II

106TH CONGRESS

2D SESSION S. 2758

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

outpatient prescription drugs under the medicare program.

IN THE SENATE OF THE UNITED STATES

JUNE 20, 2000

Mr. GRAHAM (for himself, Mr. BRYAN, Mr. ROBB, Mr. CONRAD, Mr. L.

CHAFEE, Mr. BAUCUS, Mr. ROCKEFELLER, and Mrs. LINCOLN) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend title XVIII of the Social Security Act to provide

coverage of outpatient prescription drugs under the medicare program.

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

5 ‘‘Medicare Outpatient Drug Act of 2000’’.

6 (b) TABLE OF CONTENTS.—The table of contents of

7 this Act is as follows:

Sec. 1. Short title; table of contents.

Sec. 2. Medicare outpatient prescription drug benefit program.
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‘‘PART D—OUTPATIENT PRESCRIPTION DRUG BENEFIT PROGRAM

‘‘Sec. 1860. Definitions.

‘‘SUBPART 1—ESTABLISHMENT OF OUTPATIENT PRESCRIPTION DRUG

BENEFIT PROGRAM

‘‘Sec. 1860A. Establishment of outpatient prescription drug benefit program.

‘‘Sec. 1860B. Enrollment.

‘‘Sec. 1860C. Providing information to beneficiaries.

‘‘Sec. 1860D. Premiums.

‘‘Sec. 1860E. Cost-sharing.

‘‘Sec. 1860F. Selection of entities to provide outpatient drug benefit.

‘‘Sec. 1860G. Conditions for awarding contract.

‘‘Sec. 1860H. Payments.

‘‘Sec. 1860I. Employer incentive program for employment-based retiree

drug coverage.

‘‘Sec. 1860J. Appropriations.

‘‘SUBPART 2—MEDICARE PHARMACY AND THERAPEUTICS (P&T) ADVISORY

COMMITTEE

‘‘Sec. 1860M. Medicare Pharmacy and Therapeutics (P&T) Advisory Committee.’’.

Sec. 3. Part D benefits under Medicare+Choice plans.

Sec. 4. Exclusion of part D costs from determination of part B monthly premium.

Sec. 5. Reporting requirements for Secretary of the Treasury regarding incomerelated part D premium.

Sec. 6. Additional assistance for low-income beneficiaries.

Sec. 7. Medigap revisions.

Sec. 8. HHS studies and report to Congress.

Sec. 9. Appropriations.

1 SEC. 2. MEDICARE OUTPATIENT PRESCRIPTION DRUG BEN2 EFIT PROGRAM.

3 (a) ESTABLISHMENT.—Title XVIII of the Social Se4 curity Act (42 U.S.C. 1395 et seq.) is amended by redesig5 nating part D as part E and by inserting after part C

6 the following new part:

7 ‘‘PART D—OUTPATIENT PRESCRIPTION DRUG BENEFIT

8 PROGRAM

9 ‘‘DEFINITIONS

10 ‘‘SEC. 1860. In this part:
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1 ‘‘(1) COVERED OUTPATIENT DRUG.—

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

3 subparagraph (B), the term ‘covered outpatient

4 drug’ means any of the following products:

5 ‘‘(i) A drug which may be dispensed

6 only upon prescription, and—

7 ‘‘(I) which is approved for safety

8 and effectiveness as a prescription

9 drug under section 505 of the Federal

10 Food, Drug, and Cosmetic Act;

11 ‘‘(II)(aa) which was commercially

12 used or sold in the United States be13 fore the date of enactment of the

14 Drug Amendments of 1962 or which

15 is identical, similar, or related (within

16 the meaning of section 310.6(b)(1) of

17 title 21 of the Code of Federal Regu18 lations) to such a drug, and (bb)

19 which has not been the subject of a

20 final determination by the Secretary

21 that it is a ‘new drug’ (within the

22 meaning of section 201(p) of the Fed23 eral Food, Drug, and Cosmetic Act)

24 or an action brought by the Secretary

25 under section 301, 302(a), or 304(a)
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1 of such Act to enforce section 502(f)

2 or 505(a) of such Act; or

3 ‘‘(III)(aa) which is described in

4 section 107(c)(3) of the Drug Amend5 ments of 1962 and for which the Sec6 retary has determined there is a com7 pelling justification for its medical

8 need, or is identical, similar, or re9 lated (within the meaning of section

10 310.6(b)(1) of title 21 of the Code of

11 Federal Regulations) to such a drug,

12 and (bb) for which the Secretary has

13 not issued a notice of an opportunity

14 for a hearing under section 505(e) of

15 the Federal Food, Drug, and Cos16 metic Act on a proposed order of the

17 Secretary to withdraw approval of an

18 application for such drug under such

19 section because the Secretary has de20 termined that the drug is less than ef21 fective for all conditions of use pre22 scribed, recommended, or suggested in

23 its labeling.

24 ‘‘(ii) A biological product which—
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1 ‘‘(I) may only be dispensed upon

2 prescription;

3 ‘‘(II) is licensed under section

4 351 of the Public Health Service Act;

5 and

6 ‘‘(III) is produced at an estab7 lishment licensed under such section

8 to produce such product.

9 ‘‘(iii) Insulin approved under appro10 priate Federal law, including needles, sy11 ringes, and disposable pumps for the ad12 ministration of such insulin.

13 ‘‘(iv) A prescribed drug or biological

14 product that would meet the requirements

15 of clause (i) or (ii) but that it is available

16 over-the-counter in addition to being avail17 able upon prescription.

18 ‘‘(B) EXCLUSION.—The term ‘covered out19 patient drug’ does not include any product—

20 ‘‘(i) except as provided in subpara21 graph (A)(iv), which may be distributed to

22 individuals without a prescription;

23 ‘‘(ii) that is covered under part A or

24 B (unless coverage of such product is not
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1 available because benefits under part A or

2 B have been exhausted); or

3 ‘‘(iii) except for agents used to pro4 mote smoking cessation, for which cov5 erage may be excluded or restricted under

6 section 1927(d)(2).

7 ‘‘(2) ELIGIBLE BENEFICIARY.—The term ‘eligi8 ble beneficiary’ means an individual that is entitled

9 to benefits under part A or enrolled under part B.

10 ‘‘(3) ELIGIBLE ENTITY.—The term ‘eligible en11 tity’ means any entity that the Secretary determines

12 to be appropriate to provide eligible beneficiaries

13 with covered outpatient drugs under a contract en14 tered into under this part, including—

15 ‘‘(A) a pharmacy benefit management com16 pany;

17 ‘‘(B) a retail pharmacy delivery system;

18 ‘‘(C) a health plan or insurer;

19 ‘‘(D) a State (through mechanisms estab20 lished under a State plan under title XIX);

21 ‘‘(E) any other entity approved by the Sec22 retary; or

23 ‘‘(F) any combination of the entities de24 scribed in subparagraphs (A) through (E) if the

25 Secretary determines that such combination—
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1 ‘‘(i) increases the scope or efficiency

2 of the provision of benefits under this part;

3 and

4 ‘‘(ii) is not anticompetitive.

5 ‘‘SUBPART 1—ESTABLISHMENT OF OUTPATIENT

6 PRESCRIPTION DRUG BENEFIT PROGRAM

7 ‘‘ESTABLISHMENT OF OUTPATIENT PRESCRIPTION DRUG

8 BENEFIT PROGRAM

9 ‘‘SEC. 1860A. (a) PROVISION OF BENEFIT.—Begin10 ning in 2003, the Secretary shall provide for an outpatient

11 prescription drug benefit program under which an eligible

12 beneficiary shall be provided covered outpatient drugs.

13 ‘‘(b) VOLUNTARY NATURE OF PROGRAM.—Nothing

14 in this part shall be construed as requiring an eligible ben15 eficiary to enroll in the program established under this

16 part.

17 ‘‘(c) SCOPE OF BENEFITS.—The program established

18 under this part shall provide for coverage of all therapeutic

19 classes of covered outpatient drugs.

20 ‘‘(d) FINANCING.—The costs of providing benefits

21 under this part shall be payable from the Federal Supple22 mentary Medical Insurance Trust Fund established under

23 section 1841.

24 ‘‘ENROLLMENT

25 ‘‘SEC. 1860B. (a) ENROLLMENT UNDER PART D.—

26 ‘‘(1) ESTABLISHMENT OF PROCESS.—
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1 ‘‘(A) IN GENERAL.—The Secretary shall

2 establish a process through which an eligible

3 beneficiary (including an eligible beneficiary en4 rolled in a Medicare+Choice plan offered by a

5 Medicare+Choice organization) may make an

6 election to enroll under this part. Such process

7 shall be similar to the process for enrollment in

8 part B under section 1837.

9 ‘‘(B) REQUIREMENT OF ENROLLMENT.—

10 An eligible beneficiary must enroll under this

11 part in order to be eligible to receive covered

12 outpatient drugs under this title.

13 ‘‘(2) ENROLLMENT PROCEDURES.—

14 ‘‘(A) LATE ENROLLMENT PENALTY.—

15 ‘‘(i) IN GENERAL.—Subject to the

16 succeeding provisions of this subparagraph,

17 in the case of an eligible beneficiary whose

18 coverage period under this part began pur19 suant to an enrollment after the bene20 ficiary’s initial enrollment period under

21 part B (determined pursuant to section

22 1837(d)) and not pursuant to the open en23 rollment period described in subparagraph

24 (B), the Secretary shall establish proce25 dures for increasing the amount of the
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1 monthly premium under section 1860D ap2 plicable to such beneficiary—

3 ‘‘(I) by an amount that is equal

4 to 10 percent of such premium for

5 each full 12-month period (in the

6 same continuous period of eligibility)

7 in which the eligible beneficiary could

8 have been enrolled under this part but

9 was not so enrolled; or

10 ‘‘(II) if determined appropriate

11 by the Secretary, by an amount that

12 the Secretary determines is actuarily

13 sound for each such period.

14 ‘‘(ii) PERIODS TAKEN INTO AC15 COUNT.—For purposes of calculating any

16 12-month period under clause (i), there

17 shall be taken into account—

18 ‘‘(I) the months which elapsed

19 between the close of the eligible bene20 ficiary’s initial enrollment period and

21 the close of the enrollment period in

22 which the beneficiary enrolled; and

23 ‘‘(II) in the case of an eligible

24 beneficiary who reenrolls under this

25 part, the months which elapsed be-
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1 tween the date of termination of a

2 previous coverage period and the close

3 of the enrollment period in which the

4 beneficiary reenrolled.

5 ‘‘(iii) PERIODS NOT TAKEN INTO AC6 COUNT.—

7 ‘‘(I) IN GENERAL.—For purposes

8 of calculating any 12-month period

9 under clause (i), subject to subclause

10 (II), there shall not be taken into ac11 count months for which the eligible

12 beneficiary can demonstrate that the

13 beneficiary was covered under a group

14 health plan, including a qualified re15 tiree prescription drug plan (as de16 fined in section 1860I(e)(3)) for which

17 an incentive payment was paid under

18 section 1860I, that provides coverage

19 of the cost of prescription drugs

20 whose actuarial value (as defined by

21 the Secretary) to the beneficiary

22 equals or exceeds the actuarial value

23 of the benefits provided to an indi24 vidual enrolled in the outpatient pre-
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1 scription drug benefit program under

2 this part.

3 ‘‘(II) APPLICATION.—This clause

4 shall only apply with respect to a cov5 erage period the enrollment for which

6 occurs before the end of the 60-day

7 period that begins on the first day of

8 the month which includes the date on

9 which the plan terminates, ceases to

10 provide, or reduces the value of the

11 prescription drug coverage under such

12 plan to below the value of the cov13 erage provided under the program

14 under this part.

15 ‘‘(iv) PERIODS TREATED SEPA16 RATELY.—Any increase in an eligible bene17 ficiary’s monthly premium under clause (i)

18 with respect to a particular continuous pe19 riod of eligibility shall not be applicable

20 with respect to any other continuous period

21 of eligibility which the beneficiary may

22 have.

23 ‘‘(v) CONTINUOUS PERIOD OF ELIGI24 BILITY.—
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1 ‘‘(I) IN GENERAL.—Subject to

2 subclause (II), for purposes of this

3 subparagraph, an eligible beneficiary’s

4 ‘continuous period of eligibility’ is the

5 period that begins with the first day

6 on which the beneficiary is eligible to

7 enroll under section 1836 and ends

8 with the beneficiary’s death.

9 ‘‘(II) SEPARATE PERIOD.—Any

10 period during all of which an eligible

11 beneficiary satisfied paragraph (1) of

12 section 1836 and which terminated in

13 or before the month preceding the

14 month in which the beneficiary at15 tained age 65 shall be a separate ‘con16 tinuous period of eligibility’ with re17 spect to the beneficiary (and each

18 such period which terminates shall be

19 deemed not to have existed for pur20 poses of subsequently applying this

21 subparagraph).

22 ‘‘(B) OPEN ENROLLMENT PERIOD FOR

23 CURRENT BENEFICIARIES IN WHICH LATE EN24 ROLLMENT PROCEDURES DO NOT APPLY.—The

25 Secretary shall establish an applicable period,
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1 which shall begin on the date on which the Sec2 retary first begins to accept elections for enroll3 ment under this part, during which any eligible

4 beneficiary may enroll under this part without

5 the application of the late enrollment proce6 dures established under subparagraph (A)(i).

7 ‘‘(3) PERIOD OF COVERAGE.—

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

9 subparagraph (B), an eligible beneficiary’s cov10 erage under the program under this part shall

11 be effective for the period provided in section

12 1838, as if that section applied to the program

13 under this part.

14 ‘‘(B) OPEN ENROLLMENT.—An eligible

15 beneficiary who enrolls under the program

16 under this part pursuant to paragraph (2)(B)

17 shall be entitled to the benefits under this part

18 beginning on the first day of the month fol19 lowing the month in which such enrollment oc20 curs.

21 ‘‘(C) LIMITATION.—Coverage under this

22 part shall not begin prior to January 1, 2003.

23 ‘‘(4) PART D COVERAGE TERMINATED BY TER24 MINATION OF COVERAGE UNDER PARTS A AND B.—
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1 ‘‘(A) IN GENERAL.—In addition to the

2 causes of termination specified in section 1838,

3 the Secretary shall terminate an individual’s

4 coverage under this part if the individual is no

5 longer enrolled in either part A or part B.

6 ‘‘(B) EFFECTIVE DATE.—The termination

7 described in subparagraph (A) shall be effective

8 on the effective date of termination of coverage

9 under part A or (if later) under part B.

10 ‘‘(b) ENROLLMENT WITH ELIGIBLE ENTITY.—

11 ‘‘(1) PROCESS.—

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

13 establish a process through which an eligible

14 beneficiary who is enrolled under this part but

15 not enrolled in a Medicare+Choice plan offered

16 by a Medicare+Choice organization shall make

17 an annual election to enroll with any eligible en18 tity that has been awarded a contract under

19 this part and serves the geographic area in

20 which the beneficiary resides.

21 ‘‘(B) RULES.—In establishing the process

22 under subparagraph (A), the Secretary shall

23 use rules similar to the rules for enrollment and

24 disenrollment with a Medicare+Choice plan
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1 under section 1851 (including special election

2 periods under subsection (e)(4) of such section).

3 ‘‘(2) MEDICARE+CHOICE ENROLLEES.—An eli4 gible beneficiary who is enrolled under this part and

5 enrolled in a Medicare+Choice plan offered by a

6 Medicare+Choice organization shall receive coverage

7 of covered outpatient drugs under this part through

8 such plan.

9 ‘‘(c) FIRST ENROLLMENT PERIOD.—The processes

10 developed under subsections (a) and (b) shall ensure that

11 eligible beneficiaries are permitted to enroll under this

12 part and with an eligible entity prior to January 1, 2003,

13 in order to ensure that coverage under this part is effective

14 as of such date.

15 ‘‘PROVIDING INFORMATION TO BENEFICIARIES

16 ‘‘SEC. 1860C. (a) ACTIVITIES.—

17 ‘‘(1) IN GENERAL.—The Secretary shall con18 duct activities that are designed to broadly dissemi19 nate information to eligible beneficiaries (and pro20 spective eligible beneficiaries) regarding the coverage

21 provided under this part.

22 ‘‘(2) SPECIAL RULE FOR FIRST ENROLLMENT

23 UNDER THE PROGRAM.—To the extent practicable,

24 the activities described in paragraph (1) shall ensure

25 that eligible beneficiaries are provided with such in-
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1 formation at least 30 days prior to the first enroll2 ment period described in section 1860B(c).

3 ‘‘(b) REQUIREMENTS.—

4 ‘‘(1) IN GENERAL.—The activities described in

5 subsection (a) shall—

6 ‘‘(A) be similar to the activities performed

7 by the Secretary under section 1851(d);

8 ‘‘(B) be coordinated with the activities per9 formed by the Secretary under such section and

10 under section 1804; and

11 ‘‘(C) provide for the dissemination of infor12 mation comparing the eligible entities that are

13 available to eligible beneficiaries residing in an

14 area under this part.

15 ‘‘(2) COMPARATIVE INFORMATION.—The com16 parative information described in paragraph (1)(B)

17 shall include the following:

18 ‘‘(A) BENEFITS.—A comparison of the

19 benefits provided by each eligible entity, includ20 ing a comparison of the pharmacy networks

21 used by each eligible entity and the formularies

22 and appeals processes implemented by each en23 tity.
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1 ‘‘(B) QUALITY AND PERFORMANCE.—To

2 the extent available, the quality and perform3 ance of each eligible entity.

4 ‘‘(C) BENEFICIARY COSTS.—The cost-shar5 ing required of eligible beneficiaries enrolled in

6 each eligible entity.

7 ‘‘(D) CONSUMER SATISFACTION SUR8 VEYS.—To the extent available, the results of

9 consumer satisfaction surveys regarding each

10 eligible entity.

11 ‘‘(E) ADDITIONAL INFORMATION.—Such

12 additional information as the Secretary may

13 prescribe.

14 ‘‘(3) INFORMATION STANDARDS.—The Sec15 retary shall develop standards to ensure that the in16 formation provided to eligible beneficiaries under

17 this part is complete, accurate, and uniform.

18 ‘‘(c) USE OF MEDICARE CONSUMER COALITIONS TO

19 PROVIDE INFORMATION.—

20 ‘‘(1) IN GENERAL.—The Secretary may con21 tract with Medicare Consumer Coalitions to conduct

22 the informational activities—

23 ‘‘(A) under this section;

24 ‘‘(B) under section 1851(d); and

25 ‘‘(C) under section 1804.
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1 ‘‘(2) SELECTION OF COALITIONS.—If the Sec2 retary determines the use of Medicare Consumer

3 Coalitions to be appropriate, the Secretary shall—

4 ‘‘(A) develop and disseminate, in such

5 areas as the Secretary determines appropriate,

6 a request for proposals for Medicare Consumer

7 Coalitions to contract with the Secretary in

8 order to conduct any of the informational ac9 tivities described in paragraph (1); and

10 ‘‘(B) select a proposal of a Medicare Con11 sumer Coalition to conduct the informational

12 activities in each such area, with a preference

13 for broad participation by organizations with

14 experience in providing information to bene15 ficiaries under this title.

16 ‘‘(3) PAYMENT TO MEDICARE CONSUMER COA17 LITIONS.—The Secretary shall make payments to

18 Medicare Consumer Coalitions contracting under

19 this subsection in such amounts and in such manner

20 as the Secretary determines appropriate.

21 ‘‘(4) AUTHORIZATION OF APPROPRIATIONS.—

22 There are authorized to be appropriated to the Sec23 retary such sums as may be necessary to contract

24 with Medicare Consumer Coalitions under this sec25 tion.
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1 ‘‘(5) MEDICARE CONSUMER COALITION DE2 FINED.—In this subsection, the term ‘Medicare Con3 sumer Coalition’ means an entity that is a nonprofit

4 organization operated under the direction of a board

5 of directors that is primarily composed of bene6 ficiaries under this title.

7 ‘‘PREMIUMS

8 ‘‘SEC. 1860D. (a) ANNUAL ESTABLISHMENT OF

9 MONTHLY PREMIUM RATES.—

10 ‘‘(1) IN GENERAL.—The Secretary shall, during

11 September of each year (beginning in 2002), deter12 mine and promulgate a monthly premium rate for

13 the succeeding year in accordance with the provi14 sions of this subsection.

15 ‘‘(2) ACTUARIAL DETERMINATIONS.—

16 ‘‘(A) DETERMINATION OF ANNUAL BEN17 EFIT AND ADMINISTRATIVE COSTS.—The Sec18 retary shall estimate annually for the suc19 ceeding year the amount equal to the total of

20 the benefits and administrative costs that will

21 be payable from the Federal Supplementary

22 Medical Insurance Trust Fund for providing

23 covered outpatient drugs in such calendar year

24 with respect to enrollees in the program under

25 this part.
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1 ‘‘(B) DETERMINATION OF MONTHLY PRE2 MIUM RATES.—

3 ‘‘(i) IN GENERAL.—The Secretary

4 shall determine the monthly premium rate

5 with respect to such enrollees for such succeeding year, which shall be 1 6 ⁄12 of the ap7 plicable share of the amount determined

8 under subparagraph (A), divided by the

9 total number of such enrollees, and round10 ed (if such rate is not a multiple of 10

11 cents) to the nearest multiple of 10 cents.

12 ‘‘(ii) DEFINITION OF APPLICABLE

13 SHARE.—For purposes of clause (i), the

14 term ‘applicable share’ means—

15 ‘‘(I) one-half, in the case of pre16 miums paid by an eligible beneficiary

17 enrolled in the program under this

18 part; and

19 ‘‘(II) two-thirds, in the case of

20 premiums paid for such a beneficiary

21 by an employer (as defined in section

22 1860I(e)(2)) that the beneficiary for23 merly worked for.

24 ‘‘(3) PUBLICATION OF ASSUMPTIONS.—The

25 Secretary shall publish, together with the promulga-
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1 tion of the monthly premium rates for the suc2 ceeding year, a statement setting forth the actuarial

3 assumptions and bases employed in arriving at the

4 amounts and rates determined under paragraphs (1)

5 and (2).

6 ‘‘(b) COLLECTION OF PREMIUM.—The monthly pre7 mium applicable to an eligible beneficiary under this part

8 shall be collected and credited to the Federal Supple9 mentary Medical Insurance Trust Fund in the same man10 ner as the monthly premium determined under section

11 1839 is collected and credited to such Trust Fund under

12 section 1840.

13 ‘‘(c) INCREASE IN PREMIUM FOR HIGH-INCOME

14 BENEFICIARIES.—

15 ‘‘(1) INCREASE.—

16 ‘‘(A) AMOUNT.—

17 ‘‘(i) IN GENERAL.—Except as pro18 vided in paragraph (4), in the case of an

19 eligible beneficiary whose modified ad20 justed gross income for a taxable year end21 ing with or within a calendar year (as ini22 tially determined by the Secretary in ac23 cordance with paragraph (2)) exceeds the

24 threshold amount, the Secretary shall in25 crease the amount of the monthly premium
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1 established under subsection (a) by an

2 amount which bears the same ratio to such

3 premium as such excess bears to $25,000

4 (or $50,000 in the case of a joint return).

5 ‘‘(ii) LIMITATION.—In no event shall

6 the increase described in clause (i) exceed

7 an amount equal to 50 percent of the

8 monthly premium established under sub9 section (a).

10 ‘‘(B) DEFINITION OF THRESHOLD

11 AMOUNT.—For purposes of this subsection, the

12 term ‘threshold amount’ means—

13 ‘‘(i) except as otherwise provided in

14 this subparagraph, $75,000;

15 ‘‘(ii) $150,000 in the case of a joint

16 return; and

17 ‘‘(iii) zero in the case of a taxpayer

18 who—

19 ‘‘(I) is married at the close of the

20 taxable year but does not file a joint

21 return (as so defined) for such year;

22 and

23 ‘‘(II) does not live apart from his

24 spouse at all times during the taxable

25 year.
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1 ‘‘(C) INFLATION ADJUSTMENT FOR

2 THRESHOLD AMOUNT.—

3 ‘‘(i) IN GENERAL.—In the case of any

4 calendar year beginning after 2003, each

5 of the dollar amounts in clauses (i) and (ii)

6 of subparagraph (B) shall be increased by

7 an amount equal to—

8 ‘‘(I) such dollar amount, multi9 plied by

10 ‘‘(II) the percentage (if any) by

11 which the average of the Consumer

12 Price Index for all urban consumers

13 (United States city average) for the

14 12-month period ending with June of

15 the preceding calendar year, exceeds

16 such average for the 12-month period

17 ending with June 2002.

18 ‘‘(ii) ROUNDING.—If any dollar

19 amount after being increased under clause

20 (i) is not a multiple of $5, such dollar

21 amount shall be rounded to the nearest

22 multiple of $5.

23 ‘‘(D) DEFINITION OF MODIFIED ADJUSTED

24 GROSS INCOME.—For purposes of this sub25 section, the term ‘modified adjusted gross in-
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1 come’ means adjusted gross income (as defined

2 in section 62 of the Internal Revenue Code of

3 1986)—

4 ‘‘(i) determined without regard to sec5 tions 135, 911, 931, and 933 of such

6 Code; and

7 ‘‘(ii) increased by the amount of inter8 est received or accrued by the taxpayer

9 during the taxable year which is exempt

10 from tax under such Code.

11 ‘‘(E) DEFINITION OF JOINT RETURN.—

12 For purposes of this subsection, the term ‘joint

13 return’ has the meaning given the term in sec14 tion 7701(a)(38) of the Internal Revenue Code

15 of 1986.

16 ‘‘(2) DETERMINATION OF MODIFIED ADJUSTED

17 GROSS INCOME.—The Secretary shall make an initial

18 determination of the amount of an eligible bene19 ficiary’s modified adjusted gross income for a tax20 able year ending with or within a calendar year for

21 purposes of this subsection as follows:

22 ‘‘(A) NOTICE.—Not later than September

23 1 of the year preceding the year, the Secretary

24 shall provide notice to each eligible beneficiary

25 whom the Secretary finds (on the basis of the
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1 beneficiary’s actual modified adjusted gross in2 come for the most recent taxable year for which

3 such information is available or other informa4 tion provided to the Secretary by the Secretary

5 of the Treasury) will be subject to an increase

6 under this subsection that the beneficiary will

7 be subject to such an increase, and shall include

8 in such notice the Secretary’s estimate of the

9 beneficiary’s modified adjusted gross income for

10 the year.

11 ‘‘(B) CALCULATION BASED ON INFORMA12 TION PROVIDED BY BENEFICIARY.—If, during

13 the 60-day period beginning on the date notice

14 is provided to an eligible beneficiary under sub15 paragraph (A), the beneficiary provides the Sec16 retary with appropriate information (as deter17 mined by the Secretary) on the beneficiary’s an18 ticipated modified adjusted gross income for the

19 year, the amount initially determined by the

20 Secretary under this paragraph with respect to

21 the beneficiary shall be based on the informa22 tion provided by the beneficiary.

23 ‘‘(C) CALCULATION BASED ON NOTICE

24 AMOUNT IF NO INFORMATION IS PROVIDED BY

25 THE BENEFICIARY OR IF THE SECRETARY DE-
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1 TERMINES THAT THE PROVIDED INFORMATION

2 IN NOT APPROPRIATE.—The amount initially

3 determined by the Secretary under this para4 graph with respect to an eligible beneficiary

5 shall be the amount included in the notice pro6 vided to the beneficiary under subparagraph

7 (A) if—

8 ‘‘(i) the beneficiary does not provide

9 the Secretary with information under sub10 paragraph (B); or

11 ‘‘(ii) the Secretary determines that

12 the information provided by the beneficiary

13 to the Secretary under such subparagraph

14 in not appropriate.

15 ‘‘(3) ADJUSTMENTS.—

16 ‘‘(A) IN GENERAL.—If the Secretary deter17 mines (on the basis of final information pro18 vided by the Secretary of the Treasury) that

19 the amount of an eligible beneficiary’s actual

20 modified adjusted gross income for a taxable

21 year ending with or within a calendar year is

22 less than or greater than the amount initially

23 determined by the Secretary under paragraph

24 (2), the Secretary shall increase or decrease the

25 amount of the beneficiary’s monthly premium
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1 under this part (as the case may be) for months

2 during the following calendar year by an

amount equal to 1 3 ⁄12 of the difference

4 between—

5 ‘‘(i) the total amount of all monthly

6 premiums paid by the beneficiary under

7 this part during the previous calendar

8 year; and

9 ‘‘(ii) the total amount of all such pre10 miums which would have been paid by the

11 beneficiary during the previous calendar

12 year if the amount of the beneficiary’s

13 modified adjusted gross income initially de14 termined under paragraph (2) were equal

15 to the actual amount of the beneficiary’s

16 modified adjusted gross income determined

17 under this paragraph.

18 ‘‘(B) INTEREST.—

19 ‘‘(i) INCREASE.—In the case of an eli20 gible beneficiary for whom the amount ini21 tially determined by the Secretary under

22 paragraph (2) is based on information pro23 vided by the beneficiary under subpara24 graph (B) of such paragraph, if the Sec25 retary determines under subparagraph (A)
28

•S 2758 IS

1 that the amount of the beneficiary’s actual

2 modified adjusted gross income for a tax3 able year is greater than the amount ini4 tially determined under paragraph (2), the

5 Secretary shall increase the amount other6 wise determined for the year under sub7 paragraph (A) by an amount of interest

8 equal to the sum of the amounts deter9 mined under clause (ii) for each of the

10 months described in such clause.

11 ‘‘(ii) COMPUTATION.—Interest shall

12 be computed for any month in an amount

13 determined by applying the underpayment

14 rate established under section 6621 of the

15 Internal Revenue Code of 1986 (com16 pounded daily) to any portion of the dif17 ference between the amount initially deter18 mined under paragraph (2) and the

19 amount determined under subparagraph

20 (A) for the period beginning on the first

21 day of the month beginning after the eligi22 ble beneficiary provided information to the

23 Secretary under subparagraph (B) of para24 graph (2) and ending 30 days before the

25 first month for which the beneficiary’s
29

•S 2758 IS

1 monthly premium is increased under this

2 paragraph.

3 ‘‘(iii) EXCEPTION.—Interest shall not

4 be imposed under this subparagraph if the

5 amount of the eligible beneficiary’s modi6 fied adjusted gross income provided by the

7 beneficiary under subparagraph (B) of

8 paragraph (2) was not less than the bene9 ficiary’s modified adjusted gross income

10 determined on the basis of information

11 shown on the return of tax imposed by

12 chapter 1 of the Internal Revenue Code of

13 1986 for the taxable year involved.

14 ‘‘(C) STEPS TO RECOVER AMOUNTS DUE

15 FROM PREVIOUSLY ENROLLED BENE16 FICIARIES.—In the case of an eligible bene17 ficiary who is not enrolled under this part for

18 any calendar year for which the beneficiary’s

19 monthly premium under this part for months

20 during the year would be increased pursuant to

21 subparagraph (A) if the beneficiary were en22 rolled under this part for the year, the Sec23 retary may take such steps as the Secretary

24 considers appropriate to recover from the bene25 ficiary the total amount by which the bene-
30

•S 2758 IS

1 ficiary’s monthly premium under this part for

2 months during the year would have been in3 creased under subparagraph (A) if the bene4 ficiary were enrolled under this part for the

5 year.

6 ‘‘(D) DECEASED BENEFICIARY.—In the

7 case of a deceased eligible beneficiary for whom

8 the amount of the monthly premium under this

9 part for months in a year would have been de10 creased pursuant to subparagraph (A) if the

11 beneficiary were not deceased, the Secretary

12 shall make a payment to the beneficiary’s sur13 viving spouse (or, in the case of an eligible ben14 eficiary who does not have a surviving spouse,

15 to the beneficiary’s estate) in an amount equal

16 to the difference between—

17 ‘‘(i) the total amount by which the

18 beneficiary’s premium would have been de19 creased for all months during the year pur20 suant to subparagraph (A); and

21 ‘‘(ii) the amount (if any) by which the

22 beneficiary’s premium was decreased for

23 months during the year pursuant to sub24 paragraph (A).
31

•S 2758 IS

1 ‘‘(4) WAIVER BY SECRETARY.—The Secretary

2 may waive the imposition of all or part of the in3 crease of the premium or all or part of any interest

4 due under this subsection for any period if the Sec5 retary determines that a gross injustice would other6 wise result without such waiver.

7 ‘‘(5) TRANSFER TO PART B TRUST FUND.—The

8 Secretary shall transfer amounts received pursuant

9 to this subsection to the Federal Supplementary

10 Medical Insurance Trust Fund.

11 ‘‘COST-SHARING

12 ‘‘SEC. 1860E. (a) DEDUCTIBLE.—

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

14 no payments shall be made under this part on behalf

15 of an eligible beneficiary until the beneficiary has

16 met a $250 deductible.

17 ‘‘(2) WAIVER OF DEDUCTIBLE FOR GENERIC

18 DRUGS.—

19 ‘‘(A) IN GENERAL.—An eligible entity may

20 provide that generic drugs are not subject to

21 the deductible described in paragraph (1) if the

22 Secretary determines that the waiver of the

23 deductible—

24 ‘‘(i) is tied to the performance meas25 ures and other incentives applicable to the

26 entity pursuant to section 1860H(a); and
32

•S 2758 IS

1 ‘‘(ii) will not result in an increase in

2 the expenditures made from the Federal

3 Supplementary Medical Insurance Trust

4 Fund.

5 ‘‘(B) CREDIT FOR AMOUNTS PAID.—If the

6 deductible is waived pursuant to subparagraph

7 (A), any coinsurance paid by an eligible bene8 ficiary for the generic drug shall be credited to9 ward the annual deductible.

10 ‘‘(b) COINSURANCE.—

11 ‘‘(1) ESTABLISHMENT.—

12 ‘‘(A) IN GENERAL.—Subject to paragraph

13 (2), if any covered outpatient drug is provided

14 to an eligible beneficiary in a year after the

15 beneficiary has met any deductible requirement

16 under subsection (a) for the year, the bene17 ficiary shall be responsible for making payments

18 for the drug in an amount equal to the applica19 ble percentage of the cost of the drug.

20 ‘‘(B) APPLICABLE PERCENTAGE DE21 FINED.—For purposes of subparagraph (A), the

22 ‘applicable percentage’ means, with respect to

23 any covered outpatient drug provided to an eli24 gible beneficiary in a year—
33

•S 2758 IS

1 ‘‘(i) 50 percent to the extent the out2 of-pocket expenses of the beneficiary for

3 such drug, when added to the out-of-pocket

4 expenses of the beneficiary for covered out5 patient drugs previously provided in the

6 year, do not exceed $3,500;

7 ‘‘(ii) 25 percent to the extent such ex8 penses, when so added, exceed $3,500 but

9 do not exceed $4,000; and

10 ‘‘(iii) 0 percent to the extent such ex11 penses, when so added, would exceed

12 $4,000.

13 ‘‘(C) OUT-OF-POCKET EXPENSES DE14 FINED.—For purposes of subparagraph (B),

15 the term ‘out-of-pocket expenses’ means ex16 penses incurred as a result of the application of

17 the deductible under subsection (a) and the co18 insurance required under this subsection.

19 ‘‘(2) REDUCTION BY ELIGIBLE ENTITY.—An el20 igible entity may reduce the applicable percentage

21 that an eligible beneficiary is subject to under para22 graph (1) if the Secretary determines that such

23 reduction—
34

•S 2758 IS

1 ‘‘(A) is tied to the performance measures

2 and other incentives applicable to the entity

3 pursuant to section 1860H(a); and

4 ‘‘(B) will not result in an increase in the

5 expenditures made from the Federal Supple6 mentary Medical Insurance Trust Fund.

7 ‘‘(c) INFLATION ADJUSTMENT.—

8 ‘‘(1) IN GENERAL.—In the case of any calendar

9 year beginning after 2004, each of the dollar

10 amounts in subsections (a)(1) and (b)(1)(B) shall be

11 increased by an amount equal to—

12 ‘‘(A) such dollar amount, multiplied by

13 ‘‘(B) the percentage (if any) by which the

14 amount of expenditures under this part in the

15 preceding calendar year exceeds the amount of

16 such expenditures in 2003.

17 ‘‘(2) ROUNDING.—If any dollar amount after

18 being increased under paragraph (1) is not a mul19 tiple of $5, such dollar amount shall be rounded to

20 the nearest multiple of $5.

21 ‘‘SELECTION OF ENTITIES TO PROVIDE OUTPATIENT

22 DRUG BENEFIT

23 ‘‘SEC. 1860F. (a) ESTABLISHMENT OF BIDDING

24 PROCESS.—

25 ‘‘(1) IN GENERAL.—The Secretary shall estab26 lish procedures under which the Secretary accepts
35

•S 2758 IS

1 bids submitted by eligible entities and awards con2 tracts to such entities in order to administer and de3 liver the benefits provided under this part to eligible

4 beneficiaries in an area.

5 ‘‘(2) COMPETITIVE PROCEDURES.—Competitive

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

7 of Federal Procurement Policy Act (41 U.S.C.

8 403(5))) shall be used to enter into contracts under

9 this part.

10 ‘‘(b) AREA FOR CONTRACTS.—

11 ‘‘(1) REGIONAL BASIS.—

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

13 subparagraph (B) and subject to paragraph (2),

14 the contract entered into between the Secretary

15 and an eligible entity shall require the eligible

16 entity to provide covered outpatient drugs on a

17 regional basis.

18 ‘‘(B) PARTIAL REGIONAL BASIS.—

19 ‘‘(i) IN GENERAL.—If determined ap20 propriate by the Secretary, the Secretary

21 may permit the coverage described in sub22 paragraph (A) to be provided on a partial

23 regional basis.

24 ‘‘(ii) REQUIREMENTS.—If the Sec25 retary permits coverage pursuant to clause
36

•S 2758 IS

1 (i), the Secretary shall ensure that the par2 tial region in which coverage is provided

3 is—

4 ‘‘(I) at least the size of the com5 mercial service area of the eligible en6 tity for that area; and

7 ‘‘(II) not smaller than a State.

8 ‘‘(2) DETERMINATION.—

9 ‘‘(A) IN GENERAL.—In determining cov10 erage areas under this part, the Secretary

11 shall—

12 ‘‘(i) take into account the number of

13 eligible beneficiaries in an area in order to

14 encourage participation by eligible entities;

15 and

16 ‘‘(ii) ensure that there are at least 10

17 different coverage areas in the United

18 States.

19 ‘‘(B) NO ADMINISTRATIVE OR JUDICIAL

20 REVIEW.—The determination of coverage areas

21 under this part shall not be subject to adminis22 trative or judicial review.

23 ‘‘(c) SUBMISSION OF BIDS.—

24 ‘‘(1) IN GENERAL.—Each eligible entity desir25 ing to provide covered outpatient drugs under this
37

•S 2758 IS

1 part shall submit a bid to the Secretary at such

2 time, in such manner, and accompanied by such in3 formation as the Secretary may reasonably require.

4 ‘‘(2) REQUIRED INFORMATION.—The bids de5 scribed in paragraph (1) shall include—

6 ‘‘(A) a proposal for the estimated prices of

7 covered outpatient drugs and the projected an8 nual increases in such prices, including differen9 tials between formulary and nonformulary

10 prices, if applicable;

11 ‘‘(B) the amount that the entity will

12 charge the Secretary for administering and de13 livering the benefits under such contract;

14 ‘‘(C) a statement regarding whether the

15 entity will waive the deductible for generic

16 drugs pursuant to section 1860E(a)(2);

17 ‘‘(D) a statement regarding whether the

18 entity will reduce the applicable coinsurance

19 percentage pursuant to section 1860E(b)(2)

20 and if so, the amount of such reduction;

21 ‘‘(E) a detailed description of—

22 ‘‘(i) the risk corridors tied to perform23 ance measures and other incentives that

24 the entity will accept under the contract;

25 and
38

•S 2758 IS

1 ‘‘(ii) how the entity will meet such

2 measures and incentives;

3 ‘‘(F) a detailed description of any owner4 ship or shared financial interests with other en5 tities involved in the delivery of the benefit as

6 proposed;

7 ‘‘(G) a detailed description of the entity’s

8 estimated marketing and advertising expendi9 tures related to enrolling and retaining eligible

10 beneficiaries; and

11 ‘‘(H) such other information that the Sec12 retary determines is necessary in order to carry

13 out this part, including information relating to

14 the bidding process under this part.

15 ‘‘(d) ACCESS.—

16 ‘‘(1) IN GENERAL.—The Secretary shall ensure

17 that an eligible entity—

18 ‘‘(A) complies with the access requirements

19 described in section 1860G(4)(A); and

20 ‘‘(B) makes available to each beneficiary

21 covered under the contract the full scope of the

22 benefits required under this part.

23 ‘‘(2) AREAS NOT COVERED BY CONTRACTS.—

24 The Secretary shall develop procedures for the provi25 sion of covered outpatient drugs under this part to
39

•S 2758 IS

1 each eligible beneficiary that resides in an area that

2 is not covered by any contract under this part.

3 ‘‘(3) BENEFICIARIES RESIDING IN DIFFERENT

4 LOCATIONS.—The Secretary shall develop procedures

5 to ensure that each eligible beneficiary that resides

6 in different areas in a year is provided the benefits

7 under this part throughout the entire year.

8 ‘‘(e) AWARDING OF CONTRACTS.—

9 ‘‘(1) NUMBER OF CONTRACTS.—The Secretary

10 shall, consistent with the requirements of this part

11 and the goal of containing costs under this title,

12 award in a competitive manner at least 2 contracts

13 in an area, unless only 1 bidding entity meets the

14 minimum standards specified under this part and by

15 the Secretary.

16 ‘‘(2) DETERMINATION.—In determining which

17 of the eligible entities that submitted bids that meet

18 the minimum standards specified under this part

19 and by the Secretary (including the terms and condi20 tions described in section 1860G) to award a con21 tract, the Secretary shall consider the comparative

22 merits of each bid, as determined on the basis of the

23 past performance of the entity and other relevant

24 factors, with respect to—
40

•S 2758 IS

1 ‘‘(A) how well the entity meets such min2 imum standards;

3 ‘‘(B) the amount that the entity will

4 charge the Secretary for administering and de5 livering the benefits under the contract;

6 ‘‘(C) the proposed prices of covered out7 patient drugs and annual increases in such

8 prices;

9 ‘‘(D) the proposed risk corridors tied to

10 performance measures and other incentives that

11 the entity will be subject to under the contract;

12 ‘‘(E) the factors described in section

13 1860C(b)(2);

14 ‘‘(F) prior experience in administering a

15 prescription drug benefit program;

16 ‘‘(G) effectiveness in containing costs

17 through pricing incentives and utilization man18 agement; and

19 ‘‘(H) such other factors as the Secretary

20 deems necessary to evaluate the merits of each

21 bid.

22 ‘‘(3) EXCEPTION TO CONFLICT OF INTEREST

23 RULES.—In awarding contracts under this part, the

24 Secretary may waive conflict of interest laws gen25 erally applicable to Federal acquisitions (subject to
41

•S 2758 IS

1 such safeguards as the Secretary may find necessary

2 to impose) in circumstances where the Secretary

3 finds that such waiver—

4 ‘‘(A) is not inconsistent with the—

5 ‘‘(i) purposes of the programs under

6 this title; or

7 ‘‘(ii) best interests of enrolled individ8 uals; and

9 ‘‘(B) permits a sufficient level of competi10 tion for such contracts, promotes efficiency of

11 benefits administration, or otherwise serves the

12 objectives of the program under this part.

13 ‘‘(4) NO ADMINISTRATIVE OR JUDICIAL RE14 VIEW.—The determination of the Secretary to award

15 or not award a contract to an eligible entity under

16 this part shall not be subject to administrative or ju17 dicial review.

18 ‘‘(f) APPROVAL OF MARKETING MATERIAL AND AP19 PLICATION FORMS.—The provisions of section 1851(h)

20 shall apply to marketing material and application forms

21 under this part in the same manner as such provisions

22 apply to marketing material and application forms under

23 part C.

24 ‘‘(g) DURATION OF CONTRACTS.—Each contract

25 under this part shall be for a term of at least 2 years
42

•S 2758 IS

1 but not more than 5 years, as determined by the Sec2 retary.

3 ‘‘CONDITIONS FOR AWARDING CONTRACT

4 ‘‘SEC. 1860G. The Secretary shall not award a con5 tract to an eligible entity under this part unless the Sec6 retary finds that the eligible entity agrees to comply with

7 such terms and conditions as the Secretary shall specify,

8 including the following:

9 ‘‘(1) QUALITY AND FINANCIAL STANDARDS.—

10 The eligible entity meets the quality and financial

11 standards specified by the Secretary.

12 ‘‘(2) PROCEDURES TO ENSURE PROPER UTILI13 ZATION, COMPLIANCE, AND AVOIDANCE OF ADVERSE

14 DRUG REACTIONS.—The eligible entity has in place

15 drug utilization review procedures to ensure—

16 ‘‘(A) the appropriate utilization by eligible

17 beneficiaries of the benefits to be provided

18 under the contract; and

19 ‘‘(B) the avoidance of adverse drug reac20 tions among eligible beneficiaries enrolled with

21 the entity, including problems due to thera22 peutic duplication, drug-disease contraindica23 tions, drug-drug interactions (including serious

24 interactions with nonprescription or over-the25 counter drugs), incorrect drug dosage or dura-
43

•S 2758 IS

1 tion of drug treatment, drug-allergy inter2 actions, and clinical abuse and misuse.

3 ‘‘(3) COST-EFFECTIVE PROVISION OF BENE4 FITS.—

5 ‘‘(A) IN GENERAL.—In providing the bene6 fits under a contract under this part, an eligible

7 entity may—

8 ‘‘(i) employ mechanisms to provide

9 the benefits economically, including the use

10 of—

11 ‘‘(I) formularies (pursuant to

12 subparagraph (B));

13 ‘‘(II) alternative methods of dis14 tribution; and

15 ‘‘(III) generic drug substitution;

16 ‘‘(ii) use mechanisms to encourage eli17 gible beneficiaries to select cost-effective

18 drugs or less costly means of receiving

19 drugs, including the use of pharmacy in20 centive programs, therapeutic interchange

21 programs, and disease management pro22 grams; and

23 ‘‘(iii) encourage pharmacy providers

24 to—
44

•S 2758 IS

1 ‘‘(I) inform beneficiaries of the

2 differentials in price between generic

3 and nongeneric drug equivalents; and

4 ‘‘(II) provide medication therapy

5 management programs in order to en6 hance beneficiaries’ understanding of

7 the appropriate use of medications

8 and to reduce the risk of potential ad9 verse events associated with medica10 tions.

11 ‘‘(B) FORMULARIES.—If an eligible entity

12 uses a formulary under this part, such for13 mulary shall comply with standards established

14 by the Secretary in consultation with the Medi15 care Pharmacy and Therapeutics Advisory

16 Committee established under section 1860M.

17 Such standards shall require that the eligible

18 entity—

19 ‘‘(i) use a pharmacy and therapeutic

20 committee (that meets the standards for a

21 pharmacy and therapeutic committee es22 tablished by the Secretary in consultation

23 with the Medicare Pharmacy and Thera24 peutics Advisory Committee established
45

•S 2758 IS

1 under section 1860M) to develop and im2 plement the formulary;

3 ‘‘(ii) include in the formulary—

4 ‘‘(I) at least 1 drug from each

5 therapeutic class (as defined by the

6 entity’s pharmacy and therapeutic

7 committee in accordance with stand8 ards established by the Secretary in

9 consultation with the Medicare Phar10 macy and Therapeutics Advisory

11 Committee established under section

12 1860M);

13 ‘‘(II) if there is more than 1 drug

14 available in a therapeutic class, at

15 least 2 drugs from such class; and

16 ‘‘(III) if there is more than 2

17 drugs available in a therapeutic class,

18 at least 2 drugs from such class and

19 a generic drug substitute if available;

20 ‘‘(iii) develop procedures for the—

21 ‘‘(I) addition of new therapeutic

22 classes to the formulary;

23 ‘‘(II) addition of new drugs to an

24 existing therapeutic class; and
46

•S 2758 IS

1 ‘‘(III) modification of the for2 mulary;

3 ‘‘(iv) provide for coverage of nonfor4 mulary drugs when determined (pursuant

5 to subparagraph (C) or (D)(i) of para6 graph (4)) to be medically necessary to

7 prevent or slow the deterioration of, or im8 prove or maintain, the health of an eligible

9 beneficiary; and

10 ‘‘(v) disclose to current and prospec11 tive beneficiaries and to providers in the

12 service area the nature of the formulary

13 restrictions, including information regard14 ing the drugs included in the formulary,

15 coinsurance, and any difference in the

16 cost-sharing for different types of drugs.

17 ‘‘(C) CONSTRUCTION.—Nothing in this

18 paragraph shall be construed as precluding an

19 eligible entity from—

20 ‘‘(i) requiring cost-sharing for nonfor21 mulary drugs that is higher than the cost22 sharing established in section 1860E(b),

23 except that such entity shall provide for

24 coverage of a nonformulary drug at the

25 same cost-sharing level as a drug within
47

•S 2758 IS

1 the formulary if such nonformulary drug is

2 determined (pursuant to subparagraph (C)

3 or (D)(i) of paragraph (4)) to be medically

4 necessary to prevent or slow the deteriora5 tion of, or improve or maintain, the health

6 of an eligible beneficiary;

7 ‘‘(ii) educating prescribing providers,

8 pharmacists, and beneficiaries about the

9 medical and cost benefits of formulary

10 drugs (including generic drugs); or

11 ‘‘(iii) requesting prescribing providers

12 to consider a formulary drug prior to dis13 pensing of a nonformulary drug, as long as

14 such request does not unduly delay the

15 provision of the drug.

16 ‘‘(4) PATIENT PROTECTIONS.—

17 ‘‘(A) ACCESS.—The eligible entity ensures

18 that the covered outpatient drugs are accessible

19 and convenient to eligible beneficiaries covered

20 under the contract, including by offering the

21 services in the following manner:

22 ‘‘(i) SERVICES DURING EMER23 GENCIES.—The offering of services 24

24 hours a day and 7 days a week for emer25 gencies.
48

•S 2758 IS

1 ‘‘(ii) CONTRACTS WITH RETAIL PHAR2 MACIES.—The offering of services—

3 ‘‘(I) at a sufficient number (as

4 determined by the Secretary) of retail

5 pharmacies;

6 ‘‘(II) to the extent feasible, at re7 tail pharmacies located throughout

8 the eligible entity’s service area to en9 sure reasonable geographic access (as

10 determined by the Secretary) to such

11 services; and

12 ‘‘(III) such that—

13 ‘‘(aa) the total charge for

14 each covered outpatient drug dis15 pensed to an eligible beneficiary

16 enrolled with the entity does not

17 exceed the negotiated price for

18 the drug (as reported to the Sec19 retary pursuant to paragraph

20 (6)(A)); and

21 ‘‘(bb) the retail pharmacy

22 dispensing the drug does not

23 charge (or collect from) such

24 beneficiary an amount that ex25 ceeds the beneficiary’s obligation
49

•S 2758 IS

1 (as determined in accordance

2 with the provisions of this part)

3 of the negotiated price.

4 ‘‘(B) CONTINUITY OF CARE.—

5 ‘‘(i) IN GENERAL.—The eligible entity

6 ensures that, in the case of an eligible ben7 eficiary who loses coverage under this part

8 with such entity under circumstances that

9 would permit a special election period (as

10 established by the Secretary under section

11 1860B(b)), the entity will continue to pro12 vide coverage under this part to such bene13 ficiary until the beneficiary enrolls and re14 ceives such coverage with another eligible

15 entity under this part.

16 ‘‘(ii) LIMITED PERIOD.—In no event

17 shall an eligible entity be required to pro18 vide the extended coverage required under

19 clause (i) beyond the date which is 30 days

20 after the coverage with such entity would

21 have terminated but for this subparagraph.

22 ‘‘(C) PROCEDURES REGARDING THE DE23 TERMINATION OF DRUGS THAT ARE MEDICALLY

24 NECESSARY.—The eligible entity has in place

25 procedures to determine if a drug is medically
50

•S 2758 IS

1 necessary to prevent or slow the deterioration

2 of, or improve or maintain, the health of an eli3 gible beneficiary. Such procedures shall require

4 that such determinations are based on profes5 sional medical judgment, the medical condition

6 of the beneficiary, and other medical evidence.

7 ‘‘(D) PROCEDURES REGARDING DENIALS

8 OF CARE.—The eligible entity has in place pro9 cedures to ensure—

10 ‘‘(i) a timely internal and external re11 view and resolution of denials of coverage

12 (in whole or in part) and complaints (in13 cluding those regarding the use of

14 formularies under paragraph (3)) by eligi15 ble beneficiaries, or by providers, phar16 macists, and other individuals acting on

17 behalf of each such beneficiary (with the

18 beneficiary’s consent) in accordance with

19 requirements (as established by the Sec20 retary) that are comparable to such re21 quirements for Medicare+Choice organiza22 tions under part C; and

23 ‘‘(ii) that beneficiaries are provided

24 with information regarding the appeals
51

•S 2758 IS

1 procedures under this part at the time of

2 enrollment.

3 ‘‘(E) PROCEDURES REGARDING PATIENT

4 CONFIDENTIALITY.—Insofar as an eligible enti5 ty maintains individually identifiable medical

6 records or other health information regarding

7 eligible beneficiaries under a contract entered

8 into under this part, the entity has in place pro9 cedures to—

10 ‘‘(i) safeguard the privacy of any indi11 vidually identifiable beneficiary informa12 tion;

13 ‘‘(ii) maintain such records and infor14 mation in a manner that is accurate and

15 timely;

16 ‘‘(iii) ensure timely access by such

17 beneficiaries to such records and informa18 tion; and

19 ‘‘(iv) otherwise comply with applicable

20 laws relating to patient confidentiality.

21 ‘‘(F) PROCEDURES REGARDING TRANSFER

22 OF MEDICAL RECORDS.—

23 ‘‘(i) IN GENERAL.—The eligible entity

24 has in place procedures for the timely

25 transfer of records and information de-
52

•S 2758 IS

1 scribed in subparagraph (E) (with respect

2 to a beneficiary who loses coverage under

3 this part with the entity and enrolls with

4 another entity under this part) to such

5 other entity.

6 ‘‘(ii) PATIENT CONFIDENTIALITY.—

7 The procedures described in clause (i) shall

8 comply with the patient confidentiality pro9 cedures described in subparagraph (E).

10 ‘‘(G) PROCEDURES REGARDING MEDICAL

11 ERRORS.—The eligible entity has in place pro12 cedures for working with the Secretary to deter

13 medical errors related to the provision of cov14 ered outpatient drugs.

15 ‘‘(5) PROCEDURES TO CONTROL FRAUD, ABUSE,

16 AND WASTE.—The eligible entity has in place proce17 dures to control fraud, abuse, and waste.

18 ‘‘(6) REPORTING REQUIREMENTS.—

19 ‘‘(A) IN GENERAL.—The eligible entity

20 provides the Secretary with reports containing

21 information regarding the following:

22 ‘‘(i) The prices that the eligible entity

23 is paying for covered outpatient drugs.
53

•S 2758 IS

1 ‘‘(ii) The prices that eligible bene2 ficiaries enrolled with the entity will be

3 charged for covered outpatient drugs.

4 ‘‘(iii) The administrative costs of pro5 viding such benefits.

6 ‘‘(iv) Utilization of such benefits.

7 ‘‘(v) Marketing and advertising ex8 penditures related to enrolling and retain9 ing eligible beneficiaries.

10 ‘‘(B) TIMEFRAME FOR SUBMITTING RE11 PORTS.—

12 ‘‘(i) IN GENERAL.—The eligible entity

13 shall submit a report described in subpara14 graph (A) to the Secretary within 3

15 months after the end of each 12-month pe16 riod in which the eligible entity has a con17 tract under this part. Such report shall

18 contain information concerning the benefits

19 provided during such 12-month period.

20 ‘‘(ii) LAST YEAR OF CONTRACT.—In

21 the case of the last year of a contract

22 under this section, the Secretary may re23 quire that a report described in subpara24 graph (A) be submitted 3 months prior to

25 the end of the contract. Such report shall
54

•S 2758 IS

1 contain information concerning the benefits

2 provided between the period covered by the

3 most recent report under this subpara4 graph and the date that a report is sub5 mitted under this clause.

6 ‘‘(C) CONFIDENTIALITY OF INFORMA7 TION.—

8 ‘‘(i) IN GENERAL.—Notwithstanding

9 any other provision of law and subject to

10 clause (ii), information disclosed by an eli11 gible entity pursuant to subparagraph (A)

12 is confidential and shall only be used by

13 the Secretary for the purposes of, and to

14 the extent necessary, to carry out this

15 part.

16 ‘‘(ii) UTILIZATION DATA.—Subject to

17 patient confidentiality laws, the Secretary

18 shall make information disclosed by an eli19 gible entity pursuant to subparagraph

20 (A)(iv) (regarding utilization data) avail21 able for research purposes. The Secretary

22 may charge a reasonable fee for making

23 such information available.

24 ‘‘(7) APPROVAL OF MARKETING MATERIAL AND

25 APPLICATION FORMS.—The eligible entity will com-
55

•S 2758 IS

1 ply with the requirements described in section

2 1860F(f).

3 ‘‘(8) RECORDS AND AUDITS.—The eligible enti4 ty maintains adequate records related to the admin5 istration of the benefit under this part and affords

6 the Secretary access to such records for auditing

7 purposes.

8 ‘‘PAYMENTS

9 ‘‘SEC. 1860H. (a) PAYMENTS TO ELIGIBLE ENTI10 TIES.—

11 ‘‘(1) PROCEDURES.—

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

13 establish procedures for making payments to an

14 eligible entity under a contract entered into

15 under this part for the administration and de16 livery of the benefits under this part.

17 ‘‘(B) ENTITIES ONLY SUBJECT TO LIM18 ITED RISK.—Under the procedures established

19 under subparagraph (A), an eligible entity shall

20 only be at risk to the extent that the entity is

21 at risk under paragraph (2).

22 ‘‘(2) RISK CORRIDORS TIED TO PERFORMANCE

23 MEASURES AND OTHER INCENTIVES.—

24 ‘‘(A) IN GENERAL.—The procedures estab25 lished under paragraph (1) may include the use

26 of—
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1 ‘‘(i) risk corridors tied to performance

2 measures that have been agreed to between

3 the eligible entity and the Secretary under

4 the contract; and

5 ‘‘(ii) any other incentives that the

6 Secretary determines appropriate.

7 ‘‘(B) PHASE-IN OF RISK CORRIDORS TIED

8 TO PERFORMANCE MEASURES.—The Secretary

9 may phase-in the use of risk corridors tied to

10 performance measures if the Secretary deter11 mines such phase-in to be appropriate.

12 ‘‘(C) PAYMENTS SUBJECT TO INCEN13 TIVES.—If a contract under this part includes

14 the use of risk corridors tied to performance

15 measures or other incentives pursuant to sub16 paragraph (A), payments to eligible entities

17 under such contract shall be subject to such

18 risk corridors tied to performance measures and

19 other incentives.

20 ‘‘(3) RISK ADJUSTMENT.—To the extent that

21 eligible entities are at risk because of the risk cor22 ridors or other incentives described in paragraph

23 (2)(A), the procedures established under paragraph

24 (1) may include a methodology for adjusting the

25 payments made to such entities based on the dif-
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1 ferences in actuarial risk of different enrollees being

2 served if the Secretary determines such adjustments

3 to be necessary and appropriate.

4 ‘‘(b) SECONDARY PAYER PROVISIONS.—The provi5 sions of section 1862(b) shall apply to the benefits pro6 vided under this part.

7 ‘‘EMPLOYER INCENTIVE PROGRAM FOR EMPLOYMENT8 BASED RETIREE DRUG COVERAGE

9 ‘‘SEC. 1860I. (a) PROGRAM AUTHORITY.—The Sec10 retary is authorized to develop and implement a program

11 under this section called the ‘Employer Incentive Pro12 gram’ that encourages employers and other sponsors of

13 employment-based health care coverage to provide ade14 quate prescription drug benefits to retired individuals by

15 subsidizing, in part, the sponsor’s cost of providing cov16 erage under qualifying plans.

17 ‘‘(b) SPONSOR REQUIREMENTS.—In order to be eligi18 ble to receive an incentive payment under this section with

19 respect to coverage of an individual under a qualified re20 tiree prescription drug plan (as defined in subsection

21 (f)(3)), a sponsor shall meet the following requirements:

22 ‘‘(1) ASSURANCES.—The sponsor shall—

23 ‘‘(A) annually attest, and provide such as24 surances as the Secretary may require, that the

25 coverage offered by the sponsor is a qualified

26 retiree prescription drug plan, and will remain
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1 such a plan for the duration of the sponsor’s

2 participation in the program under this section;

3 and

4 ‘‘(B) guarantee that it will give notice to

5 the Secretary and covered retirees—

6 ‘‘(i) at least 120 days before termi7 nating its plan; and

8 ‘‘(ii) immediately upon determining

9 that the actuarial value of the prescription

10 drug benefit under the plan falls below the

11 actuarial value of the outpatient prescrip12 tion drug benefit under this part.

13 ‘‘(2) BENEFICIARY INFORMATION.—The spon14 sor shall report to the Secretary, for each calendar

15 quarter for which it seeks an incentive payment

16 under this section, the names and social security

17 numbers of all retirees (and their spouses and de18 pendents) covered under such plan during such

19 quarter and the dates (if less than the full quarter)

20 during which each such individual was covered.

21 ‘‘(3) AUDITS.—The sponsor and the employ22 ment-based retiree health coverage plan seeking in23 centive payments under this section shall agree to

24 maintain, and to afford the Secretary access to, such

25 records as the Secretary may require for purposes of
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1 audits and other oversight activities necessary to en2 sure the adequacy of prescription drug coverage, the

3 accuracy of incentive payments made, and such

4 other matters as may be appropriate.

5 ‘‘(4) OTHER REQUIREMENTS.—The sponsor

6 shall provide such other information, and comply

7 with such other requirements, as the Secretary may

8 find necessary to administer the program under this

9 section.

10 ‘‘(c) INCENTIVE PAYMENTS.—

11 ‘‘(1) IN GENERAL.—A sponsor that meets the

12 requirements of subsection (b) with respect to a

13 quarter in a calendar year shall be entitled to have

14 payment made by the Secretary on a quarterly basis

15 (to the sponsor or, at the sponsor’s direction, to the

16 appropriate employment-based health plan) of an in17 centive payment, in the amount determined in para18 graph (2), for each retired individual (or spouse)

19 who—

20 ‘‘(A) was covered under the sponsor’s

21 qualified retiree prescription drug plan during

22 such quarter; and

23 ‘‘(B) was eligible for but was not enrolled

24 in the outpatient prescription drug benefit pro25 gram under this part.
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1 ‘‘(2) AMOUNT OF INCENTIVE.—The payment

2 under this section with respect to each individual de3 scribed in paragraph (1) for a month shall be equal

to 2 4 ⁄3 of the monthly premium amount payable by an

5 eligible beneficiary enrolled under this part, as set

6 for the calendar year pursuant to section

7 1860D(a)(2).

8 ‘‘(3) PAYMENT DATE.—The incentive under

9 this section with respect to a calendar quarter shall

10 be payable as of the end of the next succeeding cal11 endar quarter.

12 ‘‘(d) CIVIL MONEY PENALTIES.—A sponsor, health

13 plan, or other entity that the Secretary determines has,

14 directly or through its agent, provided information in con15 nection with a request for an incentive payment under this

16 section that the entity knew or should have known to be

17 false shall be subject to a civil monetary penalty in an

18 amount up to 3 times the total incentive amounts under

19 subsection (c) that were paid (or would have been payable)

20 on the basis of such information.

21 ‘‘(e) DEFINITIONS.—In this section:

22 ‘‘(1) EMPLOYMENT-BASED RETIREE HEALTH

23 COVERAGE.—The term ‘employment-based retiree

24 health coverage’ means health insurance or other

25 coverage of health care costs for retired individuals
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1 (or for such individuals and their spouses and de2 pendents) based on their status as former employees

3 or labor union members.

4 ‘‘(2) EMPLOYER.—The term ‘employer’ has the

5 meaning given the term in section 3(5) of the Em6 ployee Retirement Income Security Act of 1974 (ex7 cept that such term shall include only employers of

8 2 or more employees).

9 ‘‘(3) QUALIFIED RETIREE PRESCRIPTION DRUG

10 PLAN.—The term ‘qualified retiree prescription drug

11 plan’ means health insurance coverage included in

12 employment-based retiree health coverage that—

13 ‘‘(A) provides coverage of the cost of pre14 scription drugs whose actuarial value (as de15 fined by the Secretary) to each retired bene16 ficiary equals or exceeds the actuarial value of

17 the benefits provided to an individual enrolled

18 in the outpatient prescription drug benefit pro19 gram under this part; and

20 ‘‘(B) does not deny, limit, or condition the

21 coverage or provision of prescription drug bene22 fits for retired individuals based on age or any

23 health status-related factor described in section

24 2702(a)(1) of the Public Health Service Act.
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•S 2758 IS

1 ‘‘(4) SPONSOR.—The term ‘sponsor’ has the

2 meaning given the term ‘plan sponsor’ in section

3 3(16)(B) of the Employer Retirement Income Secu4 rity Act of 1974.

5 ‘‘(f) AUTHORIZATION OF APPROPRIATIONS.—There

6 are authorized to be appropriated from time to time, out

7 of any moneys in the Treasury not otherwise appropriated,

8 such sums as may be necessary to carry out the program

9 under this section.

10 ‘‘APPROPRIATIONS

11 ‘‘SEC. 1860J. There are authorized to be appro12 priated from time to time, out of any moneys in the Treas13 ury not otherwise appropriated, to the Federal Supple14 mentary Medical Insurance Trust Fund established under

15 section 1841, an amount equal to the amount by which

16 the benefits and administrative costs of providing the ben17 efits under this part exceed the premiums collected under

18 section 1860D.

19 ‘‘SUBPART 2—MEDICARE PHARMACY AND

20 THERAPEUTICS (P&T) ADVISORY COMMITTEE

21 ‘‘MEDICARE PHARMACY AND THERAPEUTICS (P&T)

22 ADVISORY COMMITTEE

23 ‘‘SEC. 1860M. (a) ESTABLISHMENT OF COM24 MITTEE.—There is established a Medicare Pharmacy and

25 Therapeutics Advisory Committee (in this section referred

26 to as the ‘Committee’).
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1 ‘‘(b) FUNCTIONS OF COMMITTEE.—On and after Oc2 tober 1, 2001, the Committee shall advise the Secretary

3 on policies related to—

4 ‘‘(1) the development of guidelines for the im5 plementation and administration of the outpatient

6 prescription drug benefit program under this part;

7 and

8 ‘‘(2) the development of—

9 ‘‘(A) standards for a pharmacy and thera10 peutics committee required of eligible entities

11 under section 1860G(3)(B)(i);

12 ‘‘(B) procedures required of eligible enti13 ties under subparagraphs (C) and (D) of sec14 tion 1860G(4) for determining if a drug is

15 medically necessary to prevent or slow the dete16 rioration of, or improve or maintain, the health

17 of an eligible beneficiary;

18 ‘‘(C) standards for—

19 ‘‘(i) defining therapeutic classes;

20 ‘‘(ii) adding new therapeutic classes to

21 a formulary;

22 ‘‘(iii) adding new drugs to a thera23 peutic class within a formulary; and

24 ‘‘(iv) when and how often a formulary

25 should be modified;
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1 ‘‘(D) procedures to evaluate the bids sub2 mitted by eligible entities under this part; and

3 ‘‘(E) procedures to ensure that eligible en4 tities with a contract under this part are in

5 compliance with the requirements under this

6 part.

7 ‘‘(c) STRUCTURE AND MEMBERSHIP OF THE COM8 MITTEE.—

9 ‘‘(1) STRUCTURE.—The Committee shall be

10 composed of 19 members who shall be appointed by

11 the Secretary.

12 ‘‘(2) MEMBERSHIP.—

13 ‘‘(A) IN GENERAL.—The members of the

14 Committee shall be chosen on the basis of their

15 integrity, impartiality, and good judgment, and

16 shall be individuals who are, by reason of their

17 education, experience, and attainments, excep18 tionally qualified to perform the duties of mem19 bers of the Committee.

20 ‘‘(B) SPECIFIC MEMBERS.—Of the mem21 bers appointed under paragraph (1)—

22 ‘‘(i) eleven shall be chosen to rep23 resent physicians;

24 ‘‘(ii) four shall be chosen to represent

25 pharmacists;
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1 ‘‘(iii) one shall be chosen to represent

2 the Health Care Financing Administration;

3 ‘‘(iv) two shall be chosen to represent

4 actuaries and pharmacoeconomists; and

5 ‘‘(v) one shall be chosen to represent

6 emerging drug technologies.

7 ‘‘(d) TERMS OF APPOINTMENT.—Each member of

8 the Committee shall serve for a term determined appro9 priate by the Secretary. The terms of service of the mem10 bers initially appointed shall begin on January 1, 2001.

11 ‘‘(e) CHAIRMAN.—The Secretary shall designate a

12 member of the Committee as Chairman. The term as

13 Chairman shall be for a 1-year period.

14 ‘‘(f) COMPENSATION AND TRAVEL EXPENSES.—

15 ‘‘(1) COMPENSATION OF MEMBERS.—Each

16 member of the Committee who is not an officer or

17 employee of the Federal Government shall be com18 pensated at a rate equal to the daily equivalent of

19 the annual rate of basic pay prescribed for level IV

20 of the Executive Schedule under section 5315 of title

21 5, United States Code, for each day (including travel

22 time) during which such member is engaged in the

23 performance of the duties of the Committee. All

24 members of the Committee who are officers or em25 ployees of the United States shall serve without com-
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1 pensation in addition to that received for their serv2 ices as officers or employees of the United States.

3 ‘‘(2) TRAVEL EXPENSES.—The members of the

4 Committee shall be allowed travel expenses, includ5 ing per diem in lieu of subsistence, at rates author6 ized for employees of agencies under subchapter I of

7 chapter 57 of title 5, United States Code, while

8 away from their homes or regular places of business

9 in the performance of services for the Committee.

10 ‘‘(g) OPERATION OF THE COMMITTEE.—

11 ‘‘(1) MEETINGS.—The Committee shall meet at

12 the call of the Chairman (after consultation with the

13 other members of the Committee) not less often

14 than quarterly to consider a specific agenda of

15 issues, as determined by the Chairman after such

16 consultation.

17 ‘‘(2) QUORUM.—Ten members of the Com18 mittee shall constitute a quorum for purposes of

19 conducting business.

20 ‘‘(h) FEDERAL ADVISORY COMMITTEE ACT.—Section

21 14 of the Federal Advisory Committee Act (5 U.S.C.

22 App.) shall not apply to the Committee.

23 ‘‘(i) TRANSFER OF PERSONNEL, RESOURCES, AND

24 ASSETS.—For purposes of carrying out its duties, the Sec25 retary and the Committee may provide for the transfer
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1 to the Committee of such civil service personnel in the em2 ploy of the Department of Health and Human Services,

3 and such resources and assets of the Department used in

4 carrying out this title, as the Committee requires.

5 ‘‘(j) AUTHORIZATION OF APPROPRIATIONS.—There

6 are authorized to be appropriated such sums as may be

7 necessary to carry out the purposes of this section.’’.

8 (b) EXCLUSIONS FROM COVERAGE.—

9 (1) APPLICATION TO PART D.—Section 1862(a)

10 of the Social Security Act (42 U.S.C. 1395y(a)) is

11 amended in the matter preceding paragraph (1) by

12 striking ‘‘part A or part B’’ and inserting ‘‘part A,

13 B, or D’’.

14 (2) PRESCRIPTION DRUGS NOT EXCLUDED

15 FROM COVERAGE IF REASONABLE AND NEC16 ESSARY.—Section 1862(a)(1) of the Social Security

17 Act (42 U.S.C. 1395y(a)(1)) is amended—

18 (A) in subparagraph (H), by striking

19 ‘‘and’’ at the end;

20 (B) in subparagraph (I), by striking the

21 semicolon at the end and inserting ‘‘, and’’; and

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

23 subparagraph:

24 ‘‘(J) in the case of prescription drugs cov25 ered under part D, which are not reasonable
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1 and necessary to prevent or slow the deteriora2 tion of, or improve or maintain, the health of

3 eligible beneficiaries;’’.

4 (c) CONFORMING REFERENCES TO PREVIOUS PART

5 D.—

6 (1) IN GENERAL.—Any reference in law (in ef7 fect before the date of enactment of this Act) to part

8 D of title XVIII of the Social Security Act is deemed

9 a reference to part E of such title (as in effect after

10 such date).

11 (2) SECRETARIAL SUBMISSION OF LEGISLATIVE

12 PROPOSAL.—Not later than 6 months after the date

13 of enactment of this Act, the Secretary of Health

14 and Human Services shall submit to the appropriate

15 committees of Congress a legislative proposal pro16 viding for such technical and conforming amend17 ments in the law as are required by the provisions

18 of this Act.

19 SEC. 3. PART D BENEFITS UNDER MEDICARE+CHOICE

20 PLANS.

21 (a) ELIGIBILITY, ELECTION, AND ENROLLMENT.—

22 Section 1851 of the Social Security Act (42 U.S.C.

23 1395w–21) is amended—

24 (1) in subsection (a)(1)(A), by striking ‘‘parts

25 A and B’’ and inserting ‘‘parts A, B, and D’’; and
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1 (2) in subsection (i)(1), by striking ‘‘parts A

2 and B’’ and inserting ‘‘parts A, B, and D’’.

3 (b) VOLUNTARY BENEFICIARY ENROLLMENT FOR

4 DRUG COVERAGE.—Section 1852(a)(1)(A) of such Act

5 (42 U.S.C. 1395w–22(a)(1)(A)) is amended by inserting

6 ‘‘(and under part D to individuals also enrolled under that

7 part)’’ after ‘‘parts A and B’’.

8 (c) ACCESS TO SERVICES.—Section 1852(d)(1) of

9 such Act (42 U.S.C. 1395w–22(d)(1)) is amended—

10 (1) in subparagraph (D), by striking ‘‘and’’ at

11 the end;

12 (2) in subparagraph (E), by striking the period

13 at the end and inserting ‘‘; and’’; and

14 (3) by adding at the end the following new sub15 paragraph:

16 ‘‘(F) in the case of covered outpatient

17 drugs provided to individuals enrolled under

18 part D (as defined in section 1860(1)), the or19 ganization complies with the access require20 ments applicable under part D.’’.

21 (d) PAYMENTS TO ORGANIZATIONS.—Section

22 1853(a)(1)(A) of such Act (42 U.S.C. 1395w–

23 23(a)(1)(A)) is amended—

24 (1) by inserting ‘‘determined separately for the

25 benefits under parts A and B and under part D (for
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1 individuals enrolled under that part)’’ after ‘‘as cal2 culated under subsection (c)’’;

3 (2) by striking ‘‘that area, adjusted for such

4 risk factors’’ and inserting ‘‘that area. In the case

5 of payment for the benefits under parts A and B,

6 such payment shall be adjusted for such risk factors

7 as’’; and

8 (3) by inserting before the last sentence the fol9 lowing: ‘‘In the case of the payments for the benefits

10 under part D, such payment shall initially be ad11 justed for the risk factors of each enrollee as the

12 Secretary determines to be feasible and appropriate

13 to ensure actuarial equivalence. By 2006, the adjust14 ments to payments for benefits under part D shall

15 be for the same risk factors used to adjust payments

16 for the benefits under parts A and B.’’.

17 (e) CALCULATION OF ANNUAL MEDICARE+CHOICE

18 CAPITATION RATES.—Section 1853(c) of such Act (42

19 U.S.C. 1395w–23(c)) is amended—

20 (1) in paragraph (1), in the matter preceding

21 subparagraph (A), by inserting ‘‘for benefits under

22 parts A and B’’ after ‘‘capitation rate’’; and

23 (2) by adding at the end the following new

24 paragraph:
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1 ‘‘(8) PAYMENT FOR PART D BENEFITS.—The

2 Secretary shall determine a capitation rate for part

3 D benefits (for individuals enrolled under such part)

4 as follows:

5 ‘‘(A) DRUGS DISPENSED IN 2003.—In the

6 case of prescription drugs dispensed in 2003,

7 the capitation rate shall be based on the pro8 jected national per capita costs for prescription

9 drug benefits under part D and associated

10 claims processing costs for beneficiaries enrolled

11 under part D and not enrolled with a

12 Medicare+Choice organization under this part.

13 ‘‘(B) DRUGS DISPENSED IN SUBSEQUENT

14 YEARS.—In the case of prescription drugs dis15 pensed in a subsequent year, the capitation rate

16 shall be equal to the capitation rate for the pre17 ceding year increased by the Secretary’s esti18 mate of the projected per capita rate of growth

19 in expenditures under this title for an individual

20 enrolled under part D for such subsequent

21 year.’’.

22 (f) LIMITATION ON ENROLLEE LIABILITY.—Section

23 1854(e) of such Act (42 U.S.C. 1395w–24(e)) is amended

24 by adding at the end the following new paragraph:
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1 ‘‘(5) SPECIAL RULE FOR PART D BENEFITS.—

2 With respect to outpatient prescription drug benefits

3 under part D, a Medicare+Choice organization may

4 not require that an enrollee pay a deductible or a co5 insurance percentage that exceeds the deductible or

6 coinsurance percentage applicable for such benefits

7 for an eligible beneficiary under part D.’’.

8 (g) REQUIREMENT FOR ADDITIONAL BENEFITS.—

9 Section 1854(f)(1) of such Act (42 U.S.C. 1395w–

10 24(f)(1)) is amended by adding at the end the following

11 new sentence: ‘‘Such determination shall be made sepa12 rately for the benefits under parts A and B and for pre13 scription drug benefits under part D.’’.

14 (h) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to items and services provided

16 under a Medicare+Choice plan on or after January 1,

17 2003.

18 SEC. 4. EXCLUSION OF PART D COSTS FROM DETERMINA19 TION OF PART B MONTHLY PREMIUM.

20 Section 1839(g) of the Social Security Act (42 U.S.C.

21 1395r(g)) is amended—

22 (1) by striking ‘‘attributable to the application

23 of section’’ and inserting ‘‘attributable to—

24 ‘‘(1) the application of section’’;
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1 (2) by striking the period and inserting ‘‘;

2 and’’; and

3 (3) by adding at the end the following new

4 paragraph:

5 ‘‘(2) the program under part D providing pay6 ment for covered outpatient drugs (including costs

7 associated with making payments to employers and

8 other sponsors of employment-based health care cov9 erage under the Employer Incentive Program under

10 section 1860I).’’.

11 SEC. 5. REPORTING REQUIREMENTS FOR SECRETARY OF

12 THE TREASURY REGARDING INCOME-RE13 LATED PART D PREMIUM.

14 (a) IN GENERAL.—Subsection (l) of section 6103 of

15 the Internal Revenue Code of 1986 (relating to disclosure

16 of returns and return information for purposes other than

17 tax administration) is amended by adding at the end the

18 following new paragraph:

19 ‘‘(18) DISCLOSURE OF RETURN INFORMATION

20 TO CARRY OUT INCOME-RELATED REDUCTION IN

21 MEDICARE PART D PREMIUM.—

22 ‘‘(A) IN GENERAL.—The Secretary may,

23 upon written request from the Secretary of

24 Health and Human Services, disclose to officers

25 and employees of the Health Care Financing
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1 Administration return information with respect

2 to a taxpayer who is required to pay a monthly

3 premium under part D of the Social Security

4 Act. Such return information shall be limited

5 to—

6 ‘‘(i) taxpayer identity information

7 with respect to such taxpayer,

8 ‘‘(ii) the filing status of such tax9 payer,

10 ‘‘(iii) the adjusted gross income of

11 such taxpayer,

12 ‘‘(iv) the amounts excluded from such

13 taxpayer’s gross income under sections 135

14 and 911,

15 ‘‘(v) the interest received or accrued

16 during the taxable year which is exempt

17 from the tax imposed by chapter 1 to the

18 extent such information is available, and

19 ‘‘(vi) the amounts excluded from such

20 taxpayer’s gross income under sections 931

21 and 933 to the extent such information is

22 available.

23 ‘‘(B) RESTRICTION ON USE OF DISCLOSED

24 INFORMATION.—Return information disclosed

25 under subparagraph (A) may be used by offi-
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1 cers and employees of the Health Care Financ2 ing Administration only for the purposes of,

3 and to the extent necessary in, establishing the

4 appropriate monthly premium under part D of

5 the Social Security Act.’’.

6 (b) CONFORMING AMENDMENT.—Paragraphs (3)(A)

7 and (4) of section 6103(p) of such Code are each amended

8 by striking ‘‘or (17)’’ each place it appears and inserting

9 ‘‘(17), or (18)’’.

10 SEC. 6. ADDITIONAL ASSISTANCE FOR LOW-INCOME BENE11 FICIARIES.

12 (a) INCLUSION IN MEDICARE COST-SHARING.—Sec13 tion 1905(p)(3) of the Social Security Act (42 U.S.C.

14 1396d(p)(3)) is amended—

15 (1) in subparagraph (A)—

16 (A) in clause (i), by striking ‘‘and’’ at the

17 end;

18 (B) in clause (ii), by inserting ‘‘and’’ at

19 the end; and

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

21 clause:

22 ‘‘(iii) premiums under section 1860D.’’;

23 (2) in subparagraph (B), by striking ‘‘section

24 1813’’ and inserting ‘‘sections 1813 and 1860E(b)’’;

25 and
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1 (3) in subparagraph (C), by striking ‘‘section

2 1813 and section 1833(b)’’ and inserting ‘‘sections

3 1813, 1833(b), and 1860E(a)’’.

4 (b) EXPANSION OF MEDICAL ASSISTANCE.—Section

5 1902(a)(10)(E) of the Social Security Act (42 U.S.C.

6 1396a(a)(10)(E)) is amended—

7 (1) in clause (iii)—

8 (A) by striking ‘‘section 1905(p)(3)(A)(ii)’’

9 and inserting ‘‘clauses (ii) and (iii) of section

10 1905(p)(3)(A), for the coinsurance described in

11 section 1860E(b), and for the deductible de12 scribed in section 1860E(a)’’; and

13 (B) by striking ‘‘and’’ at the end;

14 (2) by redesignating clause (iv) as clause (vi);

15 and

16 (3) by inserting after clause (iii) the following

17 new clauses:

18 ‘‘(iv) for making medical assistance avail19 able for medicare cost-sharing described in sec20 tion 1905(p)(3)(A)(iii), for the coinsurance de21 scribed in section 1860E(b), and for the de22 ductible described in section 1860E(a) for indi23 viduals who would be qualified medicare bene24 ficiaries described in section 1905(p)(1) but for

25 the fact that their income exceeds 120 percent
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1 but does not exceed 135 percent of such official

2 poverty line for a family of the size involved;

3 ‘‘(v) for making medical assistance avail4 able for medicare cost-sharing described in sec5 tion 1905(p)(3)(A)(iii) on a linear sliding scale

6 based on the income of such individuals for in7 dividuals who would be qualified medicare bene8 ficiaries described in section 1905(p)(1) but for

9 the fact that their income exceeds 135 percent

10 but does not exceed 150 percent of such official

11 poverty line for a family of the size involved;

12 and’’.

13 (c) NONAPPLICABILITY OF PAYMENT DIFFERENTIAL

14 REQUIREMENTS TO MEDICARE PART D COST-SHAR15 ING.—Section 1902(n)(2) of the Social Security Act (42

16 U.S.C. 1396a(n)(2)) is amended by adding at the end the

17 following new sentence: ‘‘The preceding sentence shall not

18 apply to coinsurance described in section 1860E(b) or

19 deductibles described in section 1860E(a).’’.

20 (d) 100 PERCENT FEDERAL MEDICAL ASSISTANCE

21 PERCENTAGE.—The first sentence of section 1905(b) of

22 the Social Security Act (42 U.S.C. 1396d(b)) is

23 amended—

24 (1) by striking ‘‘and’’ before ‘‘(3)’’; and
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1 (2) by inserting before the period at the end the

2 following: ‘‘, and (4) the Federal medical assistance

3 percentage shall be 100 percent with respect to med4 ical assistance provided under clauses (iv) and (v) of

5 section 1902(a)(10)(E)’’.

6 (e) TREATMENT OF TERRITORIES.—Section 1108(g)

7 of such Act (42 U.S.C. 1308(g)) is amended by adding

8 at the end the following new paragraph:

9 ‘‘(3) Notwithstanding the preceding provisions of this

10 subsection, with respect to fiscal year 2003 and any fiscal

11 year thereafter, the amount otherwise determined under

12 this subsection (and subsection (f)) for the fiscal year for

13 a Commonwealth or territory shall be increased by the

14 ratio (as estimated by the Secretary) of—

15 ‘‘(A) the aggregate amount of payments made

16 to the 50 States and the District of Columbia for

17 the fiscal year under title XIX that are attributable

18 to making medical assistance available for individ19 uals described in clauses (i), (iii), (iv), and (v) of

20 section 1902(a)(10)(E) for payment of medicare

21 cost-sharing that consists of premiums under section

22 1860D, coinsurance described in section 1860E(b),

23 or deductibles described in section 1860E(a); to
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1 ‘‘(B) the aggregate amount of total payments

2 made to such States and District for the fiscal year

3 under such title.’’.

4 (f) CONFORMING AMENDMENTS.—Section 1933 of

5 the Social Security Act (42 U.S.C. 1396u–3) is

6 amended—

7 (1) in subsection (a), by striking ‘‘section

8 1902(a)(10)(E)(iv)’’ and inserting ‘‘section

9 1902(a)(10)(E)(vi)’’;

10 (2) in subsection (c)(2)(A)—

11 (A) in clause (i), by striking ‘‘section

12 1902(a)(10)(E)(iv)(I)’’ and inserting ‘‘section

13 1902(a)(10)(E)(vi)(I)’’; and

14 (B) in clause (ii), by striking ‘‘section

15 1902(a)(10)(E)(iv)(II)’’ and inserting ‘‘section

16 1902(a)(10)(E)(vi)(II)’’;

17 (3) in subsection (d), by striking ‘‘section

18 1902(a)(10)(E)(iv)’’ and inserting ‘‘section

19 1902(a)(10)(E)(vi)’’; and

20 (4) in subsection (e), by striking ‘‘section

21 1902(a)(10)(E)(iv)’’ and inserting ‘‘section

22 1902(a)(10)(E)(vi)’’.

23 (g) EFFECTIVE DATE.—The amendments made by

24 this section shall apply for medical assistance provided

25 under section 1902(a)(10)(E) of the Social Security Act
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1 (42 U.S.C. 1396a(a)(10)(E)) on and after January 1,

2 2003.

3 SEC. 7. MEDIGAP REVISIONS.

4 Section 1882 of the Social Security Act (42 U.S.C.

5 1395ss) is amended by adding at the end the following

6 new subsection:

7 ‘‘(v) MODERNIZED BENEFIT PACKAGES FOR MEDI8 CARE SUPPLEMENTAL POLICIES.—

9 ‘‘(1) PROMULGATION OF MODEL REGULA10 TION.—

11 ‘‘(A) NAIC MODEL REGULATION.—If,

12 within 9 months after the date of enactment of

13 the Medicare Outpatient Drug Act of 2000, the

14 National Association of Insurance Commis15 sioners (in this subsection referred to as the

16 ‘NAIC’) changes the 1991 NAIC Model Regula17 tion (described in subsection (p)) to revise the

18 benefit packages classified as ‘H’, ‘I’, and ‘J’

19 under the standards established by subsection

20 (p)(2) (including the benefit package classified

21 as ‘J’ with a high deductible feature, as de22 scribed in subsection (p)(11)) so that—

23 ‘‘(i) the coverage for outpatient pre24 scription drugs available under such ben25 efit packages is replaced with coverage for
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1 outpatient prescription drugs that com2 pliments but does not duplicate the bene3 fits for outpatient prescription drugs that

4 beneficiaries are otherwise entitled to

5 under this title;

6 ‘‘(ii) the revised benefit packages pro7 vide a range of coverage options for out8 patient prescription drugs for beneficiaries,

9 but do not provide coverage for—

10 ‘‘(I) the deductible under section

11 1860E(a); or

12 ‘‘(II) more than 90 percent of

13 the coinsurance applicable to an indi14 vidual under section 1860E(b);

15 ‘‘(iii) uniform language and defini16 tions are used with respect to such revised

17 benefits;

18 ‘‘(iv) uniform format is used in the

19 policy with respect to such revised benefits;

20 and

21 ‘‘(v) such revised standards meet any

22 additional requirements imposed by the

23 Medicare Outpatient Drug Act of 2000;

24 subsection (g)(2)(A) shall be applied in each

25 State, effective for policies issued to policy hold-
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1 ers on and after January 1, 2003, as if the ref2 erence to the Model Regulation adopted on

3 June 6, 1979, were a reference to the 1991

4 NAIC Model Regulation as changed under this

5 subparagraph (such changed regulation referred

6 to in this section as the ‘2003 NAIC Model

7 Regulation’).

8 ‘‘(B) REGULATION BY THE SECRETARY.—

9 If the NAIC does not make the changes in the

10 1991 NAIC Model Regulation within the 9-

11 month period specified in subparagraph (A), the

12 Secretary shall promulgate, not later than 9

13 months after the end of such period, a regula14 tion and subsection (g)(2)(A) shall be applied in

15 each State, effective for policies issued to policy

16 holders on and after January 1, 2003, as if the

17 reference to the Model Regulation adopted on

18 June 6, 1979, were a reference to the 1991

19 NAIC Model Regulation as changed by the Sec20 retary under this subparagraph (such changed

21 regulation referred to in this section as the

22 ‘2003 Federal Regulation’).

23 ‘‘(C) CONSULTATION WITH WORKING

24 GROUP.—In promulgating standards under this

25 paragraph, the NAIC or Secretary shall consult
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1 with a working group similar to the working

2 group described in subsection (p)(1)(D).

3 ‘‘(D) MODIFICATION OF STANDARDS IF

4 MEDICARE BENEFITS CHANGE.—If benefits (in5 cluding deductibles and coinsurance) under part

6 D of this title are changed and the Secretary

7 determines, in consultation with the NAIC, that

8 changes in the 2003 NAIC Model Regulation or

9 2003 Federal Regulation are needed to reflect

10 such changes, the preceding provisions of this

11 paragraph shall apply to the modification of

12 standards previously established in the same

13 manner as they applied to the original estab14 lishment of such standards.

15 ‘‘(2) CONSTRUCTION OF BENEFITS IN OTHER

16 MEDICARE SUPPLEMENTAL POLICIES.—Nothing in

17 the benefit packages classified as ‘A’ through ‘G’

18 under the standards established by subsection (p)(2)

19 (including the benefit package classified as ‘F’ with

20 a high deductible feature, as described in subsection

21 (p)(11)) shall be construed as providing coverage for

22 benefits for which payment may be made under part

23 D.

24 ‘‘(3) APPLICATION OF PROVISIONS AND CON25 FORMING REFERENCES.—
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1 ‘‘(A) APPLICATION OF PROVISIONS.—The

2 provisions of paragraphs (4) through (10) of

3 subsection (p) shall apply under this section,

4 except that—

5 ‘‘(i) any reference to the model regu6 lation applicable under that subsection

7 shall be deemed to be a reference to the

8 applicable 2003 NAIC Model Regulation or

9 2003 Federal Regulation; and

10 ‘‘(ii) any reference to a date under

11 such paragraphs of subsection (p) shall be

12 deemed to be a reference to the appro13 priate date under this subsection.

14 ‘‘(B) OTHER REFERENCES.—Any reference

15 to a provision of subsection (p) or a date appli16 cable under such subsection shall also be con17 sidered to be a reference to the appropriate pro18 vision or date under this subsection.’’.

19 SEC. 8. HHS STUDIES AND REPORT TO CONGRESS.

20 (a) STUDIES.—The Secretary of Health and Human

21 Services shall conduct a study to determine the feasibility

22 and advisability of—

23 (1) establishing a uniform format for pharmacy

24 benefit cards provided to beneficiaries by eligible en25 tities under the outpatient prescription drug benefit
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1 program under part D of title XVIII of the Social

2 Security Act (as added by section 2); and

3 (2) developing systems to electronically transfer

4 prescriptions under such program from the pre5 scriber to the pharmacist.

6 (b) REPORT.—Not later than 2 years after the date

7 of enactment of this Act, the Secretary of Health and

8 Human Services shall submit to Congress a report on the

9 results of the studies conducted under subsection (a), to10 gether with any recommendations for legislation that the

11 Secretary determines to be appropriate as a result of such

12 studies.

13 SEC. 9. APPROPRIATIONS.

14 In addition to amounts otherwise appropriated to the

15 Secretary of Health and Human Services, there are au16 thorized to be appropriated to the Secretary for fiscal year

17 2001 and each subsequent fiscal year such sums as may

18 be necessary to administer the outpatient prescription

19 drug benefit program under part D of title XVIII of the

20 Social Security Act (as added by section 2).

Æ