROCESS FOR PUBLIC COMMENT IN NATIONAL COVERAGE

DETERMINATIONS.—

‘‘(A) PERIOD FOR PROPOSED DECISION.—Not later than

the end of the 6-month period (or 9-month period for

requests described in paragraph (2)(B)) that begins on the

date a request for a national coverage determination is

made, the Secretary shall make a draft of proposed decision

on the request available to the public through the Internet

website of the Centers for Medicare & Medicaid Services

or other appropriate means.

‘‘(B) 30-DAY PERIOD FOR PUBLIC COMMENT.—Beginning

on the date the Secretary makes a draft of the proposed

decision available under subparagraph (A), the Secretary

shall provide a 30-day period for public comment on such

draft.

‘‘(C) 60-DAY PERIOD FOR FINAL DECISION.—Not later

than 60 days after the conclusion of the 30-day period

referred to under subparagraph (B), the Secretary shall—

‘‘(i) make a final decision on the request;

‘‘(ii) include in such final decision summaries of

the public comments received and responses to such

comments;

‘‘(iii) make available to the public the clinical evidence and other data used in making such a decision

when the decision differs from the recommendations

of the Medicare Coverage Advisory Committee; and

‘‘(iv) in the case of a final decision under clause

(i) to grant the request for the national coverage determination, the Secretary shall assign a temporary or

permanent code (whether existing or unclassified) and

implement the coding change.

‘‘(4) CONSULTATION WITH OUTSIDE EXPERTS IN CERTAIN

NATIONAL COVERAGE DETERMINATIONS.—With respect to a

request for a national coverage determination for which there

is not a review by the Medicare Coverage Advisory Committee,

the Secretary shall consult with appropriate outside clinical

experts.

‘‘(5) LOCAL COVERAGE DETERMINATION PROCESS.—

‘‘(A) PLAN TO PROMOTE CONSISTENCY OF COVERAGE

DETERMINATIONS.—The Secretary shall develop a plan to

evaluate new local coverage determinations to determine

which determinations should be adopted nationally and

to what extent greater consistency can be achieved among

local coverage determinations.

‘‘(B) CONSULTATION.—The Secretary shall require the

fiscal intermediaries or carriers providing services within

the same area to consult on all new local coverage determinations within the area.

‘‘(C) DISSEMINATION OF INFORMATION.—The Secretary

should serve as a center to disseminate information on

local coverage determinations among fiscal intermediaries

and carriers to reduce duplication of effort.

Deadlines.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2351

‘‘(6) NATIONAL AND LOCAL COVERAGE DETERMINATION

DEFINED.—For purposes of this subsection—

‘‘(A) NATIONAL COVERAGE DETERMINATION.—The term

‘national coverage determination’ means a determination

by the Secretary with respect to whether or not a particular

item or service is covered nationally under this title.

‘‘(B) LOCAL COVERAGE DETERMINATION.—The term

‘local coverage determination’ has the meaning given that

in section 1869(f)(2)(B).’’.

(2) EFFECTIVE DATE.—The amendments made by paragraph

(1) shall apply to national coverage determinations as of

January 1, 2004, and section 1862(l)(5) of the Social Security

Act, as added by such paragraph, shall apply to local coverage

determinations made on or after July 1, 2004.

(b) MEDICARE COVERAGE OF ROUTINE COSTS ASSOCIATED WITH

CERTAIN CLINICAL TRIALS OF CATEGORY A DEVICES.—

(1) IN GENERAL.—Section 1862 (42 U.S.C. 1395y), as

amended by subsection (a), is amended by adding at the end

the following new subsection:

‘‘(m) COVERAGE OF ROUTINE COSTS ASSOCIATED WITH CERTAIN

CLINICAL TRIALS OF CATEGORY A DEVICES.—

‘‘(1) IN GENERAL.—In the case of an individual entitled

to benefits under part A, or enrolled under part B, or both

who participates in a category A clinical trial, the Secretary

shall not exclude under subsection (a)(1) payment for coverage

of routine costs of care (as defined by the Secretary) furnished

to such individual in the trial.

‘‘(2) CATEGORY A CLINICAL TRIAL.—For purposes of paragraph (1), a ‘category A clinical trial’ means a trial of a medical

device if—

‘‘(A) the trial is of an experimental/investigational (category A) medical device (as defined in regulations under

section 405.201(b) of title 42, Code of Federal Regulations

(as in effect as of September 1, 2003));

‘‘(B) the trial meets criteria established by the Secretary to ensure that the trial conforms to appropriate

scientific and ethical standards; and

‘‘(C) in the case of a trial initiated before January

1, 2010, the device involved in the trial has been determined by the Secretary to be intended for use in the

diagnosis, monitoring, or treatment of an immediately lifethreatening disease or condition.’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) shall apply to routine costs incurred on and after January

1, 2005, and, as of such date, section 411.15(o) of title 42,

Code of Federal Regulations, is superseded to the extent inconsistent with section 1862(m) of the Social Security Act, as

added by such paragraph.

(3) RULE OF CONSTRUCTION.—Nothing in the amendment

made by paragraph (1) shall be construed as applying to, or

affecting, coverage or payment for a nonexperimental/investigational (category B) device.

(c) ISSUANCE OF TEMPORARY NATIONAL CODES.—Not later than

July 1, 2004, the Secretary shall implement revised procedures

for the issuance of temporary national HCPCS codes under part

B of title XVIII of the Social Security Act.

Deadlines.

Procedures.

42 USC 1395u

note.

42 USC 1395y

note.

42 USC 1395y

note.

42 USC 1395y

note.

117 STAT. 2352 PUBLIC LAW 108–173—DEC. 8, 2003

SEC. 732. EXTENSION OF TREATMENT OF CERTAIN PHYSICIAN

PATHOLOGY SERVICES UNDER MEDICARE.

Section 542(c) of BIPA (114 Stat. 2763A–551) is amended by

inserting ‘‘, and for services furnished during 2005 and 2006’’ before

the period at the end.

SEC. 733. PAYMENT FOR PANCREATIC ISLET CELL INVESTIGATIONAL

TRANSPLANTS FOR MEDICARE BENEFICIARIES IN CLINICAL TRIALS.

(a) CLINICAL TRIAL.—

(1) IN GENERAL.—The Secretary, acting through the

National Institute of Diabetes and Digestive and Kidney Disorders, shall conduct a clinical investigation of pancreatic islet

cell transplantation which includes medicare beneficiaries.

(2) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be appropriated to the Secretary such sums as may

be necessary to conduct the clinical investigation under paragraph (1).

(b) MEDICARE PAYMENT.—Not earlier than October 1, 2004,

the Secretary shall pay for the routine costs as well as transplantation and appropriate related items and services (as described

in subsection (c)) in the case of medicare beneficiaries who are

participating in a clinical trial described in subsection (a) as if

such transplantation were covered under title XVIII of such Act

and as would be paid under part A or part B of such title for

such beneficiary.

(c) SCOPE OF PAYMENT.—For purposes of subsection (b):

(1) The term ‘‘routine costs’’ means reasonable and necessary routine patient care costs (as defined in the Centers

for Medicare & Medicaid Services Coverage Issues Manual,

section 30–1), including immunosuppressive drugs and other

followup care.

(2) The term ‘‘transplantation and appropriate related

items and services’’ means items and services related to the

acquisition and delivery of the pancreatic islet cell transplantation, notwithstanding any national noncoverage determination contained in the Centers for Medicare & Medicaid Services

Coverage Issues Manual.

(3) The term ‘‘medicare beneficiary’’ means an individual

who is entitled to benefits under part A of title XVIII of the

Social Security Act, or enrolled under part B of such title,

or both.

(d) CONSTRUCTION.—The provisions of this section shall not

be construed—

(1) to permit payment for partial pancreatic tissue or islet

cell transplantation under title XVIII of the Social Security

Act other than payment as described in subsection (b); or

(2) as authorizing or requiring coverage or payment

conveying—

(A) benefits under part A of such title to a beneficiary

not entitled to such part A; or

(B) benefits under part B of such title to a beneficiary

not enrolled in such part B.

SEC. 734. RESTORATION OF MEDICARE TRUST FUNDS.

(a) DEFINITIONS.—In this section:

42 USC 1395i

note.

Effective date.

42 USC 1395l

note.

42 USC 1395w–4

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2353

(1) CLERICAL ERROR.—The term ‘‘clerical error’’ means a

failure that occurs on or after April 15, 2001, to have transferred the correct amount from the general fund of the Treasury

to a Trust Fund.

(2) TRUST FUND.—The term ‘‘Trust Fund’’ means the Federal Hospital Insurance Trust Fund established under section

1817 of the Social Security Act (42 U.S.C. 1395i) and the

Federal Supplementary Medical Insurance Trust Fund established under section 1841 of such Act (42 U.S.C. 1395t).

(b) CORRECTION OF TRUST FUND HOLDINGS.— (1) IN GENERAL.—The Secretary of the Treasury shall take

the actions described in paragraph (2) with respect to the

Trust Fund with the goal being that, after such actions are

taken, the holdings of the Trust Fund will replicate, to the

extent practicable in the judgment of the Secretary of the

Treasury, in consultation with the Secretary, the holdings that

would have been held by the Trust Fund if the clerical error

involved had not occurred.

(2) OBLIGATIONS ISSUED AND REDEEMED.—The Secretary

of the Treasury shall—

(A) issue to the Trust Fund obligations under chapter

31 of title 31, United States Code, that bear issue dates,

interest rates, and maturity dates that are the same as

those for the obligations that—

(i) would have been issued to the Trust Fund if

the clerical error involved had not occurred; or

(ii) were issued to the Trust Fund and were

redeemed by reason of the clerical error involved; and

(B) redeem from the Trust Fund obligations that would

have been redeemed from the Trust Fund if the clerical

error involved had not occurred.

(c) APPROPRIATION.—There is appropriated to the Trust Fund,

out of any money in the Treasury not otherwise appropriated,

an amount determined by the Secretary of the Treasury, in consultation with the Secretary, to be equal to the interest income lost

by the Trust Fund through the date on which the appropriation

is being made as a result of the clerical error involved.

(d) CONGRESSIONAL NOTICE.—In the case of a clerical error

that occurs after April 15, 2001, the Secretary of the Treasury,

before taking action to correct the error under this section, shall

notify the appropriate committees of Congress concerning such error

and the actions to be taken under this section in response to

such error.

(e) DEADLINE.—With respect to the clerical error that occurred

on April 15, 2001, not later than 120 days after the date of the

enactment of this Act—

(1) the Secretary of the Treasury shall take the actions

under subsection (b)(1); and

(2) the appropriation under subsection (c) shall be made.

SEC. 735. 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

117 STAT. 2354 PUBLIC LAW 108–173—DEC. 8, 2003

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) APPLICATION OF DISCLOSURE REQUIREMENTS.— (1) IN GENERAL.—Section 1805(c)(2)(D) (42 U.S.C. 1395b–

6(c)(2)(D)) is amended by adding at the end the following:

‘‘Members of the Commission shall be treated as employees

of Congress for purposes of applying title I of the Ethics in

Government Act of 1978 (Public Law 95–521).’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) shall take effect on January 1, 2004.

(d) 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, 2004, 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.

(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, 2004, a report on the following:

(A) Investments, endowments, and fundraising of hospitals participating under the medicare program and

related foundations.

(B) Access to capital financing for private and for notfor-profit hospitals.

(e) REPRESENTATION OF EXPERTS IN PRESCRIPTION DRUGS.—

(1) IN GENERAL.—Section 1805(c)(2)(B) (42 U.S.C. 1395b–

6(c)(2)(B)) is amended by inserting ‘‘experts in the area of

pharmaco-economics or prescription drug benefit programs,’’

after ‘‘other health professionals,’’.

(2) APPOINTMENT.—The Comptroller General of the United

States shall ensure that the membership of the Commission

complies with the amendment made by paragraph (1) with

respect to appointments made on or after the date of the

enactment of this Act.

SEC. 736. TECHNICAL AMENDMENTS.

(a) PART A.—(1) Section 1814(a) (42 U.S.C. 1395f(a)) is

amended—

(A) by striking the seventh sentence, as added by section

322(a)(1) of BIPA (114 Stat. 2763A–501); and

(B) in paragraph (7)(A)—

(i) in clause (i), by inserting before the comma at

the end the following: ‘‘based on the physician’s or medical

director’s clinical judgment regarding the normal course

of the individual’s illness’’; and

(ii) in clause (ii), by inserting before the semicolon

at the end the following: ‘‘based on such clinical judgment’’.

(2) Section 1814(b) (42 U.S.C. 1395f(b)), in the matter preceding

paragraph (1), is amended by inserting a comma after ‘‘1813’’.

(3) Section 1815(e)(1)(B) (42 U.S.C. 1395g(e)(1)(B)), in the

matter preceding clause (i), is amended by striking ‘‘of hospital’’

and inserting ‘‘of a hospital’’.

42 USC 1395b–6

note.

Deadlines.

42 USC 1395b–6

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2355

(4) Section 1816(c)(2)(B)(ii) (42 U.S.C. 1395h(c)(2)(B)(ii)) is

amended—

(A) by striking ‘‘and’’ at the end of subclause (III); and

(B) by striking the period at the end of subclause (IV)

and inserting ‘‘, and’’.

(5) Section 1817(k)(3)(A) (42 U.S.C. 1395i(k)(3)(A)) is amended—

(A) in clause (i)(I), by striking the comma at the end and

inserting a semicolon; and

(B) in clause (ii), by striking ‘‘the Medicare and medicaid

programs’’ and inserting ‘‘the programs under this title and

title XIX’’.

(6) Section 1817(k)(6)(B) (42 U.S.C. 1395i(k)(6)(B)) is amended

by striking ‘‘Medicare program under title XVIII’’ and inserting

‘‘program under this title’’.

(7) Section 1818 (42 U.S.C. 1395i–2) is amended—

(A) in subsection (d)(6)(A) is amended by inserting ‘‘of such

Code’’ after ‘‘3111(b)’’; and

(B) in subsection (g)(2)(B) is amended by striking ‘‘subsection (b).’’ and inserting ‘‘subsection (b)’’.

(8) Section 1819 (42 U.S.C. 1395i–3) is amended—

(A) in subsection (b)(4)(C)(i), by striking ‘‘at least at least’’

and inserting ‘‘at least’’;

(B) in subsection (d)(1)(A), by striking ‘‘physical mental’’

and inserting ‘‘physical, mental’’; and

(C) in subsection (f)(2)(B)(iii), by moving the last sentence

2 ems to the left.

(9) Section 1886(b)(3)(I)(i)(I) (42 U.S.C. 1395ww(b)(3)(I)(i)(I))

is amended by striking ‘‘the the’’ and inserting ‘‘the’’.

(10) The heading of subsection (mm) of section 1861 (42 U.S.C.

1395x) is amended to read as follows:

‘‘Critical Access Hospital; Critical Access Hospital Services’’.

(11) Paragraphs (1) and (2) of section 1861(tt) (42 U.S.C.

1395x(tt)) are each amended by striking ‘‘rural primary care’’ and

inserting ‘‘critical access’’.

(12) Section 1865(b)(3)(B) (42 U.S.C. 1395bb(b)(3)(B)) is

amended by striking ‘‘section 1819 and 1861(j)’’ and inserting ‘‘sections 1819 and 1861(j)’’.

(13) Section 1866(b)(2) (42 U.S.C. 1395cc(b)(2)) is amended by

moving subparagraph (D) 2 ems to the left.

(14) Section 1867 (42 U.S.C. 1395dd) is amended—

(A) in the matter following clause (ii) of subsection (d)(1)(B),

by striking ‘‘is is’’ and inserting ‘‘is’’;

(B) in subsection (e)(1)(B), by striking ‘‘a pregnant women’’

and inserting ‘‘a pregnant woman’’; and

(C) in subsection (e)(2), by striking ‘‘means hospital’’ and

inserting ‘‘means a hospital’’.

(15) Section 1886(g)(3)(B) (42 U.S.C. 1395ww(g)(3)(B)) is

amended by striking ‘‘(as defined in subsection (d)(5)(D)(iii)’’ and

inserting ‘‘(as defined in subsection (d)(5)(D)(iii))’’.

(b) PART B.—(1) Section 1833(h)(5)(D) (42 U.S.C. 1395l(h)(5)(D))

is amended by striking ‘‘clinic,,’’ and inserting ‘‘clinic,’’.

(2) Section 1833(t)(3)(C)(ii) (42 U.S.C. 1395l(t)(3)(C)(ii)) is

amended by striking ‘‘clause (iii)’’ and inserting ‘‘clause (iv)’’.

117 STAT. 2356 PUBLIC LAW 108–173—DEC. 8, 2003

(3) Section 1861(v)(1)(S)(ii)(III) (42 U.S.C. 1395x(v)(1)(S)(ii)(III))

is amended by striking ‘‘(as defined in section 1886(d)(5)(D)(iii)’’

and inserting ‘‘(as defined in section 1886(d)(5)(D)(iii))’’.

(4) Section 1834(b)(4)(D)(iv) (42 U.S.C. 1395m(b)(4)(D)(iv)) is

amended by striking ‘‘clauses (vi)’’ and inserting ‘‘clause (vi)’’.

(5) Section 1834(m)(4)(C)(ii)(III) (42 U.S.C.

1395m(m)(4)(C)(ii)(III)) is amended by striking ‘‘1861(aa)(s)’’ and

inserting ‘‘1861(aa)(2)’’.

(6) Section 1838(a)(1) (42 U.S.C. 1395q(a)(1)) is amended by

inserting a comma after ‘‘1966’’.

(7) The second sentence of section 1839(a)(4) (42 U.S.C.

1395r(a)(4)) is amended by striking ‘‘which will’’ and inserting ‘‘will’’.

(8) Section 1842(c)(2)(B)(ii) (42 U.S.C. 1395u(c)(2)(B)(ii)) is

amended—

(A) by striking ‘‘and’’ at the end of subclause (III); and

(B) by striking the period at the end of subclause (IV)

and inserting ‘‘, and’’.

(9) Section 1842(i)(2) (42 U.S.C. 1395u(i)(2)) is amended by

striking ‘‘services, a physician’’ and inserting ‘‘services, to a physician’’.

(10) Section 1848(i)(3)(A) (42 U.S.C. 1395w–4(i)(3)(A)) is

amended by striking ‘‘a comparable services’’ and inserting ‘‘comparable services’’.

(11) Section 1861(s)(2)(K)(i) (42 U.S.C. 1395x(s)(2)(K)(i)) is

amended by striking ‘‘; and but’’ and inserting ‘‘, but’’.

(12) Section 1861(aa)(1)(B) (42 U.S.C. 1395x(aa)(1)(B)) is

amended by striking ‘‘,,’’ and inserting a comma.

(13) Section 128(b)(2) of BIPA (114 Stat. 2763A–480) is

amended by striking ‘‘Not later that’’ and inserting ‘‘Not later

than’’ each place it appears.

(c) PARTS A AND B.—(1) Section 1812(a)(3) (42 U.S.C.

1395d(a)(3)) is amended—

(A) by striking ‘‘for individuals not’’ and inserting ‘‘in the

case of individuals not’’; and

(B) by striking ‘‘for individuals so’’ and inserting ‘‘in the

case of individuals so’’.

(2)(A) Section 1814(a) (42 U.S.C. 1395f(a)) is amended in the

sixth sentence by striking ‘‘leave home,’’ and inserting ‘‘leave home

and’’.

(B) Section 1835(a) (42 U.S.C. 1395n(a)) is amended in the

seventh sentence by striking ‘‘leave home,’’ and inserting ‘‘leave

home and’’.

(3) Section 1891(d)(1) (42 U.S.C. 1395bbb(d)(1)) is amended

by striking ‘‘subsection (c)(2)(C)(I)’’ and inserting ‘‘subsection

(c)(2)(C)(i)(I)’’.

(4) Section 1861(v) (42 U.S.C. 1395x(v)) is amended by moving

paragraph (8) (including clauses (i) through (v) of such paragraph)

2 ems to the left.

(5) Section 1866B(b)(7)(D) (42 U.S.C. 1395cc–2(b)(7)(D)) is

amended by striking ‘‘(c)(2)(A)(ii)’’ and inserting ‘‘(c)(2)(B)’’.

(6) Section 1886(h)(3)(D)(ii)(III) (42 U.S.C.

1395ww(h)(3)(D)(ii)(III)) is amended by striking ‘‘and’’ after the

comma at the end.

(7) Section 1893(a) (42 U.S.C. 1395ddd(a)) is amended by

striking ‘‘Medicare program’’ and inserting ‘‘medicare program’’.

(8) Section 1896(b)(4) (42 U.S.C. 1395ggg(b)(4)) is amended

by striking ‘‘701(f)’’ and inserting ‘‘712(f)’’.

42 USC 1395b–1

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2357

(d) PART C.—(1) Section 1853 (42 U.S.C. 1395w–23), as

amended by section 607 of BIPA (114 Stat. 2763A–558), is

amended—

(A) in subsection (a)(3)(C)(ii), by striking ‘‘clause (iii)’’ and

inserting ‘‘clause (iv)’’;

(B) in subsection (a)(3)(C), by redesignating the clause (iii)

added by such section 607 as clause (iv); and

(C) in subsection (c)(5), by striking ‘‘(a)(3)(C)(iii)’’ and

inserting ‘‘(a)(3)(C)(iv)’’.

(2) Section 1876 (42 U.S.C. 1395mm) is amended—

(A) in subsection (c)(2)(B), by striking ‘‘signifcant’’ and

inserting ‘‘significant’’; and

(B) in subsection (j)(2), by striking ‘‘this setion’’ and

inserting ‘‘this section’’.

(e) MEDIGAP.—Section 1882 (42 U.S.C. 1395ss) is amended—

(1) in subsection (d)(3)(A)(i)(II), by striking ‘‘plan a medicare

supplemental policy’’ and inserting ‘‘plan, a medicare supplemental policy’’;

(2) in subsection (d)(3)(B)(iii)(II), by striking ‘‘to the best

of the issuer or seller’s knowledge’’ and inserting ‘‘to the best

of the issuer’s or seller’s knowledge’’;

(3) in subsection (g)(2)(A), by striking ‘‘medicare supplement policies’’ and inserting ‘‘medicare supplemental policies’’;

(4) in subsection (p)(2)(B), by striking ‘‘, and’’ and inserting

‘‘; and’’; and

(5) in subsection (s)(3)(A)(iii), by striking ‘‘pre-existing’’ and

inserting ‘‘preexisting’’.

TITLE VIII—COST CONTAINMENT

Subtitle A—Cost Containment

SEC. 801. INCLUSION IN ANNUAL REPORT OF MEDICARE TRUSTEES

OF INFORMATION ON STATUS OF MEDICARE TRUST

FUNDS.

(a) DETERMINATIONS OF EXCESS GENERAL REVENUE MEDICARE

FUNDING.—

(1) IN GENERAL.—The Board of Trustees of each medicare

trust fund shall include in the annual reports submitted under

subsection (b)(2) of sections 1817 and 1841 of the Social Security

Act (42 U.S.C. 1395i and 1395t)—

(A) the information described in subsection (b); and

(B) a determination as to whether there is projected

to be excess general revenue medicare funding (as defined

in subsection (c)) for the fiscal year in which the report

is submitted or for any of the succeeding 6 fiscal years.

(2) MEDICARE FUNDING WARNING.—For purposes of section

1105(h) of title 31, United States Code, and this subtitle, an

affirmative determination under paragraph (1)(B) in 2 consecutive annual reports shall be treated as a medicare funding

warning in the year in which the second such report is made.

(3) 7-FISCAL-YEAR REPORTING PERIOD.—For purposes of this

subtitle, the term ‘‘7-fiscal-year reporting period’’ means, with

respect to a year in which an annual report described in paragraph (1) is made, the period of 7 consecutive fiscal years

beginning with the fiscal year in which the report is submitted.

42 USC 1395i

note.

117 STAT. 2358 PUBLIC LAW 108–173—DEC. 8, 2003

(b) INFORMATION.—The information described in this subsection

for an annual report in a year is as follows:

(1) PROJECTIONS OF GROWTH OF GENERAL REVENUE

SPENDING.—A statement of the general revenue medicare

funding as a percentage of the total medicare outlays for each

of the following:

(A) Each fiscal year within the 7-fiscal-year reporting

period.

(B) Previous fiscal years and as of 10, 50, and 75

years after such year.

(2) COMPARISON WITH OTHER GROWTH TRENDS.—A comparison of the trend of such percentages with the annual growth

rate in the following:

(A) The gross domestic product.

(B) Private health costs.

(C) National health expenditures.

(D) Other appropriate measures.

(3) PART D SPENDING.—Expenditures, including trends in

expenditures, under part D of title XVIII of the Social Security

Act, as added by section 101.

(4) COMBINED MEDICARE TRUST FUND ANALYSIS.—A financial analysis of the combined medicare trust funds if general

revenue medicare funding were limited to the percentage specified in subsection (c)(1)(B) of total medicare outlays.

(c) DEFINITIONS.—For purposes of this section:

(1) EXCESS GENERAL REVENUE MEDICARE FUNDING.—The

term ‘‘excess general revenue medicare funding’’ means, with

respect to a fiscal year, that—

(A) general revenue medicare funding (as defined in

paragraph (2)), expressed as a percentage of total medicare

outlays (as defined in paragraph (4)) for the fiscal year;

exceeds

(B) 45 percent.

(2) GENERAL REVENUE MEDICARE FUNDING.—The term ‘‘general revenue medicare funding’’ means for a year—

(A) the total medicare outlays (as defined in paragraph

(4)) for the year; minus

(B) the dedicated medicare financing sources (as

defined in paragraph (3)) for the year.

(3) DEDICATED MEDICARE FINANCING SOURCES.—The term

‘‘dedicated medicare financing sources’’ means the following:

(A) HOSPITAL INSURANCE TAX.—Amounts appropriated

to the Hospital Insurance Trust Fund under the third

sentence of section 1817(a) of the Social Security Act (42

U.S.C. 1395i(a)) and amounts transferred to such Trust

Fund under section 7(c)(2) of the Railroad Retirement Act

of 1974 (45 U.S.C. 231f(c)(2)).

(B) TAXATION OF CERTAIN OASDI BENEFITS.—Amounts

appropriated to the Hospital Insurance Trust Fund under

section 121(e)(1)(B) of the Social Security Amendments of

1983 (Public Law 98–21), as inserted by section 13215(c)

of the Omnibus Budget Reconciliation Act of 1993 (Public

Law 103–66).

(C) STATE TRANSFERS.—The State share of amounts

paid to the Federal Government by a State under section

1843 of the Social Security Act (42 U.S.C. 1395v) or pursuant to section 1935(c) of such Act.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2359

(D) PREMIUMS.—The following premiums:

(i) PART A.—Premiums paid by non-Federal sources

under sections 1818 and section 1818A (42 U.S.C.

1395i–2 and 1395i–2a) of such Act.

(ii) PART B.—Premiums paid by non-Federal

sources under section 1839 of such Act (42 U.S.C.

1395r), including any adjustments in premiums under

such section.

(iii) PART D.—Monthly beneficiary premiums paid

under part D of title XVIII of such Act, as added

by section 101, and MA monthly prescription drug

beneficiary premiums paid under part C of such title

insofar as they are attributable to basic prescription

drug coverage.

Premiums under clauses (ii) and (iii) shall be determined without regard to any reduction in such premiums attributable

to a beneficiary rebate under section 1854(b)(1)(C) of such title,

as amended by section 222(b)(1), and premiums under clause

(iii) are deemed to include any amounts paid under section

1860D–13(b) of such title, as added by section 101.

(E) GIFTS.—Amounts received by the medicare trust

funds under section 201(i) of the Social Security Act (42

U.S.C. 401(i)).

(4) TOTAL MEDICARE OUTLAYS.—The term ‘‘total medicare

outlays’’ means total outlays from the medicare trust funds

and shall—

(A) include payments made to plans under part C

of title XVIII of the Social Security Act that are attributable

to any rebates under section 1854(b)(1)(C) of such Act

(42 U.S.C. 1395w–24(b)(1)(C)), as amended by section

222(b)(1);

(B) include administrative expenditures made in carrying out title XVIII of such Act and Federal outlays under

section 1935(b) of such Act, as added by section 103(a)(2);

and

(C) offset outlays by the amount of fraud and abuse

collections insofar as they are applied or deposited into

a medicare trust fund.

(5) MEDICARE TRUST FUND.—The term ‘‘medicare trust

fund’’ means—

(A) the Federal Hospital Insurance Trust Fund established under section 1817 of the Social Security Act (42

U.S.C. 1395i); and

(B) the Federal Supplementary Medical Insurance

Trust Fund established under section 1841 of such Act

(42 U.S.C. 1395t), including the Medicare Prescription Drug

Account under such Trust Fund.

(d) CONFORMING AMENDMENTS.—

(1) FEDERAL HOSPITAL INSURANCE TRUST FUND.—Section

1817(b)(2) (42 U.S.C. 1395i(b)(2)) is amended by adding at

the end the following: ‘‘Each report provided under paragraph

(2) beginning with the report in 2005 shall include the information specified in section 801(a) of the Medicare Prescription

Drug, Improvement, and Modernization Act of 2003.’’.

(2) FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST

FUND.—Section 1841(b)(2) (42 U.S.C. 1395t(b)(2)) is amended

by adding at the end the following: ‘‘Each report provided

Reports.

117 STAT. 2360 PUBLIC LAW 108–173—DEC. 8, 2003

under paragraph (2) beginning with the report in 2005 shall

include the information specified in section 801(a) of the Medicare Prescription Drug, Improvement, and Modernization Act

of 2003.’’.

(e) NOTICE OF MEDICARE FUNDING WARNING.—Whenever any

report described in subsection (a) contains a determination that

for any fiscal year within the 7-fiscal-year reporting period there

will be excess general revenue medicare funding, Congress and

the President should address the matter under existing rules and

procedures.

SEC. 802. PRESIDENTIAL SUBMISSION OF LEGISLATION.

(a) IN GENERAL.—Section 1105 of title 31, United States Code,

is amended by adding at the end the following new subsection:

‘‘(h)(1) If there is a medicare funding warning under section

801(a)(2) of the Medicare Prescription Drug, Improvement, and

Modernization Act of 2003 made in a year, the President shall

submit to Congress, within the 15-day period beginning on the

date of the budget submission to Congress under subsection (a)

for the succeeding year, proposed legislation to respond to such

warning.

‘‘(2) Paragraph (1) does not apply if, during the year in which

the warning is made, legislation is enacted which eliminates excess

general revenue medicare funding (as defined in section 801(c)

of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003) for the 7-fiscal-year reporting period, as certified

by the Board of Trustees of each medicare trust fund (as defined

in section 801(c)(5) of such Act) not later than 30 days after the

date of the enactment of such legislation.’’.

(b) SENSE OF CONGRESS.—It is the sense of Congress that

legislation submitted pursuant to section 1105(h) of title 31, United

States Code, in a year should be designed to eliminate excess

general revenue medicare funding (as defined in section 801(c))

for the 7-fiscal-year period that begins in such year.

SEC. 803. PROCEDURES IN THE HOUSE OF REPRESENTATIVES.

(a) INTRODUCTION AND REFERRAL OF PRESIDENT’S LEGISLATIVE

PROPOSAL.—

(1) INTRODUCTION.—In the case of a legislative proposal

submitted by the President pursuant to section 1105(h) of title

31, United States Code, within the 15-day period specified

in paragraph (1) of such section, the Majority Leader of the

House of Representatives (or his designee) and the Minority

Leader of the House of Representatives (or his designee) shall

introduce such proposal (by request), the title of which is as

follows: ‘‘A bill to respond to a medicare funding warning.’’

Such bill shall be introduced within 3 legislative days after

Congress receives such proposal.

(2) REFERRAL.—Any legislation introduced pursuant to

paragraph (1) shall be referred to the appropriate committees

of the House of Representatives.

(b) DIRECTION TO THE APPROPRIATE HOUSE COMMITTEES.—

(1) IN GENERAL.—In the House, in any year during which

the President is required to submit proposed legislation to

Congress under section 1105(h) of title 31, United States Code,

the appropriate committees shall report medicare funding legislation by not later than June 30 of such year.

Reports.

Deadline.

Deadline.

31 USC 1105

note.

Deadline.

President.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2361

(2) MEDICARE FUNDING LEGISLATION.—For purposes of this

section, the term ‘‘medicare funding legislation’’ means—

(A) legislation introduced pursuant to subsection (a)(1),

but only if the legislative proposal upon which the legislation is based was submitted within the 15-day period

referred to in such subsection; or

(B) any bill the title of which is as follows: ‘‘A bill

to respond to a medicare funding warning.’’.

(3) CERTIFICATION.—With respect to any medicare funding

legislation or any amendment to such legislation to respond

to a medicare funding warning, the chairman of the Committee

on the Budget of the House shall certify—

(A) whether or not such legislation eliminates excess

general revenue medicare funding (as defined in section

801(c)) for each fiscal year in the 7-fiscal-year reporting

period; and

(B) with respect to such an amendment, whether the

legislation, as amended, would eliminate excess general

revenue medicare funding (as defined in section 801(c))

for each fiscal year in such 7-fiscal-year reporting period.

(c) FALLBACK PROCEDURE FOR FLOOR CONSIDERATION IF THE

HOUSE FAILS TO VOTE ON FINAL PASSAGE BY JULY 30.—

(1) After July 30 of any year during which the President

is required to submit proposed legislation to Congress under

section 1105(h) of title 31, United States Code, unless the

House of Representatives has voted on final passage of any

medicare funding legislation for which there is an affirmative

certification under subsection (b)(3)(A), then, after the expiration of not less than 30 calendar days (and concurrently 5

legislative days), it is in order to move to discharge any committee to which medicare funding legislation which has such

a certification and which has been referred to such committee

for 30 calendar days from further consideration of the legislation.

(2) A motion to discharge may be made only by an individual favoring the legislation, may be made only if supported

by one-fifth of the total membership of the House (a quorum

being present), and is highly privileged in the House. Debate

thereon shall be limited to not more than one hour, the time

to be divided in the House equally between those favoring

and those opposing the motion. An amendment to the motion

is not in order, and it is not in order to move to reconsider

the vote by which the motion is agreed to or disagreed to.

(3) Only one motion to discharge a particular committee

may be adopted under this subsection in any session of a

Congress.

(4) Notwithstanding paragraph (1), it shall not be in order

to move to discharge a committee from further consideration

of medicare funding legislation pursuant to this subsection

during a session of a Congress if, during the previous session

of the Congress, the House passed medicare funding legislation

for which there is an affirmative certification under subsection

(b)(3)(A).

(d) FLOOR CONSIDERATION IN THE HOUSE OF DISCHARGED LEGISLATION.—

(1) In the House, not later than 3 legislative days after

any committee has been discharged from further consideration

Deadline.

117 STAT. 2362 PUBLIC LAW 108–173—DEC. 8, 2003

of legislation under subsection (c), the Speaker shall resolve

the House into the Committee of the Whole for consideration

of the legislation.

(2) The first reading of the legislation shall be dispensed

with. All points of order against consideration of the legislation

are waived. General debate shall be confined to the legislation

and shall not exceed five hours, which shall be divided equally

between those favoring and those opposing the legislation. After

general debate the legislation shall be considered for amendment under the five-minute rule. During consideration of the

legislation, no amendments shall be in order in the House

or in the Committee of the Whole except those for which there

has been an affirmative certification under subsection (b)(3)(B).

All points of order against consideration of any such amendment

in the Committee of the Whole are waived. The legislation,

together with any amendments which shall be in order, shall

be considered as read. During the consideration of the bill

for amendment, the Chairman of the Committee of the Whole

may accord priority in recognition on the basis of whether

the Member offering an amendment has caused it to be printed

in the portion of the Congressional Record designated for that

purpose in clause 8 of Rule XVIII of the Rules of the House

of Representatives. Debate on any amendment shall not exceed

one hour, which shall be divided equally between those favoring

and those opposing the amendment, and no pro forma amendments shall be offered during the debate. The total time for

debate on all amendments shall not exceed 10 hours. At the

conclusion of consideration of the legislation for amendment,

the Committee shall rise and report the legislation to the

House with such amendments as may have been adopted. The

previous question shall be considered as ordered on the legislation and amendments thereto to final passage without intervening motion except one motion to recommit with or without

instructions. If the Committee of the Whole rises and reports

that it has come to no resolution on the bill, then on the

next legislative day the House shall, immediately after the

third daily order of business under clause 1 of Rule XIV of

the Rules of the House of Representatives, resolve into the

Committee of the Whole for further consideration of the bill.

(3) All appeals from the decisions of the Chair relating

to the application of the Rules of the House of Representatives

to the procedure relating to any such legislation shall be decided

without debate.

(4) Except to the extent specifically provided in the preceding provisions of this subsection, consideration of any such

legislation and amendments thereto (or any conference report

thereon) shall be governed by the Rules of the House of Representatives applicable to other bills and resolutions, amendments, and conference reports in similar circumstances.

(e) LEGISLATIVE DAY DEFINED.—As used in this section, the

term ‘‘legislative day’’ means a day on which the House of Representatives is in session.

(f) RESTRICTION ON WAIVER.—In the House, the provisions of

this section may be waived only by a rule or order proposing

only to waive such provisions.

(g) RULEMAKING POWER.—The provisions of this section are

enacted by the Congress—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2363

(1) as an exercise of the rulemaking power of the House

of Representatives and, as such, shall be considered as part

of the rules of that House and shall supersede other rules

only to the extent that they are inconsistent therewith; and

(2) with full recognition of the constitutional right of that

House to change the rules (so far as they relate to the procedures of that House) at any time, in the same manner, and

to the same extent as in the case of any other rule of that

House.

SEC. 804. PROCEDURES IN THE SENATE.

(a) INTRODUCTION AND REFERRAL OF PRESIDENT’S LEGISLATIVE

PROPOSAL.—

(1) INTRODUCTION.—In the case of a legislative proposal

submitted by the President pursuant to section 1105(h) of title

31, United States Code, within the 15-day period specified

in paragraph (1) of such section, the Majority Leader and

Minority Leader of the Senate (or their designees) shall introduce such proposal (by request), the title of which is as follows:

‘‘A bill to respond to a medicare funding warning.’’ Such bill

shall be introduced within 3 days of session after Congress

receives such proposal.

(2) REFERRAL.—Any legislation introduced pursuant to

paragraph (1) shall be referred to the Committee on Finance.

(b) MEDICARE FUNDING LEGISLATION.—For purposes of this section, the term ‘‘medicare funding legislation’’ means—

(1) legislation introduced pursuant to subsection (a)(1), but

only if the legislative proposal upon which the legislation is

based was submitted within the 15-day period referred to in

such subsection; or

(2) any bill the title of which is as follows: ‘‘A bill to

respond to a medicare funding warning.’’.

(c) QUALIFICATION FOR SPECIAL PROCEDURES.—

(1) IN GENERAL.—The special procedures set forth in subsections (d) and (e) shall apply to medicare funding legislation,

as described in subsection (b), only if the legislation—

(A) is medicare funding legislation that is passed by

the House of Representatives; or

(B) contains matter within the jurisdiction of the Committee on Finance in the Senate.

(2) FAILURE TO QUALIFY FOR SPECIAL PROCEDURES.—If the

medicare funding legislation does not satisfy paragraph (1),

then the legislation shall be considered under the ordinary

procedures of the Standing Rules of the Senate.

(d) DISCHARGE.—

(1) IN GENERAL.—If the Committee on Finance has not

reported medicare funding legislation described in subsection

(c)(1) by June 30 of a year in which the President is required

to submit medicare funding legislation to Congress under section 1105(h) of title 31, United States Code, then any Senator

may move to discharge the Committee of any single medicare

funding legislation measure. Only one such motion shall be

in order in any session of Congress.

(2) DEBATE LIMITS.—Debate in the Senate on any such

motion to discharge, and all appeals in connection therewith,

shall be limited to not more than 2 hours. The time shall

be equally divided between, and controlled by, the maker of

Applicability.

31 USC 1105

note.

117 STAT. 2364 PUBLIC LAW 108–173—DEC. 8, 2003

the motion and the Majority Leader, or their designees, except

that in the event the Majority Leader is in favor of such

motion, the time in opposition thereto shall be controlled by

the Minority Leader or the Minority Leader’s designee. A point

of order under this subsection may be made at any time.

It is not in order to move to proceed to another measure

or matter while such motion (or the motion to reconsider such

motion) is pending.

(3) AMENDMENTS.—No amendment to the motion to discharge shall be in order.

(4) EXCEPTION IF CERTIFIED LEGISLATION ENACTED.—Notwithstanding paragraph (1), it shall not be in order to discharge

the Committee from further consideration of medicare funding

legislation pursuant to this subsection during a session of a

Congress if the chairman of the Committee on the Budget

of the Senate certifies that medicare funding legislation has

been enacted that eliminates excess general revenue medicare

funding (as defined in section 801(c)) for each fiscal year in

the 7-fiscal-year reporting period.

(e) CONSIDERATION.—After the date on which the Committee

on Finance has reported medicare funding legislation described

in subsection (c)(1), or has been discharged (under subsection (d))

from further consideration of, such legislation, it is in order (even

though a previous motion to the same effect has been disagreed

to) for any Member of the Senate to move to proceed to the consideration of such legislation.

(f) RULES OF THE SENATE.—This section is enacted by the

Senate—

(1) as an exercise of the rulemaking power of the Senate

and as such it is deemed a part of the rules of the Senate,

but applicable only with respect to the procedure to be followed

in the Senate in the case of a bill described in this paragraph,

and it supersedes other rules only to the extent that it is

inconsistent with such rules; and

(2) with full recognition of the constitutional right of the

Senate to change the rules (so far as relating to the procedure

of the Senate) at any time, in the same manner, and to the

same extent as in the case of any other rule of the Senate.

Subtitle B—Income-Related Reduction in

Part B Premium Subsidy

SEC. 811. INCOME-RELATED REDUCTION IN PART B PREMIUM SUBSIDY.

(a) IN GENERAL.—Section 1839 (42 U.S.C. 1395r), as amended

by section 241(c), is amended by adding at the end the following:

‘‘(i) REDUCTION IN PREMIUM SUBSIDY BASED ON INCOME.— ‘‘(1) IN GENERAL.—In the case of an individual whose modified adjusted gross income exceeds the threshold amount under

paragraph (2), the monthly amount of the premium subsidy

applicable to the premium under this section for a month

after December 2006 shall be reduced (and the monthly premium shall be increased) by the monthly adjustment amount

specified in paragraph (3).

‘‘(2) THRESHOLD AMOUNT.—For purposes of this subsection,

the threshold amount is—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2365

‘‘(A) except as provided in subparagraph (B), $80,000,

and

‘‘(B) in the case of a joint return, twice the amount

applicable under subparagraph (A) for the calendar year.

‘‘(3) MONTHLY ADJUSTMENT AMOUNT.—

‘‘(A) IN GENERAL.—Subject to subparagraph (B), the

monthly adjustment amount specified in this paragraph

for an individual for a month in a year is equal to the

product of the following:

‘‘(i) SLIDING SCALE PERCENTAGE.—The applicable

percentage specified in the table in subparagraph (C)

for the individual minus 25 percentage points.

‘‘(ii) UNSUBSIDIZED PART B PREMIUM AMOUNT.—200

percent of the monthly actuarial rate for enrollees age

65 and over (as determined under subsection (a)(1)

for the year).

‘‘(B) 5-YEAR PHASE IN.—The monthly adjustment

amount specified in this paragraph for an individual for

a month in a year before 2011 is equal to the following

percentage of the monthly adjustment amount specified

in subparagraph (A):

‘‘(i) For 2007, 20 percent.

‘‘(ii) For 2008, 40 percent.

‘‘(iii) For 2009, 60 percent.

‘‘(iv) for 2010, 80 percent.

‘‘(C) APPLICABLE PERCENTAGE.— ‘‘(i) IN GENERAL.—

‘‘If the modified adjusted gross income is: The

applicable

percentage is:

More than $80,000 but not more than $100,000 ........................... 35 percent

More than $100,000 but not more than $150,000 ......................... 50 percent

More than $150,000 but not more than $200,000 ......................... 65 percent

More than $200,000 ......................................................................... 80 percent.

‘‘(ii) JOINT RETURNS.—In the case of a joint return,

clause (i) shall be applied by substituting dollar

amounts which are twice the dollar amounts otherwise

applicable under clause (i) for the calendar year.

‘‘(iii) MARRIED INDIVIDUALS FILING SEPARATE

RETURNS.—In the case of an individual who—

‘‘(I) is married as of the close of the taxable

year (within the meaning of section 7703 of the

Internal Revenue Code of 1986) but does not file

a joint return for such year, and

‘‘(II) does not live apart from such individual’s

spouse at all times during the taxable year,

clause (i) shall be applied by reducing each of the

dollar amounts otherwise applicable under such clause

for the calendar year by the threshold amount for

such year applicable to an unmarried individual.

‘‘(4) MODIFIED ADJUSTED GROSS INCOME.—

‘‘(A) IN GENERAL.—For purposes of this subsection, the

term ‘modified adjusted gross income’ means adjusted gross

income (as defined in section 62 of the Internal Revenue

Code of 1986)—

‘‘(i) determined without regard to sections 135,

911, 931, and 933 of such Code; and

Applicability.

117 STAT. 2366 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(ii) increased by the amount of interest received

or accrued during the taxable year which is exempt

from tax under such Code.

In the case of an individual filing a joint return, any

reference in this subsection to the modified adjusted gross

income of such individual shall be to such return’s modified

adjusted gross income.

‘‘(B) TAXABLE YEAR TO BE USED IN DETERMINING MODI- FIED ADJUSTED GROSS INCOME.— ‘‘(i) IN GENERAL.—In applying this subsection for

an individual’s premiums in a month in a year, subject

to clause (ii) and subparagraph (C), the individual’s

modified adjusted gross income shall be such income

determined for the individual’s last taxable year beginning in the second calendar year preceding the year

involved.

‘‘(ii) TEMPORARY USE OF OTHER DATA.—If, as of

October 15 before a calendar year, the Secretary of

the Treasury does not have adequate data for an individual in appropriate electronic form for the taxable

year referred to in clause (i), the individual’s modified

adjusted gross income shall be determined using the

data in such form from the previous taxable year.

Except as provided in regulations prescribed by the

Commissioner of Social Security in consultation with

the Secretary, the preceding sentence shall cease to

apply when adequate data in appropriate electronic

form are available for the individual for the taxable

year referred to in clause (i), and proper adjustments

shall be made to the extent that the premium adjustments determined under the preceding sentence were

inconsistent with those determined using such taxable

year.

‘‘(iii) NON-FILERS.—In the case of individuals with

respect to whom the Secretary of the Treasury does

not have adequate data in appropriate electronic form

for either taxable year referred to in clause (i) or clause

(ii), the Commissioner of Social Security, in consultation with the Secretary, shall prescribe regulations

which provide for the treatment of the premium adjustment with respect to such individual under this subsection, including regulations which provide for—

‘‘(I) the application of the highest applicable

percentage under paragraph (3)(C) to such individual if the Commissioner has information which

indicates that such individual’s modified adjusted

gross income might exceed the threshold amount

for the taxable year referred to in clause (i), and

‘‘(II) proper adjustments in the case of the

application of an applicable percentage under subclause (I) to such individual which is inconsistent

with such individual’s modified adjusted gross

income for such taxable year.

‘‘(C) USE OF MORE RECENT TAXABLE YEAR.—

‘‘(i) IN GENERAL.—The Commissioner of Social

Security in consultation with the Secretary of the

Treasury shall establish a procedures under which an

Regulations.

Termination

date.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2367

individual’s modified adjusted gross income shall, at

the request of such individual, be determined under

this subsection—

‘‘(I) for a more recent taxable year than the

taxable year otherwise used under subparagraph

(B), or

‘‘(II) by such methodology as the Commissioner, in consultation with such Secretary, determines to be appropriate, which may include a

methodology for aggregating or disaggregating

information from tax returns in the case of marriage or divorce.

‘‘(ii) STANDARD FOR GRANTING REQUESTS.—A

request under clause (i)(I) to use a more recent taxable

year may be granted only if—

‘‘(I) the individual furnishes to such Commissioner with respect to such year such documentation, such as a copy of a filed Federal income

tax return or an equivalent document, as the

Commissioner specifies for purposes of determining the premium adjustment (if any) under

this subsection; and

‘‘(II) the individual’s modified adjusted gross

income for such year is significantly less than such

income for the taxable year determined under

subparagraph (B) by reason of the death of such

individual’s spouse, the marriage or divorce of such

individual, or other major life changing events

specified in regulations prescribed by the Commissioner in consultation with the Secretary.

‘‘(5) INFLATION ADJUSTMENT.—

‘‘(A) IN GENERAL.—In the case of any calendar year

beginning after 2007, each dollar amount in paragraph

(2) or (3) shall be increased by an amount equal to—

‘‘(i) such dollar amount, multiplied by

‘‘(ii) the percentage (if any) by which the average

of the Consumer Price Index for all urban consumers

(United States city average) for the 12-month period

ending with August of the preceding calendar year

exceeds such average for the 12-month period ending

with August 2006.

‘‘(B) ROUNDING.—If any dollar amount after being

increased under subparagraph (A) is not a multiple of

$1,000, such dollar amount shall be rounded to the nearest

multiple of $1,000.

‘‘(6) JOINT RETURN DEFINED.—For purposes of this subsection, the term ‘joint return’ has the meaning given to such

term by section 7701(a)(38) of the Internal Revenue Code of

1986.’’.

(b) CONFORMING AMENDMENTS.—

(1) Section 1839 (42 U.S.C. 1395r) is amended—

(A) in subsection (a)(2), by striking ‘‘and (f)’’ and

inserting ‘‘(f), and (i)’’;

(B) in subsection (b), inserting ‘‘(without regard to any

adjustment under subsection (i))’’ after ‘‘subsection (a)’’;

and

(C) in subsection (f)—

117 STAT. 2368 PUBLIC LAW 108–173—DEC. 8, 2003

(i) by striking ‘‘and if’’ and inserting ‘‘if’’; and

(ii) by inserting ‘‘and if the amount of the individual’s premium is not adjusted for such January under

subsection (i),’’ after ‘‘section 1840(b)(1),’’.

(2) Section 1844 (42 U.S.C. 1395w) is amended—

(A) in subsection (a)(1)—

(i) in subparagraph (B), by striking ‘‘plus’’ at the

end and inserting ‘‘minus’’; and

(ii) by adding at the end the following new

subparagraph:

‘‘(C) the aggregate amount of additional premium payments

attributable to the application of section 1839(i); plus’’; and

(B) in subsection (c), by inserting before the period

at the end the following: ‘‘and without regard to any premium adjustment under section 1839(i)’’.

(c) REPORTING REQUIREMENTS FOR SECRETARY OF THE

TREASURY.—

(1) IN GENERAL.—Subsection (l) of section 6103 of the

Internal Revenue Code of 1986 (relating to disclosure of returns

and return information for purposes other than tax administration), as amended by section 105(e), is amended by adding

at the end the following new paragraph:

‘‘(20) DISCLOSURE OF RETURN INFORMATION TO CARRY OUT

MEDICARE PART B PREMIUM SUBSIDY ADJUSTMENT.—

‘‘(A) IN GENERAL.—The Secretary shall, upon written

request from the Commissioner of Social Security, disclose

to officers, employees, and contractors of the Social Security

Administration return information of a taxpayer whose

premium (according to the records of the Secretary) may

be subject to adjustment under section 1839(i) of the Social

Security Act. Such return information shall be limited to—

‘‘(i) taxpayer identity information with respect to

such taxpayer,

‘‘(ii) the filing status of such taxpayer,

‘‘(iii) the adjusted gross income of such taxpayer,

‘‘(iv) the amounts excluded from such taxpayer’s

gross income under sections 135 and 911 to the extent

such information is available,

‘‘(v) the interest received or accrued during the

taxable year which is exempt from the tax imposed

by chapter 1 to the extent such information is available,

‘‘(vi) the amounts excluded from such taxpayer’s

gross income by sections 931 and 933 to the extent

such information is available,

‘‘(vii) such other information relating to the

liability of the taxpayer as is prescribed by the Secretary by regulation as might indicate in the case

of a taxpayer who is an individual described in subsection (i)(4)(B)(iii) of section 1839 of the Social Security Act that the amount of the premium of the taxpayer under such section may be subject to adjustment

under subsection (i) of such section and the amount

of such adjustment, and

‘‘(viii) the taxable year with respect to which the

preceding information relates.

‘‘(B) RESTRICTION ON USE OF DISCLOSED INFORMA- TION.—Return information disclosed under subparagraph

26 USC 6103.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2369

(A) may be used by officers, employees, and contractors

of the Social Security Administration only for the purposes

of, and to the extent necessary in, establishing the appropriate amount of any premium adjustment under such

section 1839(i).’’

(2) CONFORMING AMENDMENTS.— (A) Paragraph (3) of section 6103(a) of such Code,

as amended by section 105(e)(1), is amended by striking

‘‘or (19)’’ and inserting ‘‘(19), or (20)’’.

(B) Paragraph (4) of section 6103(p) of such Code,

as amended by section 105(e)(3), is amended by striking

‘‘(l)(16), (17), or (19)’’ each place it appears and inserting

‘‘(l)(16), (17), (19), or (20)’’.

(C) Paragraph (2) of section 7213(a) of such Code,

as amended by section 105(e)(4), is amended by striking

‘‘or (19)’’ and inserting ‘‘(19), or (20)’’.

TITLE IX—ADMINISTRATIVE IMPROVEMENTS, REGULATORY REDUCTION,

AND CONTRACTING REFORM

SEC. 900. ADMINISTRATIVE IMPROVEMENTS WITHIN THE CENTERS

FOR MEDICARE & MEDICAID SERVICES (CMS).

(a) COORDINATED ADMINISTRATION OF MEDICARE PRESCRIPTION

DRUG AND MEDICARE ADVANTAGE PROGRAMS.—Title XVIII (42

U.S.C. 1395 et seq.), as amended by section 721, is amended by

inserting after 1807 the following new section:

‘‘PROVISIONS RELATING TO ADMINISTRATION

‘‘SEC. 1808. (a) COORDINATED ADMINISTRATION OF MEDICARE

PRESCRIPTION DRUG AND MEDICARE ADVANTAGE PROGRAMS.—

‘‘(1) IN GENERAL.—There is within the Centers for Medicare

& Medicaid Services a center to carry out the duties described

in paragraph (3).

‘‘(2) DIRECTOR.—Such center shall be headed by a director

who shall report directly to the Administrator of the Centers

for Medicare & Medicaid Services.

‘‘(3) DUTIES.—The duties described in this paragraph are

the following:

‘‘(A) The administration of parts C and D.

‘‘(B) The provision of notice and information under

section 1804.

‘‘(C) Such other duties as the Secretary may specify.

‘‘(4) DEADLINE.—The Secretary shall ensure that the center

is carrying out the duties described in paragraph (3) by not

later than January 1, 2008.’’.

(b) MANAGEMENT STAFF FOR THE CENTERS FOR MEDICARE &

MEDICAID SERVICES.—Such section is further amended by adding

at the end the following new subsection:

‘‘(b) EMPLOYMENT OF MANAGEMENT STAFF.—

‘‘(1) IN GENERAL.—The Secretary may employ, within the

Centers for Medicare & Medicaid Services, such individuals

as management staff as the Secretary determines to be appropriate. With respect to the administration of parts C and D,

42 USC 1395b–9.

Establishment.

26 USC 7213.

26 USC 6103.

117 STAT. 2370 PUBLIC LAW 108–173—DEC. 8, 2003

such individuals shall include individuals with private sector

expertise in negotiations with health benefits plans.

‘‘(2) ELIGIBILITY.—To be eligible for employment under

paragraph (1) an individual shall be required to have demonstrated, by their education and experience (either in the

public or private sector), superior expertise in at least one

of the following areas:

‘‘(A) The review, negotiation, and administration of health

care contracts.

‘‘(B) The design of health care benefit plans.

‘‘(C) Actuarial sciences.

‘‘(D) Compliance with health plan contracts.

‘‘(E) Consumer education and decision making.

‘‘(F) Any other area specified by the Secretary that requires

specialized management or other expertise.

‘‘(3) RATES OF PAYMENT.—

‘‘(A) PERFORMANCE-RELATED PAY.—Subject to subparagraph (B), the Secretary shall establish the rate of pay

for an individual employed under paragraph (1). Such rate

shall take into account expertise, experience, and performance.

‘‘(B) LIMITATION.—In no case may the rate of compensation determined under subparagraph (A) exceed the highest

rate of basic pay for the Senior Executive Service under

section 5382(b) of title 5, United States Code.’’.

(c) REQUIREMENT FOR DEDICATED ACTUARY FOR PRIVATE

HEALTH PLANS.—Section 1117(b) (42 U.S.C. 1317(b)) is amended

by adding at the end the following new paragraph:

‘‘(3) In the office of the Chief Actuary there shall be an actuary

whose duties relate exclusively to the programs under parts C

and D of title XVIII and related provisions of such title.’’.

(d) INCREASE IN GRADE TO EXECUTIVE LEVEL III FOR THE

ADMINISTRATOR OF THE CENTERS FOR MEDICARE & MEDICAID SERVICES.—

(1) IN GENERAL.—Section 5314 of title 5, United States

Code, is amended by adding at the end the following:

‘‘Administrator of the Centers for Medicare & Medicaid

Services.’’.

(2) CONFORMING AMENDMENT.—Section 5315 of such title

is amended by striking ‘‘Administrator of the Health Care

Financing Administration.’’.

(3) EFFECTIVE DATE.—The amendments made by this subsection take effect on January 1, 2004.

(e) CONFORMING AMENDMENTS RELATING TO HEALTH CARE

FINANCING ADMINISTRATION.—

(1) AMENDMENTS TO THE SOCIAL SECURITY ACT.—The Social

Security Act is amended—

(A) in section 1117 (42 U.S.C. 1317)—

(i) in the heading to read as follows:

‘‘APPOINTMENT OF THE ADMINISTRATOR AND CHIEF ACTUARY OF THE

CENTERS FOR MEDICARE & MEDICAID SERVICES’’;

(ii) in subsection (a), by striking ‘‘Health Care

Financing Administration’’ and inserting ‘‘Centers for

Medicare & Medicaid Services’’; and

(iii) in subsection (b)(1)—

5 USC 5314 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2371

(I) by striking ‘‘Health Care Financing

Administration’’ and inserting ‘‘Centers for Medicare & Medicaid Services’’; and

(II) by striking ‘‘Administration’’ and inserting

‘‘Centers’’;

(B) in section 1140(a) (42 U.S.C. 1320b–10(a))—

(i) in paragraph (1), by striking ‘‘Health Care

Financing Administration’’ both places it appears in

the matter following subparagraph (B) and inserting

‘‘Centers for Medicare & Medicaid Services’’;

(ii) in paragraph (1)(A)—

(I) by striking ‘‘Health Care Financing

Administration’’ and inserting ‘‘Centers for Medicare & Medicaid Services’’; and

(II) by striking ‘‘HCFA’’ and inserting ‘‘CMS’’;

and

(iii) in paragraph (1)(B), by striking ‘‘Health Care

Financing Administration’’ both places it appears and

inserting ‘‘Centers for Medicare & Medicaid Services’’;

(C) in section 1142(b)(3) (42 U.S.C. 1320b–12(b)(3)),

by striking ‘‘Health Care Financing Administration’’ and

inserting ‘‘Centers for Medicare & Medicaid Services’’;

(D) in section 1817(b) (42 U.S.C. 1395i(b))—

(i) by striking ‘‘Health Care Financing Administration’’, both in the fifth sentence of the matter preceding

paragraph (1) and in the second sentence of the matter

following paragraph (4), and inserting ‘‘Centers for

Medicare & Medicaid Services’’; and

(ii) by striking ‘‘Chief Actuarial Officer’’ in the

second sentence of the matter following paragraph (4)

and inserting ‘‘Chief Actuary’’;

(E) in section 1841(b) (42 U.S.C. 1395t(b))—

(i) by striking ‘‘Health Care Financing Administration’’, both in the fifth sentence of the matter preceding

paragraph (1) and in the second sentence of the matter

following paragraph (4), and inserting ‘‘Centers for

Medicare & Medicaid Services’’; and

(ii) by striking ‘‘Chief Actuarial Officer’’ in the

second sentence of the matter following paragraph (4)

and inserting ‘‘Chief Actuary’’;

(F) in section 1852(a)(5) (42 U.S.C. 1395w–22(a)(5)),

by striking ‘‘Health Care Financing Administration’’ in the

matter following subparagraph (B) and inserting ‘‘Centers

for Medicare & Medicaid Services’’;

(G) in section 1853 (42 U.S.C. 1395w–23)—

(i) in subsection (b)(4), by striking ‘‘Health Care

Financing Administration’’ in the first sentence and

inserting ‘‘Centers for Medicare & Medicaid Services’’;

and

(ii) in subsection (c)(7), by striking ‘‘Health Care

Financing Administration’’ in the last sentence and

inserting ‘‘Centers for Medicare & Medicaid Services’’;

(H) in section 1854(a)(5)(A) (42 U.S.C. 1395w–

24(a)(5)(A)), by striking ‘‘Health Care Financing

Administration’’and inserting ‘‘Centers for Medicare &

Medicaid Services’’;

117 STAT. 2372 PUBLIC LAW 108–173—DEC. 8, 2003

(I) in section 1857(d)(4)(A)(ii) (42 U.S.C. 1395w–

27(d)(4)(A)(ii)), by striking ‘‘Health Care Financing

Administration’’ and inserting ‘‘Secretary’’;

(J) in section 1862(b)(5)(A)(ii) (42 U.S.C.

1395y(b)(5)(A)(ii)), by striking ‘‘Health Care Financing

Administration’’ and inserting ‘‘Centers for Medicare &

Medicaid Services’’;

(K) in section 1927(e)(4) (42 U.S.C. 1396r–8(e)(4)), by

striking ‘‘HCFA’’ and inserting ‘‘The Secretary’’;

(L) in section 1927(f)(2) (42 U.S.C. 1396r–8(f)(2)), by

striking ‘‘HCFA’’ and inserting ‘‘The Secretary’’; and

(M) in section 2104(g)(3) (42 U.S.C. 1397dd(g)(3)) by

inserting ‘‘or CMS Form 64 or CMS Form 21, as the case

may be,’’ after ‘‘HCFA Form 64 or HCFA Form 21’’.

(2) AMENDMENTS TO THE PUBLIC HEALTH SERVICE ACT.—

The Public Health Service Act is amended—

(A) in section 501(d)(18) (42 U.S.C. 290aa(d)(18)), by

striking ‘‘Health Care Financing Administration’’ and

inserting ‘‘Centers for Medicare & Medicaid Services’’;

(B) in section 507(b)(6) (42 U.S.C. 290bb(b)(6)), by

striking ‘‘Health Care Financing Administration’’ and

inserting ‘‘Centers for Medicare & Medicaid Services’’;

(C) in section 916 (42 U.S.C. 299b–5)—

(i) in subsection (b)(2), by striking ‘‘Health Care

Financing Administration’’ and inserting ‘‘Centers for

Medicare & Medicaid Services’’; and

(ii) in subsection (c)(2), by striking ‘‘Health Care

Financing Administration’’ and inserting ‘‘Centers for

Medicare & Medicaid Services’’;

(D) in section 921(c)(3)(A) (42 U.S.C. 299c(c)(3)(A)),

by striking ‘‘Health Care Financing Administration’’ and

inserting ‘‘Centers for Medicare & Medicaid Services’’;

(E) in section 1318(a)(2) (42 U.S.C. 300e–17(a)(2)), by

striking ‘‘Health Care Financing Administration’’ and

inserting ‘‘Centers for Medicare & Medicaid Services’’;

(F) in section 2102(a)(7) (42 U.S.C. 300aa–2(a)(7)), by

striking ‘‘Health Care Financing Administration’’ and

inserting ‘‘Centers for Medicare & Medicaid Services’’; and

(G) in section 2675(a) (42 U.S.C. 300ff–75(a)), by

striking ‘‘Health Care Financing Administration’’ in the

first sentence and inserting ‘‘Centers for Medicare & Medicaid Services’’.

(3) AMENDMENTS TO THE INTERNAL REVENUE CODE OF

1986.—Section 6103(l)(12) of the Internal Revenue Code of 1986

is amended—

(A) in subparagraph (B), by striking ‘‘Health Care

Financing Administration’’ in the matter preceding clause

(i) and inserting ‘‘Centers for Medicare & Medicaid Services’’; and

(B) in subparagraph (C)—

(i) by striking ‘‘HEALTH CARE FINANCING ADMINISTRATION’’ in the heading and inserting ‘‘CENTERS FOR

MEDICARE & MEDICAID SERVICES’’; and

(ii) by striking ‘‘Health Care Financing Administration’’ in the matter preceding clause (i) and inserting

‘‘Centers for Medicare & Medicaid Services’’.

26 USC 6103.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2373

(4) AMENDMENTS TO TITLE 10, UNITED STATES CODE.—Title

10, United States Code, is amended—

(A) in section 1086(d)(4), by striking ‘‘administrator

of the Health Care Financing Administration’’ in the last

sentence and inserting ‘‘Administrator of the Centers for

Medicare & Medicaid Services’’; and

(B) in section 1095(k)(2), by striking ‘‘Health Care

Financing Administration’’ in the second sentence and

inserting ‘‘Centers for Medicare & Medicaid Services’’.

(5) AMENDMENTS TO THE ALZHEIMER’S DISEASE AND RELATED

DEMENTIAS SERVICES RESEARCH ACT OF 1992.—The Alzheimer’s

Disease and Related Dementias Research Act of 1992 (42 U.S.C.

11271 et seq.) is amended—

(A) in the heading of subpart 3 of part D to read

as follows:

‘‘Subpart 3—Responsibilities of the Centers for Medicare &

Medicaid Services’’;

(B) in section 937 (42 U.S.C. 11271)—

(i) in subsection (a), by striking ‘‘National Health

Care Financing Administration’’ and inserting ‘‘Centers

for Medicare & Medicaid Services’’;

(ii) in subsection (b)(1), by striking ‘‘Health Care

Financing Administration’’ and inserting ‘‘Centers for

Medicare & Medicaid Services’’;

(iii) in subsection (b)(2), by striking ‘‘Health Care

Financing Administration’’ and inserting ‘‘Centers for

Medicare & Medicaid Services’’; and

(iv) in subsection (c), by striking ‘‘Health Care

Financing Administration’’ and inserting ‘‘Centers for

Medicare & Medicaid Services’’; and

(C) in section 938 (42 U.S.C. 11272), by striking

‘‘Health Care Financing Administration’’ and inserting

‘‘Centers for Medicare & Medicaid Services’’.

(6) MISCELLANEOUS AMENDMENTS.—

(A) REHABILITATION ACT OF 1973.—Section 202(b)(8) of

the Rehabilitation Act of 1973 (29 U.S.C. 762(b)(8)) is

amended by striking ‘‘Health Care Financing Administration’’ and inserting ‘‘Centers for Medicare & Medicaid Services’’.

(B) INDIAN HEALTH CARE IMPROVEMENT ACT.—Section

405(d)(1) of the Indian Health Care Improvement Act (25

U.S.C. 1645(d)(1)) is amended by striking ‘‘Health Care

Financing Administration’’ in the matter preceding

subparagraph (A) and inserting ‘‘Centers for Medicare &

Medicaid Services’’.

(C) INDIVIDUALS WITH DISABILITIES EDUCATION ACT.—

Section 644(b)(5) of the Individuals with Disabilities Education Act (20 U.S.C. 1444(b)(5)) is amended by striking

‘‘Health Care Financing Administration’’ and inserting

‘‘Centers for Medicare & Medicaid Services’’.

(D) THE HOME HEALTH CARE AND ALZHEIMER’S DISEASE

AMENDMENTS OF 1990.—Section 302(a)(9) of the Home

Health Care and Alzheimer’s Disease Amendments of 1990

(42 U.S.C. 242q–1(a)(9)) is amended by striking ‘‘Health

117 STAT. 2374 PUBLIC LAW 108–173—DEC. 8, 2003

Care Financing Administration’’ and inserting ‘‘Centers for

Medicare & Medicaid Services’’.

(E) THE CHILDREN’S HEALTH ACT OF 2000.—Section

2503(a) of the Children’s Health Act of 2000 (42 U.S.C.

247b–3a(a)) is amended by striking ‘‘Health Care Financing

Administration’’ and inserting ‘‘Centers for Medicare &

Medicaid Services’’.

(F) THE NATIONAL INSTITUTES OF HEALTH REVITALIZATION ACT OF 1993.—Section 1909 of the National Institutes

of Health Revitalization Act of 1993 (42 U.S.C. 299a note)

is amended by striking ‘‘Health Care Financing Administration’’ and inserting ‘‘Centers for Medicare & Medicaid Services’’.

(G) THE OMNIBUS BUDGET RECONCILIATION ACT OF

1990.—Section 4359(d) of the Omnibus Budget Reconciliation Act of 1990 (42 U.S.C. 1395b–3(d)) is amended by

striking ‘‘Health Care Financing Administration’’ and

inserting ‘‘Centers for Medicare & Medicaid Services’’.

(H) THE MEDICARE, MEDICAID, AND SCHIP BENEFITS

IMPROVEMENT AND PROTECTION ACT OF 2000.—Section

104(d)(4) of the Medicare, Medicaid, and SCHIP Benefits

Improvement and Protection Act of 2000 (42 U.S.C. 1395m

note) is amended by striking ‘‘Health Care Financing

Administration’’ and inserting ‘‘Health Care’’.

(7) ADDITIONAL AMENDMENT.—Section 403 of the Act entitled, ‘‘An Act to authorize certain appropriations for the territories of the United States, to amend certain Acts relating

thereto, and for other purposes’’, enacted October 15, 1977

(48 U.S.C. 1574–1; 48 U.S.C. 1421q–1), is amended by striking

‘‘Health Care Financing Administration’’ and inserting ‘‘Centers

for Medicare & Medicaid Services’’.

Subtitle A—Regulatory Reform

SEC. 901. 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

(commonly 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 division 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:

Fraud.

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1395kk–1 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2375

‘‘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. 902. ISSUANCE OF REGULATIONS.

(a) 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.

(b) LIMITATIONS ON NEW MATTER IN FINAL REGULATIONS.—

(1) IN GENERAL.—Section 1871(a) (42 U.S.C. 1395hh(a)),

as amended by subsection (a), is amended by adding at the

end the following new paragraph:

‘‘(4) If the Secretary publishes a final regulation that includes

a provision that is not a logical outgrowth of a previously published

notice of proposed rulemaking or interim final rule, such 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.’’.

42 USC 1395hh

note.

Reports.

Federal Register,

publication.

117 STAT. 2376 PUBLIC LAW 108–173—DEC. 8, 2003

(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. 903. 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 902(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

42 USC 1395hh

note.

42 USC 1395hh

note.

42 USC 1395hh

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2377

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

penalty or interest under this title or the provisions of title XI

insofar as they relate to this title (including interest under a repayment plan under section 1893 or otherwise) relating to the provision

of such items or service or such claim 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

and shall only apply to a penalty or interest imposed with

respect to guidance provided on or after July 24, 2003.

SEC. 904. 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 1 year after the date of the enactment of

this Act.

(b) REPORT ON LEGAL AND REGULATORY INCONSISTENCIES.—

Section 1871 (42 U.S.C. 1395hh), as amended by section 903(a)(1),

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 3 years thereafter, the Secretary

shall submit to Congress a report with respect to the administration

of this title and areas of inconsistency or conflict among the various

provisions under law and regulation.

‘‘(2) In preparing a report under paragraph (1), the Secretary

shall collect—

‘‘(A) information from 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

with respect to such areas of inconsistency and conflict; and

‘‘(B) information from medicare contractors that tracks the

nature of written and telephone inquiries.

42 USC 1395hh

note.

42 USC 1395hh

note.

117 STAT. 2378 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(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. 911. 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 (including the

function of developing local coverage determinations, as defined

in section 1869(f)(2)(B)), provider services functions, and functions relating to services furnished to individuals entitled to

42 USC

1395kk–1 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2379

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, including (subject to paragraph (5)) functions

under the Medicare Integrity Program under section 1893,

as are necessary to carry out the purposes of this title.

‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—

‘‘(A) NONDUPLICATION OF 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 a contract entered into under

the Medicare Integrity Program under section 1893. The

previous sentence shall not apply with respect to the

activity described in section 1893(b)(5) (relating to prior

authorization of certain items of durable medical equipment

under section 1834(a)(15)).

‘‘(B) CONSTRUCTION.—An entity shall not be treated

as a medicare administrative contractor merely by reason

of having entered into a contract with the Secretary under

section 1893.

‘‘(6) APPLICATION OF FEDERAL ACQUISITION REGULATION.—

Except to the extent inconsistent with a specific requirement

of this section, the Federal Acquisition Regulation applies to

contracts under this section.

‘‘(b) CONTRACTING REQUIREMENTS.—

‘‘(1) USE OF COMPETITIVE PROCEDURES.—

117 STAT. 2380 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(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 5 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.—

‘‘(i) IN GENERAL.—The Secretary shall develop contract performance requirements to carry out the specific requirements applicable under this title to a function described in subsection (a)(4) and shall develop

standards for measuring the extent to which a contractor has met such requirements.

‘‘(ii) CONSULTATION.—In developing such performance requirements and standards for measurement,

the Secretary shall consult with providers of services,

organizations representative of beneficiaries under this

title, and organizations and agencies performing functions necessary to carry out the purposes of this section

with respect to such performance requirements.

‘‘(iii) PUBLICATION OF STANDARDS.—The Secretary

shall make such performance requirements and

measurement standards available to the public.

Notification.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2381

‘‘(B) CONSIDERATIONS.—The Secretary shall include, as

one of the standards developed under subparagraph (A),

provider and beneficiary satisfaction levels.

‘‘(C) INCLUSION IN CONTRACTS.—All contractor performance requirements shall be set forth in the contract between

the Secretary and the appropriate medicare administrative

contractor. Such performance requirements—

‘‘(i) shall reflect the performance requirements

published under subparagraph (A), but may include

additional performance requirements;

‘‘(ii) shall be used for evaluating contractor

performance under the contract; and

‘‘(iii) shall be consistent with the written statement

of work provided under the contract.

‘‘(4) INFORMATION REQUIREMENTS.—The Secretary shall not

enter into a contract with a medicare administrative contractor

under this section unless the contractor agrees—

‘‘(A) to furnish to the Secretary such timely information

and reports as the Secretary may find necessary in performing his functions under this title; and

‘‘(B) to maintain such records and afford such access

thereto as the Secretary finds necessary to assure the

correctness and verification of the information and reports

under subparagraph (A) and otherwise to carry out the

purposes of this title.

‘‘(5) SURETY BOND.—A contract with a medicare administrative contractor under this section may require the medicare

administrative contractor, and any of its officers or employees

certifying payments or disbursing funds pursuant to the contract, or otherwise participating in carrying out the contract,

to give surety bond to the United States in such amount as

the Secretary may deem appropriate.

‘‘(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 the reckless disregard of the individual’s

obligations or the intent by that individual to defraud the

United States, be liable with respect to any payments certified

by the individual under this section.

‘‘(2) DISBURSING OFFICER.—No disbursing officer shall, in

the absence of the reckless disregard of the officer’s obligations

or the intent by that officer to defraud the United States,

Records.

Reports.

117 STAT. 2382 PUBLIC LAW 108–173—DEC. 8, 2003

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 the United States) of

a certifying officer designated as provided in paragraph (1)

of this subsection.

‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE CONTRACTOR.— ‘‘(A) IN GENERAL.—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, the medicare administrative contractor

acted with reckless disregard of its obligations under its

medicare administrative contract or with intent to defraud

the United States.

‘‘(B) RELATIONSHIP TO FALSE CLAIMS ACT.—Nothing in

this subsection shall be construed to limit liability for conduct that would constitute a violation of sections 3729

through 3731 of title 31, United States Code.

‘‘(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 OR COMPROMISES.—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—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2383

‘‘(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 Regulation.’’.

(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)—

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117 STAT. 2384 PUBLIC LAW 108–173—DEC. 8, 2003

(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,’’;

(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)—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2385

(i) by striking ‘‘Each carrier having an agreement

with the Secretary under subsection (a)’’ and inserting

‘‘The Secretary’’; and

(ii) by striking ‘‘Each such carrier’’ and inserting

‘‘The Secretary’’;

(B) in paragraph (3)(A)—

(i) by striking ‘‘a carrier having an agreement with

the Secretary under subsection (a)’’ and inserting

‘‘medicare administrative contractor having a contract

under section 1874A that provides for making payments under this part’’; and

(ii) by striking ‘‘such carrier’’ and inserting ‘‘such

contractor’’;

(C) in paragraph (3)(B)—

(i) by striking ‘‘a carrier’’ and inserting ‘‘a medicare

administrative contractor’’ each place it appears; and

(ii) by striking ‘‘the carrier’’ and inserting ‘‘the

contractor’’ each place it appears; and

(D) in paragraphs (5)(A) and (5)(B)(iii), by striking

‘‘carriers’’ and inserting ‘‘medicare administrative contractors’’ each place it appears.

(8) Subsection (l) is amended—

(A) in paragraph (1)(A)(iii), by striking ‘‘carrier’’ and

inserting ‘‘medicare administrative contractor’’; and

(B) in paragraph (2), by striking ‘‘carrier’’ and inserting

‘‘medicare administrative contractor’’.

(9) Subsection (p)(3)(A) is amended by striking ‘‘carrier’’

and inserting ‘‘medicare administrative contractor’’.

(10) Subsection (q)(1)(A) is amended by striking ‘‘carrier’’.

(d) EFFECTIVE DATE; TRANSITION RULE.—

(1) EFFECTIVE DATE.—

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

subsection, the amendments made by this section shall

take effect on October 1, 2005, and the Secretary is authorized to take such steps before such date as may be necessary to implement such amendments on a timely basis.

(B) CONSTRUCTION FOR CURRENT CONTRACTS.—Such

amendments shall not apply to contracts in effect before

the date specified under subparagraph (A) that continue

to retain the terms and conditions in effect on such date

(except as otherwise provided under this 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, 2011.

(2) GENERAL TRANSITION RULES.—

(A) AUTHORITY TO CONTINUE TO ENTER INTO NEW

AGREEMENTS AND CONTRACTS AND WAIVER OF PROVIDER

NOMINATION PROVISIONS DURING TRANSITION.—Prior to

October 1, 2005, the Secretary may, consistent with

subparagraph (B), continue to enter into agreements under

section 1816 and contracts under section 1842 of the Social

Security Act (42 U.S.C. 1395h, 1395u). The Secretary may

enter into new agreements under section 1816 prior to

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October 1, 2005, without regard to any of the provider

nomination provisions of such section.

(B) APPROPRIATE TRANSITION.—The Secretary shall

take such steps as are necessary to provide for an appropriate transition from agreements under section 1816 and

contracts under section 1842 of the Social Security Act

(42 U.S.C. 1395h, 1395u) to contracts under section 1874A,

as added by subsection (a)(1).

(3) AUTHORIZING CONTINUATION OF MIP FUNCTIONS UNDER

CURRENT CONTRACTS AND AGREEMENTS AND UNDER TRANSITION

CONTRACTS.—Notwithstanding the amendments made by this

section, 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 during the period that begins on the

date of the enactment of this Act and ends on October 1,

2011, 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 a medicare administrative contractor (as provided

under section 1874A of the Social Security Act).

(f) SECRETARIAL SUBMISSION OF LEGISLATIVE PROPOSAL.—Not

later than 6 months after the date of the enactment of this Act,

the Secretary shall submit to the appropriate committees of Congress a legislative proposal providing for such technical and conforming amendments in the law as are required by the provisions

of this section.

(g) REPORTS ON IMPLEMENTATION.—

(1) PLAN FOR IMPLEMENTATION.—By not later than October

1, 2004, 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, 2008,

that describes the status of implementation of such amendments and that includes a description of the following:

(A) The number of contracts that have been competitively bid as of such date.

(B) The distribution of functions among contracts and

contractors.

(C) A timeline for complete transition to full competition.

(D) A detailed description of how the Secretary has

modified oversight and management of medicare contractors to adapt to full competition.

Deadline.

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2387

SEC. 912. REQUIREMENTS FOR INFORMATION SECURITY FOR MEDICARE ADMINISTRATIVE CONTRACTORS.

(a) IN GENERAL.—Section 1874A, as added by section 911(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 paragraphs (1) through

(8) of section 3544(b) of title 44, United States Code (other

than the requirements under paragraphs (2)(D)(i), (5)(A), and

(5)(B) 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 of 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, including policies and procedures as may be prescribed by the Director of the

Office of Management and Budget and applicable

information security standards promulgated under section 11331 of title 40, United States Code.

‘‘(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 to 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 to

subparagraph (A) shall be completed within 1 year

117 STAT. 2388 PUBLIC LAW 108–173—DEC. 8, 2003

after the date the contractor commences functions

referred to in clause (i) under this section.

‘‘(C) REPORTS ON EVALUATIONS.— ‘‘(i) TO THE DEPARTMENT OF HEALTH AND HUMAN

SERVICES.—The results of independent evaluations

under subparagraph (A) shall be submitted promptly

to the Inspector General of the Department of Health

and Human Services and to the Secretary.

‘‘(ii) TO CONGRESS.—The Inspector General of the

Department of Health and Human Services shall

submit to Congress annual reports on the results of

such evaluations, including assessments of the scope

and sufficiency of such evaluations.

‘‘(iii) AGENCY REPORTING.—The Secretary shall

address the results of such evaluations in reports

required under section 3544(c) of title 44, United States

Code.’’.

(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. 921. PROVIDER EDUCATION AND TECHNICAL ASSISTANCE.

(a) COORDINATION OF EDUCATION FUNDING.— (1) IN GENERAL.—Title XVIII 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, 2004, the Secretary

shall submit to Congress a report that includes a description

and evaluation of the steps taken to coordinate the funding

of provider education under section 1889(a) of the Social Security Act, as added by paragraph (1).

(b) INCENTIVES TO IMPROVE CONTRACTOR PERFORMANCE.—

42 USC 1395zz

note.

42 USC 1395zz.

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2389

(1) IN GENERAL.—Section 1874A, as added by section

911(a)(1) and as amended by section 912(a), is amended by

adding at the end the following new subsection:

‘‘(f) INCENTIVES TO IMPROVE CONTRACTOR PERFORMANCE IN

PROVIDER EDUCATION AND OUTREACH.—The Secretary shall use

specific claims payment error rates or similar methodology of medicare administrative contractors in the processing or reviewing of

medicare claims in order to give such contractors an incentive

to implement effective education and outreach programs for providers of services and suppliers.’’.

(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, 2004, 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, 2004, 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

911(a)(1) and as amended by section 912(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

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117 STAT. 2390 PUBLIC LAW 108–173—DEC. 8, 2003

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.

‘‘(5) AUTHORIZATION OF APPROPRIATIONS.—There are

authorized to be appropriated such sums as are necessary to

carry out this subsection.’’.

(2) EFFECTIVE DATE.—The amendment made by paragraph

(1) shall take effect October 1, 2004.

(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

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2391

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) such sums as may

be necessary for fiscal years beginning with fiscal year 2005.

‘‘(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)). Such education and

training activities for small providers of services and suppliers

may include the provision of technical assistance (such as

review of billing systems and internal controls to determine

program compliance and to suggest more efficient and effective

means of achieving such compliance).

‘‘(2) SMALL PROVIDER OF SERVICES OR SUPPLIER.—In this

subsection, the term ‘small provider of services or supplier’

means—

‘‘(A) a provider of services with fewer than 25 fulltime-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, 2004.

(e) REQUIREMENT TO MAINTAIN INTERNET WEBSITES.—

(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 WEBSITES; 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 website 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, 2004.

(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:

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117 STAT. 2392 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(e) ENCOURAGEMENT OF PARTICIPATION IN EDUCATION PRO- GRAM 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—

‘‘(1) of the screens used for identifying claims that will

be subject to medical review; or

‘‘(2) of information that would compromise pending law

enforcement activities or reveal findings of law enforcementrelated 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. 922. 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 fulltime-equivalent employees; or

(B) a supplier with fewer than 10 full-time-equivalent

employees.

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PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2393

(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 921(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) GAO EVALUATION.—Not later than 2 years after 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.

(e) 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.

(f) AUTHORIZATION OF APPROPRIATIONS.—There are authorized

to be appropriated, from amounts not otherwise appropriated in

the Treasury, such sums as may be necessary to carry out this

section.

SEC. 923. MEDICARE BENEFICIARY OMBUDSMAN.

(a) IN GENERAL.—Section 1808, as added and amended by

section 900, is amended by adding at the end the following new

subsection:

‘‘(c) MEDICARE BENEFICIARY OMBUDSMAN.—

‘‘(1) 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.

‘‘(2) DUTIES.—The Medicare Beneficiary Ombudsman

shall—

‘‘(A) 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;

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117 STAT. 2394 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(B) provide assistance with respect to complaints,

grievances, and requests referred to in subparagraph (A),

including—

‘‘(i) assistance in collecting relevant information

for such individuals, to seek an appeal of a decision

or determination made by a fiscal intermediary, carrier, MA organization, or the Secretary;

‘‘(ii) assistance to such individuals with any problems arising from disenrollment from an MA plan

under part C; and

‘‘(iii) assistance to such individuals in presenting

information under section 1839(i)(4)(C) (relating to

income-related premium adjustment; and

‘‘(C) 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.

‘‘(3) 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 MA plans and changes to those plans.

Nothing in this paragraph shall preclude further collaboration

between the Ombudsman and such programs.’’.

(b) DEADLINE FOR APPOINTMENT.—By not later than 1 year

after the date of the enactment of this Act, the Secretary shall

appoint the Medicare Beneficiary Ombudsman under section 1808(c)

of the Social Security Act, as added by subsection (a).

(c) FUNDING.—There are authorized to be appropriated to the

Secretary (in appropriate part from the Federal Hospital Insurance

Trust Fund, established under section 1817 of the Social Security

Act (42 U.S.C. 1395i), and the Federal Supplementary Medical

Insurance Trust Fund, established under section 1841 of such Act

(42 U.S.C. 1395t)) to carry out section 1808(c) of such Act (relating

to the Medicare Beneficiary Ombudsman), as added by subsection

(a), such sums as are necessary for fiscal year 2004 and each

succeeding fiscal year.

(d) 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 telephone 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.’’.

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Reports.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2395

(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 telephone 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. 924. 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 outstationing medicare specialists at local offices of the Social

Security Administration.

42 USC 1395b–3

note.

42 USC 1395b–2

note.

117 STAT. 2396 PUBLIC LAW 108–173—DEC. 8, 2003

SEC. 925. INCLUSION OF ADDITIONAL INFORMATION IN NOTICES TO

BENEFICIARIES ABOUT SKILLED NURSING FACILITY

BENEFITS.

(a) IN GENERAL.—The Secretary shall provide that in medicare

beneficiary notices provided (under section 1806(a) of the Social

Security Act, 42 U.S.C. 1395b–7(a)) with respect to the provision

of post-hospital extended care services under part A of title XVIII

of the Social Security Act, there shall be included information

on the number of days of coverage of such services remaining

under such part for the medicare beneficiary and spell of illness

involved.

(b) EFFECTIVE DATE.—Subsection (a) shall apply to notices provided during calendar quarters beginning more than 6 months

after the date of the enactment of this Act.

SEC. 926. INFORMATION ON MEDICARE-CERTIFIED SKILLED NURSING

FACILITIES IN HOSPITAL DISCHARGE PLANS.

(a) AVAILABILITY OF DATA.—The Secretary shall publicly provide information that enables hospital discharge planners, medicare

beneficiaries, and the public to identify skilled nursing facilities

that are participating in the medicare program.

(b) INCLUSION OF INFORMATION IN CERTAIN HOSPITAL DISCHARGE PLANS.—

(1) IN GENERAL.—Section 1861(ee)(2)(D) (42 U.S.C.

1395x(ee)(2)(D)) is amended—

(A) by striking ‘‘hospice services’’ and inserting ‘‘hospice

care and post-hospital extended care services’’; and

(B) by inserting before the period at the end the following: ‘‘and, in the case of individuals who are likely

to need post-hospital extended care services, the availability of such services through facilities that participate

in the program under this title and that serve the area

in which the patient resides’’.

(2) EFFECTIVE DATE.—The amendments made by paragraph

(1) shall apply to discharge plans made on or after such date

as the Secretary shall specify, but not later than 6 months

after the date the Secretary provides for availability of information under subsection (a).

Subtitle D—Appeals and Recovery

SEC. 931. TRANSFER OF RESPONSIBILITY FOR MEDICARE APPEALS.

(a) TRANSITION PLAN.—

(1) IN GENERAL.—Not later than April 1, 2004, the Commissioner of Social Security and the Secretary shall develop and

transmit to Congress and the Comptroller General of the United

States a plan under which the functions of administrative law

judges responsible for hearing cases under title XVIII of the

Social Security Act (and related provisions in title XI of such

Act) are transferred from the responsibility of the Commissioner

and the Social Security Administration to the Secretary and

the Department of Health and Human Services.

(2) CONTENTS.—The plan shall include information on the

following:

(A) WORKLOAD.—The number of such administrative

law judges and support staff required now and in the

42 USC 1395ff

note.

42 USC 1395x

note.

42 USC 1395x

note.

42 USC 1395b–7

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2397

future to hear and decide such cases in a timely manner,

taking into account the current and anticipated claims

volume, appeals, number of beneficiaries, and statutory

changes.

(B) COST PROJECTIONS AND FINANCING.—Funding levels

required for fiscal year 2005 and subsequent fiscal years

to carry out the functions transferred under the plan.

(C) TRANSITION TIMETABLE.—A timetable for the transition.

(D) REGULATIONS.—The establishment of specific regulations to govern the appeals process.

(E) CASE TRACKING.—The development of a unified

case tracking system that will facilitate the maintenance

and transfer of case specific data across both the fee-forservice and managed care components of the medicare program.

(F) FEASIBILITY OF PRECEDENTIAL AUTHORITY.—The

feasibility of developing a process to give decisions of the

Departmental Appeals Board in the Department of Health

and Human Services addressing broad legal issues binding,

precedential authority.

(G) ACCESS TO ADMINISTRATIVE LAW JUDGES.—The feasibility of—

(i) filing appeals with administrative law judges

electronically; and

(ii) conducting hearings using tele- or video-conference technologies.

(H) INDEPENDENCE OF ADMINISTRATIVE LAW JUDGES.—

The steps that should be taken to ensure the independence

of administrative law judges consistent with the requirements of subsection (b)(2).

(I) GEOGRAPHIC DISTRIBUTION.—The steps that should

be taken to provide for an appropriate geographic distribution of administrative law judges throughout the United

States to carry out subsection (b)(3).

(J) HIRING.—The steps that should be taken to hire

administrative law judges (and support staff) to carry out

subsection (b)(4).

(K) PERFORMANCE STANDARDS.—The appropriateness

of establishing performance standards for administrative

law judges with respect to timelines for decisions in cases

under title XVIII of the Social Security Act taking into

account requirements under subsection (b)(2) for the

independence of such judges and consistent with the

applicable provisions of title 5, United States Code relating

to impartiality.

(L) SHARED RESOURCES.—The steps that should be

taken to carry out subsection (b)(6) (relating to the arrangements with the Commissioner of Social Security to share

office space, support staff, and other resources, with appropriate reimbursement).

(M) TRAINING.—The training that should be provided

to administrative law judges with respect to laws and regulations under title XVIII of the Social Security Act.

(3) ADDITIONAL INFORMATION.—The plan may also include

recommendations for further congressional action, including

modifications to the requirements and deadlines established

117 STAT. 2398 PUBLIC LAW 108–173—DEC. 8, 2003

under section 1869 of the Social Security Act (42 U.S.C. 1395ff)

(as amended by this Act).

(4) 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, 2005, and not

later than October 1, 2005, 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. In order to assure such independence, the Secretary shall place such judges in an administrative

office that is organizationally and functionally separate from

such Centers. Such judges shall report to, and be under the

general supervision of, the Secretary, but shall not report to,

or be subject to supervision by, another officer of the Department of Health and Human Services.

(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 Acts, the Secretary shall have

authority to hire administrative law judges to hear such cases,

taking into consideration those judges with expertise 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 (42

U.S.C. 1395ff) (as amended by this Act), there are authorized to

be appropriated (in appropriate part from the Federal Hospital

Insurance Trust Fund, established under section 1817 of the Social

Security Act (42 U.S.C. 1395i), and the Federal Supplementary

Appropriation

authorization.

Reports.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2399

Medical Insurance Trust Fund, established under section 1841 of

such Act (42 U.S.C. 1395t)) to the Secretary such sums as are

necessary for fiscal year 2005 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)) is amended by striking ‘‘of the Social Security Administration’’.

SEC. 932. PROCESS FOR EXPEDITED ACCESS TO REVIEW.

(a) EXPEDITED ACCESS TO JUDICIAL REVIEW.—

(1) IN GENERAL.—Section 1869(b) (42 U.S.C. 1395ff(b)) is

amended—

(A) in paragraph (1)(A), by inserting ‘‘, subject to paragraph (2),’’ before ‘‘to judicial review of the Secretary’s

final decision’’; and

(B) 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) (other

than an appeal filed under paragraph (1)(F)(i)) may obtain

access to judicial review when a review entity (described

in subparagraph (D)), on its own motion or at the request

of the appellant, determines that the Departmental Appeals

Board does not have the authority to decide the question

of law or regulation relevant to the matters in controversy

and that there is no material issue of fact in dispute.

The appellant may make such request only once with

respect to a question of law or regulation for a specific

matter in dispute in a case of an appeal.

‘‘(B) PROMPT DETERMINATIONS.—If, after or coincident

with appropriately filing a request for an administrative

hearing, the appellant requests a determination by the

appropriate review entity that the Departmental Appeals

Board does not have the authority to decide the question

of law or regulations relevant to the matters in controversy

and that there is no material issue of fact in dispute,

and if such request is accompanied by the documents and

materials as the appropriate review entity shall require

for purposes of making such determination, such review

entity shall make a determination on the request in writing

within 60 days after the date such review entity receives

the request and such accompanying documents and materials. Such a determination by such review entity shall

be considered a final decision and not subject to review

by the Secretary.

‘‘(C) ACCESS TO JUDICIAL REVIEW.—

‘‘(i) IN GENERAL.—If the appropriate review

entity—

117 STAT. 2400 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(I) determines that there are no material

issues of fact in dispute and that the only issues

to be adjudicated are ones of law or regulation

that the Departmental Appeals Board does not

have authority to decide; or

‘‘(II) fails to make such determination within

the period provided under subparagraph (B),

then the appellant may bring a civil action as described

in this subparagraph.

‘‘(ii) DEADLINE FOR FILING.—Such action shall be

filed, in the case described in—

‘‘(I) clause (i)(I), within 60 days of the date

of the determination described in such clause; or

‘‘(II) clause (i)(II), within 60 days of the end

of the period provided under subparagraph (B)

for the determination.

‘‘(iii) VENUE.—Such action shall be brought in the

district court of the United States for the judicial district in which the appellant is located (or, in the case

of an action brought jointly by more than 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 ANY AMOUNTS IN CONTROVERSY.—Where a provider of services or supplier

is granted judicial review pursuant to this paragraph,

the amount in controversy (if any) shall be subject

to annual interest beginning on the first day of the

first month beginning after the 60-day period as determined pursuant to clause (ii) and equal to the rate

of interest on obligations issued for purchase by the

Federal Supplementary Medical Insurance Trust Fund

for the month in which the civil action authorized

under this paragraph is commenced, to be awarded

by the reviewing court in favor of the prevailing party.

No interest awarded pursuant to the preceding sentence shall be deemed income or cost for the purposes

of determining reimbursement due providers of services or suppliers under this title.

‘‘(D) REVIEW ENTITY DEFINED.—For purposes of this

subsection, the term ‘review entity’ means an entity of

up to three reviewers who are administrative law judges

or members of the Departmental Appeals Board selected

for purposes of making determinations under this paragraph.’’.

(2) CONFORMING AMENDMENT.—Section 1869(b)(1)(F)(ii) (42

U.S.C. 1395ff(b)(1)(F)(ii)) is amended to read as follows:

‘‘(ii) REFERENCE TO EXPEDITED ACCESS TO JUDICIAL

REVIEW.—For the provision relating to expedited access

to judicial review, see paragraph (2).’’.

(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

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2401

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) EXPEDITED REVIEW OF CERTAIN PROVIDER AGREEMENT

DETERMINATIONS.— (1) TERMINATION AND CERTAIN OTHER IMMEDIATE REM- EDIES.—Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)), as amended

by subsection (b), is amended by adding at the end the following

new subparagraph:

‘‘(C)(i) The Secretary shall develop and implement a process

to expedite proceedings under this subsection in which—

‘‘(I) the remedy of termination of participation has been

imposed;

‘‘(II) a remedy described in clause (i) or (iii) of section

1819(h)(2)(B) has been imposed, but only if such remedy has

been imposed on an immediate basis; or

‘‘(III) a determination has been made as to a finding of

substandard quality of care that results in the loss of approval

of a skilled nursing facility’s nurse aide training program.

‘‘(ii) Under such process under clause (i), priority shall be

provided in cases of termination described in clause (i)(I).

‘‘(iii) 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.’’.

(2) WAIVER OF DISAPPROVAL OF NURSE-AIDE TRAINING PROGRAMS.—Sections 1819(f)(2) and section 1919(f)(2) (42 U.S.C.

1395i–3(f)(2) and 1396r(f)(2)) are each amended—

(A) in subparagraph (B)(iii), by striking ‘‘subparagraph

(C)’’ and inserting ‘‘subparagraphs (C) and (D)’’; and

(B) by adding at the end the following new subparagraph:

‘‘(D) WAIVER OF DISAPPROVAL OF NURSE-AIDE TRAINING

PROGRAMS.—Upon application of a nursing facility, the Secretary may waive the application of subparagraph

(B)(iii)(I)(c) if the imposition of the civil monetary penalty

was not related to the quality of care provided to residents

of the facility. Nothing in this subparagraph shall be construed as eliminating any requirement upon a facility to

pay a civil monetary penalty described in the preceding

sentence.’’.

(3) 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,

established under section 1817 of the Social Security Act (42

U.S.C. 1395i), and the Federal Supplementary Medical Insurance Trust Fund, established under section 1841 of such Act

(42 U.S.C. 1395t)) 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

Appropriation

authorization.

117 STAT. 2402 PUBLIC LAW 108–173—DEC. 8, 2003

(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.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to appeals filed on or after October 1, 2004.

SEC. 933. 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 section 932(a), is further amended by adding at

the end the following new paragraph:

‘‘(3) REQUIRING FULL AND EARLY PRESENTATION OF EVI- DENCE 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, 2004.

(b) USE OF PATIENTS’ MEDICAL RECORDS.—Section

1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)) is amended by inserting

‘‘(including the medical records of the individual involved)’’ after

‘‘clinical experience’’.

(c) NOTICE REQUIREMENTS FOR MEDICARE APPEALS.— (1) INITIAL DETERMINATIONS AND REDETERMINATIONS.—Section 1869(a) (42 U.S.C. 1395ff(a)) is amended by adding at

the end the following new paragraphs:

‘‘(4) REQUIREMENTS OF NOTICE OF DETERMINATIONS.—With

respect to an initial determination insofar as it results in a

denial of a claim for benefits—

‘‘(A) the written notice on the determination shall

include—

‘‘(i) the reasons for the determination, including

whether a local medical review policy or a local coverage determination was used;

‘‘(ii) the procedures for obtaining additional

information concerning the determination, including

the information described in subparagraph (B); and

‘‘(iii) notification of the right to seek a redetermination or otherwise appeal the determination and instructions on how to initiate such a redetermination under

this section;

‘‘(B) such written notice 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; and

‘‘(C) the individual provided such written notice may

obtain, upon request, information on the specific provision

of the policy, manual, or regulation used in making the

redetermination.

‘‘(5) REQUIREMENTS OF NOTICE OF REDETERMINATIONS.—

With respect to a redetermination insofar as it results in a

denial of a claim for benefits—

‘‘(A) the written notice on the redetermination shall

include—

42 USC 1395ff

note.

42 USC 1395i–3

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2403

‘‘(i) the specific reasons for the redetermination;

‘‘(ii) as appropriate, a summary of the clinical or

scientific evidence used in making the redetermination;

‘‘(iii) a description of the procedures for obtaining

additional information concerning the redetermination;

and

‘‘(iv) notification of the right to appeal the redetermination and instructions on how to initiate such an

appeal under this section;

‘‘(B) such written notice 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; and

‘‘(C) the individual provided such written notice may

obtain, upon request, information on the specific provision

of the policy, manual, or regulation used in making the

redetermination.’’.

(2) RECONSIDERATIONS.—Section 1869(c)(3)(E) (42 U.S.C.

1395ff(c)(3)(E)) 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)) 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)) is amended 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)) 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

117 STAT. 2404 PUBLIC LAW 108–173—DEC. 8, 2003

(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) 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’), a 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), a 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

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2405

‘‘(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 such individual’s 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:

117 STAT. 2406 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(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) REDUCING MINIMUM NUMBER OF QUALIFIED INDEPENDENT CONTRACTORS.—Section 1869(c)(4) (42 U.S.C.

1395ff(c)(4)) is amended by striking ‘‘not fewer than 12 qualified

independent contractors under this subsection’’ and inserting

‘‘a sufficient number of qualified independent contractors (but

not fewer than 4 such contractors) to conduct reconsiderations

consistent with the timeframes applicable under this subsection’’.

(4) 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).

(5) 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. 934. PREPAYMENT REVIEW.

(a) IN GENERAL.—Section 1874A, as added by section 911(a)(1)

and as amended by sections 912(b), 921(b)(1), and 921(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’

42 USC 1395ff

note.

42 USC 1395ff

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2407

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 under section

1893(f)(3)(A).

‘‘(B) TERMINATION OF NON-RANDOM PREPAYMENT

REVIEW.—The Secretary shall issue regulations relating to

the termination, including termination dates, of nonrandom prepayment review. Such regulations may vary

such a termination date based upon the differences in

the circumstances triggering prepayment review.’’.

(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. 935. 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 described

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

42 USC

1395kk–1 note.

42 USC

1395kk–1 note.

Regulations.

117 STAT. 2408 PUBLIC LAW 108–173—DEC. 8, 2003

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

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2409

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 the Secretary determines that—

‘‘(A) there is a sustained or high level of payment

error; or

‘‘(B) documented educational intervention has failed

to correct the payment error.

There shall be no administrative or judicial review under section

1869, section 1878, or otherwise, of determinations by the Secretary

of sustained or high levels of payment errors under this paragraph.

‘‘(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

117 STAT. 2410 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(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

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2411

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. 936. 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:

42 USC 1395ddd

note.

117 STAT. 2412 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(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 NONRENEWAL.—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, 2004.

(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. 937. PROCESS FOR CORRECTION OF MINOR ERRORS AND OMISSIONS WITHOUT PURSUING APPEALS PROCESS.

(a) CLAIMS.—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 301(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.

(b) DEADLINE.—Not later than 1 year after the date of the

enactment of this Act, the Secretary shall first develop the process

under subsection (a).

42 USC 1395ff

note.

42 USC 1395cc

note.

Regulations.

Regulations.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2413

SEC. 938. 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 section 933(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 physicians’ services (as defined in section

1848(j)(3)), 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 participating physician, but only with respect

to physicians’ services to be furnished to an individual

who is entitled to benefits under this title and who

has consented to the physician making the request

under this subsection for those physicians’ services.

‘‘(ii) An individual entitled to benefits under this

title, but only with respect to a physicians’ service

for which the individual receives, from a physician,

an advance beneficiary notice under section 1879(a).

‘‘(2) SECRETARIAL FLEXIBILITY.—The Secretary shall establish by regulation reasonable limits on the physicians’ 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

physicians’ 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 a physicians’

service, as to whether the physicians’ 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 physicians’ service, supporting documentation

relating to the medical necessity for the physicians’ 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 physicians’ service is so covered;

‘‘(ii) the physicians’ service is not so covered; or

Notification.

Regulations.

117 STAT. 2414 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(iii) the contractor lacks sufficient information to

make a coverage determination with respect to the

physicians’ service.

‘‘(B) CONTENTS OF NOTICE FOR CERTAIN DETERMINATIONS.—

‘‘(i) NONCOVERAGE.—If the contractor makes the

determination described in subparagraph (A)(ii), the

contractor shall include in the notice 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

a description of any applicable rights under subsection

(a).

‘‘(ii) INSUFFICIENT INFORMATION.—If the contractor

makes the determination described in subparagraph

(A)(iii), the contractor shall include in the notice a

description of the additional information required to

make the coverage determination.

‘‘(C) 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).

‘‘(D) INFORMING BENEFICIARY IN CASE OF PHYSICIAN

REQUEST.—In the case of a request by a participating physician under paragraph (1)(B)(i), the process shall provide

that the individual to whom the physicians’ service is proposed to be furnished shall be informed of any determination described in subparagraph (A)(ii) (relating to a determination of non-coverage) and the right (referred to in

paragraph (6)(B)) to obtain the physicians’ service and have

a claim submitted for the physicians’ service.

‘‘(5) 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.

‘‘(6) LIMITATION ON FURTHER REVIEW.—

‘‘(A) IN GENERAL.—Contractor determinations described

in paragraph (4)(A)(ii) or (4)(A)(iii) (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 physicians’ 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 physicians’

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 physicians’

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2415

service 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 physicians’ services,

there shall be no prior determination under this subsection

with respect to such physicians’ services.’’.

(b) EFFECTIVE DATE; SUNSET; 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) SUNSET.—Such prior determination process shall not

apply to requests filed after the end of the 5-year period beginning on the first date on which requests for determinations

under such process are accepted.

(3) 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.

(4) 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

(5)) 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 ON USE OF ADVANCE BENEFICIARY

NOTICES.—Not later than 18 months after the date on which

section 1869(h) 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 36 months after the date on which

section 1869(h) 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

42 USC 1395pp

note.

42 USC 1395ff

note.

117 STAT. 2416 PUBLIC LAW 108–173—DEC. 8, 2003

prior determination process under such section. Such report

shall include—

(A) information concerning—

(i) the number and types of procedures for which

a prior determination has been sought;

(ii) determinations made under the process;

(iii) the percentage of beneficiaries prevailing;

(iv) in those cases in which the beneficiaries do

not prevail, the reasons why such beneficiaries did

not prevail; and

(v) changes in receipt of services resulting from

the application of such process;

(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; and

(C) recommendations for improvements or continuation

of such process.

(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 enrolled under part 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.

SEC. 939. APPEALS BY PROVIDERS WHEN THERE IS NO OTHER PARTY

AVAILABLE.

(a) IN GENERAL.—Section 1870 (42 U.S.C. 1395gg) is amended

by adding at the end the following new subsection:

‘‘(h) Notwithstanding subsection (f) or any other provision of

law, the Secretary shall permit a provider of services or supplier

to appeal any determination of the Secretary under this title

relating to services rendered under this title to an individual who

subsequently dies if there is no other party available to appeal

such determination.’’.

(b) EFFECTIVE DATE.—The amendment made by subsection (a)

shall take effect on the date of the enactment of this Act and

shall apply to items and services furnished on or after such date.

SEC. 940. REVISIONS TO APPEALS TIMEFRAMES AND AMOUNTS.

(a) TIMEFRAMES.—Section 1869 (42 U.S.C. 1395ff) is amended—

(1) in subsection (a)(3)(C)(ii), by striking ‘‘30-day period’’

each place it appears and inserting ‘‘60-day period’’; and

(2) in subsection (c)(3)(C)(i), by striking ‘‘30-day period’’

and inserting ‘‘60-day period’’.

(b) AMOUNTS.—

(1) IN GENERAL.—Section 1869(b)(1)(E) (42 U.S.C.

1395ff(b)(1)(E)) is amended by adding at the end the following

new clause:

‘‘(iii) ADJUSTMENT OF DOLLAR AMOUNTS.—For

requests for hearings or judicial review made in a

year after 2004, the dollar amounts specified in clause

(i) shall be equal to such dollar amounts increased

42 USC 1395gg

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2417

by the percentage increase in the medical care component of the consumer price index for all urban consumers (U.S. city average) for July 2003 to the July

preceding the year involved. Any amount determined

under the previous sentence that is not a multiple

of $10 shall be rounded to the nearest multiple of

$10.’’.

(2) CONFORMING AMENDMENTS.—(A) Section 1852(g)(5) (42

U.S.C. 1395w–22(g)(5)) is amended by adding at the end the

following: ‘‘The provisions of section 1869(b)(1)(E)(iii) shall

apply with respect to dollar amounts specified in the first

2 sentences of this paragraph in the same manner as they

apply to the dollar amounts specified in section

1869(b)(1)(E)(i).’’.

(B) Section 1876(b)(5)(B) (42 U.S.C. 1395mm(b)(5)(B)) is

amended by adding at the end the following: ‘‘The provisions of

section 1869(b)(1)(E)(iii) shall apply with respect to dollar amounts

specified in the first 2 sentences of this subparagraph in the same

manner as they apply to the dollar amounts specified in section

1869(b)(1)(E)(i).’’.

SEC. 940A. MEDIATION PROCESS FOR LOCAL COVERAGE DETERMINATIONS.

(a) IN GENERAL.—Section 1869 (42 U.S.C. 1395ff), as amended

by section 938(a), is amended by adding at the end the following

new subsection:

‘‘(i) MEDIATION PROCESS FOR LOCAL COVERAGE DETERMINATIONS.—

‘‘(1) ESTABLISHMENT OF PROCESS.—The Secretary shall

establish a mediation process under this subsection through

the use of a physician trained in mediation and employed

by the Centers for Medicare & Medicaid Services.

‘‘(2) RESPONSIBILITY OF MEDIATOR.—Under the process

established in paragraph (1), such a mediator shall mediate

in disputes between groups representing providers of services,

suppliers (as defined in section 1861(d)), and the medical

director for a medicare administrative contractor whenever the

regional administrator (as defined by the Secretary) involved

determines that there was a systematic pattern and a large

volume of complaints from such groups regarding decisions

of such director or there is a complaint from the co-chair of

the advisory committee for that contractor to such regional

administrator regarding such dispute.’’.

(b) INCLUSION IN MAC CONTRACTS.—Section 1874A(b)(3)(A)(i),

as added by section 911(a)(1), is amended by adding at the end

the following: ‘‘Such requirements shall include specific performance

duties expected of a medical director of a medicare administrative

contractor, including requirements relating to professional relations

and the availability of such director to conduct medical determination activities within the jurisdiction of such a contractor.’’.

117 STAT. 2418 PUBLIC LAW 108–173—DEC. 8, 2003

Subtitle E—Miscellaneous Provisions

SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION AND

MANAGEMENT (E & M) DOCUMENTATION GUIDELINES.

(a) IN GENERAL.—The Secretary may not implement any new

or modified documentation guidelines (which for purposes of this

section includes clinical examples) 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 such guidelines;

(4) finds, based on reports submitted under subsection (b)(5)

with respect to pilot projects conducted for such or related

guidelines, 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 MODIFIED OR NEW EVALUATION

AND MANAGEMENT DOCUMENTATION GUIDELINES.—

(1) IN GENERAL.—With respect to proposed new or modified

documentation guidelines referred to in subsection (a), the Secretary shall conduct under this subsection appropriate and

representative pilot projects to test the proposed guidelines.

(2) LENGTH AND CONSULTATION.—Each pilot project under

this subsection shall—

(A) be voluntary;

(B) be of sufficient length as determined by the Secretary (but in no case to exceed 1 year) 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 with respect to proposed new

or modified documentation guidelines—

(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 codes used for billing purposes for such services;

Paperwork

reduction.

42 USC

1395kk–1 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2419

(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) STUDY OF IMPACT.—Each pilot project shall examine

the effect of the proposed 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.

(5) REPORT ON PILOT PROJECTS.—Not later than 6 months

after the date of completion of pilot projects carried out under

this subsection with respect to a proposed guideline described

in paragraph (1), the Secretary shall submit to Congress a

report on the pilot projects. Each such report shall include

a finding by the Secretary of whether the objectives described

in subsection (c) will be met in the implementation of such

proposed guideline.

(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 REQUIRE- MENTS.—In developing an alternative system under paragraph

(2), the Secretary shall consider requirements of administrative

117 STAT. 2420 PUBLIC LAW 108–173—DEC. 8, 2003

simplification under part C of title XI of the Social Security

Act.

(5) REPORT TO CONGRESS.—(A) Not later than October 1,

2005, 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, 2005, 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. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY AND COVERAGE.

(a) COUNCIL FOR TECHNOLOGY AND INNOVATION.—Section 1868

(42 U.S.C. 1395ee) is amended—

(1) by adding at the end of the heading the following:

‘‘; COUNCIL FOR TECHNOLOGY AND INNOVATION’’;

(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) 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,

Reports.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2421

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.’’.

(b) 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, 2005 (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

website 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

website 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 website 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

Federal Register,

publication.

Public

information.

Records.

Regulations.

117 STAT. 2422 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(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).’’.

(c) GAO STUDY ON IMPROVEMENTS IN EXTERNAL DATA COLLEC- TION 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 timeframe 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 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, 2004, the Comptroller General shall submit a report to Congress on the study

under paragraph (1).

SEC. 943. 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. 944. EMTALA IMPROVEMENTS.

(a) PAYMENT FOR EMTALA-MANDATED SCREENING AND STA- BILIZATION 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

42 USC 1395y

note.

Deadline.

Public

information.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2423

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, 2004.

(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. 945. 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;

42 USC 1395dd

note.

42 USC 1395dd

note.

42 USC 1395y

note.

117 STAT. 2424 PUBLIC LAW 108–173—DEC. 8, 2003

(2) 7 shall be practicing physicians drawn from the fields

of emergency medicine, cardiology or cardiothoracic surgery,

orthopedic surgery, neurosurgery, pediatrics or a pediatric subspecialty, 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. 946. AUTHORIZING USE OF ARRANGEMENTS TO PROVIDE CORE

HOSPICE SERVICES IN CERTAIN CIRCUMSTANCES.

(a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 1395x(dd)(5))

is amended by adding at the end the following:

‘‘(D) In extraordinary, exigent, or other non-routine circumstances, such as unanticipated periods of high patient loads,

staffing shortages due to illness or other events, or temporary

travel of a patient outside a hospice program’s service area, a

hospice program may enter into arrangements with another hospice

program for the provision by that other program of services

described in paragraph (2)(A)(ii)(I). The provisions of paragraph

(2)(A)(ii)(II) shall apply with respect to the services provided under

such arrangements.

‘‘(E) A hospice program may provide services described in paragraph (1)(A) other than directly by the program if the services

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2425

are highly specialized services of a registered professional nurse

and are provided non-routinely and so infrequently so that the

provision of such services directly would be impracticable and

prohibitively expensive.’’.

(b) CONFORMING PAYMENT PROVISION.—Section 1814(i) (42

U.S.C. 1395f(i)), as amended by section 512(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. 947. APPLICATION OF OSHA BLOODBORNE PATHOGENS

STANDARD TO CERTAIN HOSPITALS.

(a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc), as amended

by section 506, is amended—

(1) in subsection (a)(1)—

(A) in subparagraph (T), by striking ‘‘and’’ at the end;

(B) in subparagraph (U), by striking the period at

the end and inserting ‘‘, and’’; and

(C) by inserting after subparagraph (U) the following

new subparagraph:

‘‘(V) in the case of hospitals that are not otherwise subject

to the Occupational Safety and Health Act of 1970 (or a State

occupational safety and health plan that is approved under

18(b) of such Act), 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)(V) (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)(U) 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, 2004.

SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND CORRECTIONS.

(a) TECHNICAL AMENDMENTS RELATING TO ADVISORY COM- MITTEE 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

42 USC 1395y.

42 USC 1395cc

note.

42 USC 1395f

note.

117 STAT. 2426 PUBLIC LAW 108–173—DEC. 8, 2003

(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)) 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)) 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. 949. 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, after consulting with the Inspector

General of the Department of Health and Human Services, waive

the exclusion under subsection (a)(1), (a)(3), or (a)(4) with respect

to that program in the case of an individual or entity that is

the sole community physician or sole source of essential specialized

services in a community.’’.

SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS.

(a) IN GENERAL.—Section 1862 (42 U.S.C. 1395y) is amended

by adding at the end, after the subsection transferred and redesignated by section 948(a), the following new subsection:

42 USC 1314

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2427

‘‘(k)(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. 951. FURNISHING HOSPITALS WITH INFORMATION TO COMPUTE

DSH FORMULA.

Beginning not later than 1 year after the date of the enactment

of this Act, the Secretary shall arrange to furnish to subsection

(d) hospitals (as defined in section 1886(d)(1)(B) of the Social Security Act, 42 U.S.C. 1395ww(d)(1)(B)) the data necessary for such

hospitals to compute the number of patient days used in computing

the disproportionate patient percentage under such section for that

hospital for the current cost reporting year. Such data shall also

be furnished to other hospitals which would qualify for additional

payments under part A of title XVIII of the Social Security Act

on the basis of such data.

SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS.

(a) IN GENERAL.—Section 1842(b)(6)(A) (42 U.S.C.

1395u(b)(6)(A)) is amended by striking ‘‘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,’’ and inserting ‘‘or (ii) where the service was provided under a contractual arrangement between such physician

or other person and an entity, to the entity if, under the contractual

arrangement, the entity submits the bill for the service and the

contractual arrangement meets such program integrity and other

safeguards as the Secretary may determine to be appropriate,’’.

(b) CONFORMING AMENDMENT.—The second sentence of section

1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended by striking ‘‘except

to an employer or facility as described in clause (A)’’ and inserting

‘‘except to an employer or entity as described in subparagraph

(A)’’.

(c) EFFECTIVE DATE.—The amendments made by this section

shall apply to payments made on or after the date of the enactment

of this Act.

SEC. 953. OTHER PROVISIONS.

(a) GAO REPORTS ON THE PHYSICIAN COMPENSATION.— (1) SUSTAINABLE GROWTH RATE AND UPDATES.—Not later

than 6 months after the date of the enactment of this Act,

the Comptroller General of the United States shall submit

to Congress a report on the appropriateness of the updates

in the conversion factor under subsection (d)(3) of section 1848

of the Social Security Act (42 U.S.C. 1395w–4), including the

42 USC 1395u

note.

42 USC 1395ww

note.

42 USC 1395y

note.

117 STAT. 2428 PUBLIC LAW 108–173—DEC. 8, 2003

appropriateness of the sustainable growth rate formula under

subsection (f) of such section for 2002 and succeeding years.

Such report shall examine the stability and predictability of

such updates and rate and alternatives for the use of such

rate in the updates.

(2) PHYSICIAN COMPENSATION GENERALLY.—Not later than

12 months after the date of the enactment of this Act, the

Comptroller General shall submit to Congress a report on all

aspects of physician compensation for services furnished under

title XVIII of the Social Security Act, and how those aspects

interact and the effect on appropriate compensation for physician services. Such report shall review alternatives for the

physician fee schedule under section 1848 of such title (42

U.S.C. 1395w–4).

(b) 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.

(c) GAO REPORT ON FLEXIBILITY IN APPLYING HOME HEALTH

CONDITIONS OF PARTICIPATION TO PATIENTS WHO ARE NOT MEDICARE BENEFICIARIES.—Not later than 6 months after the date of

the enactment of this Act, the Comptroller General of the United

States shall submit to Congress a report on the implications if

there were flexibility in the application of the medicare conditions

of participation for home health agencies with respect to groups

or types of patients who are not medicare beneficiaries. The report

shall include an analysis of the potential impact of such flexible

application on clinical operations and the recipients of such services

and an analysis of methods for monitoring the quality of care

provided to such recipients.

(d) OIG REPORT ON NOTICES RELATING TO USE OF HOSPITAL

LIFETIME RESERVE DAYS.—Not later than 1 year after the date

of the enactment of this Act, the Inspector General of the Department of Health and Human Services shall submit a report to

Congress on—

(1) the extent to which hospitals provide notice to medicare

beneficiaries in accordance with applicable requirements before

they use the 60 lifetime reserve days described in section

1812(a)(1) of the Social Security Act (42 U.S.C. 1395d(a)(1));

and

(2) the appropriateness and feasibility of hospitals providing a notice to such beneficiaries before they completely

exhaust such lifetime reserve days.

TITLE X—MEDICAID AND

MISCELLANEOUS PROVISIONS

Subtitle A—Medicaid Provisions

SEC. 1001. MEDICAID DISPROPORTIONATE SHARE HOSPITAL (DSH)

PAYMENTS.

(a) TEMPORARY INCREASE.—Section 1923(f)(3) (42 U.S.C. 1396r–

4(f)(3)) is amended—

42 USC 1395d

note.

42 USC 1395y

note.

42 USC 1395w–4

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2429

(1) in subparagraph (A), by striking ‘‘subparagraph (B)’’

and inserting ‘‘subparagraphs (B) and (C)’’; and

(2) by adding at the end the following new subparagraphs:

‘‘(C) SPECIAL, TEMPORARY INCREASE IN ALLOTMENTS ON

A ONE-TIME, NON-CUMULATIVE BASIS.—The DSH allotment

for any State (other than a State with a DSH allotment

determined under paragraph (5))—

‘‘(i) for fiscal year 2004 is equal to 116 percent

of the DSH allotment for the State for fiscal year

2003 under this paragraph, notwithstanding subparagraph (B); and

‘‘(ii) for each succeeding fiscal year is equal to

the DSH allotment for the State for fiscal year 2004

or, in the case of fiscal years beginning with the fiscal

year specified in subparagraph (D) for that State, the

DSH allotment for the State for the previous fiscal

year increased by the percentage change in the consumer price index for all urban consumers (all items;

U.S. city average), for the previous fiscal year.

‘‘(D) FISCAL YEAR SPECIFIED.—For purposes of subparagraph (C)(ii), the fiscal year specified in this subparagraph

for a State is the first fiscal year for which the Secretary

estimates that the DSH allotment for that State will equal

(or no longer exceed) the DSH allotment for that State

under the law as in effect before the date of the enactment

of this subparagraph.’’.

(b) INCREASE IN FLOOR FOR TREATMENT AS A LOW DSH STATE.—

Section 1923(f)(5) (42 U.S.C. 1396r–4(f)(5)) is amended—

(1) in the paragraph heading, by striking ‘‘EXTREMELY’’;

(2) by striking ‘‘In the case of’’ and inserting the following:

‘‘(A) FOR FISCAL YEARS 2001 THROUGH 2003 FOR

EXTREMELY LOW DSH STATES.—In the case of’’;

(3) by inserting ‘‘before fiscal year 2004’’ after ‘‘In subsequent years’’; and

(4) by adding at the end the following:

‘‘(B) FOR FISCAL YEAR 2004 AND SUBSEQUENT FISCAL

YEARS.—In the case of a State in which the total expenditures under the State plan (including Federal and State

shares) for disproportionate share hospital adjustments

under this section for fiscal year 2000, as reported to the

Administrator of the Centers for Medicare & Medicaid Services as of August 31, 2003, is greater than 0 but less

than 3 percent of the State’s total amount of expenditures

under the State plan for medical assistance during the

fiscal year, the DSH allotment for the State with respect

to—

‘‘(i) fiscal year 2004 shall be the DSH allotment

for the State for fiscal year 2003 increased by 16 percent;

‘‘(ii) each succeeding fiscal year before fiscal year

2009 shall be the DSH allotment for the State for

the previous fiscal year increased by 16 percent; and

‘‘(iii) fiscal year 2009 and any subsequent fiscal

year, shall be the DSH allotment for the State for

the previous year subject to an increase for inflation

as provided in paragraph (3)(A).’’.

117 STAT. 2430 PUBLIC LAW 108–173—DEC. 8, 2003

(c) ALLOTMENT ADJUSTMENT.—Section 1923(f) (42 U.S.C. 1396r–

4(f)) is amended—

(1) in paragraph (3)(A), by striking ‘‘The DSH’’ and

inserting ‘‘Except as provided in paragraph (6), the DSH’’;

(2) by redesignating paragraph (6) as paragraph (7); and

(3) by inserting after paragraph (5) the following:

‘‘(6) ALLOTMENT ADJUSTMENT.—Only with respect to fiscal

year 2004 or 2005, if a statewide waiver under section 1115

is revoked or terminated before the end of either such fiscal

year and there is no DSH allotment for the State, the Secretary

shall—

‘‘(A) permit the State whose waiver was revoked or

terminated to submit an amendment to its State plan

that would describe the methodology to be used by the

State (after the effective date of such revocation or termination) to identify and make payments to disproportionate

share hospitals, including children’s hospitals and institutions for mental diseases or other mental health facilities

(other than State-owned institutions or facilities), on the

basis of the proportion of patients served by such hospitals

that are low-income patients with special needs; and

‘‘(B) provide for purposes of this subsection for computation of an appropriate DSH allotment for the State

for fiscal year 2004 or 2005 (or both) that would not exceed

the amount allowed under paragraph (3)(B)(ii) and that

does not result in greater expenditures under this title

than would have been made if such waiver had not been

revoked or terminated.

In determining the amount of an appropriate DSH allotment

under subparagraph (B) for a State, the Secretary shall take

into account the level of DSH expenditures for the State for

the fiscal year preceding the fiscal year in which the waiver

commenced.’’.

(d) INCREASED REPORTING AND OTHER REQUIREMENTS TO

ENSURE THE APPROPRIATE USE OF MEDICAID DSH PAYMENT ADJUST- MENTS.—Section 1923 (42 U.S.C. 1396r–4) is amended by adding

at the end the following new subsection:

‘‘(j) ANNUAL REPORTS AND OTHER REQUIREMENTS REGARDING

PAYMENT ADJUSTMENTS.—With respect to fiscal year 2004 and each

fiscal year thereafter, the Secretary shall require a State, as a

condition of receiving a payment under section 1903(a)(1) with

respect to a payment adjustment made under this section, to do

the following:

‘‘(1) REPORT.—The State shall submit an annual report

that includes the following:

‘‘(A) An identification of each disproportionate share

hospital that received a payment adjustment under this

section for the preceding fiscal year and the amount of

the payment adjustment made to such hospital for the

preceding fiscal year.

‘‘(B) Such other information as the Secretary determines necessary to ensure the appropriateness of the payment adjustments made under this section for the preceding fiscal year.

‘‘(2) INDEPENDENT CERTIFIED AUDIT.—The State shall

annually submit to the Secretary an independent certified audit

that verifies each of the following:

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2431

‘‘(A) The extent to which hospitals in the State have

reduced their uncompensated care costs to reflect the total

amount of claimed expenditures made under this section.

‘‘(B) Payments under this section to hospitals that

comply with the requirements of subsection (g).

‘‘(C) Only the uncompensated care costs of providing

inpatient hospital and outpatient hospital services to

individuals described in paragraph (1)(A) of such subsection

are included in the calculation of the hospital-specific limits

under such subsection.

‘‘(D) The State included all payments under this title,

including supplemental payments, in the calculation of such

hospital-specific limits.

‘‘(E) The State has separately documented and retained

a record of all of its costs under this title, claimed expenditures under this title, uninsured costs in determining payment adjustments under this section, and any payments

made on behalf of the uninsured from payment adjustments

under this section.’’.

(e) CLARIFICATION REGARDING NON-REGULATION OF TRANSFERS.—

(1) IN GENERAL.—Nothing in section 1903(w) of the Social

Security Act (42 U.S.C. 1396b(w)) shall be construed by the

Secretary as prohibiting a State’s use of funds as the nonFederal share of expenditures under title XIX of such Act

where such funds are transferred from or certified by a publiclyowned regional medical center located in another State and

described in paragraph (2), so long as the Secretary determines

that such use of funds is proper and in the interest of the

program under title XIX.

(2) CENTER DESCRIBED.—A center described in this paragraph is a publicly-owned regional medical center that—

(A) provides level 1 trauma and burn care services;

(B) provides level 3 neonatal care services;

(C) is obligated to serve all patients, regardless of

State of origin;

(D) is located within a Standard Metropolitan Statistical Area (SMSA) that includes at least 3 States, including

the States described in paragraph (1);

(E) serves as a tertiary care provider for patients

residing within a 125 mile radius; and

(F) meets the criteria for a disproportionate share hospital under section 1923 of such Act in at least one State

other than the one in which the center is located.

(3) EFFECTIVE PERIOD.—This subsection shall apply through

December 31, 2005.

SEC. 1002. CLARIFICATION OF INCLUSION OF INPATIENT DRUG PRICES

CHARGED TO CERTAIN PUBLIC HOSPITALS IN THE BEST

PRICE EXEMPTIONS FOR THE MEDICAID DRUG REBATE

PROGRAM.

(a) IN GENERAL.—Section 1927(c)(1)(C)(i)(I) (42 U.S.C. 1396r–

8(c)(1)(C)(i)(I)) is amended by inserting before the semicolon the

following: ‘‘(including inpatient prices charged to hospitals described

in section 340B(a)(4)(L) of the Public Health Service Act)’’.

42 USC 1396b

note.

117 STAT. 2432 PUBLIC LAW 108–173—DEC. 8, 2003

(b) ANTI-DIVERSION PROTECTION.—Section 1927(c)(1)(C) (42

U.S.C. 1396r–8(c)(1)(C)) is amended by adding at the end the following:

‘‘(iii) APPLICATION OF AUDITING AND RECORD- KEEPING REQUIREMENTS.—With respect to a covered

entity described in section 340B(a)(4)(L) of the Public

Health Service Act, any drug purchased for inpatient

use shall be subject to the auditing and recordkeeping

requirements described in section 340B(a)(5)(C) of the

Public Health Service Act.’’.

SEC. 1003. EXTENSION OF MORATORIUM.

(a) IN GENERAL.—Section 6408(a)(3) of the Omnibus Budget

Reconciliation Act of 1989, as amended by section 13642 of the

Omnibus Budget Reconciliation Act of 1993 and section 4758 of

the Balanced Budget Act of 1997, is amended—

(1) by striking ‘‘until December 31, 2002’’, and

(2) by striking ‘‘Kent Community Hospital Complex in

Michigan or.’’

(b) EFFECTIVE DATES.—

(1) PERMANENT EXTENSION.—The amendment made by subsection (a)(1) shall take effect as if included in the amendment

made by section 4758 of the Balanced Budget Act of 1997.

(2) MODIFICATION.—The amendment made by subsection

(a)(2) shall take effect on the date of enactment of this Act.

Subtitle B—Miscellaneous Provisions

SEC. 1011. FEDERAL REIMBURSEMENT OF EMERGENCY HEALTH SERVICES FURNISHED TO UNDOCUMENTED ALIENS.

(a) TOTAL AMOUNT AVAILABLE FOR ALLOTMENT.—

(1) IN GENERAL.—Out of any funds in the Treasury not

otherwise appropriated, there are appropriated to the Secretary

$250,000,000 for each of fiscal years 2005 through 2008 for

the purpose of making allotments under this section for payments to eligible providers in States described in paragraph

(1) or (2) of subsection (b).

(2) AVAILABILITY.—Funds appropriated under paragraph

(1) shall remain available until expended.

(b) STATE ALLOTMENTS.—

(1) BASED ON PERCENTAGE OF UNDOCUMENTED ALIENS.—

(A) IN GENERAL.—Out of the amount appropriated

under subsection (a) for a fiscal year, the Secretary shall

use $167,000,000 of such amount to make allotments for

such fiscal year in accordance with subparagraph (B).

(B) FORMULA.—The amount of the allotment for payments to eligible providers in each State for a fiscal year

shall be equal to the product of—

(i) the total amount available for allotments under

this paragraph for the fiscal year; and

(ii) the percentage of undocumented aliens residing

in the State as compared to the total number of such

aliens residing in all States, as determined by the

Statistics Division of the Immigration and Naturalization Service, as of January 2003, based on the 2000

decennial census.

42 USC 1395dd

note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2433

(2) BASED ON NUMBER OF UNDOCUMENTED ALIEN APPREHENSION STATES.—

(A) IN GENERAL.—Out of the amount appropriated

under subsection (a) for a fiscal year, the Secretary shall

use $83,000,000 of such amount to make allotments, in

addition to amounts allotted under paragraph (1), for such

fiscal year for each of the 6 States with the highest number

of undocumented alien apprehensions for such fiscal year.

(B) DETERMINATION OF ALLOTMENTS.—The amount of

the allotment for each State described in subparagraph

(A) for a fiscal year shall be equal to the product of—

(i) the total amount available for allotments under

this paragraph for the fiscal year; and

(ii) the percentage of undocumented alien

apprehensions in the State in that fiscal year as compared to the total of such apprehensions for all such

States for the preceding fiscal year.

(C) DATA.—For purposes of this paragraph, the highest

number of undocumented alien apprehensions for a fiscal

year shall be based on the apprehension rates for the

4-consecutive-quarter period ending before the beginning

of the fiscal year for which information is available for

undocumented aliens in such States, as reported by the

Department of Homeland Security.

(c) USE OF FUNDS.—

(1) AUTHORITY TO MAKE PAYMENTS.—From the allotments

made for a State under subsection (b) for a fiscal year, the

Secretary shall pay the amount (subject to the total amount

available from such allotments) determined under paragraph

(2) directly to eligible providers located in the State for the

provision of eligible services to aliens described in paragraph

(5) to the extent that the eligible provider was not otherwise

reimbursed (through insurance or otherwise) for such services

during that fiscal year.

(2) DETERMINATION OF PAYMENT AMOUNTS.—

(A) IN GENERAL.—Subject to subparagraph (B), the payment amount determined under this paragraph shall be

an amount determined by the Secretary that is equal to

the lesser of—

(i) the amount that the provider demonstrates was

incurred for the provision of such services; or

(ii) amounts determined under a methodology

established by the Secretary for purposes of this subsection.

(B) PRO-RATA REDUCTION.—If the amount of funds

allotted to a State under subsection (b) for a fiscal year

is insufficient to ensure that each eligible provider in that

State receives the amount of payment calculated under

subparagraph (A), the Secretary shall reduce that amount

of payment with respect to each eligible provider to ensure

that the entire amount allotted to the State for that fiscal

year is paid to such eligible providers.

(3) METHODOLOGY.—In establishing a methodology under

paragraph (2)(A)(ii), the Secretary—

(A) may establish different methodologies for types

of eligible providers;

117 STAT. 2434 PUBLIC LAW 108–173—DEC. 8, 2003

(B) may base payments for hospital services on estimated hospital charges, adjusted to estimated cost, through

the application of hospital-specific cost-to-charge ratios;

(C) shall provide for the election by a hospital to receive

either payments to the hospital for—

(i) hospital and physician services; or

(ii) hospital services and for a portion of the oncall payments made by the hospital to physicians; and

(D) shall make quarterly payments under this section

to eligible providers.

If a hospital makes the election under subparagraph (C)(i),

the hospital shall pass on payments for services of a physician

to the physician and may not charge any administrative or

other fee with respect to such payments.

(4) LIMITATION ON USE OF FUNDS.—Payments made to

eligible providers in a State from allotments made under subsection (b) for a fiscal year may only be used for costs incurred

in providing eligible services to aliens described in paragraph

(5).

(5) ALIENS DESCRIBED.—For purposes of paragraphs (1)

and (2), aliens described in this paragraph are any of the

following:

(A) Undocumented aliens.

(B) Aliens who have been paroled into the United

States at a United States port of entry for the purpose

of receiving eligible services.

(C) Mexican citizens permitted to enter the United

States for not more than 72 hours under the authority

of a biometric machine readable border crossing identification card (also referred to as a ‘‘laser visa’’) issued in

accordance with the requirements of regulations prescribed

under section 101(a)(6) of the Immigration and Nationality

Act (8 U.S.C. 1101(a)(6)).

(d) APPLICATIONS; ADVANCE PAYMENTS.—

(1) DEADLINE FOR ESTABLISHMENT OF APPLICATION

PROCESS.—

(A) IN GENERAL.—Not later than September 1, 2004,

the Secretary shall establish a process under which eligible

providers located in a State may request payments under

subsection (c).

(B) INCLUSION OF MEASURES TO COMBAT FRAUD AND

ABUSE.—The Secretary shall include in the process established under subparagraph (A) measures to ensure that

inappropriate, excessive, or fraudulent payments are not

made from the allotments determined under subsection

(b), including certification by the eligible provider of the

veracity of the payment request.

(2) ADVANCE PAYMENT; RETROSPECTIVE ADJUSTMENT.—The

process established under paragraph (1) may provide for

making payments under this section for each quarter of a

fiscal year on the basis of advance estimates of expenditures

submitted by applicants for such payments and such other

investigation as the Secretary may find necessary, and for

making reductions or increases in the payments as necessary

to adjust for any overpayment or underpayment for prior quarters of such fiscal year.

(e) DEFINITIONS.—In this section:

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2435

(1) ELIGIBLE PROVIDER.—The term ‘‘eligible provider’’

means a hospital, physician, or provider of ambulance services

(including an Indian Health Service facility whether operated

by the Indian Health Service or by an Indian tribe or tribal

organization).

(2) ELIGIBLE SERVICES.—The term ‘‘eligible services’’ means

health care services required by the application of section 1867

of the Social Security Act (42 U.S.C. 1395dd), and related

hospital inpatient and outpatient services and ambulance services (as defined by the Secretary).

(3) HOSPITAL.—The term ‘‘hospital’’ has the meaning given

such term in section 1861(e) of the Social Security Act (42

U.S.C. 1395x(e)), except that such term shall include a critical

access hospital (as defined in section 1861(mm)(1) of such Act

(42 U.S.C. 1395x(mm)(1)).

(4) PHYSICIAN.—The term ‘‘physician’’ has the meaning

given that term in section 1861(r) of the Social Security Act

(42 U.S.C. 1395x(r)).

(5) INDIAN TRIBE; TRIBAL ORGANIZATION.—The terms

‘‘Indian tribe’’ and ‘‘tribal organization’’ have the meanings

given such terms in section 4 of the Indian Health Care

Improvement Act (25 U.S.C. 1603).

(6) STATE.—The term ‘‘State’’ means the 50 States and

the District of Columbia.

SEC. 1012. COMMISSION ON SYSTEMIC INTEROPERABILITY.

(a) ESTABLISHMENT.—The Secretary shall establish a commission to be known as the ‘‘Commission on Systemic Interoperability’’

(in this section referred to as the ‘‘Commission’’).

(b) DUTIES.—

(1) IN GENERAL.—The Commission shall develop a comprehensive strategy for the adoption and implementation of

health care information technology standards, that includes

a timeline and prioritization for such adoption and implementation.

(2) CONSIDERATIONS.—In developing the comprehensive

health care information technology strategy under paragraph

(1), the Commission shall consider—

(A) the costs and benefits of the standards, both financial impact and quality improvement;

(B) the current demand on industry resources to implement this Act and other electronic standards, including

HIPAA standards; and

(C) the most cost-effective and efficient means for

industry to implement the standards.

(3) NONINTERFERENCE.—In carrying out this section, the

Commission shall not interfere with any standards development

of adoption processes underway in the private or public sector

and shall not replicate activities related to such standards

or the national health information infrastructure underway

within the Department of Health and Human Services.

(4) REPORT.—Not later than October 31, 2005, the Commission shall submit to the Secretary and to Congress a report

describing the strategy developed under paragraph (1),

including an analysis of the matters considered under paragraph (2).

(c) MEMBERSHIP.—

42 USC 242b

note.

117 STAT. 2436 PUBLIC LAW 108–173—DEC. 8, 2003

(1) NUMBER AND APPOINTMENT.—The Commission shall be

composed of 11 members appointed as follows:

(A) The President shall appoint three members, one

of whom the President shall designate as Chairperson.

(B) The Majority Leader of the Senate shall appoint

two members.

(C) The Minority Leader of the Senate shall appoint

two members.

(D) The Speaker of the House of Representatives shall

appoint two members.

(E) The Minority Leader of the House of Representatives shall appoint two members.

(2) QUALIFICATIONS.—The membership of the Commission

shall include individuals with national recognition for their

expertise in health finance and economics, health plans and

integrated delivery systems, reimbursement of health facilities,

practicing physicians, practicing pharmacists, and other providers of health services, health care technology and information systems, and other related fields, who provide a mix of

different professionals, broad geographic representation, and

a balance between urban and rural representatives.

(d) TERMS.—Each member shall be appointed for the life of

the Commission.

(e) COMPENSATION.—

(1) RATES OF PAY.—Members shall each be paid at a rate

not to exceed the daily equivalent of the rate of basic pay

for level IV of the Executive Schedule for each day (including

travel time) during which they are engaged in the actual

performance of duties vested in the Commission.

(2) PROHIBITION OF COMPENSATION OF FEDERAL

EMPLOYEES.—Members of the Commission who are full-time

officers or employees of the United States or Members of Congress may not receive additional pay, allowances, or benefits

by reason of their service on the Commission.

(3) TRAVEL EXPENSES.—Each member shall receive travel

expenses, including per diem in lieu of subsistence, in accordance with applicable provisions under subchapter I of chapter

57 of title 5, United States Code.

(f) QUORUM.—A majority of the members of the Commission

shall constitute a quorum but a lesser number may hold hearings.

(g) DIRECTOR AND STAFF OF COMMISSION; EXPERTS AND

CONSULTANTS.—

(1) DIRECTOR.—The Commission shall have a Director who

shall be appointed by the Chairperson. The Director shall be

paid at a rate not to exceed the rate of basic pay for level

IV of the Executive Schedule.

(2) STAFF.—With the approval of the Commission, the

Director may appoint and fix the pay of such additional personnel as the Director considers appropriate.

(3) APPLICABILITY OF CERTAIN CIVIL SERVICE LAWS.—The

Director and staff of the Commission may be appointed without

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

appointments in the competitive service, and may be paid without regard to the provisions of chapter 51 and subchapter

III of chapter 53 of that title relating to classification and

General Schedule pay rates, except that an individual so

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2437

appointed may not receive pay in excess of level IV of the

Executive Schedule.

(4) EXPERTS AND CONSULTANTS.—With the approval of the

Commission, the Director may procure temporary and intermittent services under section 3109(b) of title 5, United States

Code.

(5) STAFF OF FEDERAL AGENCIES.—Upon request of the

Chairperson, the head of any Federal department or agency

may detail, on a reimbursable basis, any of the personnel

of that department or agency to the Commission to assist

it in carrying out its duties under this Act.

(h) POWERS OF COMMISSION.—

(1) HEARINGS AND SESSIONS.—The Commission may, for

the purpose of carrying out this Act, hold hearings, sit and

act at times and places, take testimony, and receive evidence

as the Commission considers appropriate.

(2) POWERS OF MEMBERS AND AGENTS.—Any member or

agent of the Commission may, if authorized by the Commission,

take any action which the Commission is authorized to take

by this section.

(3) OBTAINING OFFICIAL DATA.—The Commission may

secure directly from any department or agency of the United

States information necessary to enable it to carry out this

Act. Upon request of the Chairperson of the Commission, the

head of that department or agency shall furnish that information to the Commission.

(4) GIFTS, BEQUESTS, AND DEVISES.—The Commission may

accept, use, and dispose of gifts, bequests, or devises of services

or property, both real and personal, for the purpose of aiding

or facilitating the work of the Commission. Gifts, bequests,

or devises of money and proceeds from sales of other property

received as gifts, bequests, or devises shall be deposited in

the Treasury and shall be available for disbursement upon

order of the Commission. For purposes of Federal income,

estate, and gift taxes, property accepted under this subsection

shall be considered as a gift, bequest, or devise to the United

States.

(5) MAILS.—The Commission may use the United States

mails in the same manner and under the same conditions

as other departments and agencies of the United States.

(6) ADMINISTRATIVE SUPPORT SERVICES.—Upon the request

of the Commission, the Administrator of General Services shall

provide to the Commission, on a reimbursable basis, the

administrative support services necessary for the Commission

to carry out its responsibilities under this Act.

(7) CONTRACT AUTHORITY.—The Commission may enter into

contracts or make other arrangements, as may be necessary

for the conduct of the work of the Commission (without regard

to section 3709 of the Revised Statutes (41 U.S.C. 5)).

(i) TERMINATION.—The Commission shall terminate on 30 days

after submitting its report pursuant to subsection (b)(3).

(j) AUTHORIZATION OF APPROPRIATIONS.—There is authorized

to be appropriated such sums as may be necessary to carry out

this section.

117 STAT. 2438 PUBLIC LAW 108–173—DEC. 8, 2003

SEC. 1013. RESEARCH ON OUTCOMES OF HEALTH CARE ITEMS AND

SERVICES.

(a) RESEARCH, DEMONSTRATIONS, AND EVALUATIONS.— (1) IMPROVEMENT OF EFFECTIVENESS AND EFFICIENCY.— (A) IN GENERAL.—To improve the quality, effectiveness,

and efficiency of health care delivered pursuant to the

programs established under titles XVIII, XIX, and XXI

of the Social Security Act, the Secretary acting through

the Director of the Agency for Healthcare Research and

Quality (in this section referred to as the ‘‘Director’’), shall

conduct and support research to meet the priorities and

requests for scientific evidence and information identified

by such programs with respect to—

(i) the outcomes, comparative clinical effectiveness,

and appropriateness of health care items and services

(including prescription drugs); and

(ii) strategies for improving the efficiency and

effectiveness of such programs, including the ways in

which such items and services are organized, managed,

and delivered under such programs.

(B) SPECIFICATION.—To respond to priorities and

information requests in subparagraph (A), the Secretary

may conduct or support, by grant, contract, or interagency

agreement, research, demonstrations, evaluations, technology assessments, or other activities, including the provision of technical assistance, scientific expertise, or methodological assistance.

(2) PRIORITIES.—

(A) IN GENERAL.—The Secretary shall establish a

process to develop priorities that will guide the research,

demonstrations, and evaluation activities undertaken

pursuant to this section.

(B) INITIAL LIST.—Not later than 6 months after the

date of the enactment of this Act, the Secretary shall

establish an initial list of priorities for research related

to health care items and services (including prescription

drugs).

(C) PROCESS.—In carrying out subparagraph (A), the

Secretary—

(i) shall ensure that there is broad and ongoing

consultation with relevant stakeholders in identifying

the highest priorities for research, demonstrations, and

evaluations to support and improve the programs

established under titles XVIII, XIX, and XXI of the

Social Security Act;

(ii) may include health care items and services

which impose a high cost on such programs, as well

as those which may be underutilized or overutilized

and which may significantly improve the prevention,

treatment, or cure of diseases and conditions (including

chronic conditions) which impose high direct or indirect

costs on patients or society; and

(iii) shall ensure that the research and activities

undertaken pursuant to this section are responsive

to the specified priorities and are conducted in a timely

manner.

(3) EVALUATION AND SYNTHESIS OF SCIENTIFIC EVIDENCE.—

42 USC 299b–7.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2439

(A) IN GENERAL.—The Secretary shall—

(i) evaluate and synthesize available scientific evidence related to health care items and services

(including prescription drugs) identified as priorities

in accordance with paragraph (2) with respect to the

comparative clinical effectiveness, outcomes, appropriateness, and provision of such items and services

(including prescription drugs);

(ii) identify issues for which existing scientific evidence is insufficient with respect to such health care

items and services (including prescription drugs);

(iii) disseminate to prescription drug plans and

MA–PD plans under part D of title XVIII of the Social

Security Act, other health plans, and the public the

findings made under clauses (i) and (ii); and

(iv) work in voluntary collaboration with public

and private sector entities to facilitate the development

of new scientific knowledge regarding health care items

and services (including prescription drugs).

(B) INITIAL RESEARCH.—The Secretary shall complete

the evaluation and synthesis of the initial research required

by the priority list developed under paragraph (2)(B) not

later than 18 months after the development of such list.

(C) DISSEMINATION.—

(i) IN GENERAL.—To enhance patient safety and

the quality of health care, the Secretary shall make

available and disseminate in appropriate formats to

prescription drugs plans under part D, and MA–PD

plans under part C, of title XVIII of the Social Security

Act, other health plans, and the public the evaluations

and syntheses prepared pursuant to subparagraph (A)

and the findings of research conducted pursuant to

paragraph (1). In carrying out this clause the Secretary, in order to facilitate the availability of such

evaluations and syntheses or findings at every decision

point in the health care system, shall—

(I) present such evaluations and syntheses or

findings in a form that is easily understood by

the individuals receiving health care items and

services (including prescription drugs) under such

plans and periodically assess that the requirements of this subclause have been met; and

(II) provide such evaluations and syntheses

or findings and other relevant information through

easily accessible and searchable electronic mechanisms, and in hard copy formats as appropriate.

(ii) RULE OF CONSTRUCTION.—Nothing in this section shall be construed as—

(I) affecting the authority of the Secretary or

the Commissioner of Food and Drugs under the

Federal Food, Drug, and Cosmetic Act or the Public

Health Service Act; or

(II) conferring any authority referred to in subclause (I) to the Director.

(D) ACCOUNTABILITY.—In carrying out this paragraph,

the Secretary shall implement activities in a manner that—

117 STAT. 2440 PUBLIC LAW 108–173—DEC. 8, 2003

(i) makes publicly available all scientific evidence

relied upon and the methodologies employed, provided

such evidence and method are not protected from public

disclosure by section 1905 of title 18, United States

Code, or other applicable law so that the results of

the research, analyses, or syntheses can be evaluated

or replicated; and

(ii) ensures that any information needs and unresolved issues identified in subparagraph (A)(ii) are

taken into account in priority-setting for future

research conducted by the Secretary.

(4) CONFIDENTIALITY.— (A) IN GENERAL.—In making use of administrative,

clinical, and program data and information developed or

collected with respect to the programs established under

titles XVIII, XIX, and XXI of the Social Security Act, for

purposes of carrying out the requirements of this section

or the activities authorized under title IX of the Public

Health Service Act (42 U.S.C. 299 et seq.), such data and

information shall be protected in accordance with the confidentiality requirements of title IX of the Public Health

Service Act.

(B) RULE OF CONSTRUCTION.—Nothing in this section

shall be construed to require or permit the disclosure of

data provided to the Secretary that is otherwise protected

from disclosure under the Federal Food, Drug, and Cosmetic Act, section 1905 of title 18, United States Code,

or other applicable law.

(5) EVALUATIONS.—The Secretary shall conduct and support

evaluations of the activities carried out under this section to

determine the extent to which such activities have had an

effect on outcomes and utilization of health care items and

services.

(6) IMPROVING INFORMATION AVAILABLE TO HEALTH CARE

PROVIDERS, PATIENTS, AND POLICYMAKERS.—Not later than 18

months after the date of enactment of this Act, the Secretary

shall identify options that could be undertaken in voluntary

collaboration with private and public entities (as appropriate)

for the—

(A) provision of more timely information through the

programs established under titles XVIII, XIX, and XXI

of the Social Security Act, regarding the outcomes and

quality of patient care, including clinical and patientreported outcomes, especially with respect to interventions

and conditions for which clinical trials would not be feasible

or raise ethical concerns that are difficult to address;

(B) acceleration of the adoption of innovation and

quality improvement under such programs; and

(C) development of management tools for the programs

established under titles XIX and XXI of the Social Security

Act, and with respect to the programs established under

such titles, assess the feasibility of using administrative

or claims data, to—

(i) improve oversight by State officials;

(ii) support Federal and State initiatives to

improve the quality, safety, and efficiency of services

provided under such programs; and

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2441

(iii) provide a basis for estimating the fiscal and

coverage impact of Federal or State program and policy

changes.

(b) RECOMMENDATIONS.— (1) DISCLAIMER.—In carrying out this section, the Director

shall—

(A) not mandate national standards of clinical practice

or quality health care standards; and

(B) include in any recommendations resulting from

projects funded and published by the Director, a corresponding reference to the prohibition described in

subparagraph (A).

(2) REQUIREMENT FOR IMPLEMENTATION.—Research, evaluation, and communication activities performed pursuant to this

section shall reflect the principle that clinicians and patients

should have the best available evidence upon which to make

choices in health care items and services, in providers, and

in health care delivery systems, recognizing that patient subpopulations and patient and physician preferences may vary.

(3) RULE OF CONSTRUCTION.—Nothing in this section shall

be construed to provide the Director with authority to mandate

a national standard or require a specific approach to quality

measurement and reporting.

(c) RESEARCH WITH RESPECT TO DISSEMINATION.—The Secretary, acting through the Director, may conduct or support research

with respect to improving methods of disseminating information

in accordance with subsection (a)(3)(C).

(d) LIMITATION ON CMS.—The Administrator of the Centers

for Medicare & Medicaid Services may not use data obtained in

accordance with this section to withhold coverage of a prescription

drug.

(e) AUTHORIZATION OF APPROPRIATIONS.—There is authorized

to be appropriated to carry out this section, $50,000,000 for fiscal

year 2004, and such sums as may be necessary for each fiscal

year thereafter.

SEC. 1014. HEALTH CARE THAT WORKS FOR ALL AMERICANS: CITIZENS

HEALTH CARE WORKING GROUP.

(a) FINDINGS.—Congress finds the following:

(1) In order to improve the health care system, the American public must engage in an informed national public debate

to make choices about the services they want covered, what

health care coverage they want, and how they are willing

to pay for coverage.

(2) More than a trillion dollars annually is spent on the

health care system, yet—

(A) 41,000,000 Americans are uninsured;

(B) insured individuals do not always have access to

essential, effective services to improve and maintain their

health; and

(C) employers, who cover over 170,000,000 Americans,

find providing coverage increasingly difficult because of

rising costs and double digit premium increases.

(3) Despite increases in medical care spending that are

greater than the rate of inflation, population growth, and Gross

Domestic Product growth, there has not been a commensurate

improvement in our health status as a nation.

42 USC 299 note.

117 STAT. 2442 PUBLIC LAW 108–173—DEC. 8, 2003

(4) Health care costs for even just 1 member of a family

can be catastrophic, resulting in medical bills potentially

harming the economic stability of the entire family.

(5) Common life occurrences can jeopardize the ability of

a family to retain private coverage or jeopardize access to

public coverage.

(6) Innovations in health care access, coverage, and quality

of care, including the use of technology, have often come from

States, local communities, and private sector organizations,

but more creative policies could tap this potential.

(7) Despite our Nation’s wealth, the health care system

does not provide coverage to all Americans who want it.

(b) PURPOSES.—The purposes of this section are—

(1) to provide for a nationwide public debate about

improving the health care system to provide every American

with the ability to obtain quality, affordable health care coverage; and

(2) to provide for a vote by Congress on the recommendations that result from the debate.

(c) ESTABLISHMENT.—The Secretary, acting through the Agency

for Healthcare Research and Quality, shall establish an entity to

be known as the Citizens’ Health Care Working Group (referred

to in this section as the ‘‘Working Group’’).

(d) MEMBERSHIP.—

(1) NUMBER AND APPOINTMENT.—The Working Group shall

be composed of 15 members. One member shall be the Secretary. The Comptroller General of the United States shall

appoint 14 members.

(2) QUALIFICATIONS.—

(A) IN GENERAL.—The membership of the Working

Group shall include—

(i) consumers of health services that represent

those individuals who have not had insurance within

2 years of appointment, that have had chronic illnesses,

including mental illness, are disabled, and those who

receive insurance coverage through medicare and medicaid; and

(ii) individuals with expertise in financing and

paying for benefits and access to care, business and

labor perspectives, and providers of health care.

The membership shall reflect a broad geographic representation and a balance between urban and rural representatives.

(B) PROHIBITED APPOINTMENTS.—Members of the

Working Group shall not include Members of Congress

or other elected government officials (Federal, State, or

local). Individuals appointed to the Working Group shall

not be paid employees or representatives of associations

or advocacy organizations involved in the health care

system.

(e) PERIOD OF APPOINTMENT.—Members of the Working Group

shall be appointed for a life of the Working Group. Any vacancies

shall not affect the power and duties of the Working Group but

shall be filled in the same manner as the original appointment.

(f) DESIGNATION OF THE CHAIRPERSON.—Not later than 15 days

after the date on which all members of the Working Group have

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2443

been appointed under subsection (d)(1), the Comptroller General

shall designate the chairperson of the Working Group.

(g) SUBCOMMITTEES.—The Working Group may establish subcommittees if doing so increases the efficiency of the Working

Group in completing its tasks.

(h) DUTIES.— (1) HEARINGS.—Not later than 90 days after the date of

the designation of the chairperson under subsection (f), the

Working Group shall hold hearings to examine—

(A) the capacity of the public and private health care

systems to expand coverage options;

(B) the cost of health care and the effectiveness of

care provided at all stages of disease;

(C) innovative State strategies used to expand health

care coverage and lower health care costs;

(D) local community solutions to accessing health care

coverage;

(E) efforts to enroll individuals currently eligible for

public or private health care coverage;

(F) the role of evidence-based medical practices that

can be documented as restoring, maintaining, or improving

a patient’s health, and the use of technology in supporting

providers in improving quality of care and lowering costs;

and

(G) strategies to assist purchasers of health care,

including consumers, to become more aware of the impact

of costs, and to lower the costs of health care.

(2) ADDITIONAL HEARINGS.—The Working Group may hold

additional hearings on subjects other than those listed in paragraph (1) so long as such hearings are determined to be necessary by the Working Group in carrying out the purposes

of this section. Such additional hearings do not have to be

completed within the time period specified in paragraph (1)

but shall not delay the other activities of the Working Group

under this section.

(3) THE HEALTH REPORT TO THE AMERICAN PEOPLE.—Not

later than 90 days after the hearings described in paragraphs

(1) and (2) are completed, the Working Group shall prepare

and make available to health care consumers through the Internet and other appropriate public channels, a report to be entitled, ‘‘The Health Report to the American People’’. Such report

shall be understandable to the general public and include—

(A) a summary of—

(i) health care and related services that may be

used by individuals throughout their life span;

(ii) the cost of health care services and their medical effectiveness in providing better quality of care

for different age groups;

(iii) the source of coverage and payment, including

reimbursement, for health care services;

(iv) the reasons people are uninsured or underinsured and the cost to taxpayers, purchasers of health

services, and communities when Americans are uninsured or underinsured;

(v) the impact on health care outcomes and costs

when individuals are treated in all stages of disease;

(vi) health care cost containment strategies; and

117 STAT. 2444 PUBLIC LAW 108–173—DEC. 8, 2003

(vii) information on health care needs that need

to be addressed;

(B) examples of community strategies to provide health

care coverage or access;

(C) information on geographic-specific issues relating

to health care;

(D) information concerning the cost of care in different

settings, including institutional-based care and home and

community-based care;

(E) a summary of ways to finance health care coverage;

and

(F) the role of technology in providing future health

care including ways to support the information needs of

patients and providers.

(4) COMMUNITY MEETINGS.—

(A) IN GENERAL.—Not later than 1 year after the date

on which all the members of the Working Group have

been appointed under subsection (d)(1) and appropriations

are first made available to carry out this section, the

Working Group shall initiate health care community

meetings throughout the United States (in this paragraph

referred to as ‘‘community meetings’’). Such community

meetings may be geographically or regionally based and

shall be completed within 180 days after the initiation

of the first meeting.

(B) NUMBER OF MEETINGS.—The Working Group shall

hold a sufficient number of community meetings in order

to receive information that reflects—

(i) the geographic differences throughout the

United States;

(ii) diverse populations; and

(iii) a balance among urban and rural populations.

(C) MEETING REQUIREMENTS.—

(i) FACILITATOR.—A State health officer may be

the facilitator at the community meetings.

(ii) ATTENDANCE.—At least 1 member of the

Working Group shall attend and serve as chair of

each community meeting. Other members may participate through interactive technology.

(iii) TOPICS.—The community meetings shall, at

a minimum, address the following questions:

(I) What health care benefits and services

should be provided?

(II) How does the American public want health

care delivered?

(III) How should health care coverage be

financed?

(IV) What trade-offs are the American public

willing to make in either benefits or financing

to ensure access to affordable, high quality health

care coverage and services?

(iv) INTERACTIVE TECHNOLOGY.—The Working

Group may encourage public participation in community meetings through interactive technology and other

means as determined appropriate by the Working

Group.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2445

(D) INTERIM REQUIREMENTS.—Not later than 180 days

after the date of completion of the community meetings,

the Working Group shall prepare and make available to

the public through the Internet and other appropriate

public channels, an interim set of recommendations on

health care coverage and ways to improve and strengthen

the health care system based on the information and preferences expressed at the community meetings. There shall

be a 90-day public comment period on such recommendations.

(i) RECOMMENDATIONS.—Not later than 120 days after the

expiration of the public comment period described in subsection

(h)(4)(D), the Working Group shall submit to Congress and the

President a final set of recommendations.

(j) ADMINISTRATION.—

(1) EXECUTIVE DIRECTOR.—There shall be an Executive

Director of the Working Group who shall be appointed by

the chairperson of the Working Group in consultation with

the members of the Working Group.

(2) COMPENSATION.—While serving on the business of the

Working Group (including travel time), a member of the

Working Group shall be entitled to compensation at the per

diem equivalent of the rate provided for level IV of the Executive Schedule under section 5315 of title 5, United States Code,

and while so serving away from home and the member’s regular

place of business, a member may be allowed travel expenses,

as authorized by the chairperson of the Working Group. For

purposes of pay and employment benefits, rights, and privileges,

all personnel of the Working Group shall be treated as if

they were employees of the Senate.

(3) INFORMATION FROM FEDERAL AGENCIES.—The Working

Group may secure directly from any Federal department or

agency such information as the Working Group considers necessary to carry out this section. Upon request of the Working

Group, the head of such department or agency shall furnish

such information.

(4) POSTAL SERVICES.—The Working Group may use the

United States mails in the same manner and under the same

conditions as other departments and agencies of the Federal

Government.

(k) DETAIL.—Not more than 10 Federal Government employees

employed by the Department of Labor and 10 Federal Government

employees employed by the Department of Health and Human

Services may be detailed to the Working Group under this section

without further reimbursement. Any detail of an employee shall

be without interruption or loss of civil service status or privilege.

(l) TEMPORARY AND INTERMITTENT SERVICES.—The chairperson

of the Working Group may procure temporary and intermittent

services under section 3109(b) of title 5, United States Code, at

rates for individuals which do not exceed the daily equivalent

of the annual rate of basic pay prescribed for level V of the Executive

Schedule under section 5316 of such title.

(m) ANNUAL REPORT.—Not later than 1 year after the date

of enactment of this Act, and annually thereafter during the existence of the Working Group, the Working Group shall report to

Congress and make public a detailed description of the expenditures

117 STAT. 2446 PUBLIC LAW 108–173—DEC. 8, 2003

of the Working Group used to carry out its duties under this

section.

(n) SUNSET OF WORKING GROUP.—The Working Group shall

terminate on the date that is 2 years after the date on which

all the members of the Working Group have been appointed under

subsection (d)(1) and appropriations are first made available to

carry out this section.

(o) ADMINISTRATION REVIEW AND COMMENTS.—Not later than

45 days after receiving the final recommendations of the Working

Group under subsection (i), the President shall submit a report

to Congress which shall contain—

(1) additional views and comments on such recommendations; and

(2) recommendations for such legislation and administrative actions as the President considers appropriate.

(p) REQUIRED CONGRESSIONAL ACTION.—Not later than 45 days

after receiving the report submitted by the President under subsection (o), each committee of jurisdiction of Congress, the Committee on Finance of the Senate, the Committee on Health, Education, Labor, and Pensions of the Senate, the Committee on Ways

and Means of the House of Representatives, the Committee on

Energy and Commerce of the House of Representatives, Committee

on Education and the Workforce of the House of Representatives,

shall hold at least 1 hearing on such report and on the final

recommendations of the Working Group submitted under subsection

(i).

(q) AUTHORIZATION OF APPROPRIATIONS.—

(1) IN GENERAL.—There are authorized to be appropriated

to carry out this section, other than subsection (h)(3), $3,000,000

for each of fiscal years 2005 and 2006.

(2) HEALTH REPORT TO THE AMERICAN PEOPLE.—There are

authorized to be appropriated for the preparation and dissemination of the Health Report to the American People described

in subsection (h)(3), such sums as may be necessary for the

fiscal year in which the report is required to be submitted.

SEC. 1015. FUNDING START-UP ADMINISTRATIVE COSTS FOR MEDICARE REFORM.

(a) IN GENERAL.—There are appropriated to carry out this

Act (including the amendments made by this Act), to be transferred

from the Federal Hospital Insurance Trust Fund and the Federal

Supplementary Medical Insurance Trust Fund—

(1) not to exceed $1,000,000,000 for the Centers for Medicare & Medicaid Services; and

(2) not to exceed $500,000,000 for the Social Security

Administration.

(b) AVAILABILITY.—Amounts provided under subsection (a) shall

remain available until September 30, 2005.

(c) APPLICATION.—From amounts provided under subsection

(a)(2), the Social Security Administration may reimburse the

Internal Revenue Service for expenses in carrying out this Act

(and the amendments made by this Act).

(d) TRANSFER.—The President may transfer amounts provided

under subsection (a) between the Centers for Medicare & Medicaid

Services and the Social Security Administration. Notice of such

transfers shall be transmitted within 15 days to the authorizing

committees of the House of Representatives and of the Senate.

Reports.

Deadline.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2447

SEC. 1016. HEALTH CARE INFRASTRUCTURE IMPROVEMENT PROGRAM.

Title XVIII is amended by adding at the end the following

new section:

‘‘HEALTH CARE INFRASTRUCTURE IMPROVEMENT PROGRAM

‘‘SEC. 1897. (a) ESTABLISHMENT.—The Secretary shall establish

a loan program that provides loans to qualifying hospitals for payment of the capital costs of projects described in subsection (d).

‘‘(b) APPLICATION.—No loan may be provided under this section

to a qualifying hospital except pursuant to an application that

is submitted and approved in a time, manner, and form specified

by the Secretary. A loan under this section shall be on such terms

and conditions and meet such requirements as the Secretary determines appropriate.

‘‘(c) SELECTION CRITERIA.—

‘‘(1) IN GENERAL.—The Secretary shall establish criteria

for selecting among qualifying hospitals that apply for a loan

under this section. Such criteria shall consider the extent to

which the project for which loan is sought is nationally or

regionally significant, in terms of expanding or improving the

health care infrastructure of the United States or the region

or in terms of the medical benefit that the project will have.

‘‘(2) QUALIFYING HOSPITAL DEFINED.—For purposes of this

section, the term ‘qualifying hospital’ means a hospital that—

‘‘(A) is engaged in research in the causes, prevention,

and treatment of cancer; and

‘‘(B) is designated as a cancer center for the National

Cancer Institute or is designated by the State as the official

cancer institute of the State.

‘‘(d) PROJECTS.—A project described in this subsection is a

project of a qualifying hospital that is designed to improve the

health care infrastructure of the hospital, including construction,

renovation, or other capital improvements.

‘‘(e) STATE AND LOCAL PERMITS.—The provision of a loan under

this section with respect to a project shall not—

‘‘(1) relieve any recipient of the loan of any obligation

to obtain any required State or local permit or approval with

respect to the project;

‘‘(2) limit the right of any unit of State or local government

to approve or regulate any rate of return on private equity

invested in the project; or

‘‘(3) otherwise supersede any State or local law (including

any regulation) applicable to the construction or operation of

the project.

‘‘(f) FORGIVENESS OF INDEBTEDNESS.—The Secretary may forgive a loan provided to a qualifying hospital under this section

under terms and conditions that are analogous to the loan forgiveness provision for student loans under part D of title IV of the

Higher Education Act of 1965 (20 U.S.C. 1087a et seq.), except

that the Secretary shall condition such forgiveness on the establishment by the hospital of—

‘‘(A) an outreach program for cancer prevention, early

diagnosis, and treatment that provides services to a

substantial majority of the residents of a State or region,

including residents of rural areas;

42 USC 1395hhh.

117 STAT. 2448 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(B) an outreach program for cancer prevention, early

diagnosis, and treatment that provides services to multiple

Indian tribes; and

‘‘(C)(i) unique research resources (such as population

databases); or

‘‘(ii) an affiliation with an entity that has unique

research resources.

‘‘(g) FUNDING.— ‘‘(1) IN GENERAL.—There are appropriated, out of amounts

in the Treasury not otherwise appropriated, to carry out this

section, $200,000,000, to remain available during the period

beginning on July 1, 2004, and ending on September 30, 2008.

‘‘(2) ADMINISTRATIVE COSTS.—From funds made available

under paragraph (1), the Secretary may use, for the administration of this section, not more than $2,000,000 for each of fiscal

years 2004 through 2008.

‘‘(3) AVAILABILITY.—Amounts appropriated under this section shall be available for obligation on July 1, 2004.

‘‘(h) REPORT TO CONGRESS.—Not later than 4 years after the

date of the enactment of this section, the Secretary shall submit

to Congress a report on the projects for which loans are provided

under this section and a recommendation as to whether the Congress should authorize the Secretary to continue loans under this

section beyond fiscal year 2008.’’.

TITLE XI—ACCESS TO AFFORDABLE

PHARMACEUTICALS

Subtitle A—Access to Affordable

Pharmaceuticals

SEC. 1101. THIRTY-MONTH STAY-OF-EFFECTIVENESS PERIOD.

(a) ABBREVIATED NEW DRUG APPLICATIONS.—Section 505(j) of

the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) is

amended—

(1) in paragraph (2)—

(A) by striking subparagraph (B) and inserting the

following:

‘‘(B) NOTICE OF OPINION THAT PATENT IS INVALID OR WILL NOT

BE INFRINGED.— ‘‘(i) AGREEMENT TO GIVE NOTICE.—An applicant that makes

a certification described in subparagraph (A)(vii)(IV) shall

include in the application a statement that the applicant will

give notice as required by this subparagraph.

‘‘(ii) TIMING OF NOTICE.—An applicant that makes a certification described in subparagraph (A)(vii)(IV) shall give notice

as required under this subparagraph—

‘‘(I) if the certification is in the application, not later

than 20 days after the date of the postmark on the notice

with which the Secretary informs the applicant that the

application has been filed; or

‘‘(II) if the certification is in an amendment or supplement to the application, at the time at which the applicant

submits the amendment or supplement, regardless of

whether the applicant has already given notice with respect

Loans.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2449

to another such certification contained in the application

or in an amendment or supplement to the application.

‘‘(iii) RECIPIENTS OF NOTICE.—An applicant required under

this subparagraph to give notice shall give notice to—

‘‘(I) each owner of the patent that is the subject of

the certification (or a representative of the owner designated to receive such a notice); and

‘‘(II) the holder of the approved application under subsection (b) for the drug that is claimed by the patent

or a use of which is claimed by the patent (or a representative of the holder designated to receive such a notice).

‘‘(iv) CONTENTS OF NOTICE.—A notice required under this

subparagraph shall—

‘‘(I) state that an application that contains data from

bioavailability or bioequivalence studies has been submitted under this subsection for the drug with respect

to which the certification is made to obtain approval to

engage in the commercial manufacture, use, or sale of

the drug before the expiration of the patent referred to

in the certification; and

‘‘(II) include a detailed statement of the factual and

legal basis of the opinion of the applicant that the patent

is invalid or will not be infringed.’’; and

(B) by adding at the end the following subparagraph:

‘‘(D)(i) An applicant may not amend or supplement an application to seek approval of a drug referring to a different listed drug

from the listed drug identified in the application as submitted

to the Secretary.

‘‘(ii) With respect to the drug for which an application is submitted, nothing in this subsection prohibits an applicant from

amending or supplementing the application to seek approval of

a different strength.

‘‘(iii) Within 60 days after the date of the enactment of the

Medicare Prescription Drug, Improvement, and Modernization Act

of 2003, the Secretary shall issue guidance defining the term ‘listed

drug’ for purposes of this subparagraph.’’; and

(2) in paragraph (5)—

(A) in subparagraph (B)—

(i) by striking ‘‘under the following’’ and inserting

‘‘by applying the following to each certification made

under paragraph (2)(A)(vii)’’; and

(ii) in clause (iii)—

(I) in the first sentence, by striking ‘‘unless’’

and all that follows and inserting ‘‘unless, before

the expiration of 45 days after the date on which

the notice described in paragraph (2)(B) is

received, an action is brought for infringement of

the patent that is the subject of the certification

and for which information was submitted to the

Secretary under subsection (b)(1) or (c)(2) before

the date on which the application (excluding an

amendment or supplement to the application),

which the Secretary later determines to be

substantially complete, was submitted.’’; and

(II) in the second sentence—

(aa) by striking subclause (I) and inserting

the following:

Deadline.

117 STAT. 2450 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(I) if before the expiration of such period the district

court decides that the patent is invalid or not infringed

(including any substantive determination that there is no

cause of action for patent infringement or invalidity), the

approval shall be made effective on—

‘‘(aa) the date on which the court enters judgment

reflecting the decision; or

‘‘(bb) the date of a settlement order or consent

decree signed and entered by the court stating that

the patent that is the subject of the certification is

invalid or not infringed;’’;

(bb) by striking subclause (II) and

inserting the following:

‘‘(II) if before the expiration of such period the district

court decides that the patent has been infringed—

‘‘(aa) if the judgment of the district court is

appealed, the approval shall be made effective on—

‘‘(AA) the date on which the court of appeals

decides that the patent is invalid or not infringed

(including any substantive determination that

there is no cause of action for patent infringement

or invalidity); or

‘‘(BB) the date of a settlement order or consent

decree signed and entered by the court of appeals

stating that the patent that is the subject of the

certification is invalid or not infringed; or

‘‘(bb) if the judgment of the district court is not

appealed or is affirmed, the approval shall be made

effective on the date specified by the district court

in a court order under section 271(e)(4)(A) of title 35,

United States Code;’’;

(cc) in subclause (III), by striking ‘‘on the

date of such court decision.’’ and inserting ‘‘as

provided in subclause (I); or’’;

(dd) by inserting after subclause (III) the

following:

‘‘(IV) if before the expiration of such period the court

grants a preliminary injunction prohibiting the applicant

from engaging in the commercial manufacture or sale of

the drug until the court decides the issues of patent validity

and infringement and if the court decides that such patent

has been infringed, the approval shall be made effective

as provided in subclause (II).’’; and

(ee) in the matter after and below subclause (IV) (as added by item (dd)), by striking

‘‘Until the expiration’’ and all that follows;

(B) by redesignating subparagraphs (C) and (D) as

subparagraphs (E) and (F), respectively; and

(C) by inserting after subparagraph (B) the following:

‘‘(C) CIVIL ACTION TO OBTAIN PATENT CERTAINTY.—

‘‘(i) DECLARATORY JUDGMENT ABSENT INFRINGEMENT ACTION.—

‘‘(I) IN GENERAL.—No action may be brought

under section 2201 of title 28, United States Code,

by an applicant under paragraph (2) for a declaratory judgment with respect to a patent which is

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2451

the subject of the certification referred to in

subparagraph (B)(iii) unless—

‘‘(aa) the 45-day period referred to in such

subparagraph has expired;

‘‘(bb) neither the owner of such patent

nor the holder of the approved application

under subsection (b) for the drug that is

claimed by the patent or a use of which is

claimed by the patent brought a civil action

against the applicant for infringement of the

patent before the expiration of such period;

and

‘‘(cc) in any case in which the notice provided under paragraph (2)(B) relates to noninfringement, the notice was accompanied by

a document described in subclause (III).

‘‘(II) FILING OF CIVIL ACTION.—If the conditions

described in items (aa), (bb), and as applicable,

(cc) of subclause (I) have been met, the applicant

referred to in such subclause may, in accordance

with section 2201 of title 28, United States Code,

bring a civil action under such section against

the owner or holder referred to in such subclause

(but not against any owner or holder that has

brought such a civil action against the applicant,

unless that civil action was dismissed without

prejudice) for a declaratory judgment that the

patent is invalid or will not be infringed by the

drug for which the applicant seeks approval, except

that such civil action may be brought for a declaratory judgment that the patent will not be infringed

only in a case in which the condition described

in subclause (I)(cc) is applicable. A civil action

referred to in this subclause shall be brought in

the judicial district where the defendant has its

principal place of business or a regular and established place of business.

‘‘(III) OFFER OF CONFIDENTIAL ACCESS TO

APPLICATION.—For purposes of subclause (I)(cc),

the document described in this subclause is a document providing an offer of confidential access to

the application that is in the custody of the

applicant under paragraph (2) for the purpose of

determining whether an action referred to in

subparagraph (B)(iii) should be brought. The document providing the offer of confidential access shall

contain such restrictions as to persons entitled

to access, and on the use and disposition of any

information accessed, as would apply had a protective order been entered for the purpose of protecting trade secrets and other confidential business information. A request for access to an

application under an offer of confidential access

shall be considered acceptance of the offer of confidential access with the restrictions as to persons

entitled to access, and on the use and disposition

of any information accessed, contained in the offer

117 STAT. 2452 PUBLIC LAW 108–173—DEC. 8, 2003

of confidential access, and those restrictions and

other terms of the offer of confidential access shall

be considered terms of an enforceable contract.

Any person provided an offer of confidential access

shall review the application for the sole and limited

purpose of evaluating possible infringement of the

patent that is the subject of the certification under

paragraph (2)(A)(vii)(IV) and for no other purpose,

and may not disclose information of no relevance

to any issue of patent infringement to any person

other than a person provided an offer of confidential access. Further, the application may be

redacted by the applicant to remove any information of no relevance to any issue of patent infringement.

‘‘(ii) COUNTERCLAIM TO INFRINGEMENT ACTION.—

‘‘(I) IN GENERAL.—If an owner of the patent

or the holder of the approved application under

subsection (b) for the drug that is claimed by the

patent or a use of which is claimed by the patent

brings a patent infringement action against the

applicant, the applicant may assert a counterclaim

seeking an order requiring the holder to correct

or delete the patent information submitted by the

holder under subsection (b) or (c) on the ground

that the patent does not claim either—

‘‘(aa) the drug for which the application

was approved; or

‘‘(bb) an approved method of using the

drug.

‘‘(II) NO INDEPENDENT CAUSE OF ACTION.—Subclause (I) does not authorize the assertion of a

claim described in subclause (I) in any civil action

or proceeding other than a counterclaim described

in subclause (I).

‘‘(iii) NO DAMAGES.—An applicant shall not be entitled to damages in a civil action under clause (i) or

a counterclaim under clause (ii).’’.

(b) APPLICATIONS GENERALLY.—Section 505 of the Federal Food,

Drug, and Cosmetic Act (21 U.S.C. 355) is amended—

(1) in subsection (b)—

(A) by striking paragraph (3) and inserting the following:

‘‘(3) NOTICE OF OPINION THAT PATENT IS INVALID OR WILL NOT

BE INFRINGED.—

‘‘(A) AGREEMENT TO GIVE NOTICE.—An applicant that makes

a certification described in paragraph (2)(A)(iv) shall include

in the application a statement that the applicant will give

notice as required by this paragraph.

‘‘(B) TIMING OF NOTICE.—An applicant that makes a certification described in paragraph (2)(A)(iv) shall give notice as

required under this paragraph—

‘‘(i) if the certification is in the application, not later

than 20 days after the date of the postmark on the notice

with which the Secretary informs the applicant that the

application has been filed; or

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2453

‘‘(ii) if the certification is in an amendment or supplement to the application, at the time at which the applicant

submits the amendment or supplement, regardless of

whether the applicant has already given notice with respect

to another such certification contained in the application

or in an amendment or supplement to the application.

‘‘(C) RECIPIENTS OF NOTICE.—An applicant required under

this paragraph to give notice shall give notice to—

‘‘(i) each owner of the patent that is the subject of

the certification (or a representative of the owner designated to receive such a notice); and

‘‘(ii) the holder of the approved application under this

subsection for the drug that is claimed by the patent or

a use of which is claimed by the patent (or a representative

of the holder designated to receive such a notice).

‘‘(D) CONTENTS OF NOTICE.—A notice required under this

paragraph shall—

‘‘(i) state that an application that contains data from

bioavailability or bioequivalence studies has been submitted under this subsection for the drug with respect

to which the certification is made to obtain approval to

engage in the commercial manufacture, use, or sale of

the drug before the expiration of the patent referred to

in the certification; and

‘‘(ii) include a detailed statement of the factual and

legal basis of the opinion of the applicant that the patent

is invalid or will not be infringed.’’; and

(B)(i) by redesignating paragraph (4) as paragraph (5);

and

(ii) by inserting after paragraph (3) the following paragraph:

‘‘(4)(A) An applicant may not amend or supplement an application referred to in paragraph (2) to seek approval of a drug that

is a different drug than the drug identified in the application

as submitted to the Secretary.

‘‘(B) With respect to the drug for which such an application

is submitted, nothing in this subsection or subsection (c)(3) prohibits

an applicant from amending or supplementing the application to

seek approval of a different strength.’’; and

(2) in subsection (c)(3)—

(A) in the first sentence, by striking ‘‘under the following’’ and inserting ‘‘by applying the following to each

certification made under subsection (b)(2)(A)’’;

(B) in subparagraph (C)—

(i) in the first sentence, by striking ‘‘unless’’ and

all that follows and inserting ‘‘unless, before the expiration of 45 days after the date on which the notice

described in subsection (b)(3) is received, an action

is brought for infringement of the patent that is the

subject of the certification and for which information

was submitted to the Secretary under paragraph (2)

or subsection (b)(1) before the date on which the

application (excluding an amendment or supplement

to the application) was submitted.’’;

(ii) in the second sentence—

(I) by striking ‘‘paragraph (3)(B)’’ and inserting

‘‘subsection (b)(3)’’;

117 STAT. 2454 PUBLIC LAW 108–173—DEC. 8, 2003

(II) by striking clause (i) and inserting the

following:

‘‘(i) if before the expiration of such period the district

court decides that the patent is invalid or not infringed

(including any substantive determination that there is no

cause of action for patent infringement or invalidity), the

approval shall be made effective on—

‘‘(I) the date on which the court enters judgment

reflecting the decision; or

‘‘(II) the date of a settlement order or consent

decree signed and entered by the court stating that

the patent that is the subject of the certification is

invalid or not infringed;’’;

(III) by striking clause (ii) and inserting the

following:

‘‘(ii) if before the expiration of such period the district

court decides that the patent has been infringed—

‘‘(I) if the judgment of the district court is appealed,

the approval shall be made effective on—

‘‘(aa) the date on which the court of appeals

decides that the patent is invalid or not infringed

(including any substantive determination that

there is no cause of action for patent infringement

or invalidity); or

‘‘(bb) the date of a settlement order or consent

decree signed and entered by the court of appeals

stating that the patent that is the subject of the

certification is invalid or not infringed; or

‘‘(II) if the judgment of the district court is not

appealed or is affirmed, the approval shall be made

effective on the date specified by the district court

in a court order under section 271(e)(4)(A) of title 35,

United States Code;’’;

(IV) in clause (iii), by striking ‘‘on the date

of such court decision.’’ and inserting ‘‘as provided

in clause (i); or’’;

(V) by inserting after clause (iii), the following:

‘‘(iv) if before the expiration of such period the court

grants a preliminary injunction prohibiting the applicant

from engaging in the commercial manufacture or sale of

the drug until the court decides the issues of patent validity

and infringement and if the court decides that such patent

has been infringed, the approval shall be made effective

as provided in clause (ii).’’; and

(VI) in the matter after and below clause (iv)

(as added by subclause (V)), by striking ‘‘Until

the expiration’’ and all that follows; and

(iii) in the third sentence, by striking ‘‘paragraph

(3)(B)’’ and inserting ‘‘subsection (b)(3)’’;

(C) by redesignating subparagraph (D) as subparagraph (E); and

(D) by inserting after subparagraph (C) the following:

‘‘(D) CIVIL ACTION TO OBTAIN PATENT CERTAINTY.—

‘‘(i) DECLARATORY JUDGMENT ABSENT INFRINGEMENT ACTION.— ‘‘(I) IN GENERAL.—No action may be brought

under section 2201 of title 28, United States Code,

Effective date.

Effective date.

Effective date.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2455

by an applicant referred to in subsection (b)(2)

for a declaratory judgment with respect to a patent

which is the subject of the certification referred

to in subparagraph (C) unless—

‘‘(aa) the 45-day period referred to in such

subparagraph has expired;

‘‘(bb) neither the owner of such patent

nor the holder of the approved application

under subsection (b) for the drug that is

claimed by the patent or a use of which is

claimed by the patent brought a civil action

against the applicant for infringement of the

patent before the expiration of such period;

and

‘‘(cc) in any case in which the notice provided under paragraph (2)(B) relates to noninfringement, the notice was accompanied by

a document described in subclause (III).

‘‘(II) FILING OF CIVIL ACTION.—If the conditions

described in items (aa), (bb), and as applicable,

(cc) of subclause (I) have been met, the applicant

referred to in such subclause may, in accordance

with section 2201 of title 28, United States Code,

bring a civil action under such section against

the owner or holder referred to in such subclause

(but not against any owner or holder that has

brought such a civil action against the applicant,

unless that civil action was dismissed without

prejudice) for a declaratory judgment that the

patent is invalid or will not be infringed by the

drug for which the applicant seeks approval, except

that such civil action may be brought for a declaratory judgment that the patent will not be infringed

only in a case in which the condition described

in subclause (I)(cc) is applicable. A civil action

referred to in this subclause shall be brought in

the judicial district where the defendant has its

principal place of business or a regular and established place of business.

‘‘(III) OFFER OF CONFIDENTIAL ACCESS TO

APPLICATION.—For purposes of subclause (I)(cc),

the document described in this subclause is a document providing an offer of confidential access to

the application that is in the custody of the

applicant referred to in subsection (b)(2) for the

purpose of determining whether an action referred

to in subparagraph (C) should be brought. The

document providing the offer of confidential access

shall contain such restrictions as to persons entitled to access, and on the use and disposition of

any information accessed, as would apply had a

protective order been entered for the purpose of

protecting trade secrets and other confidential

business information. A request for access to an

application under an offer of confidential access

shall be considered acceptance of the offer of confidential access with the restrictions as to persons

117 STAT. 2456 PUBLIC LAW 108–173—DEC. 8, 2003

entitled to access, and on the use and disposition

of any information accessed, contained in the offer

of confidential access, and those restrictions and

other terms of the offer of confidential access shall

be considered terms of an enforceable contract.

Any person provided an offer of confidential access

shall review the application for the sole and limited

purpose of evaluating possible infringement of the

patent that is the subject of the certification under

subsection (b)(2)(A)(iv) and for no other purpose,

and may not disclose information of no relevance

to any issue of patent infringement to any person

other than a person provided an offer of confidential access. Further, the application may be

redacted by the applicant to remove any information of no relevance to any issue of patent infringement.

‘‘(ii) COUNTERCLAIM TO INFRINGEMENT ACTION.—

‘‘(I) IN GENERAL.—If an owner of the patent

or the holder of the approved application under

subsection (b) for the drug that is claimed by the

patent or a use of which is claimed by the patent

brings a patent infringement action against the

applicant, the applicant may assert a counterclaim

seeking an order requiring the holder to correct

or delete the patent information submitted by the

holder under subsection (b) or this subsection on

the ground that the patent does not claim either—

‘‘(aa) the drug for which the application

was approved; or

‘‘(bb) an approved method of using the

drug.

‘‘(II) NO INDEPENDENT CAUSE OF ACTION.—Subclause (I) does not authorize the assertion of a

claim described in subclause (I) in any civil action

or proceeding other than a counterclaim described

in subclause (I).

‘‘(iii) NO DAMAGES.—An applicant shall not be entitled to damages in a civil action under clause (i) or

a counterclaim under clause (ii).’’.

(c) APPLICABILITY.—

(1) IN GENERAL.—Except as provided in paragraphs (2)

and (3), the amendments made by subsections (a) and (b) apply

to any proceeding under section 505 of the Federal Food, Drug,

and Cosmetic Act (21 U.S.C. 355) that is pending on or after

the date of the enactment of this Act regardless of the date

on which the proceeding was commenced or is commenced.

(2) NOTICE OF OPINION THAT PATENT IS INVALID OR WILL

NOT BE INFRINGED.—The amendments made by subsections

(a)(1) and (b)(1) apply with respect to any certification under

subsection (b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) of section 505 of the

Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) submitted on or after August 18, 2003, in an application filed

under subsection (b) or (j) of that section or in an amendment

or supplement to an application filed under subsection (b) or

(j) of that section.

21 USC 355 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2457

(3) EFFECTIVE DATE OF APPROVAL.—The amendments made

by subsections (a)(2)(A)(ii)(I) and (b)(2)(B)(i) apply with respect

to any patent information submitted under subsection (b)(1)

or (c)(2) of section 505 of the Federal Food, Drug, and Cosmetic

Act (21 U.S.C. 355) on or after August 18, 2003.

(d) INFRINGEMENT ACTIONS.—Section 271(e) of title 35, United

States Code, is amended by adding at the end the following:

‘‘(5) Where a person has filed an application described in paragraph (2) that includes a certification under subsection (b)(2)(A)(iv)

or (j)(2)(A)(vii)(IV) of section 505 of the Federal Food, Drug, and

Cosmetic Act (21 U.S.C. 355), and neither the owner of the patent

that is the subject of the certification nor the holder of the approved

application under subsection (b) of such section for the drug that

is claimed by the patent or a use of which is claimed by the

patent brought an action for infringement of such patent before

the expiration of 45 days after the date on which the notice given

under subsection (b)(3) or (j)(2)(B) of such section was received,

the courts of the United States shall, to the extent consistent

with the Constitution, have subject matter jurisdiction in any action

brought by such person under section 2201 of title 28 for a declaratory judgment that such patent is invalid or not infringed.’’.

SEC. 1102. FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.

(a) IN GENERAL.—Section 505(j)(5) of the Federal Food, Drug,

and Cosmetic Act (21 U.S.C. 355(j)(5)) (as amended by section

1101) is amended—

(1) in subparagraph (B), by striking clause (iv) and

inserting the following:

‘‘(iv) 180-DAY EXCLUSIVITY PERIOD.—

‘‘(I) EFFECTIVENESS OF APPLICATION.—Subject to

subparagraph (D), if the application contains a certification

described in paragraph (2)(A)(vii)(IV) and is for a drug

for which a first applicant has submitted an application

containing such a certification, the application shall be

made effective on the date that is 180 days after the

date of the first commercial marketing of the drug

(including the commercial marketing of the listed drug)

by any first applicant.

‘‘(II) DEFINITIONS.—In this paragraph:

‘‘(aa) 180-DAY EXCLUSIVITY PERIOD.—The term ‘180-

day exclusivity period’ means the 180-day period

ending on the day before the date on which an application submitted by an applicant other than a first

applicant could become effective under this clause.

‘‘(bb) FIRST APPLICANT.—As used in this subsection,

the term ‘first applicant’ means an applicant that, on

the first day on which a substantially complete application containing a certification described in paragraph

(2)(A)(vii)(IV) is submitted for approval of a drug, submits a substantially complete application that contains

and lawfully maintains a certification described in

paragraph (2)(A)(vii)(IV) for the drug.

‘‘(cc) SUBSTANTIALLY COMPLETE APPLICATION.—As

used in this subsection, the term ‘substantially complete application’ means an application under this subsection that on its face is sufficiently complete to permit

117 STAT. 2458 PUBLIC LAW 108–173—DEC. 8, 2003

a substantive review and contains all the information

required by paragraph (2)(A).

‘‘(dd) TENTATIVE APPROVAL.—

‘‘(AA) IN GENERAL.—The term ‘tentative

approval’ means notification to an applicant by

the Secretary that an application under this subsection meets the requirements of paragraph

(2)(A), but cannot receive effective approval

because the application does not meet the requirements of this subparagraph, there is a period of

exclusivity for the listed drug under subparagraph

(F) or section 505A, or there is a 7-year period

of exclusivity for the listed drug under section

527.

‘‘(BB) LIMITATION.—A drug that is granted

tentative approval by the Secretary is not an

approved drug and shall not have an effective

approval until the Secretary issues an approval

after any necessary additional review of the

application.’’; and

(2) by inserting after subparagraph (C) the following:

‘‘(D) FORFEITURE OF 180-DAY EXCLUSIVITY PERIOD.—

‘‘(i) DEFINITION OF FORFEITURE EVENT.—In this

subparagraph, the term ‘forfeiture event’, with respect

to an application under this subsection, means the

occurrence of any of the following:

‘‘(I) FAILURE TO MARKET.—The first applicant

fails to market the drug by the later of—

‘‘(aa) the earlier of the date that is—

‘‘(AA) 75 days after the date on which

the approval of the application of the first

applicant is made effective under subparagraph (B)(iii); or

‘‘(BB) 30 months after the date of

submission of the application of the first

applicant; or

‘‘(bb) with respect to the first applicant

or any other applicant (which other applicant

has received tentative approval), the date that

is 75 days after the date as of which, as to

each of the patents with respect to which the

first applicant submitted and lawfully maintained a certification qualifying the first

applicant for the 180-day exclusivity period

under subparagraph (B)(iv), at least 1 of the

following has occurred:

‘‘(AA) In an infringement action

brought against that applicant with

respect to the patent or in a declaratory

judgment action brought by that applicant

with respect to the patent, a court enters

a final decision from which no appeal

(other than a petition to the Supreme

Court for a writ of certiorari) has been

or can be taken that the patent is invalid

or not infringed.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2459

‘‘(BB) In an infringement action or

a declaratory judgment action described

in subitem (AA), a court signs a settlement

order or consent decree that enters a final

judgment that includes a finding that the

patent is invalid or not infringed.

‘‘(CC) The patent information submitted under subsection (b) or (c) is withdrawn by the holder of the application

approved under subsection (b).

‘‘(II) WITHDRAWAL OF APPLICATION.—The first

applicant withdraws the application or the Secretary considers the application to have been withdrawn as a result of a determination by the Secretary that the application does not meet the

requirements for approval under paragraph (4).

‘‘(III) AMENDMENT OF CERTIFICATION.—The

first applicant amends or withdraws the certification for all of the patents with respect to which

that applicant submitted a certification qualifying

the applicant for the 180-day exclusivity period.

‘‘(IV) FAILURE TO OBTAIN TENTATIVE

APPROVAL.—The first applicant fails to obtain tentative approval of the application within 30 months

after the date on which the application is filed,

unless the failure is caused by a change in or

a review of the requirements for approval of the

application imposed after the date on which the

application is filed.

‘‘(V) AGREEMENT WITH ANOTHER APPLICANT,

THE LISTED DRUG APPLICATION HOLDER, OR A

PATENT OWNER.—The first applicant enters into

an agreement with another applicant under this

subsection for the drug, the holder of the application for the listed drug, or an owner of the patent

that is the subject of the certification under paragraph (2)(A)(vii)(IV), the Federal Trade Commission or the Attorney General files a complaint,

and there is a final decision of the Federal Trade

Commission or the court with regard to the complaint from which no appeal (other than a petition

to the Supreme Court for a writ of certiorari) has

been or can be taken that the agreement has violated the antitrust laws (as defined in section 1

of the Clayton Act (15 U.S.C. 12), except that

the term includes section 5 of the Federal Trade

Commission Act (15 U.S.C. 45) to the extent that

that section applies to unfair methods of competition).

‘‘(VI) EXPIRATION OF ALL PATENTS.—All of the

patents as to which the applicant submitted a

certification qualifying it for the 180-day exclusivity period have expired.

‘‘(ii) FORFEITURE.—The 180-day exclusivity period

described in subparagraph (B)(iv) shall be forfeited

by a first applicant if a forfeiture event occurs with

respect to that first applicant.

117 STAT. 2460 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(iii) SUBSEQUENT APPLICANT.—If all first

applicants forfeit the 180-day exclusivity period under

clause (ii)—

‘‘(I) approval of any application containing a

certification described in paragraph (2)(A)(vii)(IV)

shall be made effective in accordance with subparagraph (B)(iii); and

‘‘(II) no applicant shall be eligible for a 180-

day exclusivity period.’’.

(b) EFFECTIVE DATE.— (1) IN GENERAL.—Except as provided in paragraph (2), the

amendment made by subsection (a) shall be effective only with

respect to an application filed under section 505(j) of the Federal

Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)) after the date

of the enactment of this Act for a listed drug for which no

certification under section 505(j)(2)(A)(vii)(IV) of that Act was

made before the date of the enactment of this Act.

(2) COLLUSIVE AGREEMENTS.—If a forfeiture event described

in section 505(j)(5)(D)(i)(V) of that Act occurs in the case of

an applicant, the applicant shall forfeit the 180-day period

under section 505(j)(5)(B)(iv) of that Act without regard to

when the first certification under section 505(j)(2)(A)(vii)(IV)

of that Act for the listed drug was made.

(3) DECISION OF A COURT WHEN THE 180-DAY EXCLUSIVITY

PERIOD HAS NOT BEEN TRIGGERED.—With respect to an application filed before, on, or after the date of the enactment of

this Act for a listed drug for which a certification under section

505(j)(2)(A)(vii)(IV) of that Act was made before the date of

the enactment of this Act and for which neither of the events

described in subclause (I) or (II) of section 505(j)(5)(B)(iv) of

that Act (as in effect on the day before the date of the enactment

of this Act) has occurred on or before the date of the enactment

of this Act, the term ‘‘decision of a court’’ as used in clause

(iv) of section 505(j)(5)(B) of that Act means a final decision

of a court from which no appeal (other than a petition to

the Supreme Court for a writ of certiorari) has been or can

be taken.

SEC. 1103. BIOAVAILABILITY AND BIOEQUIVALENCE.

(a) IN GENERAL.—Section 505(j)(8) of the Federal Food, Drug,

and Cosmetic Act (21 U.S.C. 355(j)(8)) is amended—

(1) by striking subparagraph (A) and inserting the following:

‘‘(A)(i) The term ‘bioavailability’ means the rate and extent

to which the active ingredient or therapeutic ingredient is

absorbed from a drug and becomes available at the site of

drug action.

‘‘(ii) For a drug that is not intended to be absorbed into

the bloodstream, the Secretary may assess bioavailability by

scientifically valid measurements intended to reflect the rate

and extent to which the active ingredient or therapeutic ingredient becomes available at the site of drug action.’’; and

(2) by adding at the end the following:

‘‘(C) For a drug that is not intended to be absorbed into

the bloodstream, the Secretary may establish alternative, scientifically valid methods to show bioequivalence if the alternative methods are expected to detect a significant difference

21 USC 355 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2461

between the drug and the listed drug in safety and therapeutic

effect.’’.

(b) EFFECT OF AMENDMENT.—The amendment made by subsection (a) does not alter the standards for approval of drugs under

section 505(j) of the Federal Food, Drug, and Cosmetic Act (21

U.S.C. 355(j)).

SEC. 1104. CONFORMING AMENDMENTS.

Section 505A of the Federal Food, Drug, and Cosmetic Act

(21 U.S.C. 355a) is amended—

(1) in subsections (b)(1)(A)(i) and (c)(1)(A)(i), by striking

‘‘(j)(5)(D)(ii)’’ each place it appears and inserting ‘‘(j)(5)(F)(ii)’’;

(2) in subsections (b)(1)(A)(ii) and (c)(1)(A)(ii), by striking

‘‘(j)(5)(D)’’ each place it appears and inserting ‘‘(j)(5)(F)’’; and

(3) in subsections (e) and (l), by striking ‘‘505(j)(5)(D)’’ each

place it appears and inserting ‘‘505(j)(5)(F)’’.

Subtitle B—Federal Trade Commission

Review

SEC. 1111. DEFINITIONS.

In this subtitle:

(1) ANDA.—The term ‘‘ANDA’’ means an abbreviated drug

application, as defined under section 201(aa) of the Federal

Food, Drug, and Cosmetic Act.

(2) ASSISTANT ATTORNEY GENERAL.—The term ‘‘Assistant

Attorney General’’ means the Assistant Attorney General in

charge of the Antitrust Division of the Department of Justice.

(3) BRAND NAME DRUG.—The term ‘‘brand name drug’’

means a drug for which an application is approved under

section 505(c) of the Federal Food, Drug, and Cosmetic Act,

including an application referred to in section 505(b)(2) of such

Act.

(4) BRAND NAME DRUG COMPANY.—The term ‘‘brand name

drug company’’ means the party that holds the approved

application referred to in paragraph (3) for a brand name

drug that is a listed drug in an ANDA, or a party that is

the owner of a patent for which information is submitted for

such drug under subsection (b) or (c) of section 505 of the

Federal Food, Drug, and Cosmetic Act.

(5) COMMISSION.—The term ‘‘Commission’’ means the Federal Trade Commission.

(6) GENERIC DRUG.—The term ‘‘generic drug’’ means a drug

for which an application under section 505(j) of the Federal

Food, Drug, and Cosmetic Act is approved.

(7) GENERIC DRUG APPLICANT.—The term ‘‘generic drug

applicant’’ means a person who has filed or received approval

for an ANDA under section 505(j) of the Federal Food, Drug,

and Cosmetic Act.

(8) LISTED DRUG.—The term ‘‘listed drug’’ means a brand

name drug that is listed under section 505(j)(7) of the Federal

Food, Drug, and Cosmetic Act.

SEC. 1112. NOTIFICATION OF AGREEMENTS.

(a) AGREEMENT WITH BRAND NAME DRUG COMPANY.—

21 USC 3155

note.

21 USC 355 note.

21 USC 355 note.

117 STAT. 2462 PUBLIC LAW 108–173—DEC. 8, 2003

(1) REQUIREMENT.—A generic drug applicant that has submitted an ANDA containing a certification under section

505(j)(2)(A)(vii)(IV) of the Federal Food, Drug, and Cosmetic

Act and a brand name drug company that enter into an agreement described in paragraph (2) shall each file the agreement

in accordance with subsection (c). The agreement shall be filed

prior to the date of the first commercial marketing of the

generic drug that is the subject of the ANDA.

(2) SUBJECT MATTER OF AGREEMENT.—An agreement

described in this paragraph between a generic drug applicant

and a brand name drug company is an agreement regarding—

(A) the manufacture, marketing or sale of the brand

name drug that is the listed drug in the ANDA involved;

(B) the manufacture, marketing, or sale of the generic

drug for which the ANDA was submitted; or

(C) the 180-day period referred to in section

505(j)(5)(B)(iv) of the Federal Food, Drug, and Cosmetic

Act as it applies to such ANDA or to any other ANDA

based on the same brand name drug.

(b) AGREEMENT WITH ANOTHER GENERIC DRUG APPLICANT.—

(1) REQUIREMENT.—A generic drug applicant that has submitted an ANDA containing a certification under section

505(j)(2)(A)(vii)(IV) of the Federal Food, Drug, and Cosmetic

Act with respect to a listed drug and another generic drug

applicant that has submitted an ANDA containing such a certification for the same listed drug shall each file the agreement

in accordance with subsection (c). The agreement shall be filed

prior to the date of the first commercial marketing of either

of the generic drugs for which such ANDAs were submitted.

(2) SUBJECT MATTER OF AGREEMENT.—An agreement

described in this paragraph between two generic drug

applicants is an agreement regarding the 180-day period

referred to in section 505(j)(5)(B)(iv) of the Federal Food, Drug,

and Cosmetic Act as it applies to the ANDAs with which

the agreement is concerned.

(c) FILING.—

(1) AGREEMENT.—The parties that are required in subsection (a) or (b) to file an agreement in accordance with this

subsection shall file with the Assistant Attorney General and

the Commission the text of any such agreement, except that

such parties are not required to file an agreement that solely

concerns—

(A) purchase orders for raw material supplies;

(B) equipment and facility contracts;

(C) employment or consulting contracts; or

(D) packaging and labeling contracts.

(2) OTHER AGREEMENTS.—The parties that are required

in subsection (a) or (b) to file an agreement in accordance

with this subsection shall file with the Assistant Attorney General and the Commission the text of any agreements between

the parties that are not described in such subsections and

are contingent upon, provide a contingent condition for, or

are otherwise related to an agreement that is required in subsection (a) or (b) to be filed in accordance with this subsection.

(3) DESCRIPTION.—In the event that any agreement

required in subsection (a) or (b) to be filed in accordance with

this subsection has not been reduced to text, each of the parties

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2463

involved shall file written descriptions of such agreement that

are sufficient to disclose all the terms and conditions of the

agreement.

SEC. 1113. FILING DEADLINES.

Any filing required under section 1112 shall be filed with

the Assistant Attorney General and the Commission not later than

10 business days after the date the agreements are executed.

SEC. 1114. DISCLOSURE EXEMPTION.

Any information or documentary material filed with the Assistant Attorney General or the Commission pursuant to this subtitle

shall be exempt from disclosure under section 552 of title 5, United

States Code, and no such information or documentary material

may be made public, except as may be relevant to any administrative or judicial action or proceeding. Nothing in this section is

intended to prevent disclosure to either body of the Congress or

to any duly authorized committee or subcommittee of the Congress.

SEC. 1115. ENFORCEMENT.

(a) CIVIL PENALTY.—Any brand name drug company or generic

drug applicant which fails to comply with any provision of this

subtitle shall be liable for a civil penalty of not more than $11,000,

for each day during which such entity is in violation of this subtitle.

Such penalty may be recovered in a civil action brought by the

United States, or brought by the Commission in accordance with

the procedures established in section 16(a)(1) of the Federal Trade

Commission Act (15 U.S.C. 56(a)).

(b) COMPLIANCE AND EQUITABLE RELIEF.—If any brand name

drug company or generic drug applicant fails to comply with any

provision of this subtitle, the United States district court may

order compliance, and may grant such other equitable relief as

the court in its discretion determines necessary or appropriate,

upon application of the Assistant Attorney General or the Commission.

SEC. 1116. RULEMAKING.

The Commission, with the concurrence of the Assistant

Attorney General and by rule in accordance with section 553 of

title 5, United States Code, consistent with the purposes of this

subtitle—

(1) may define the terms used in this subtitle;

(2) may exempt classes of persons or agreements from

the requirements of this subtitle; and

(3) may prescribe such other rules as may be necessary

and appropriate to carry out the purposes of this subtitle.

SEC. 1117. SAVINGS CLAUSE.

Any action taken by the Assistant Attorney General or the

Commission, or any failure of the Assistant Attorney General or

the Commission to take action, under this subtitle shall not at

any time bar any proceeding or any action with respect to any

agreement between a brand name drug company and a generic

drug applicant, or any agreement between generic drug applicants,

under any other provision of law, nor shall any filing under this

subtitle constitute or create a presumption of any violation of any

competition laws.

21 USC 355 note.

21 USC 355 note.

21 USC 355 note.

21 USC 355 note.

21 USC 355 note.

117 STAT. 2464 PUBLIC LAW 108–173—DEC. 8, 2003

SEC. 1118. EFFECTIVE DATE.

This subtitle shall—

(1) take effect 30 days after the date of the enactment

of this Act; and

(2) shall apply to agreements described in section 1112

that are entered into 30 days after the date of the enactment

of this Act.

Subtitle C—Importation of Prescription

Drugs

SEC. 1121. IMPORTATION OF PRESCRIPTION DRUGS.

(a) IN GENERAL.—Chapter VIII of the Federal Food, Drug,

and Cosmetic Act (21 U.S.C. 381 et seq.) is amended by striking

section 804 and inserting the following:

‘‘SEC. 804. IMPORTATION OF PRESCRIPTION DRUGS.

‘‘(a) DEFINITIONS.—In this section:

‘‘(1) IMPORTER.—The term ‘importer’ means a pharmacist

or wholesaler.

‘‘(2) PHARMACIST.—The term ‘pharmacist’ means a person

licensed by a State to practice pharmacy, including the dispensing and selling of prescription drugs.

‘‘(3) PRESCRIPTION DRUG.—The term ‘prescription drug’

means a drug subject to section 503(b), other than—

‘‘(A) a controlled substance (as defined in section 102

of the Controlled Substances Act (21 U.S.C. 802));

‘‘(B) a biological product (as defined in section 351

of the Public Health Service Act (42 U.S.C. 262));

‘‘(C) an infused drug (including a peritoneal dialysis

solution);

‘‘(D) an intravenously injected drug;

‘‘(E) a drug that is inhaled during surgery; or

‘‘(F) a drug which is a parenteral drug, the importation

of which pursuant to subsection (b) is determined by the

Secretary to pose a threat to the public health, in which

case section 801(d)(1) shall continue to apply.

‘‘(4) QUALIFYING LABORATORY.—The term ‘qualifying laboratory’ means a laboratory in the United States that has been

approved by the Secretary for the purposes of this section.

‘‘(5) WHOLESALER.— ‘‘(A) IN GENERAL.—The term ‘wholesaler’ means a person licensed as a wholesaler or distributor of prescription

drugs in the United States under section 503(e)(2)(A).

‘‘(B) EXCLUSION.—The term ‘wholesaler’ does not

include a person authorized to import drugs under section

801(d)(1).

‘‘(b) REGULATIONS.—The Secretary, after consultation with the

United States Trade Representative and the Commissioner of Customs, shall promulgate regulations permitting pharmacists and

wholesalers to import prescription drugs from Canada into the

United States.

‘‘(c) LIMITATION.—The regulations under subsection (b) shall—

‘‘(1) require that safeguards be in place to ensure that

each prescription drug imported under the regulations complies

with section 505 (including with respect to being safe and

21 USC 535.

21 USC 355 note.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2465

effective for the intended use of the prescription drug), with

sections 501 and 502, and with other applicable requirements

of this Act;

‘‘(2) require that an importer of a prescription drug under

the regulations comply with subsections (d)(1) and (e); and

‘‘(3) contain any additional provisions determined by the

Secretary to be appropriate as a safeguard to protect the public

health or as a means to facilitate the importation of prescription

drugs.

‘‘(d) INFORMATION AND RECORDS.— ‘‘(1) IN GENERAL.—The regulations under subsection (b)

shall require an importer of a prescription drug under subsection (b) to submit to the Secretary the following information

and documentation:

‘‘(A) The name and quantity of the active ingredient

of the prescription drug.

‘‘(B) A description of the dosage form of the prescription

drug.

‘‘(C) The date on which the prescription drug is

shipped.

‘‘(D) The quantity of the prescription drug that is

shipped.

‘‘(E) The point of origin and destination of the prescription drug.

‘‘(F) The price paid by the importer for the prescription

drug.

‘‘(G) Documentation from the foreign seller specifying—

‘‘(i) the original source of the prescription drug;

and

‘‘(ii) the quantity of each lot of the prescription

drug originally received by the seller from that source.

‘‘(H) The lot or control number assigned to the prescription drug by the manufacturer of the prescription drug.

‘‘(I) The name, address, telephone number, and professional license number (if any) of the importer.

‘‘(J)(i) In the case of a prescription drug that is shipped

directly from the first foreign recipient of the prescription

drug from the manufacturer:

‘‘(I) Documentation demonstrating that the

prescription drug was received by the recipient from

the manufacturer and subsequently shipped by the

first foreign recipient to the importer.

‘‘(II) Documentation of the quantity of each lot

of the prescription drug received by the first foreign

recipient demonstrating that the quantity being

imported into the United States is not more than the

quantity that was received by the first foreign

recipient.

‘‘(III)(aa) In the case of an initial imported shipment, documentation demonstrating that each batch

of the prescription drug in the shipment was statistically sampled and tested for authenticity and degradation.

‘‘(bb) In the case of any subsequent shipment, documentation demonstrating that a statistically valid

sample of the shipment was tested for authenticity

and degradation.

117 STAT. 2466 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(ii) In the case of a prescription drug that is not

shipped directly from the first foreign recipient of the

prescription drug from the manufacturer, documentation

demonstrating that each batch in each shipment offered

for importation into the United States was statistically

sampled and tested for authenticity and degradation.

‘‘(K) Certification from the importer or manufacturer

of the prescription drug that the prescription drug—

‘‘(i) is approved for marketing in the United States

and is not adulterated or misbranded; and

‘‘(ii) meets all labeling requirements under this

Act.

‘‘(L) Laboratory records, including complete data

derived from all tests necessary to ensure that the prescription drug is in compliance with established specifications

and standards.

‘‘(M) Documentation demonstrating that the testing

required by subparagraphs (J) and (L) was conducted at

a qualifying laboratory.

‘‘(N) Any other information that the Secretary determines is necessary to ensure the protection of the public

health.

‘‘(2) MAINTENANCE BY THE SECRETARY.—The Secretary shall

maintain information and documentation submitted under

paragraph (1) for such period of time as the Secretary determines to be necessary.

‘‘(e) TESTING.—The regulations under subsection (b) shall

require—

‘‘(1) that testing described in subparagraphs (J) and (L)

of subsection (d)(1) be conducted by the importer or by the

manufacturer of the prescription drug at a qualified laboratory;

‘‘(2) if the tests are conducted by the importer—

‘‘(A) that information needed to—

‘‘(i) authenticate the prescription drug being tested;

and

‘‘(ii) confirm that the labeling of the prescription

drug complies with labeling requirements under this

Act;

be supplied by the manufacturer of the prescription drug

to the pharmacist or wholesaler; and

‘‘(B) that the information supplied under subparagraph

(A) be kept in strict confidence and used only for purposes

of testing or otherwise complying with this Act; and

‘‘(3) may include such additional provisions as the Secretary

determines to be appropriate to provide for the protection of

trade secrets and commercial or financial information that is

privileged or confidential.

‘‘(f) REGISTRATION OF FOREIGN SELLERS.—Any establishment

within Canada engaged in the distribution of a prescription drug

that is imported or offered for importation into the United States

shall register with the Secretary the name and place of business

of the establishment and the name of the United States agent

for the establishment.

‘‘(g) SUSPENSION OF IMPORTATION.—The Secretary shall require

that importations of a specific prescription drug or importations

by a specific importer under subsection (b) be immediately suspended on discovery of a pattern of importation of that specific

Confidentiality.

Records.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2467

prescription drug or by that specific importer of drugs that are

counterfeit or in violation of any requirement under this section,

until an investigation is completed and the Secretary determines

that the public is adequately protected from counterfeit and violative prescription drugs being imported under subsection (b).

‘‘(h) APPROVED LABELING.—The manufacturer of a prescription

drug shall provide an importer written authorization for the

importer to use, at no cost, the approved labeling for the prescription

drug.

‘‘(i) CHARITABLE CONTRIBUTIONS.—Notwithstanding any other

provision of this section, section 801(d)(1) continues to apply to

a prescription drug that is donated or otherwise supplied at no

charge by the manufacturer of the drug to a charitable or humanitarian organization (including the United Nations and affiliates)

or to a government of a foreign country.

‘‘(j) WAIVER AUTHORITY FOR IMPORTATION BY INDIVIDUALS.—

‘‘(1) DECLARATIONS.—Congress declares that in the enforcement against individuals of the prohibition of importation of

prescription drugs and devices, the Secretary should—

‘‘(A) focus enforcement on cases in which the importation by an individual poses a significant threat to public

health; and

‘‘(B) exercise discretion to permit individuals to make

such importations in circumstances in which—

‘‘(i) the importation is clearly for personal use;

and

‘‘(ii) the prescription drug or device imported does

not appear to present an unreasonable risk to the

individual.

‘‘(2) WAIVER AUTHORITY.—

‘‘(A) IN GENERAL.—The Secretary may grant to individuals, by regulation or on a case-by-case basis, a waiver

of the prohibition of importation of a prescription drug

or device or class of prescription drugs or devices, under

such conditions as the Secretary determines to be appropriate.

‘‘(B) GUIDANCE ON CASE-BY-CASE WAIVERS.—The Secretary shall publish, and update as necessary, guidance

that accurately describes circumstances in which the Secretary will consistently grant waivers on a case-by-case

basis under subparagraph (A), so that individuals may

know with the greatest practicable degree of certainty

whether a particular importation for personal use will be

permitted.

‘‘(3) DRUGS IMPORTED FROM CANADA.—In particular, the

Secretary shall by regulation grant individuals a waiver to

permit individuals to import into the United States a prescription drug that—

‘‘(A) is imported from a licensed pharmacy for personal

use by an individual, not for resale, in quantities that

do not exceed a 90-day supply;

‘‘(B) is accompanied by a copy of a valid prescription;

‘‘(C) is imported from Canada, from a seller registered

with the Secretary;

‘‘(D) is a prescription drug approved by the Secretary

under chapter V;

Regulations.

117 STAT. 2468 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(E) is in the form of a final finished dosage that

was manufactured in an establishment registered under

section 510; and

‘‘(F) is imported under such other conditions as the

Secretary determines to be necessary to ensure public

safety.

‘‘(k) CONSTRUCTION.—Nothing in this section limits the

authority of the Secretary relating to the importation of prescription

drugs, other than with respect to section 801(d)(1) as provided

in this section.

‘‘(l) EFFECTIVENESS OF SECTION.—

‘‘(1) COMMENCEMENT OF PROGRAM.—This section shall

become effective only if the Secretary certifies to the Congress

that the implementation of this section will—

(A) pose no additional risk to the public’s health and

safety; and

(B) result in a significant reduction in the cost of

covered products to the American consumer.

‘‘(2) TERMINATION OF PROGRAM.—

‘‘(A) IN GENERAL.—If, after the date that is 1 year

after the effective date of the regulations under subsection

(b) and before the date that is 18 months after the effective

date, the Secretary submits to Congress a certification that,

in the opinion of the Secretary, based on substantial evidence obtained after the effective date, the benefits of

implementation of this section do not outweigh any detriment of implementation of this section, this section shall

cease to be effective as of the date that is 30 days after

the date on which the Secretary submits the certification.

‘‘(B) PROCEDURE.—The Secretary shall not submit a

certification under subparagraph (A) unless, after a hearing

on the record under sections 556 and 557 of title 5, United

States Code, the Secretary—

‘‘(i)(I) determines that it is more likely than not

that implementation of this section would result in

an increase in the risk to the public health and safety;

‘‘(II) identifies specifically, in qualitative and quantitative terms, the nature of the increased risk;

‘‘(III) identifies specifically the causes of the

increased risk; and

‘‘(IV)(aa) considers whether any measures can be

taken to avoid, reduce, or mitigate the increased risk;

and

‘‘(bb) if the Secretary determines that any measures described in item (aa) would require additional

statutory authority, submits to Congress a report

describing the legislation that would be required;

‘‘(ii) identifies specifically, in qualitative and quantitative terms, the benefits that would result from

implementation of this section (including the benefit

of reductions in the cost of covered products to consumers in the United States, allowing consumers to

procure needed medication that consumers might not

otherwise be able to procure without foregoing other

necessities of life); and

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2469

‘‘(iii)(I) compares in specific terms the detriment

identified under clause (i) with the benefits identified

under clause (ii); and

‘‘(II) determines that the benefits do not outweigh

the detriment.

‘‘(m) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be appropriated such sums as are necessary to carry out

this section.’’.

(b) CONFORMING AMENDMENTS.—The Federal Food, Drug, and

Cosmetic Act is amended—

(1) in section 301(aa) (21 U.S.C. 331(aa)), by striking ‘‘covered product in violation of section 804’’ and inserting ‘‘prescription drug in violation of section 804’’; and

(2) in section 303(a)(6) (21 U.S.C. 333(a)(6), by striking

‘‘covered product pursuant to section 804(a)’’ and inserting

‘‘prescription drug under section 804(b)’’.

SEC. 1122. STUDY AND REPORT ON IMPORTATION OF DRUGS.

The Secretary, in consultation with appropriate government

agencies, shall conduct a study on the importation of drugs into

the United States pursuant to section 804 of the Federal Food,

Drug, and Cosmetic Act (as added by section 1121 of this Act).

Not later than 12 months after the date of the enactment of this

Act, the Secretary shall submit to the appropriate committees of

the Congress a report providing the findings of such study.

SEC. 1123. STUDY AND REPORT ON TRADE IN PHARMACEUTICALS.

The President’s designees shall conduct a study and report

on issues related to trade and pharmaceuticals.

TITLE XII—TAX INCENTIVES FOR

HEALTH AND RETIREMENT SECURITY

SEC. 1201. HEALTH SAVINGS ACCOUNTS.

(a) IN GENERAL.—Part VII of subchapter B of chapter 1 of

the Internal Revenue Code of 1986 (relating to additional itemized

deductions for individuals) is amended by redesignating section

223 as section 224 and by inserting after section 222 the following

new section:

‘‘SEC. 223. HEALTH SAVINGS ACCOUNTS.

‘‘(a) DEDUCTION ALLOWED.—In the case of an individual who

is an eligible individual for any month during the taxable year,

there shall be allowed as a deduction for the taxable year an

amount equal to the aggregate amount paid in cash during such

taxable year by or on behalf of such individual to a health savings

account of such individual.

‘‘(b) LIMITATIONS.—

‘‘(1) IN GENERAL.—The amount allowable as a deduction

under subsection (a) to an individual for the taxable year shall

not exceed the sum of the monthly limitations for months

during such taxable year that the individual is an eligible

individual.

‘‘(2) MONTHLY LIMITATION.—The monthly limitation for any

month is 1⁄12 of—

26 USC 223.

26 USC 223, 224.

21 USC 381 note.

21 USC 384 note.

117 STAT. 2470 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(A) in the case of an eligible individual who has selfonly coverage under a high deductible health plan as of

the first day of such month, the lesser of—

‘‘(i) the annual deductible under such coverage,

or

‘‘(ii) $2,250, or

‘‘(B) in the case of an eligible individual who has family

coverage under a high deductible health plan as of the

first day of such month, the lesser of—

‘‘(i) the annual deductible under such coverage,

or

‘‘(ii) $4,500.

‘‘(3) ADDITIONAL CONTRIBUTIONS FOR INDIVIDUALS 55 OR

OLDER.—

‘‘(A) IN GENERAL.—In the case of an individual who

has attained age 55 before the close of the taxable year,

the applicable limitation under subparagraphs (A) and (B)

of paragraph (2) shall be increased by the additional contribution amount.

‘‘(B) ADDITIONAL CONTRIBUTION AMOUNT.—For purposes of this section, the additional contribution amount

is the amount determined in accordance with the following

table:

‘‘For taxable years beginning in: The

additional

contribution

amount is:

2004 ................................................................................................... $500

2005 ................................................................................................... $600

2006 ................................................................................................... $700

2007 ................................................................................................... $800

2008 ................................................................................................... $900

2009 and thereafter .......................................................................... $1,000.

‘‘(4) COORDINATION WITH OTHER CONTRIBUTIONS.—The

limitation which would (but for this paragraph) apply under

this subsection to an individual for any taxable year shall

be reduced (but not below zero) by the sum of—

‘‘(A) the aggregate amount paid for such taxable year

to Archer MSAs of such individual, and

‘‘(B) the aggregate amount contributed to health

savings accounts of such individual which is excludable

from the taxpayer’s gross income for such taxable year

under section 106(d) (and such amount shall not be allowed

as a deduction under subsection (a)).

Subparagraph (A) shall not apply with respect to any individual

to whom paragraph (5) applies.

‘‘(5) SPECIAL RULE FOR MARRIED INDIVIDUALS.—In the case

of individuals who are married to each other, if either spouse

has family coverage—

‘‘(A) both spouses shall be treated as having only such

family coverage (and if such spouses each have family

coverage under different plans, as having the family coverage with the lowest annual deductible), and

‘‘(B) the limitation under paragraph (1) (after the

application of subparagraph (A) and without regard to any

additional contribution amount under paragraph (3))—

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2471

‘‘(i) shall be reduced by the aggregate amount paid

to Archer MSAs of such spouses for the taxable year,

and

‘‘(ii) after such reduction, shall be divided equally

between them unless they agree on a different division.

‘‘(6) DENIAL OF DEDUCTION TO DEPENDENTS.—No deduction

shall be allowed under this section to any individual with

respect to whom a deduction under section 151 is allowable

to another taxpayer for a taxable year beginning in the calendar

year in which such individual’s taxable year begins.

‘‘(7) MEDICARE ELIGIBLE INDIVIDUALS.—The limitation

under this subsection for any month with respect to an individual shall be zero for the first month such individual is

entitled to benefits under title XVIII of the Social Security

Act and for each month thereafter.

‘‘(c) DEFINITIONS AND SPECIAL RULES.—For purposes of this

section—

‘‘(1) ELIGIBLE INDIVIDUAL.—

‘‘(A) IN GENERAL.—The term ‘eligible individual’ means,

with respect to any month, any individual if—

‘‘(i) such individual is covered under a high deductible health plan as of the 1st day of such month,

and

‘‘(ii) such individual is not, while covered under

a high deductible health plan, covered under any

health plan—

‘‘(I) which is not a high deductible health plan,

and

‘‘(II) which provides coverage for any benefit

which is covered under the high deductible health

plan.

‘‘(B) CERTAIN COVERAGE DISREGARDED.—Subparagraph

(A)(ii) shall be applied without regard to—

‘‘(i) coverage for any benefit provided by permitted

insurance, and

‘‘(ii) coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care,

or long-term care.

‘‘(2) HIGH DEDUCTIBLE HEALTH PLAN.—

‘‘(A) IN GENERAL.—The term ‘high deductible health

plan’ means a health plan—

‘‘(i) which has an annual deductible which is not

less than—

‘‘(I) $1,000 for self-only coverage, and

‘‘(II) twice the dollar amount in subclause (I)

for family coverage, and

‘‘(ii) the sum of the annual deductible and the

other annual out-of-pocket expenses required to be paid

under the plan (other than for premiums) for covered

benefits does not exceed—

‘‘(I) $5,000 for self-only coverage, and

‘‘(II) twice the dollar amount in subclause (I)

for family coverage.

‘‘(B) EXCLUSION OF CERTAIN PLANS.—Such term does

not include a health plan if substantially all of its coverage

is coverage described in paragraph (1)(B).

117 STAT. 2472 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(C) SAFE HARBOR FOR ABSENCE OF PREVENTIVE CARE

DEDUCTIBLE.—A plan shall not fail to be treated as a high

deductible health plan by reason of failing to have a deductible for preventive care (within the meaning of section

1871 of the Social Security Act, except as otherwise provided by the Secretary).

‘‘(D) SPECIAL RULES FOR NETWORK PLANS.—In the case

of a plan using a network of providers—

‘‘(i) ANNUAL OUT-OF-POCKET LIMITATION.—Such

plan shall not fail to be treated as a high deductible

health plan by reason of having an out-of-pocket limitation for services provided outside of such network

which exceeds the applicable limitation under subparagraph (A)(ii).

‘‘(ii) ANNUAL DEDUCTIBLE.—Such plan’s annual

deductible for services provided outside of such network

shall not be taken into account for purposes of subsection (b)(2).

‘‘(3) PERMITTED INSURANCE.—The term ‘permitted insurance’ means—

‘‘(A) insurance if substantially all of the coverage provided under such insurance relates to—

‘‘(i) liabilities incurred under workers’ compensation laws,

‘‘(ii) tort liabilities,

‘‘(iii) liabilities relating to ownership or use of property, or

‘‘(iv) such other similar liabilities as the Secretary

may specify by regulations,

‘‘(B) insurance for a specified disease or illness, and

‘‘(C) insurance paying a fixed amount per day (or other

period) of hospitalization.

‘‘(4) FAMILY COVERAGE.—The term ‘family coverage’ means

any coverage other than self-only coverage.

‘‘(5) ARCHER MSA.—The term ‘Archer MSA’ has the meaning

given such term in section 220(d).

‘‘(d) HEALTH SAVINGS ACCOUNT.—For purposes of this section—

‘‘(1) IN GENERAL.—The term ‘health savings account’ means

a trust created or organized in the United States as a health

savings account exclusively for the purpose of paying the qualified medical expenses of the account beneficiary, but only if

the written governing instrument creating the trust meets the

following requirements:

‘‘(A) Except in the case of a rollover contribution

described in subsection (f)(5) or section 220(f)(5), no contribution will be accepted—

‘‘(i) unless it is in cash, or

‘‘(ii) to the extent such contribution, when added

to previous contributions to the trust for the calendar

year, exceeds the sum of—

‘‘(I) the dollar amount in effect under subsection (b)(2)(B)(ii), and

‘‘(II) the dollar amount in effect under subsection (b)(3)(B).

‘‘(B) The trustee is a bank (as defined in section 408(n)),

an insurance company (as defined in section 816), or

another person who demonstrates to the satisfaction of

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2473

the Secretary that the manner in which such person will

administer the trust will be consistent with the requirements of this section.

‘‘(C) No part of the trust assets will be invested in

life insurance contracts.

‘‘(D) The assets of the trust will not be commingled

with other property except in a common trust fund or

common investment fund.

‘‘(E) The interest of an individual in the balance in

his account is nonforfeitable.

‘‘(2) QUALIFIED MEDICAL EXPENSES.—

‘‘(A) IN GENERAL.—The term ‘qualified medical

expenses’ means, with respect to an account beneficiary,

amounts paid by such beneficiary for medical care (as

defined in section 213(d) for such individual, the spouse

of such individual, and any dependent (as defined in section

152) of such individual, but only to the extent such amounts

are not compensated for by insurance or otherwise.

‘‘(B) HEALTH INSURANCE MAY NOT BE PURCHASED FROM

ACCOUNT.—Subparagraph (A) shall not apply to any payment for insurance.

‘‘(C) EXCEPTIONS.—Subparagraph (B) shall not apply

to any expense for coverage under—

‘‘(i) a health plan during any period of continuation

coverage required under any Federal law,

‘‘(ii) a qualified long-term care insurance contract

(as defined in section 7702B(b)),

‘‘(iii) a health plan during a period in which the

individual is receiving unemployment compensation

under any Federal or State law, or

‘‘(iv) in the case of an account beneficiary who

has attained the age specified in section 1811 of the

Social Security Act, any health insurance other than

a medicare supplemental policy (as defined in section

1882 of the Social Security Act).

‘‘(3) ACCOUNT BENEFICIARY.—The term ‘account beneficiary’

means the individual on whose behalf the health savings

account was established.

‘‘(4) CERTAIN RULES TO APPLY.—Rules similar to the following rules shall apply for purposes of this section:

‘‘(A) Section 219(d)(2) (relating to no deduction for rollovers).

‘‘(B) Section 219(f)(3) (relating to time when contributions deemed made).

‘‘(C) Except as provided in section 106(d), section

219(f)(5) (relating to employer payments).

‘‘(D) Section 408(g) (relating to community property

laws).

‘‘(E) Section 408(h) (relating to custodial accounts).

‘‘(e) TAX TREATMENT OF ACCOUNTS.—

‘‘(1) IN GENERAL.—A health savings account is exempt from

taxation under this subtitle unless such account has ceased

to be a health savings account. Notwithstanding the preceding

sentence, any such account is subject to the taxes imposed

by section 511 (relating to imposition of tax on unrelated business income of charitable, etc. organizations).

117 STAT. 2474 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(2) ACCOUNT TERMINATIONS.—Rules similar to the rules

of paragraphs (2) and (4) of section 408(e) shall apply to health

savings accounts, and any amount treated as distributed under

such rules shall be treated as not used to pay qualified medical

expenses.

‘‘(f) TAX TREATMENT OF DISTRIBUTIONS.—

‘‘(1) AMOUNTS USED FOR QUALIFIED MEDICAL EXPENSES.—

Any amount paid or distributed out of a health savings account

which is used exclusively to pay qualified medical expenses

of any account beneficiary shall not be includible in gross

income.

‘‘(2) INCLUSION OF AMOUNTS NOT USED FOR QUALIFIED MEDICAL EXPENSES.—Any amount paid or distributed out of a health

savings account which is not used exclusively to pay the qualified medical expenses of the account beneficiary shall be

included in the gross income of such beneficiary.

‘‘(3) EXCESS CONTRIBUTIONS RETURNED BEFORE DUE DATE

OF RETURN.—

‘‘(A) IN GENERAL.—If any excess contribution is contributed for a taxable year to any health savings account

of an individual, paragraph (2) shall not apply to distributions from the health savings accounts of such individual

(to the extent such distributions do not exceed the aggregate excess contributions to all such accounts of such individual for such year) if—

‘‘(i) such distribution is received by the individual

on or before the last day prescribed by law (including

extensions of time) for filing such individual’s return

for such taxable year, and

‘‘(ii) such distribution is accompanied by the

amount of net income attributable to such excess contribution.

Any net income described in clause (ii) shall be included

in the gross income of the individual for the taxable year

in which it is received.

‘‘(B) EXCESS CONTRIBUTION.—For purposes of subparagraph (A), the term ‘excess contribution’ means any contribution (other than a rollover contribution described in

paragraph (5) or section 220(f)(5)) which is neither excludable from gross income under section 106(d) nor deductible

under this section.

‘‘(4) ADDITIONAL TAX ON DISTRIBUTIONS NOT USED FOR

QUALIFIED MEDICAL EXPENSES.—

‘‘(A) IN GENERAL.—The tax imposed by this chapter

on the account beneficiary for any taxable year in which

there is a payment or distribution from a health savings

account of such beneficiary which is includible in gross

income under paragraph (2) shall be increased by 10 percent of the amount which is so includible.

‘‘(B) EXCEPTION FOR DISABILITY OR DEATH.—Subparagraph (A) shall not apply if the payment or distribution

is made after the account beneficiary becomes disabled

within the meaning of section 72(m)(7) or dies.

‘‘(C) EXCEPTION FOR DISTRIBUTIONS AFTER MEDICARE

ELIGIBILITY.—Subparagraph (A) shall not apply to any payment or distribution after the date on which the account

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2475

beneficiary attains the age specified in section 1811 of

the Social Security Act.

‘‘(5) ROLLOVER CONTRIBUTION.—An amount is described in

this paragraph as a rollover contribution if it meets the requirements of subparagraphs (A) and (B).

‘‘(A) IN GENERAL.—Paragraph (2) shall not apply to

any amount paid or distributed from a health savings

account to the account beneficiary to the extent the amount

received is paid into a health savings account for the benefit

of such beneficiary not later than the 60th day after the

day on which the beneficiary receives the payment or distribution.

‘‘(B) LIMITATION.—This paragraph shall not apply to

any amount described in subparagraph (A) received by

an individual from a health savings account if, at any

time during the 1-year period ending on the day of such

receipt, such individual received any other amount

described in subparagraph (A) from a health savings

account which was not includible in the individual’s gross

income because of the application of this paragraph.

‘‘(6) COORDINATION WITH MEDICAL EXPENSE DEDUCTION.—

For purposes of determining the amount of the deduction under

section 213, any payment or distribution out of a health savings

account for qualified medical expenses shall not be treated

as an expense paid for medical care.

‘‘(7) TRANSFER OF ACCOUNT INCIDENT TO DIVORCE.—The

transfer of an individual’s interest in a health savings account

to an individual’s spouse or former spouse under a divorce

or separation instrument described in subparagraph (A) of section 71(b)(2) shall not be considered a taxable transfer made

by such individual notwithstanding any other provision of this

subtitle, and such interest shall, after such transfer, be treated

as a health savings account with respect to which such spouse

is the account beneficiary.

‘‘(8) TREATMENT AFTER DEATH OF ACCOUNT BENEFICIARY.—

‘‘(A) TREATMENT IF DESIGNATED BENEFICIARY IS

SPOUSE.—If the account beneficiary’s surviving spouse

acquires such beneficiary’s interest in a health savings

account by reason of being the designated beneficiary of

such account at the death of the account beneficiary, such

health savings account shall be treated as if the spouse

were the account beneficiary.

‘‘(B) OTHER CASES.—

‘‘(i) IN GENERAL.—If, by reason of the death of

the account beneficiary, any person acquires the

account beneficiary’s interest in a health savings

account in a case to which subparagraph (A) does

not apply—

‘‘(I) such account shall cease to be a health

savings account as of the date of death, and

‘‘(II) an amount equal to the fair market value

of the assets in such account on such date shall

be includible if such person is not the estate of

such beneficiary, in such person’s gross income

for the taxable year which includes such date,

or if such person is the estate of such beneficiary,

117 STAT. 2476 PUBLIC LAW 108–173—DEC. 8, 2003

in such beneficiary’s gross income for the last taxable year of such beneficiary.

‘‘(ii) SPECIAL RULES.—

‘‘(I) REDUCTION OF INCLUSION FOR PREDEATH

EXPENSES.—The amount includible in gross income

under clause (i) by any person (other than the

estate) shall be reduced by the amount of qualified

medical expenses which were incurred by the

decedent before the date of the decedent’s death

and paid by such person within 1 year after such

date.

‘‘(II) DEDUCTION FOR ESTATE TAXES.—An

appropriate deduction shall be allowed under section 691(c) to any person (other than the decedent

or the decedent’s spouse) with respect to amounts

included in gross income under clause (i) by such

person.

‘‘(g) COST-OF-LIVING ADJUSTMENT.—

‘‘(1) IN GENERAL.—Each dollar amount in subsections (b)(2)

and (c)(2)(A) shall be increased by an amount equal to—

‘‘(A) such dollar amount, multiplied by

‘‘(B) the cost-of-living adjustment determined under

section 1(f)(3) for the calendar year in which such taxable

year begins determined by substituting for ‘calendar year

1992’ in subparagraph (B) thereof—

‘‘(i) except as provided in clause (ii), ‘calendar year

1997’, and

‘‘(ii) in the case of each dollar amount in subsection

(c)(2)(A), ‘calendar year 2003’.

‘‘(2) ROUNDING.—If any increase under paragraph (1) is

not a multiple of $50, such increase shall be rounded to the

nearest multiple of $50.

‘‘(h) REPORTS.—The Secretary may require—

‘‘(1) the trustee of a health savings account to make such

reports regarding such account to the Secretary and to the

account beneficiary with respect to contributions, distributions,

the return of excess contributions, and such other matters

as the Secretary determines appropriate, and

‘‘(2) any person who provides an individual with a high

deductible health plan to make such reports to the Secretary

and to the account beneficiary with respect to such plan as

the Secretary determines appropriate.

The reports required by this subsection shall be filed at such time

and in such manner and furnished to such individuals at such

time and in such manner as may be required by the Secretary.’’.

(b) DEDUCTION ALLOWED WHETHER OR NOT INDIVIDUAL

ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of section 62 of such

Code is amended by inserting after paragraph (18) the following

new paragraph:

‘‘(19) HEALTH SAVINGS ACCOUNTS.—The deduction allowed

by section 223.’’.

(c) ROLLOVERS FROM ARCHER MSAS PERMITTED.—Subparagraph (A) of section 220(f)(5) of such Code (relating to rollover

contribution) is amended by inserting ‘‘or a health savings account

(as defined in section 223(d))’’ after ‘‘paid into an Archer MSA’’.

(d) EXCLUSIONS FOR EMPLOYER CONTRIBUTIONS TO HEALTH

SAVINGS ACCOUNTS.—

26 USC 220.

26 USC 62.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2477

(1) EXCLUSION FROM INCOME TAX.—Section 106 of such

Code (relating to contributions by employer to accident and

health plans) is amended by adding at the end the following

new subsection:

‘‘(d) CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.—

‘‘(1) IN GENERAL.—In the case of an employee who is an

eligible individual (as defined in section 223(c)(1)), amounts

contributed by such employee’s employer to any health savings

account (as defined in section 223(d)) of such employee shall

be treated as employer-provided coverage for medical expenses

under an accident or health plan to the extent such amounts

do not exceed the limitation under section 223(b) (determined

without regard to this subsection) which is applicable to such

employee for such taxable year.

‘‘(2) SPECIAL RULES.—Rules similar to the rules of paragraphs (2), (3), (4), and (5) of subsection (b) shall apply for

purposes of this subsection.

‘‘(3) CROSS REFERENCE.—

‘‘For penalty on failure by employer to make comparable contributions to the health savings accounts of comparable employees,

see section 4980G.’’.

(2) EXCLUSION FROM EMPLOYMENT TAXES.—

(A) RAILROAD RETIREMENT TAX.—Subsection (e) of section 3231 of such Code is amended by adding at the end

the following new paragraph:

‘‘(11) HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—The term

‘compensation’ shall not include any payment made to or for

the benefit of an employee if at the time of such payment

it is reasonable to believe that the employee will be able to

exclude such payment from income under section 106(d).’’.

(B) UNEMPLOYMENT TAX.—Subsection (b) of section

3306 of such Code is amended by striking ‘‘or’’ at the

end of paragraph (16), by striking the period at the end

of paragraph (17) and inserting ‘‘; or’’, and by inserting

after paragraph (17) the following new paragraph:

‘‘(18) any payment made to or for the benefit of an employee

if at the time of such payment it is reasonable to believe

that the employee will be able to exclude such payment from

income under section 106(d).’’.

(C) WITHHOLDING TAX.—Subsection (a) of section 3401

of such Code is amended by striking ‘‘or’’ at the end of

paragraph (20), by striking the period at the end of paragraph (21) and inserting ‘‘; or’’, and by inserting after

paragraph (21) the following new paragraph:

‘‘(22) any payment made to or for the benefit of an employee

if at the time of such payment it is reasonable to believe

that the employee will be able to exclude such payment from

income under section 106(d).’’.

(3) EMPLOYER CONTRIBUTIONS REQUIRED TO BE SHOWN ON

W–2.—Subsection (a) of section 6051 of such Code is amended

by striking ‘‘and’’ at the end of paragraph (10), by striking

the period at the end of paragraph (11) and inserting ‘‘, and’’,

and by inserting after paragraph (11) the following new paragraph:

26 USC 6051.

26 USC 3401.

26 USC 3306.

26 USC 3231.

26 USC 106.

117 STAT. 2478 PUBLIC LAW 108–173—DEC. 8, 2003

‘‘(12) the amount contributed to any health savings account

(as defined in section 223(d)) of such employee or such

employee’s spouse.’’.

(4) PENALTY FOR FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH SAVINGS ACCOUNT CONTRIBUTIONS.—

(A) IN GENERAL.—Chapter 43 of such Code is amended

by adding after section 4980F the following new section:

‘‘SEC. 4980G. FAILURE OF EMPLOYER TO MAKE COMPARABLE HEALTH

SAVINGS ACCOUNT CONTRIBUTIONS.

‘‘(a) GENERAL RULE.—In the case of an employer who makes

a contribution to the health savings account of any employee during

a calendar year, there is hereby imposed a tax on the failure

of such employer to meet the requirements of subsection (b) for

such calendar year.

‘‘(b) RULES AND REQUIREMENTS.—Rules and requirements

similar to the rules and requirements of section 4980E shall apply

for purposes of this section.

‘‘(c) REGULATIONS.—The Secretary shall issue regulations to

carry out the purposes of this section, including regulations providing special rules for employers who make contributions to Archer

MSAs and health savings accounts during the calendar year.’’.

(B) CLERICAL AMENDMENT.—The table of sections for

chapter 43 of such Code is amended by adding after the

item relating to section 4980F the following new item:

‘‘Sec. 4980G. Failure of employer to make comparable health savings account contributions.’’.

(e) TAX ON EXCESS CONTRIBUTIONS.—Section 4973 of such Code

(relating to tax on excess contributions to certain tax-favored

accounts and annuities) is amended—

(1) by striking ‘‘or’’ at the end of subsection (a)(3), by

inserting ‘‘or’’ at the end of subsection (a)(4), and by inserting

after subsection (a)(4) the following new paragraph:

‘‘(5) a health savings account (within the meaning of section

223(d)),’’, and

(2) by adding at the end the following new subsection:

‘‘(g) EXCESS CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS.—

For purposes of this section, in the case of health savings accounts

(within the meaning of section 223(d)), the term ‘excess contributions’ means the sum of—

‘‘(1) the aggregate amount contributed for the taxable year

to the accounts (other than a rollover contribution described

in section 220(f)(5) or 223(f)(5)) which is neither excludable

from gross income under section 106(d) nor allowable as a

deduction under section 223 for such year, and

‘‘(2) the amount determined under this subsection for the

preceding taxable year, reduced by the sum of—

‘‘(A) the distributions out of the accounts which were

included in gross income under section 223(f)(2), and

‘‘(B) the excess (if any) of—

‘‘(i) the maximum amount allowable as a deduction

under section 223(b) (determined without regard to

section 106(d)) for the taxable year, over

‘‘(ii) the amount contributed to the accounts for

the taxable year.

26 USC 4973.

26 USC 4980G.

PUBLIC LAW 108–173—DEC. 8, 2003 117 STAT. 2479

For purposes of this subsection, any contribution which is distributed out of the health savings account in a distribution to which

section 223(f)(3) applies shall be treated as an amount not contributed.’’.

(f) TAX ON PROHIBITED TRANSACTIONS.—

(1) Section 4975 of such Code (relating to tax on prohibited

transactions) is amended by adding at the end of subsection

(c) the following new paragraph:

‘‘(6) SPECIAL RULE FOR HEALTH SAVINGS ACCOUNTS.—An

individual for whose benefit a health savings account (within

the meaning of section 223(d)) is established shall be exempt

from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if, with respect to such transaction,

the account ceases to be a health savings account by reason

of the application of section 223(e)(2) to such account.’’.

(2) Paragraph (1) of section 4975(e) of such Code is

amended by redesignating subparagraphs (E) and (F) as subparagraphs (F) and (G), respectively, and by inserting after

subparagraph (D) the following new subparagraph:

‘‘(E) a health savings account described in section

223(d),’’.

(g) FAILURE TO PROVIDE REPORTS ON HEALTH SAVINGS

ACCOUNTS.—Paragraph (2) of section 6693(a) of such Code (relating

to reports) is amended by redesignating subparagraphs (C) and

(D) as subparagraphs (D) and (E), respectively, and by inserting

after subparagraph (B) the following new subparagraph:

‘‘(C) section 223(h) (relating to health savings

accounts),’’.

(h) EXCEPTION FROM CAPITALIZATION OF POLICY ACQUISITION

EXPENSES.—Subparagraph (B) of section 848(e)(1) of such Code

(defining specified insurance contract) is amended by striking ‘‘and’’

at the end of clause (iii), by striking the period at the end of

clause (iv) and inserting ‘‘, and’’, and by adding at the end the

following new clause:

‘‘(v) any contract which is a health savings account

(as defined in section 223(d)).’’.

(i) HEALTH SAVINGS ACCOUNTS MAY BE OFFERED UNDER CAFETERIA PLANS.—Paragraph (2) of section 125(d) (relating to cafeteria

plan defined) is amended by adding at the end the following new

subparagraph:

‘‘(D) EXCEPTION FOR HEALTH SAVINGS ACCOUNTS.—

Subparagraph (A) shall not apply to a plan to the extent

of amounts which a covered employee may elect to have

the employer pay as contributions to a health savings

account established on behalf of the employee.’’.

(j) CLERICAL AMENDMENT.—The table of sections for part VII

of subchapter B of chapter 1 of such Code is amended by striking

the last item and inserting the following:

‘‘Sec. 223. Health savings accounts.

‘‘Sec. 224. Cross reference.’’.

(k) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years beginning after December 31, 2003.

26 USC 62 note.

26 USC 125.

26 USC 848.

26 USC 6693.

26 USC 4975.

117 STAT. 2480 PUBLIC LAW 108–173—DEC. 8, 2003

LEGISLATIVE HISTORY—H.R. 1 (S. 1):

HOUSE REPORTS: No. 108–391 (Comm. of Conference).

CONGRESSIONAL RECORD, Vol. 149 (2003):

June 26, considered and passed House.

July 7, considered and passed Senate, amended, in lieu of S. 1.

Nov. 21, House agreed to conference report.

Nov. 25, Senate agreed to conference report.

WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS, Vol. 39 (2003):

Dec. 8, Presidential remarks and statement.

Æ

SEC. 1202. EXCLUSION FROM GROSS INCOME OF CERTAIN FEDERAL

SUBSIDIES FOR PRESCRIPTION DRUG PLANS.

(a) IN GENERAL.—Part III of subchapter B of chapter 1 of

the Internal Revenue Code of 1986 is amended by inserting after

section 139 the following new section:

‘‘SEC. 139A. FEDERAL SUBSIDIES FOR PRESCRIPTION DRUG PLANS.

‘‘Gross income shall not include any special subsidy payment

received under section 1860D–22 of the Social Security Act. This

section shall not be taken into account for purposes of determining

whether any deduction is allowable with respect to any cost taken

into account in determining such payment.’’.

(b) ALTERNATIVE MINIMUM TAX RELIEF.—Section 56(g)(4)(B) of

such Code is amended by inserting ‘‘or 139A’’ after ‘‘section 114’’.

(c) CONFORMING AMENDMENT.—The table of sections for part

III of subchapter B of chapter 1 of such Code is amended by

inserting after the item relating to section 139 the following new

item:

‘‘Sec. 139A. Federal subsidies for prescription drug plans.’’.

(d) EFFECTIVE DATE.—The amendments made by this section

shall apply to taxable years ending after the date of the enactment

of this Act.

SEC. 1203. EXCEPTION TO INFORMATION REPORTING REQUIREMENTS

RELATED TO CERTAIN HEALTH ARRANGEMENTS.

(a) IN GENERAL.—Section 6041 of the Internal Revenue Code

of 1986 (relating to information at source) is amended by adding

at the end the following new subsection:

‘‘(f) SECTION DOES NOT APPLY TO CERTAIN HEALTH ARRANGEMENTS.—This section shall not apply to any payment for medical

care (as defined in section 213(d)) made under—

‘‘(1) a flexible spending arrangement (as defined in section

106(c)(2)), or

‘‘(2) a health reimbursement arrangement which is treated

as employer-provided coverage under an accident or health

plan for purposes of section 106.’’.

(b) EFFECTIVE DATE.—The amendment made by this section

shall apply to payments made after December 31, 2002.

Approved December 8, 2003.

26 USC 6041

note.

26 USC 6041.

26 USC 56 note.

26 USC 56.

26 USC 139A.