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[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1512 Introduced in House (IH)]

107th CONGRESS
  1st Session
                                H. R. 1512

     To amend title XVIII of the Social Security Act to provide a 
      prescription benefit program for all Medicare beneficiaries.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             April 4, 2001

 Mr. Sanders (for himself, Mr. Kucinich, Mr. Bonior, Mr. Conyers, Mr. 
   Hilliard, Ms. Lee, Mr. DeFazio, Mr. Abercrombie, Mr. Nadler, Ms. 
     Kaptur, Mr. Hinchey, Mr. Olver, Mr. Serrano, Mr. Thompson of 
 Mississippi, Mr. Clay, Ms. Carson of Indiana, Ms. Woolsey, Mr. Payne, 
Ms. McKinney, Mr. Pastor, Ms. Norton, Mr. Owens, Mr. McGovern, and Mr. 
   Filner) introduced the following bill; which was referred to the 
 Committee on Energy and Commerce, and in addition to the Committee on 
   Ways and Means, for a period to be subsequently determined by the 
  Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL

 
     To amend title XVIII of the Social Security Act to provide a 
      prescription benefit program for all Medicare beneficiaries.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Medicare Extension 
of Drugs to Seniors (MEDS) Act of 2001''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Prescription medicine benefit program.
   ``Part D--Prescription Medicine Benefit for the Aged and Disabled

        ``Sec. 1860. Establishment of prescription medicine benefit 
                            program for the aged and disabled.
        ``Sec. 1860A. Scope of benefits.
        ``Sec. 1860B. Payment of benefits; benefit limits.
        ``Sec. 1860C. Eligibility and enrollment.
        ``Sec. 1860D. Premiums.
        ``Sec. 1860E. Special eligibility, enrollment, and copayment 
                            rules for low-income individuals.
        ``Sec. 1860F. Prescription Medicine Insurance Account.
        ``Sec. 1860G. Administration of benefits.
        ``Sec. 1860H. Employer incentive program for employment-based 
                            retiree medicine coverage.
        ``Sec. 1860I. Promotion of pharmaceutical research on break-
                            through medicines while providing program 
                            cost containment.
        ``Sec. 1860J. Appropriations to cover Government contributions.
        ``Sec. 1860K. Prescription medicine defined.
Sec. 4. Substantial reductions in the price of prescription drugs for 
                            medicare beneficiaries.
Sec. 5. Amendments to program for importation of certain prescription 
                            drugs by pharmacists and wholesalers.
Sec. 6. Reasonable price agreement for federally funded research.
Sec. 7. GAO ongoing studies and reports on program; miscellaneous 
                            reports.
Sec. 8. Medigap transition provisions.
Sec. 9. Offset for catastrophic prescription medicine benefit.

SEC. 2. FINDINGS.

    Congress makes the following findings:
            (1) Prescription medicine coverage was not a standard part 
        of health insurance when the medicare program under title XVIII 
        of the Social Security Act was enacted in 1965. Since 1965, 
        however, medicine coverage has become a key component of most 
        private and public health insurance coverage, except for the 
        medicare program.
            (2) At least \2/3\ of medicare beneficiaries have 
        unreliable, inadequate, or no medicine coverage at all.
            (3) Seniors who do not have medicine coverage typically 
        pay, at a minimum, 15 percent more than people with coverage.
            (4) Medicare beneficiaries at all income levels lack 
        prescription medicine coverage, with more than \1/2\ of such 
        beneficiaries having incomes greater than 150 percent of the 
        poverty line.
            (5) The number of private firms offering retiree health 
        coverage is declining.
            (6) Medigap premiums for medicines are too expensive for 
        most beneficiaries and are highest for older senior citizens, 
        who need prescription medicine coverage the most and typically 
        have the lowest incomes.
            (7) All medicare beneficiaries should have access to a 
        voluntary, reliable, affordable, and defined outpatient 
        medicine benefit as part of the medicare program that assists 
        with the high cost of prescription medicines and protects them 
        against excessive out-of-pocket costs.

SEC. 3. PRESCRIPTION MEDICINE BENEFIT PROGRAM.

    (a) In General.--Title XVIII of the Social Security Act (42 U.S.C. 
1395 et seq.) is amended--
            (1) by redesignating part D as part E; and
            (2) by inserting after part C the following new part:

   ``Part D--Prescription Medicine Benefit for the Aged and Disabled

 ``establishment of prescription medicine benefit program for the aged 
                              and disabled

    ``Sec. 1860. There is established a voluntary insurance program to 
provide prescription medicine benefits, including pharmacy services, in 
accordance with the provisions of this part for individuals who are 
aged or disabled or have end-stage renal disease and who elect to 
enroll under such program, to be financed from premium payments by 
enrollees together with contributions from funds appropriated by the 
Federal Government.

                          ``scope of benefits

    ``Sec. 1860A. (a) In General.--The benefits provided to an 
individual enrolled in the insurance program under this part shall 
consist of--
            ``(1) payments made, in accordance with the provisions of 
        this part, for covered prescription medicines (as specified in 
        subsection (b)) dispensed by any pharmacy participating in the 
        program under this part (and, in circumstances designated by 
        the Secretary, by a nonparticipating pharmacy), including any 
        specifically named medicine prescribed for the individual by a 
        qualified health care professional regardless of whether the 
        medicine is included in any formulary established under this 
        part if such medicine is certified as medically necessary by 
        such health care professional (except that the Secretary shall 
        encourage to the maximum extent possible the substitution and 
        use of lower-cost generics), up to the benefit limits specified 
        in section 1860B; and
            ``(2) charging by pharmacies of the negotiated price--
                    ``(A) for all covered prescription medicines, 
                without regard to such benefit limit; and
                    ``(B) established with respect to any drugs or 
                classes of drugs described in subparagraphs (A), (B), 
                (D), (E), or (F) of section 1927(d)(2) that are 
                available to individuals receiving benefits under this 
                title.
    ``(b) Covered Prescription Medicines.--
            ``(1) In general.--Covered prescription medicines, for 
        purposes of this part, include all prescription medicines (as 
        defined in section 1860K(1)), including smoking cessation 
        agents, except as otherwise provided in this subsection.
            ``(2) Exclusions from coverage.--Covered prescription 
        medicines shall not include drugs or classes of drugs described 
        in subparagraphs (A) through (D) and (F) through (H) of section 
1927(d)(2) unless--
                    ``(A) specifically provided otherwise by the 
                Secretary with respect to a drug in any of such 
                classes; or
                    ``(B) a drug in any of such classes is certified to 
                be medically necessary by a health care professional.
            ``(3) Exclusion of prescription medicines to the extent 
        covered under part a or b.--A medicine prescribed for an 
        individual that would otherwise be a covered prescription 
        medicine under this part shall not be so considered to the 
        extent that payment for such medicine is available under part A 
        or B, including all injectable drugs and biologicals for which 
        payment was made or should have been made by a carrier under 
        section 1861(s)(2) (A) or (B) as of the date of enactment of 
        the Medicare Extension of Drugs to Seniors (MEDS) Act of 2001. 
        Medicines otherwise covered under part A or B shall be covered 
        under this part to the extent that benefits under part A or B 
        are exhausted.
            ``(4) Study on inclusion of home infusion therapy 
        services.--Not later than one year after the date of the 
        enactment of the Medicare Extension of Drugs to Seniors (MEDS) 
        Act of 2001, the Secretary shall submit to Congress a 
        legislative proposal for the delivery of home infusion therapy 
        services under this title and for a system of payment for such 
        a benefit that coordinates items and services furnished under 
        part B and under this part.

                 ``payment of benefits; benefit limits

    ``Sec. 1860B. (a) Payment of Benefits.--
            ``(1) In general.--There shall be paid from the 
        Prescription Medicine Insurance Account within the 
        Supplementary Medical Insurance Trust Fund, in the case of each 
        individual who is enrolled in the insurance program under this 
        part and who purchases covered prescription medicines in a 
        calendar year--
                    ``(A) with respect to costs incurred for covered 
                prescription medicine furnished during a year, before 
                the individual has incurred out-of-pocket expenses 
                under this subsection equal to the catastrophic out-of-
                pocket limit specified in subsection (b), an amount 
                equal to the applicable percentage (specified in 
                paragraph (2)) of the negotiated price for each such 
                covered prescription medicine or such higher percentage 
                as is proposed under section 1860G(b)(7); and
                    ``(B) with respect to costs incurred for covered 
                prescription medicine furnished during a year, after 
                the individual has incurred out-of-pocket expenses 
                under this subsection equal to the catastrophic out-of-
                pocket limit specified in subsection (b), an amount 
                equal to 100 percent of the negotiated price for each 
                such covered prescription medicine.
            ``(2) Applicable percentage.--The applicable percentage 
        specified in this paragraph is 80 percent or such higher 
        percentage as is proposed under section 1860G(b)(7), if the 
        Secretary finds that such higher percentage will not increase 
        aggregate costs to the Prescription Medicine Insurance Account.
    ``(b) Catastrophic Limit on Out-of-Pocket Expenses.--
            ``(1) In general.--The catastrophic limit on out-of-pocket 
        expenses specified in this subsection for--
                    ``(A) for each of calendar years 2003 and 2004, 
                $2,000; and
                    ``(B) subject to paragraph (2), for calendar year 
                2005 and each subsequent calendar year is equal the 
                limit for the preceding year under this paragraph 
                adjusted by the sustainable growth rate percentage 
                (determined under section 1861I(b)) for the year 
                involved.
            ``(2) Rounding.--Any amount determined under paragraph 
        (1)(E) that is not a multiple of $10 shall be rounded to the 
        nearest multiple of $10.

                      ``eligibility and enrollment

    ``Sec. 1860C. (a) Eligibility.--Every individual who, in or after 
2003, is entitled to hospital insurance benefits under part A or 
enrolled in the medical insurance program under part B is eligible to 
enroll, in accordance with the provisions of this section, in the 
insurance program under this part, during an enrollment period 
prescribed in or under this section, in such manner and form as may be 
prescribed by regulations.
    ``(b) Enrollment.--
            ``(1) In general.--Each individual who satisfies subsection 
        (a) shall be enrolled (or eligible to enroll) in the program 
        under this part in accordance with the provisions of section 
        1837, as if that section applied to this part, except as 
        otherwise explicitly provided in this part.
            ``(2) Single enrollment period.--Except as provided in 
        section 1837(i) (as such section applies to this part), 1860E, 
        or 1860H(e), or as otherwise explicitly provided, no individual 
        shall be entitled to enroll in the program under this part at 
        any time after the initial enrollment period without penalty, 
and in the case of all other late enrollments, the Secretary shall 
develop a late enrollment penalty for the individual that fully 
recovers the additional actuarial risk involved providing coverage for 
the individual.
            ``(3) Special enrollment period for 2003.--
                    ``(A) In general.--An individual who first 
                satisfies subsection (a) in 2003 may, at any time on or 
                before December 31, 2003--
                            ``(i) enroll in the program under this 
                        part; and
                            ``(ii) enroll or reenroll in such program 
                        after having previously declined or terminated 
                        enrollment in such program.
                    ``(B) Effective date of coverage.--An individual 
                who enrolls under the program under this part pursuant 
                to subparagraph (A) shall be entitled to benefits under 
                this part beginning on the first day of the month 
                following the month in which such enrollment occurs.
    ``(c) Period of Coverage.--
            ``(1) In general.--Except as otherwise provided in this 
        part, an individual's coverage under the program under this 
        part shall be effective for the period provided in section 
        1838, as if that section applied to the program under this 
        part.
            ``(2) Part d coverage terminated by termination of coverage 
        under parts a and b.--In addition to the causes of termination 
        specified in section 1838, an individual's coverage under this 
        part shall be terminated when the individual retains coverage 
        under neither the program under part A nor the program under 
        part B, effective on the effective date of termination of 
        coverage under part A or (if later) under part B.

                               ``premiums

    ``Sec. 1860D. (a) Annual Establishment of Monthly Premium Rates.--
            ``(1) In general.--The Secretary shall, during September of 
        2002 and of each succeeding year, determine and promulgate a 
        monthly premium rate for the succeeding year in accordance with 
        the provisions of this subsection.
            ``(2) Initial premiums.--For months in 2003, the monthly 
        premium rate under this subsection shall be--
                    ``(A) $24, in the case of premiums paid by an 
                individual enrolled in the program under this part; and
                    ``(B) $32, in the case of premiums paid for such an 
                individual by a former employer (as defined in section 
                1860H(f)(2)).
            ``(3) Subsequent years.--
                    ``(A) In general.--For months in a year after 2003, 
                the monthly premium under this subsection shall be 
                (subject to subparagraph (B)) the monthly premium 
                (computed under this subsection without regard to 
                subparagraph (B)) for the previous year increased by 
                the annual percentage increase in average per capita 
                aggregate expenditures for covered outpatient medicines 
                in the United States for medicare beneficiaries, as 
                estimated and published by the Secretary in September 
                before the year and for the year involved.
                    ``(B) Rounding.--The monthly premium determined 
                under subparagraph (A) shall be rounded to the nearest 
                multiple of 10 cents if it is not a multiple of 10 
                cents.
                    ``(C) Publication of assumptions.--The Secretary 
                shall publish, together with the promulgation of the 
                monthly premium rates under this paragraph, a statement 
                setting forth the actuarial assumptions and bases 
                employed in arriving at the monthly premium under 
                subparagraph (A).
    ``(b) Payment of Premiums.--
            ``(1) Payments by deduction from social security, railroad 
        retirement benefits, or benefits administered by opm.--
                    ``(A) Deduction from benefits.--In the case of an 
                individual who is entitled to or receiving benefits as 
                described in subsection (a), (b), or (d) of section 
                1840, premiums payable under this part shall be 
                collected by deduction from such benefits at the same 
                time and in the same manner as premiums payable under 
                part B are collected pursuant to section 1840.
                    ``(B) Transfers to prescription medicine insurance 
                account.--The Secretary of the Treasury shall, from 
                time to time, but not less often than quarterly, 
                transfer premiums collected pursuant to subparagraph 
                (A) to the Prescription Medicine Insurance Account from 
                the appropriate funds and accounts described in 
                subsections (a)(2), (b)(2), and (d)(2) of section 1840, 
                on the basis of the certifications described in such 
                subsections. The amounts of such transfers shall be 
                appropriately adjusted to the extent that prior 
                transfers were too great or too small.
            ``(2) Direct payments to secretary.--
                    ``(A) Additional payment by enrollee.--An 
                individual to whom paragraph (1) applies (other than an 
                individual receiving benefits as described in section 
                1840(d)) and who estimates that the amount that will be 
                available for deduction under such paragraph for any 
                premium payment period will be less than the amount of 
                the monthly premiums for such period may (under 
                regulations) pay to the Secretary the estimated 
                balance, or such greater portion of the monthly premium 
                as the individual chooses.
                    ``(B) Payments by other enrollees.--An individual 
                enrolled in the insurance program under this part with 
                respect to whom none of the preceding provisions of 
                this subsection applies (or to whom section 1840(c) 
                applies) shall pay premiums to the Secretary at such 
                times and in such manner as the Secretary shall by 
                regulations prescribe.
                    ``(C) Deposit of premiums.--Amounts paid to the 
                Secretary under this paragraph shall be deposited in 
the Treasury to the credit of the Prescription Medicine Insurance 
Account in the Supplementary Medical Insurance Trust Fund.
    ``(c) Certain Low-Income Individuals.--For rules concerning 
premiums for certain low-income individuals, see section 1860E.

 ``special eligibility, enrollment, and copayment rules for low-income 
                              individuals

    ``Sec. 1860E. (a) State Agreements for Coverage.--
            ``(1) In general.--The Secretary shall, at the request of a 
        State, enter into an agreement with the State under which all 
        individuals described in paragraph (2) are enrolled in the 
        program under this part, without regard to whether any such 
        individual has previously declined the opportunity to enroll in 
        such program.
            ``(2) Eligibility groups.--The individuals described in 
        this paragraph, for purposes of paragraph (1), are individuals 
        who satisfy section 1860C(a) and who are--
                    ``(A)(i) eligible individuals within the meaning of 
                section 1843; and
                    ``(ii) in a coverage group or groups permitted 
                under section 1843 (as selected by the State and 
                specified in the agreement); or
                    ``(B) qualified medicare medicine beneficiaries (as 
                defined in subsection (e)(1)).
            ``(3) Coverage period.--The period of coverage under this 
        part of an individual enrolled under an agreement under this 
        subsection shall be as follows:
                    ``(A) Individuals eligible (at state option) for 
                part b buy-in.--In the case of an individual described 
                in subsection (a)(2)(A), the coverage period shall be 
                the same period that applies (or would apply) pursuant 
                to section 1843(d).
                    ``(B) Qualified medicare medicine beneficiaries.--
                In the case of an individual described in subsection 
                (a)(2)(B)--
                            ``(i) the coverage period shall begin on 
                        the latest of--
                                    ``(I) January 1, 2003;
                                    ``(II) the first day of the third 
                                month following the month in which the 
                                State agreement is entered into; or
                                    ``(III) the first day of the first 
                                month following the month in which the 
                                individual satisfies section 1860C(a); 
                                and
                            ``(ii) the coverage period shall end on the 
                        last day of the month in which the individual 
                        is determined by the State to have become 
                        ineligible for medicare medicine cost-sharing.
            ``(4) Alternative enrollment methods.--In the process of 
        enrolling low-income individuals under this part, the Secretary 
        shall use the system provided under section 154 of the Social 
        Security Act Amendments of 1994 for newly eligible medicare 
        beneficiaries and shall apply a similar system for other 
        medicare beneficiaries. Such system shall use existing Federal 
        government databases to identify eligibility. Such system shall 
        not require that beneficiaries apply for, or enroll through, 
        State medicaid systems in order to obtain low-income assistance 
        described in this section.
    ``(b) Special Part D Enrollment Opportunity for Individuals Losing 
Medicaid Eligibility.--In the case of an individual who--
            ``(1) satisfies section 1860C(a); and
            ``(2) loses eligibility for benefits under the State plan 
        under title XIX after having been enrolled under such plan or 
        having been determined eligible for such benefits;
the Secretary shall provide an opportunity for enrollment under the 
program under this part during the period that begins on the date that 
such individual loses such eligibility and ends on the date specified 
by the Secretary.
    ``(c) State Option To Buy-In Dually Eligible Individuals.--
            ``(1) Coverage of premiums as medical assistance.--For 
        purposes of applying the second sentence of section 1905(a), 
        any reference to premiums under part B shall be considered to 
        include a reference to premiums under this part.
            ``(2) State commitment to continue participation in part d 
        after benefit limit reached.--As a condition of additional 
        funding to a State under subsection (d), the State, in its 
        State plan under title XIX, shall provide that in the case of 
        any individual whose eligibility for medical assistance under 
        title XIX is not limited to medicare cost-sharing and for whom 
        the State elects to pay premiums under this part pursuant to 
        this section, the State will purchase all prescription 
        medicines for such individual in accordance with the provisions 
of this part without regard to whether the benefit limit for such 
individual under section 1860B(b) has been reached.
            ``(3) Medicare cost-sharing required for qualified medicare 
        beneficiaries.--In applying title XIX, the term `medicare cost-
        sharing' (as defined in section 1905(p)(3)) is deemed to 
        include--
                    ``(A) premiums under section 1860D; and
                    ``(B) the difference between the amount that is 
                paid under section 1860B and the amount that would be 
                paid under such section if any reference to `80 
                percent' in subsection (a)(2) of such section were 
                deemed a reference to `100 percent' (or, if the 
                Secretary approves a higher percentage under such 
                section, if such percentage were deemed to be 100 
                percent).
    ``(d) Payment to States for Coverage of Certain Medicare Cost-
Sharing.--
            ``(1) In general.--The Secretary shall provide for payment 
        under this subsection to each State that provides for--
                    ``(A) medicare cost-sharing described in section 
                1905(p)(3)(A)(ii) for individuals who would be 
                qualified medicare beneficiaries described in section 
                1905(p)(1) but for the fact that their income exceeds 
                the income level established by the State under section 
                1905(p)(2) and is at least 120 percent, but less than 
                135 percent, of the official poverty line (referred to 
                in such section) for a family of the size involved and 
                who are not otherwise eligible for medical assistance 
                under the State plan; and
                    ``(B) medicare medicine cost-sharing (as defined in 
                subsection (e)(2)) for qualified medicare medicine 
                beneficiaries described in subsection (e)(1).
            ``(2) Amount of payment.--The amount of payment under 
        paragraph (1) shall equal 100 percent of the cost-sharing 
        described in such paragraph, except that, in the case of an 
        individual whose eligibility for medical assistance under title 
        XIX is not limited to medicare cost-sharing or medicare 
        medicine cost-sharing, the amount of payment under paragraph 
        (1)(B) shall be equal to the Federal medical assistance 
        percentage described in section 1905(b)) of amounts as expended 
        for such cost-sharing.
            ``(3) Method of payment; relation to other payments.--
        Amounts shall be paid to States under this subsection in a 
        manner similar to that provided under section 1903(d). Payments 
        under this subsection shall be made in lieu of any payments 
        that otherwise may be made for medical assistance provided 
        under section 1902(a)(10)(E)(iv).
            ``(4) Treatment of territories.--
                    ``(A) In general.--Subject to subparagraph (B), 
                this subsection shall not apply to States other than 
                the 50 States and the District of Columbia.
                    ``(B) Payments.--In the case of a State (other than 
                the 50 States and the District of Columbia) that 
                develops and implements a plan of assistance for 
                pharmaceuticals provided to low-income medicare 
                beneficiaries, the Secretary shall provide for payment 
                to the State in an amount that is reasonable in 
                relation to the payment levels provided to other States 
                under paragraph (2).
    ``(e) Definitions; Special Rules.--For purposes of this section:
            ``(1) Qualified medicare medicine beneficiary.--The term 
        `qualified medicare medicine beneficiary' means an individual--
                    ``(A) who is entitled to hospital insurance 
                benefits under part A (including an individual entitled 
                to such benefits pursuant to an enrollment under 
                section 1818, but not including an individual entitled 
                to such benefits only pursuant to an enrollment under 
                section 1818A);
                    ``(B) whose income (as determined under section 
                1612 for purposes of the supplemental security income 
                program, except as provided in section 1905(p)(2)(D)) 
                is above 100 percent but below 150 percent of the 
                official poverty line (as defined by the Office of 
                Management and Budget, and revised annually in 
                accordance with section 673(2) of the Omnibus Budget 
                Reconciliation Act of 1981) applicable to a family of 
                the size involved; and
                    ``(C) whose resources (as determined under section 
                1613 for purposes of the supplemental security income 
                program) do not exceed twice the maximum amount of 
                resources that an individual may have and obtain 
                benefits under that program.
            ``(2) Medicare medicine cost-sharing.--The term `medicare 
        medicine cost-sharing' means the following costs incurred with 
        respect to a qualified medicare medicine beneficiary, without 
        regard to whether the costs incurred were for items and 
        services for which medical assistance is otherwise available 
        under a State plan under title XIX:
                    ``(A) In the case of a qualified medicare medicine 
                beneficiary whose income (as determined under paragraph 
                (1)) is less than 135 percent of the official poverty 
                line--
                            ``(i) premiums under section 1860D; and
                            ``(ii) the difference between the amount 
                        that is paid under section 1860B and the amount 
                        that would be paid under such section if any 
                        reference to `50 percent' therein were deemed a 
                        reference to `100 percent' (or, if the 
                        Secretary approves a higher percentage under 
                        such section, if such percentage were deemed to 
                        be 100 percent).
                    ``(B) In the case of a qualified medicare medicine 
                beneficiary whose income (as determined under paragraph 
                (1)) is at least 135 percent but less than 150 percent 
                of the official poverty line, a percentage of premiums 
                under section 1860D, determined on a linear 
sliding scale ranging from 100 percent for individuals with incomes at 
135 percent of such line to 0 percent for individuals with incomes at 
150 percent of such line.
            ``(3) State.--The term `State' has the meaning given such 
        term under section 1101(a) for purposes of title XIX.
            ``(4) Treatment of drugs purchased.--The provisions of 
        section 1927 shall not apply to prescription drugs purchased 
        under this part pursuant to an agreement with the Secretary 
        under this section (including any drugs so purchased after the 
        limit under section 1860B(b) has been exceeded).

               ``prescription medicine insurance account

    ``Sec. 1860F. (a) Establishment.--There is created within the 
Federal Supplemental Medical Insurance Trust Fund established by 
section 1841 an account to be known as the `Prescription Medicine 
Insurance Account' (in this section referred to as the `Account').
    ``(b) Amounts in Account.--
            ``(1) In general.--The Account shall consist of--
                    ``(A) such amounts as may be deposited in, or 
                appropriated to, such fund as provided in this part; 
                and
                    ``(B) such gifts and bequests as may be made as 
                provided in section 201(i)(1).
            ``(2) Separation of funds.--Funds provided under this part 
        to the Account shall be kept separate from all other funds 
        within the Federal Supplemental Medical Insurance Trust Fund.
    ``(c) Payments From Account.--The Managing Trustee shall pay from 
time to time from the Account such amounts as the Secretary certifies 
are necessary to make the payments provided for by this part, and the 
payments with respect to administrative expenses in accordance with 
section 201(g).

                      ``administration of benefits

    ``Sec. 1860G. (a) Through HCFA.--The Secretary shall provide for 
administration of the benefits under this part through the Health Care 
Financing Administration in accordance with the provisions of this 
section. The Administrator of such Administration may enter into 
contracts with carriers to administer this part in the same manner as 
the Administrator enters into such contracts to administer part B. Any 
such contract shall be separate from any contract under section 1842.
    ``(b) Administration Functions.--In carrying out this part, the 
Administrator (or a carrier under a contract with the Administrator) 
shall (or in the case of the function described in paragraph (9), may) 
perform the following functions:
            ``(1) Participation agreements, prices, and fees.--
                    ``(A) Negotiated prices.--Establish, through 
                negotiations with medicine manufacturers and 
                wholesalers and pharmacies, a schedule of prices for 
                covered prescription medicines.
                    ``(B) Agreements with pharmacies.--Enter into 
                participation agreements under subsection (c) with 
                pharmacies, that include terms that--
                            ``(i) secure the participation of 
                        sufficient numbers of pharmacies to ensure 
                        convenient access (including adequate emergency 
                        access);
                            ``(ii) permit the participation of any 
                        pharmacy in the service area that meets the 
                        participation requirements described in 
                        subsection (c); and
                            ``(iii) allow for reasonable dispensing and 
                        consultation fees for pharmacies.
                    ``(C) Lists of prices and participating 
                pharmacies.--Ensure that the negotiated prices 
                established under subparagraph (A) and the list of 
                pharmacies with agreements under subsection (c) are 
                regularly updated and readily available to health care 
                professionals authorized to prescribe medicines, 
                participating pharmacies, and enrolled individuals.
            ``(2) Tracking of covered enrolled individuals.--Maintain 
        accurate, updated records of all enrolled individuals (other 
        than individuals enrolled in a plan under part C).
            ``(3) Payment and coordination of benefits.--
                    ``(A) Payment.--
                            ``(i) Administer claims for payment of 
                        benefits under this part and encourage, to the 
                        maximum extent possible, use of electronic 
                        means for the submissions of claims.
                            ``(ii) Determine amounts of benefit 
                        payments to be made.
                            ``(iii) Receive, disburse, and account for 
                        funds used in making such payments, including 
                        through the activities specified in the 
                        provisions of this paragraph.
                    ``(B) Coordination.--Coordinate with other private 
                benefit providers, pharmacies, and other relevant 
                entities as necessary to ensure appropriate 
                coordination of benefits with respect to enrolled 
                individuals, including coordination of access to and 
                payment for covered prescription medicines according to 
                an individual's in-service area plan provisions, when 
                such individual is traveling outside the home service 
                area, and under such other circumstances as the 
                Secretary may specify.
                    ``(C) Explanation of benefits.--Furnish to enrolled 
                individuals an explanation of benefits in accordance 
                with section 1806(a), and a notice of the balance of 
                benefits remaining for the current year, whenever 
                prescription medicine benefits are provided under this 
                part (except that such notice need not be provided more 
                often than monthly).
            ``(4) Rules relating to provision of benefits.--
                    ``(A) In general.--In providing benefits under this 
                part, the Secretary (directly or through contracts) 
                shall employ mechanisms to provide benefits 
                economically, including the use of--
                            ``(i) formularies (consistent with 
                        subparagraph (B));
                            ``(ii) automatic generic medicine 
                        substitution (unless the physician specifies 
                        otherwise, in which case a 30-day prescription 
                        may be dispensed pending a consultation with 
                        the physician on whether a generic substitute 
                        can be dispensed in the future);
                            ``(iii) tiered copayments (which may 
                        include copayments at a rate lower than 20 
                        percent) to encourage the use of the lowest 
                        cost, on-formulary product in cases where there 
                        is no restrictive prescription (described in 
                        subparagraph (D)(i)); and
                            ``(iv) therapeutic interchange.
                    ``(B) Requirements with respect to formularies.--If 
                a formulary is used to contain costs under this part--
                            ``(i) use an advisory committee (or a 
                        therapeutics committee) comprised of licensed 
                        practicing physicians, pharmacists, and other 
                        health care practitioners to develop and manage 
                        the formulary;
                            ``(ii) include in the formulary at least 1 
                        medicine from each therapeutic class and, if 
                        available, a generic equivalent thereof; and
                            ``(iii) disclose to current and prospective 
                        enrollees and to participating providers and 
                        pharmacies, the nature of the formulary 
                        restrictions, including information regarding 
                        the medicines included in the formulary and any 
                        difference in cost-sharing amounts.
                    ``(C) Construction.--Nothing in this subsection 
                shall be construed to prevent the Secretary (directly 
                or through contracts) from using incentives (including 
                a lower beneficiary coinsurance) to encourage enrollees 
                to select generic or other cost-effective medicines, so 
                long as--
                            ``(i) such incentives are designed not to 
                        result in any increase in the aggregate 
                        expenditures under the Federal Medicare 
                        Prescription Medicine Trust Fund;
                            ``(ii) the average coinsurance charged to 
                        all beneficiaries by the Secretary (directly or 
                        through contractors) shall seek to approximate 
                        (but in no case exceed) 20 percent for on-
                        formulary medicines;
                            ``(iii) a beneficiary's coinsurance shall 
                        be no greater than 20 percent if the 
                        prescription is a restrictive prescription; and
                            ``(iv) the reimbursement for a prescribed 
                        nonformulary medicine without a restrictive 
                        prescription in no case shall be more than the 
                        lowest reimbursement for a formulary medicine 
                        in the therapeutic class of the prescribed 
                        medicine.
                    ``(D) Restrictive prescription.--For purposes of 
                this section:
                            ``(i) Written prescriptions.--In the case 
                        of a written prescription for a medicine, it is 
                        a restrictive prescription only if the 
                        prescription indicates, in the writing of the 
                        physician or other qualified person prescribing 
                        the medicine and with an appropriate phrase 
                        (such as `brand medically necessary') 
                        recognized by the Secretary, that a particular 
                        medicine product must be dispensed based upon a 
                        belief by the physician or person prescribing 
                        the medicine that the particular medicine will 
                        provide even marginally superior therapeutic 
                        benefits to the individual for whom the 
                        medicine is prescribed or would have marginally 
                        fewer adverse reactions with respect to such 
                        individual.
                            ``(ii) Telephone prescriptions.--In the 
                        case of a prescription issued by telephone for 
                        a medicine, it is a restrictive prescription 
                        only if the prescription cannot be longer than 
                        30 days and the physician or other qualified 
                        person prescribing the medicine (through use of 
                        such an appropriate phrase) states that a 
                        particular medicine product must be dispensed, 
                        and the physician or other qualified person 
                        submits to the pharmacy involved, within 30 
                        days after the date of the telephone 
                        prescription, a written confirmation from the 
                        physician or other qualified person prescribing 
                        the medicine and which indicates with such 
                        appropriate phrase that the particular medicine 
                        product was required to have been dispensed 
                        based upon a belief by the physician or person 
                        prescribing the medicine that the particular 
                        medicine will provide even marginally superior 
                        therapeutic benefits to the individual for whom 
                        the medicine is prescribed or would have 
                        marginally fewer adverse reactions with respect 
                        to such individual. Such written confirmation 
                        is required to refill the prescription.
                            ``(iii) Review of restrictive 
                        prescriptions.--The advisory committee 
                        (established under subparagraph (B)(i)) may 
                        decide to review a restrictive prescription 
                        and, if so, it may approve or disapprove such 
                        restrictive prescription. It may not disapprove 
                        such restrictive prescription unless it finds 
                        that there is no literature approved by the 
                        Food and Drug Administration that supports a 
                        determination that the particular medicine 
                        provides even marginally superior therapeutic 
                        benefits to the individual for whom the 
                        medicine is prescribed or would have marginally 
                        fewer adverse reactions with respect to such 
                        individual. If it disapproves, upon request of 
                        the prescribing physician or the enrollee, the 
                        committee must provide for a review by an 
                        independent contractor of such decision within 
                        48 hours of the time of submission of the 
prescription, to determine whether the prescription is an eligible 
benefit under this part. The Secretary shall ensure that independent 
contractors so used are completely independent of the contractor or its 
advisory committee.
            ``(5) Cost and utilization management; quality assurance.--
        Have in place effective cost and utilization management, drug 
        utilization review, quality assurance measures, and systems to 
        reduce medical errors, including at least the following, 
        together with such additional measures as the Administrator may 
        specify:
                    ``(A) Drug utilization review.--A drug utilization 
                review program conforming to the standards provided in 
                section 1927(g)(2) (with such modifications as the 
                Administrator finds appropriate).
                    ``(B) Fraud and abuse control.--Activities to 
                control fraud, abuse, and waste, including prevention 
                of diversion of pharmaceuticals to the illegal market.
                    ``(C) Medication therapy management.--
                            ``(i) In general.--A program of medicine 
                        therapy management and medication 
                        administration that is designed to assure that 
                        covered outpatient medicines are appropriately 
                        used to achieve therapeutic goals and reduce 
                        the risk of adverse events, including adverse 
                        drug interactions.
                            ``(ii) Elements.--Such program may 
                        include--
                                    ``(I) enhanced beneficiary 
                                understanding of such appropriate use 
                                through beneficiary education, 
                                counseling, and other appropriate 
                                means; and
                                    ``(II) increased beneficiary 
                                adherence with prescription medication 
                                regimens through medication refill 
                                reminders, special packaging, and other 
                                appropriate means.
                            ``(iii) Development of program in 
                        cooperation with licensed pharmacists.--The 
                        program shall be developed in cooperation with 
                        licensed pharmacists and physicians.
                            ``(iv) Considerations in pharmacy fees.--
                        There shall be taken into account, in 
                        establishing fees for pharmacists and others 
                        providing services under the medication therapy 
                        management program, the resources and time used 
                        in implementing the program.
            ``(6) Education and information activities.--Have in place 
        mechanisms for disseminating educational and informational 
        materials to enrolled individuals and health care providers 
        designed to encourage effective and cost-effective use of 
        prescription medicine benefits and to ensure that enrolled 
        individuals understand their rights and obligations under the 
        program.
            ``(7) Beneficiary protections.--
                    ``(A) Confidentiality of health information.--Have 
                in effect systems to safeguard the confidentiality of 
                health care information on enrolled individuals, which 
                comply with section 1106 and with section 552a of title 
                5, United States Code, and meet such additional 
                standards as the Administrator may prescribe.
                    ``(B) Grievance and appeal procedures.--Have in 
                place such procedures as the Administrator may specify 
                for hearing and resolving grievances and appeals, 
                including expedited appeals, brought by enrolled 
                individuals against the Administrator or a pharmacy 
                concerning benefits under this part, which shall 
                include procedures equivalent to those specified in 
                subsections (f) and (g) of section 1852.
            ``(8) Records, reports, and audits.--
                    ``(A) Records and audits.--Maintain adequate 
                records, and afford the Administrator access to such 
                records (including for audit purposes).
                    ``(B) Reports.--Make such reports and submissions 
                of financial and utilization data as the Administrator 
                may require taking into account standard commercial 
                practices.
            ``(9) Proposal for alternative coinsurance amount.--
                    ``(A) Submission.--The Administrator may provide 
                for increased Government cost-sharing for generic 
                prescription medicines, prescription medicines on a 
                formulary, or prescription medicines obtained through 
                mail order pharmacies.
                    ``(B) Contents.--The proposal submitted under 
                subparagraph (A) shall contain evidence that such 
                increased cost-sharing would not result in an increase 
                in aggregate costs to the Account, including an 
                analysis of differences in projected drug utilization 
                patterns by beneficiaries whose cost-sharing would be 
                reduced under the proposal and those making the cost-
                sharing payments that would otherwise apply.
            ``(10) Other requirements.--Meet such other requirements as 
        the Secretary may specify.
The Administrator shall negotiate a schedule of prices under paragraph 
(1)(A), except that nothing in this sentence shall prevent a carrier 
under a contract with the Administrator from negotiating a lower 
schedule of prices for covered prescription medicines.
    ``(c) Pharmacy Participation Agreements.--
            ``(1) In general.--A pharmacy that meets the requirements 
        of this subsection shall be eligible to enter an agreement with 
        the Administrator to furnish covered prescription medicines and 
        pharmacists' services to enrolled individuals.
            ``(2) Terms of agreement.--An agreement under this 
        subsection shall include the following terms and requirements:
                    ``(A) Licensing.--The pharmacy and pharmacists 
                shall meet (and throughout the contract period will 
                continue to meet) all applicable State and local 
                licensing requirements.
                    ``(B) Limitation on charges.--Pharmacies 
                participating under this part shall not charge an 
                enrolled individual more than the negotiated price for 
                an individual medicine as established under subsection 
                (b)(1), regardless of whether such individual has 
                attained the benefit limit under section 1860B(b), and 
                shall not charge an enrolled individual more than the 
                individual's share of the negotiated price as 
                determined under the provisions of this part.
                    ``(C) Performance standards.--The pharmacy and the 
                pharmacist shall comply with performance standards 
                relating to--
                            ``(i) measures for quality assurance, 
                        reduction of medical errors, and participation 
                        in the drug utilization review program 
                        described in subsection (b)(3)(A);
                            ``(ii) systems to ensure compliance with 
                        the confidentiality standards applicable under 
                        subsection (b)(5)(A); and
                            ``(iii) other requirements as the Secretary 
                        may impose to ensure integrity, efficiency, and 
                        the quality of the program.
                    ``(D) Disclosure of price of generic medicine.--A 
                pharmacy participating under this part shall inform an 
                enrollee of the difference in price between generic and 
                non-generic equivalents.
    ``(d) Special Attention to Rural and Hard-To-Serve Areas.--
            ``(1) In general.--The Secretary shall ensure that all 
        beneficiaries have access to the full range of pharmaceuticals 
        under this part, and shall give special attention to access, 
        pharmacist counseling, and delivery in rural and hard-to-serve 
        areas (as the Secretary may define by regulation).
            ``(2) Special attention defined.--For purposes of paragraph 
        (1), the term `special attention' may include bonus payments to 
        retail pharmacists in rural areas and any other actions the 
        Secretary determines are necessary to ensure full access to 
        rural and hard-to-serve beneficiaries.
            ``(3) GAO report.--Not later than 2 years after the 
        implementation of this part the Comptroller General of the 
        United States shall submit to Congress a report on the access 
        of medicare beneficiaries to pharmaceuticals and pharmacists' 
        services in rural and hard-to-serve areas under this part 
        together with any recommendations of the Comptroller General 
        regarding any additional steps the Secretary may need to take 
        to ensure the access of medicare beneficiaries to 
        pharmaceuticals and pharmacists' services in such areas under 
        this part.
    ``(e) Incentives for Cost and Utilization Management and Quality 
Improvement.--The Secretary is authorized to include in a contract 
awarded under subsection (b) with a carrier such incentives for cost 
and utilization management and quality improvement as the Secretary may 
deem appropriate, including--
            ``(1) bonus and penalty incentives to encourage 
        administrative efficiency;
            ``(2) incentives under which carriers share in any benefit 
        savings achieved;
            ``(3) risk-sharing arrangements related to initiatives to 
        encourage savings in benefit payments;
            ``(4) financial incentives under which savings derived from 
        the substitution of generic medicines in lieu of non-generic 
        medicines are made available to carriers, pharmacies, and the 
        Prescription Medicine Insurance Account; and
            ``(5) any other incentive that the Secretary deems 
        appropriate and likely to be effective in managing costs or 
        utilization.

  ``employer incentive program for employment-based retiree medicine 
                                coverage

    ``Sec. 1860H. (a) Program Authority.--The Secretary shall develop 
and implement a program under this section called the `Employer 
Incentive Program' that encourages employers and other sponsors of 
employment-based health care coverage to provide adequate prescription 
medicine benefits to retired individuals and to maintain such existing 
benefit programs, by subsidizing, in part, the sponsor's cost of 
providing coverage under qualifying plans.
    ``(b) Sponsor Requirements.--In order to be eligible to receive an 
incentive payment under this section with respect to coverage of an 
individual under a qualified retiree prescription medicine plan (as 
defined in subsection (f)(3)), a sponsor shall meet the following 
requirements:
            ``(1) Assurances.--The sponsor shall--
                    ``(A) annually attest, and provide such assurances 
                as the Secretary may require, that the coverage offered 
                by the sponsor is a qualified retiree prescription 
medicine plan, and will remain such a plan for the duration of the 
sponsor's participation in the program under this section; and
                    ``(B) guarantee that it will give notice to the 
                Secretary and covered retirees--
                            ``(i) at least 120 days before terminating 
                        its plan; and
                            ``(ii) immediately upon determining that 
                        the actuarial value of the prescription 
                        medicine benefit under the plan falls below the 
                        actuarial value of the insurance benefit under 
                        this part.
            ``(2) Other requirements.--The sponsor shall provide such 
        information, and comply with such requirements, including 
        information requirements to ensure the integrity of the 
        program, as the Secretary may find necessary to administer the 
        program under this section.
    ``(c) Incentive Payment.--
            ``(1) In general.--A sponsor that meets the requirements of 
        subsection (b) with respect to a quarter in a calendar year 
        shall have payment made by the Secretary on a quarterly basis 
        (to the sponsor or, at the sponsor's direction, to the 
        appropriate employment-based health plan) of an incentive 
        payment, in the amount determined as described in paragraph 
        (2), for each retired individual (or spouse) who--
                    ``(A) was covered under the sponsor's qualified 
                retiree prescription medicine plan during such quarter; 
                and
                    ``(B) was eligible for but was not enrolled in the 
                insurance program under this part.
            ``(2) Amount of incentive.--The payment under this section 
        with respect to each individual described in paragraph (1) for 
        a month shall be equal to \2/3\ of the monthly premium amount 
        payable from the Prescription Medicine Insurance Account for an 
        enrolled individual, as set for the calendar year pursuant to 
        section 1860D(a)(2).
            ``(3) Payment date.--The incentive under this section with 
        respect to a calendar quarter shall be payable as of the end of 
        the next succeeding calendar quarter.
    ``(d) Civil Money Penalties.--A sponsor, health plan, or other 
entity that the Secretary determines has, directly or through its 
agent, provided information in connection with a request for an 
incentive payment under this section that the entity knew or should 
have known to be false shall be subject to a civil monetary penalty in 
an amount equal to $2,000 for each false representation plus an amount 
not to exceed 3 times the total incentive amounts under subsection (c) 
that were paid (or would have been payable) on the basis of such 
information.
    ``(e) Part D Enrollment for Certain Individuals Covered by 
Employment-Based Retiree Health Coverage Plans.--
            ``(1) Eligible individuals.--An individual shall be given 
        the opportunity to enroll in the program under this part during 
        the period specified in paragraph (2) if--
                    ``(A) the individual declined enrollment in the 
                program under this part at the time the individual 
                first satisfied section 1860C(a);
                    ``(B) at that time, the individual was covered 
                under a qualified retiree prescription medicine plan 
                for which an incentive payment was paid under this 
                section; and
                    ``(C)(i) the sponsor subsequently ceased to offer 
                such plan; or
                    ``(ii) the value of prescription medicine coverage 
                under such plan is reduced below the value of the 
                coverage provided at the time the individual first 
                became eligible to participate in the program under 
                this part.
            ``(2) Special enrollment period.--An individual described 
        in paragraph (1) shall be eligible to enroll in the program 
        under this part during the 6-month period beginning on the 
        first day of the month in which--
                    ``(A) the individual receives a notice that 
                coverage under such plan has terminated (in the 
                circumstance described in paragraph (1)(C)(i)) or 
                notice that a claim has been denied because of such a 
                termination; or
                    ``(B) the individual received notice of the change 
                in benefits (in the circumstance described in paragraph 
                (1)(C)(ii)).
    ``(f) Definitions.--In this section:
            ``(1) Employment-based retiree health coverage.--The term 
        `employment-based retiree health coverage' means health 
        insurance or other coverage of health care costs for retired 
        individuals (or for such individuals and their spouses and 
        dependents) based on their status as former employees or labor 
        union members.
            ``(2) Employer.--The term `employer' has the meaning given 
        to such term by section 3(5) of the Employee Retirement Income 
        Security Act of 1974 (except that such term shall include only 
        employers of 2 or more employees).
            ``(3) Qualified retiree prescription medicine plan.--The 
        term `qualified retiree prescription medicine plan' means 
        health insurance coverage included in employment-based retiree 
        health coverage that--
                    ``(A) provides coverage of the cost of prescription 
                medicines whose actuarial value to each retired 
                beneficiary equals or exceeds the actuarial value of 
                the benefits provided to an individual enrolled in the 
                program under this part; and
                    ``(B) does not deny, limit, or condition the 
                coverage or provision of prescription medicine benefits 
                for retired individuals based on age or any health 
                status-related factor described in section 2702(a)(1) 
                of the Public Health Service Act.
            ``(4) Sponsor.--The term `sponsor' has the meaning given 
        the term `plan sponsor' by section 3(16)(B) of the Employee 
        Retirement Income Security Act of 1974.

``promotion of pharmaceutical research on break-through medicines while 
                   providing program cost containment

    ``Sec. 1860I. (a) Monitoring Expenditures.--The Secretary shall 
monitor expenditures under this part. On October 1, 2003, Secretary 
shall estimate total expenditures under this part for 2003.
    ``(b) Establishment of Sustainable Growth Rate.--
            ``(1) In general.--The Secretary shall establish a 
        sustainable growth rate prescription medicine target system for 
        expenditures under this part for each year after 2003.
            ``(2) Initial computation.--Such target shall equal the 
        amount of total expenditures estimated for 2003 adjusted by the 
        Secretary's estimate of a sustainable growth rate (in this 
        section referred to as an `SGR') percentage between 2003 and 
        2004. Such SGR shall be estimated based on the following:
                    ``(A) Reasonable changes in the cost of production 
                or price of covered pharmaceuticals, but in no event 
                more than the rate of increase in the consumer price 
                index for all urban consumers for the period involved.
                    ``(B) Population enrolled in this part, both in 
                numbers and in average age and severity of chronic and 
                acute illnesses.
                    ``(C) Appropriate changes in utilization of 
                pharmaceuticals, as determined by the Drug Review Board 
                (established under subsection (c)(3)) and based on best 
                estimates of utilization change if there were no 
                direct-to-consumer advertising or promotions to 
                providers.
                    ``(D) Productivity index of manufacturers and 
                distributors.
                    ``(E) Percentage of products with patent and market 
                exclusivity protection versus products without patent 
                protection and changes in the availability of generic 
                substitutes.
                    ``(F) Such other factors as the Secretary may 
                determine are appropriate.
        In no event may the sustainable growth rate exceed 120 percent 
        of the estimated per capita growth in total spending under this 
        title.
            ``(3) Computation for subsequent years.--In October of 2004 
        and each year thereafter, for purposes of setting the SGRs for 
        the succeeding year, the Secretary shall adjust each current 
        year's estimated expenditures by the estimated SGR for the 
        succeeding year, further adjusted for corrections in earlier 
        estimates and the receipt of additional data on previous years 
        spending as follows:
                    ``(A) Error estimates.--An adjustment (up or down) 
                for errors in the estimate of total expenditures under 
                this part for the previous year.
                    ``(B) Costs.--An adjustment (up or down) for 
                corrections in the cost of production of prescriptions 
                covered under this part between the current calendar 
                year and the previous year.
                    ``(C) Target.--An adjustment for any amount (over 
                or under) that expenditures in the current year under 
                this part are estimated to differ from the target 
                amount set for the year. If expenditures in the current 
                year are estimated to be--
                            ``(i) less than the target amount, future 
                        target amounts will be adjusted downward; or
                            ``(ii) more than the target amount, the 
                        Secretary shall notify all pharmaceutical 
                        manufacturers with sales of pharmaceutical 
                        prescription medicine products to medicare 
                        beneficiaries under this part, of a rebate 
                        requirement (except as provided in this 
                        subparagraph) to be deposited in the Federal 
                        Medicare Prescription Medicine Trust Fund.
                    ``(D) Rebate determination.--The amount of the 
                rebate described in subparagraph (C)(ii) may vary among 
                manufacturers and shall be based on the manufacturer's 
                estimated contribution to the expenditure above the 
                target amount, taking into consideration such factors 
                as--
                            ``(i) above average increases in the cost 
                        of the manufacturer's product;
                            ``(ii) increases in utilization due to 
                        promotion activities of the manufacturer, 
                        wholesaler, or retailer;
                            ``(iii) launch prices of new drugs at the 
                        same or higher prices as similar drugs already 
                        in the marketplace (so-called `me too' or 
                        `copy-cat' drugs);
                            ``(iv) the role of the manufacturer in 
                        delaying the entry of generic products into the 
                        market; and
                            ``(v) such other actions by the 
                        manufacturer that the Secretary may determine 
                        has contributed to the failure to meet the SGR 
                        target.
                The rebates shall be established under such 
                subparagraph so that the total amount of the rebates is 
                estimated to ensure that the amount the target for the 
                current year is estimated to be exceeded is recovered 
                in lower spending in the subsequent year; except that, 
                no rebate shall be made in any manufacturer's product 
                which the Food and Drug Administration has determined 
                is a breakthrough medicine (as determined under 
                subsection (c)) or an orphan medicine.
    ``(c) Breakthrough Medicines.--
            ``(1) Determination.--For purposes of this section, a 
        medicine is a `breakthrough medicine' if the Drug Review Board 
        (established under paragraph (3)) determines--
                    ``(A) it is a new product that will make a 
                significant and major improvement by reducing physical 
                or mental illness, reducing mortality, or reducing 
                disability; and
                    ``(B) that no other product is available to 
                beneficiaries that achieves similar results for the 
                same condition at a lower cost.
            ``(2) Condition.--An exemption from rebates under 
        subsection (b)(3) for a breakthrough medicine shall continue as 
        long as the medicine is certified as a breakthrough medicine 
        but shall be limited to 7 calendar years from 2003 or 7 
        calendar years from the date of the initial determination under 
        paragraph (1), whichever is later.
            ``(3) Drug review board.--The Drug Review Board under this 
        paragraph shall consist of the Commissioner of Food and Drugs, 
        the Directors of the National Institutes of Health, the 
        Director of the National Science Foundation, and 10 experts in 
        pharmaceuticals, medical research, and clinical care, selected 
        by the Commissioner of Food and Drugs from the faculty of 
        academic medical centers, except that no person who has (or who 
        has an immediate family member that has) any conflict of 
        interest with any pharmaceutical manufacturer shall serve on 
        the Board.
    ``(d) No Review.--The Secretary's determination of the rebate 
amounts under this section, and the Drug Review Board's determination 
of what is a breakthrough drug, are not subject to administrative or 
judicial review.

           ``appropriations to cover government contributions

    ``Sec. 1860J. (a) In General.--There are authorized to be 
appropriated from time to time, out of any moneys in the Treasury not 
otherwise appropriated, to the Prescription Medicine Insurance Account, 
a Government contribution equal to--
            ``(1) the aggregate premiums payable for a month pursuant 
        to section 1860D(a)(2) by individuals enrolled in the program 
        under this part; plus
            ``(2) one-half the aggregate premiums payable for a month 
        pursuant to such section for such individuals by former 
        employers; plus
            ``(3) the benefits payable by reason of the application of 
        paragraph (2) of section 1860B(a) (relating to catastrophic 
        benefits).
    ``(b) Appropriations To Cover Incentives for Employment-Based 
Retiree Medicine Coverage.--There are authorized to be appropriated to 
the Prescription Medicine Insurance Account from time to time, out of 
any moneys in the Treasury not otherwise appropriated such sums as may 
be necessary for payment of incentive payments under section 1860H(c).

                    ``prescription medicine defined

    ``Sec. 1860K. As used in this part, the term `prescription 
medicine' means--
            ``(1) a drug that may be dispensed only upon a 
        prescription, and that is described in subparagraph (A)(i), 
        (A)(ii), or (B) of section 1927(k)(2); and
            ``(2) insulin certified under section 506 of the Federal 
        Food, Drug, and Cosmetic Act, and needles, syringes, and 
        disposable pumps for the administration of such insulin.''.
    (b) Conforming Amendments.--
            (1) Amendments to federal supplementary health insurance 
        trust fund.--Section 1841 of the Social Security Act (42 U.S.C. 
        1395t) is amended--
                    (A) in the last sentence of subsection (a)--
                            (i) by striking ``and'' after ``section 
                        201(i)(1)''; and
                            (ii) by inserting before the period the 
                        following: ``, and such amounts as may be 
                        deposited in, or appropriated to, the 
                        Prescription Medicine Insurance Account 
                        established by section 1860F'';
                    (B) in subsection (g), by inserting after ``by this 
                part,'' the following: ``the payments provided for 
                under part D (in which case the payments shall come 
                from the Prescription Medicine Insurance Account in the 
                Supplementary Medical Insurance Trust Fund),'';
                    (C) in the first sentence of subsection (h), by 
                inserting before the period the following: ``and 
                section 1860D(b)(4) (in which case the payments shall 
                come from the Prescription Medicine Insurance Account 
                in the Supplementary Medical Insurance Trust Fund)''; 
                and
                    (D) in the first sentence of subsection (i)--
                            (i) by striking ``and'' after ``section 
                        1840(b)(1)''; and
                            (ii) by inserting before the period the 
                        following: ``, section 1860D(b)(2) (in which 
                        case the payments shall come from the 
                        Prescription Medicine Insurance Account in the 
                        Supplementary Medical Insurance Trust Fund)''.
            (2) Prescription medicine option under medicare+choice 
        plans.--
                    (A) Eligibility, election, and enrollment.--Section 
                1851 of the Social Security Act (42 U.S.C. 1395w-21) is 
                amended--
                            (i) in subsection (a)(1)(A), by striking 
                        ``parts A and B'' inserting ``parts A, B, and 
                        D''; and
                            (ii) in subsection (i)(1), by striking 
                        ``parts A and B'' and inserting ``parts A, B, 
                        and D''.
                    (B) Voluntary beneficiary enrollment for medicine 
                coverage.--Section 1852(a)(1)(A) of such Act (42 U.S.C. 
                1395w-22(a)(1)(A)) is amended by inserting ``(and under 
                part D to individuals also enrolled under that part)'' 
                after ``parts A and B''.
                    (C) Access to services.--Section 1852(d)(1) of such 
                Act (42 U.S.C. 1395w-22(d)(1)) is amended--
                            (i) in subparagraph (D), by striking 
                        ``and'' at the end;
                            (ii) in subparagraph (E), by striking the 
                        period at the end and inserting ``; and''; and
                            (iii) by adding at the end the following 
                        new subparagraph:
                    ``(F) the plan for prescription medicine benefits 
                under part D guarantees coverage of any specifically 
                named covered prescription medicine for an enrollee, 
when prescribed by a physician in accordance with the provisions of 
such part, regardless of whether such medicine would otherwise be 
covered under an applicable formulary or discount arrangement.''.
                    (D) Payments to organizations.--Section 
                1853(a)(1)(A) of such Act (42 U.S.C. 1395w-23(a)(1)(A)) 
                is amended--
                            (i) by inserting ``determined separately 
                        for benefits under parts A and B and under part 
                        D (for individuals enrolled under that part)'' 
                        after ``as calculated under subsection (c)'';
                            (ii) by striking ``that area, adjusted for 
                        such risk factors'' and inserting ``that area. 
                        In the case of payment for benefits under parts 
                        A and B, such payment shall be adjusted for 
                        such risk factors as''; and
                            (iii) by inserting before the last sentence 
                        the following: ``In the case of the payments 
                        for benefits under part D, such payment shall 
                        initially be adjusted for the risk factors of 
                        each enrollee as the Secretary determines to be 
                        feasible and appropriate. By 2006, the 
                        adjustments would be for the same risk factors 
                        applicable for benefits under parts A and B.''.
                    (E) Calculation of annual medicare +choice 
                capitation rates.--Section 1853(c) of such Act (42 
                U.S.C. 1395w-23(c)) is amended--
                            (i) in paragraph (1), in the matter 
                        preceding subparagraph (A), by inserting ``for 
                        benefits under parts A and B'' after 
                        ``capitation rate'';
                            (ii) in paragraph (6)(A), by striking 
                        ``rate of growth in expenditures under this 
                        title'' and inserting ``rate of growth in 
                        expenditures for benefits available under parts 
                        A and B''; and
                            (iii) by adding at the end the following 
                        new paragraph:
            ``(8) Payment for prescription medicines.--The Secretary 
        shall determine a capitation rate for prescription medicines--
                    ``(A) dispensed in 2003, which is based on the 
                projected national per capita costs for prescription 
                medicine benefits under part D and associated claims 
                processing costs for beneficiaries under the original 
                medicare fee-for-service program; and
                    ``(B) dispensed in each subsequent year, which 
                shall be equal to the rate for the previous year 
                updated by the Secretary's estimate of the projected 
                per capita rate of growth in expenditures under this 
                title for an individual enrolled under part D.''.
                    (F) Limitation on enrollee liability.--Section 
                1854(e) of such Act (42 U.S.C. 1395w-24(e)) is amended 
                by adding at the end the following new paragraph:
            ``(5) Special rule for provision of part d benefits.--In no 
        event may a Medicare+Choice organization include as part of a 
        plan for prescription medicine benefits under part D a 
        requirement that an enrollee pay a deductible, or a coinsurance 
        percentage that exceeds 20 percent.''.
                    (G) Requirement for additional benefits.--Section 
                1854(f)(1) of such Act (42 U.S.C. 1395w-24(f)(1)) is 
                amended by adding at the end the following new 
                sentence: ``Such determination shall be made separately 
                for benefits under parts A and B and for prescription 
                medicine benefits under part D.''.
            (3) Exclusions from coverage.--
                    (A) Application to part d.--Section 1862(a) of the 
                Social Security Act (42 U.S.C. 1395y(a)) is amended in 
                the matter preceding paragraph (1) by striking ``part A 
                or part B'' and inserting ``part A, B, or D''.
                    (B) Prescription medicines not excluded from 
                coverage if appropriately prescribed.--Section 
                1862(a)(1) of such Act (42 U.S.C. 1395y(a)(1)) is 
                amended--
                            (i) in subparagraph (H), by striking 
                        ``and'' at the end;
                            (ii) in subparagraph (I), by striking the 
                        semicolon at the end and inserting ``, and''; 
                        and
                            (iii) by adding at the end the following 
                        new subparagraph:
                    ``(J) in the case of prescription medicines covered 
                under part D, which are not prescribed in accordance 
                with such part;''.

SEC. 4. SUBSTANTIAL REDUCTIONS IN THE PRICE OF PRESCRIPTION DRUGS FOR 
              MEDICARE BENEFICIARIES.

    (a) Participating Manufacturers.--
            (1) In General.--Each participating manufacturer of a 
        covered outpatient drug shall make available for purchase by 
        each pharmacy such covered outpatient drug in the amount 
        described in paragraph (2) at the price described in paragraph 
        (3).
            (2) Description of amount of drugs.--The amount of a 
        covered outpatient drug that a participating manufacturer shall 
        make available for purchase by a pharmacy is an amount equal to 
        the aggregate amount of the covered outpatient drug sold or 
        distributed by the pharmacy to Medicare beneficiaries.
            (3) Description of price.--The price at which a 
        participating manufacturer shall make a covered outpatient drug 
        available for purchase by a pharmacy is the price equal to the 
        lowest of the following:
                    (A) The lowest price paid for the covered 
                outpatient drug by any agency or department of the 
                United States.
                    (B) The manufacturer's best price for the covered 
                outpatient drug, as defined in section 1927(c)(1)(C) of 
                the Social Security Act (42 U.S.C. 1396r-8(c)(1)(C)).
                    (C) The lowest price at which the drug is available 
                (as determined by the Secretary) through importation 
                consistent with the provisions of section 804 of the 
                Federal Food, Drug, and Cosmetic Act.
    (b) Special Provision With Respect to Hospice Programs.--For 
purposes of determining the amount of a covered outpatient drug that a 
participating manufacturer shall make available for purchase by a 
pharmacy under subsection (a), there shall be included in the 
calculation of such amount the amount of the covered outpatient drug 
sold or distributed by a pharmacy to a hospice program. In calculating 
such amount, only amounts of the covered outpatient drug furnished to a 
Medicare beneficiary enrolled in the hospice program shall be included.
    (c) Administration.--The Secretary shall issue such regulations as 
may be necessary to implement this section.
    (d) Reports to Congress Regarding Effectiveness of Section.--
            (1) In general.--Not later than 2 years after the date of 
        the enactment of this Act, and annually thereafter, the 
        Secretary shall report to the Congress regarding the 
        effectiveness of this section in--
                    (A) protecting Medicare beneficiaries from 
                discriminatory pricing by drug manufacturers; and
                    (B) making prescription drugs available to Medicare 
                beneficiaries at substantially reduced prices.
            (2) Consultation.--In preparing such reports, the Secretary 
        shall consult with public health experts, affected industries, 
        organizations representing consumers and older Americans, and 
        other interested persons.
            (3) Recommendations.--The Secretary shall include in such 
        reports any recommendations they consider appropriate for 
        changes in this section to further reduce the cost of covered 
        outpatient drugs to Medicare beneficiaries.
    (f) Definitions.--For purposes of this section:
            (1) Participating manufacturer.--The term ``participating 
        manufacturer'' means any manufacturer of drugs or biologicals 
        that, on or after the date of the enactment of this Act, enters 
        into a contract or agreement with the United States for the 
        sale or distribution of covered outpatient drugs to the United 
        States.
            (2) Covered outpatient drug.--The term ``covered outpatient 
        drug'' has the meaning given that term in section 1927(k)(2) of 
        the Social Security Act (42 U.S.C. 1396r-8(k)(2)).
            (3) Medicare beneficiary.--The term ``Medicare 
        beneficiary'' means an individual entitled to benefits under 
        part A of title XVIII of the Social Security Act or enrolled 
        under part B of such title, or both.
            (4) Hospice program.--The term ``hospice program'' has the 
        meaning given that term under section 1861(dd)(2) of the Social 
        Security Act (42 U.S.C. 1395x(dd)(2)).
            (5) Secretary.--The term ``Secretary'' means the Secretary 
        of Health and Human Services.
    (f) Effective Date.--The Secretary shall implement this section as 
expeditiously as practicable and in a manner consistent with the 
obligations of the United States.

SEC. 5. AMENDMENTS TO PROGRAM FOR IMPORTATION OF CERTAIN PRESCRIPTION 
              DRUGS BY PHARMACISTS AND WHOLESALERS.

    Section 804 of the Federal Food, Drug, and Cosmetic Act (as added 
by section 745(c)(2) of Public Law 106-387) is amended--
            (1) by striking subsections (e) and (f) and inserting the 
        following subsections:
    ``(e) Testing; Approved Labeling.--
            ``(1) Testing.--Regulations under subsection (a)--
                    ``(A) shall require that testing referred to in 
                paragraphs (6) through (8) of subsection (d) be 
                conducted by the importer of the covered product 
                pursuant to subsection (a), or the manufacturer of the 
                product;
                    ``(B) shall require that, if such tests are 
                conducted by the importer, information needed to 
                authenticate the product being tested be supplied by 
                the manufacturer of such product to the importer; and
                    ``(C) shall provide for the protection of any 
                information supplied by the manufacturer under 
                subparagraph (B) that is a trade secret or commercial 
                or financial information that is privileged or 
                confidential.
            ``(2) Approved labeling.--For purposes of importing a 
        covered product pursuant to subsection (a), the importer 
        involved may use the labeling approved for the product under 
        section 505, notwithstanding any other provision of law.
    ``(f) Discretion of Secretary Regarding Testing.--The Secretary may 
waive or modify testing requirements described in subsection (d) if, 
with respect to specific countries or specific distribution chains, the 
Secretary has entered into agreements or otherwise approved 
arrangements that the Secretary determines ensure that the covered 
products involved are not adulterated or in violation of section 
505.'';
            (2) by striking subsections (h) and (i) and inserting the 
        following subsections:
    ``(h) Prohibited Agreements; Nondiscrimination.--
            ``(1) Prohibited agreements.--No manufacturer of a covered 
        product may enter into a contract or agreement that includes a 
        provision to prevent the sale or distribution of covered 
        products imported pursuant to subsection (a).
            ``(2) Nondiscrimination.--No manufacturer of a covered 
        product may take actions that discriminate against, or cause 
        other persons to discriminate against, United States 
        pharmacists, wholesalers, or consumers regarding the sale or 
        distribution of covered products.
    ``(i) Study and Report.--
            ``(1) Study.--The Comptroller General of the United States 
        shall conduct a study on the imports permitted under this 
        section, taking into consideration the information received 
        under subsection (a). In conducting such study, the Comptroller 
        General shall--
                    ``(A) evaluate importers' compliance with 
                regulations, determine the number of shipments, if any, 
                permitted under this section that have been determined 
                to be counterfeit, misbranded, or adulterated; and
                    ``(B) consult with the United States Trade 
                Representative and United States Patent and Trademark 
                Office to evaluate the effect of importations permitted 
                under this section on trade and patent rights under 
                Federal law.
            ``(2) Report.--Not later than 5 years after the effective 
        date of final regulations issued pursuant to this section, the 
        Comptroller General of the United States shall prepare and 
        submit to Congress a report containing the study described in 
        paragraph (1).'';
            (3) in subsection (k)(2)--
                    (A) by redesignating subparagraphs (A) through (E) 
                as subparagraphs (B) through (F), respectively; and
                    (B) by inserting before subparagraph (B) (as so 
                redesignated) the following subparagraph:
                    ``(A) The term `discrimination' includes a contract 
                provision, a limitation on supply, or other measure 
                which has the effect of providing United States 
                pharmacists, wholesalers, or consumers access to 
                covered products on terms or conditions that are less 
                favorable than the terms or conditions provided to any 
                foreign purchaser of such products.'';
            (4) by striking subsection (m); and
            (5) by inserting after subsection (l) the following 
        subsection:
    ``(m) Funding.--For the purpose of carrying out this section, there 
are authorized to be appropriated such sums as may be necessary for 
fiscal year 2002 and each subsequent fiscal year.''.

SEC. 6. REASONABLE PRICE AGREEMENT FOR FEDERALLY FUNDED RESEARCH.

    (a) In General.--If any Federal agency or any non-profit entity 
undertakes federally funded health care research and development and is 
to convey or provide a patent or other exclusive right to use such 
research and development for a drug or other health care technology, 
such agency or entity shall not make such conveyance or provide such 
patent or other right until the person who will receive such conveyance 
or patent or other right first agrees to a reasonable pricing agreement 
with the Secretary of Health and Human Services or the Secretary makes 
a determination that the public interest is served by a waiver of the 
reasonable pricing agreement provided in accordance with subsection 
(c).
    (b) Consideration of Competitive Bidding.--In cases where the 
Federal Government conveys or licenses exclusive rights to federally 
funded research under subsection (a), consideration shall be given to 
mechanisms for determining reasonable prices which are based upon a 
competitive bidding process. When appropriate, the mechanisms should be 
considered where--
            (1) qualified bidders compete on the basis of the lowest 
        prices that will be charged to consumers;
            (2) qualified bidders compete on the basis of the least 
        sales revenues before prices are adjusted in accordance with a 
        cost based reasonable pricing formula;
            (3) qualified bidders compete on the basis of the least 
        period of time before prices are adjusted in accordance with a 
        cost based reasonable pricing formula;
            (4) qualified bidders compete on the basis of the shortest 
        period of exclusivity; or
            (5) qualified bidders compete under other competitive 
        bidding systems.
Such competitive bidding process may incorporate requirements for 
minimum levels of expenditures on research, marketing, maximum price, 
or other factors.
    (c) Waiver.--No waiver shall take effect under subsection (a) 
before the public is given notice of the proposed waiver and provided a 
reasonable opportunity to comment on the proposed waiver. A decision to 
grant a waiver shall set out the Secretary's finding that such a waiver 
is in the public interest.

SEC. 7. GAO ONGOING STUDIES AND REPORTS ON PROGRAM; MISCELLANEOUS 
              REPORTS.

    (a) Ongoing Study.--The Comptroller General of the United States 
shall conduct an ongoing study and analysis of the prescription 
medicine benefit program under part D of the Medicare program under 
title XVIII of the Social Security Act (as added by section 3 of this 
Act), including an analysis of each of the following:
            (1) The extent to which the administering entities have 
        achieved volume-based discounts similar to the favored price 
        paid by other large purchasers.
            (2) Whether access to the benefits under such program are 
        in fact available to all beneficiaries, with special attention 
        given to access for beneficiaries living in rural and hard-to-
        serve areas.
            (3) The success of such program in reducing medication 
        error and adverse medicine reactions and improving quality of 
        care, and whether it is probable that the program has resulted 
        in savings through reduced hospitalizations and morbidity due 
        to medication errors and adverse medicine reactions.
            (4) Whether patient medical record confidentiality is being 
        maintained and safe-guarded.
            (5) Such other issues as the Comptroller General may 
        consider.
    (b) Reports.--The Comptroller General shall issue such reports on 
the results of the ongoing study described in (a) as the Comptroller 
General shall deem appropriate and shall notify Congress on a timely 
basis of significant problems in the operation of the part D 
prescription medicine program and the need for legislative adjustments 
and improvements.
    (c) Miscellaneous Studies and Reports.--
            (1) Study on methods to encourage additional research on 
        breakthrough pharmaceuticals.--
                    (A) In general.--The Secretary of Health and Human 
                Services shall seek the advice of the Secretary of the 
                Treasury on possible tax and trade law changes to 
                encourage increased original research on new 
                pharmaceutical breakthrough products designed to 
                address disease and illness.
                    (B) Report.--Not later than January 1, 2003, the 
                Secretary shall submit to Congress a report on such 
                study. The report shall include recommended methods to 
                encourage the pharmaceutical industry to devote more 
                resources to research and development of new covered 
                products than it devotes to overhead expenses.
            (2) Study on pharmaceutical sales practices and impact on 
        costs and quality of care.--
                    (A) In general.--The Secretary of Health and Human 
                Services shall conduct a study on the methods used by 
                the pharmaceutical industry to advertise and sell to 
                consumers and educate and sell to providers.
                    (B) Report.--Not later than January 1, 2003, the 
                Secretary shall submit to Congress a report on such 
                study. The report shall include the estimated direct 
                and indirect costs of the sales methods used, the 
                quality of the information conveyed, and whether such 
                sales efforts leads (or could lead) to inappropriate 
                prescribing. Such report may include legislative and 
                regulatory recommendations to encourage more 
                appropriate education and prescribing practices.
            (3) Study on cost of pharmaceutical research.--
                    (A) In general.--The Secretary of Health and Human 
                Services shall conduct a study on the costs of, and 
                needs for, the pharmaceutical research and the role 
                that the taxpayer provides in encouraging such 
                research.
                    (B) Report.--Not later than January 1, 2003, the 
                Secretary shall submit to Congress a report on such 
                study. The report shall include a description of the 
                full-range of taxpayer-assisted programs impacting 
                pharmaceutical research, including tax, trade, 
                government research, and regulatory assistance. The 
                report may also include legislative and regulatory 
                recommendations that are designed to ensure that the 
                taxpayer's investment in pharmaceutical research 
                results in the availability of pharmaceuticals at 
                reasonable prices.
            (4) Report on pharmaceutical prices in major foreign 
        nations.--Not later than January 1, 2003, the Secretary of 
        Health and Human Services shall submit to Congress a report on 
        the retail price of major pharmaceutical products in various 
        developed nations, compared to prices for the same or similar 
        products in the United States. The report shall include a 
        description of the principal reasons for any price differences 
        that may exist.

SEC. 8. MEDIGAP TRANSITION PROVISIONS.

    (a) In General.--Notwithstanding any other provision of law, no new 
medicare supplemental policy that provides coverage of expenses for 
prescription drugs may be issued under section 1882 of the Social 
Security Act on or after January 1, 2003, to an individual unless it 
replaces a medicare supplemental policy that was issued to that 
individual and that provided some coverage of expenses for prescription 
drugs.
    (b) Issuance of Substitute Policies if Obtain Prescription Drug 
Coverage Through Medicare.--
            (1) In general.--The issuer of a medicare supplemental 
        policy--
                    (A) may not deny or condition the issuance or 
                effectiveness of a medicare supplemental policy that 
                has a benefit package classified as ``A'', ``B'', 
                ``C'', ``D'', ``E'', ``F'', or ``G'' (under the 
                standards established under subsection (p)(2) of 
                section 1882 of the Social Security Act, 42 U.S.C. 
                1395ss) and that is offered and is available for 
                issuance to new enrollees by such issuer;
                    (B) may not discriminate in the pricing of such 
                policy, because of health status, claims experience, 
                receipt of health care, or medical condition; and
                    (C) may not impose an exclusion of benefits based 
                on a pre-existing condition under such policy,
        in the case of an individual described in paragraph (2) who 
        seeks to enroll under the policy not later than 63 days after 
        the date of the termination of enrollment described in such 
        paragraph and who submits evidence of the date of termination 
        or disenrollment along with the application for such medicare 
        supplemental policy.
            (2) Individual covered.--An individual described in this 
        paragraph is an individual who--
                    (A) enrolls in a prescription drug plan under part 
                D of title XVIII of the Social Security Act; and
                    (B) at the time of such enrollment was enrolled and 
                terminates enrollment in a medicare supplemental policy 
                which has a benefit package classified as ``H'', ``I'', 
                or ``J'' under the standards referred to in paragraph 
                (1)(A) or terminates enrollment in a policy to which 
                such standards do not apply but which provides benefits 
                for prescription drugs.
            (3) Enforcement.--The provisions of paragraph (1) shall be 
        enforced as though they were included in section 1882(s) of the 
        Social Security Act (42 U.S.C. 1395ss(s)).
            (4) Definitions.--For purposes of this subsection, the term 
        ``medicare supplemental policy'' has the meaning given such 
        term in section 1882(g) of the Social Security Act (42 U.S.C. 
        1395ss(g)).

SEC. 9. OFFSET FOR CATASTROPHIC PRESCRIPTION MEDICINE BENEFIT.

    If the mid-summer 2000 budget estimate prepared by the Director of 
the Congressional Budget Office results in a higher level of projected 
on-budget surplus over the ten-fiscal-year period beginning with fiscal 
year 2001 than projected on-budget surplus in the estimate prepared by 
the Director in March, 2000, there shall be transferred out of any 
moneys in the Treasury not otherwise appropriated in a fiscal year 
(beginning with fiscal year 2003) to the Prescription Medicine 
Insurance Account (created in the Federal Supplemental Medical 
Insurance Trust Fund established by section 1841 of the Social Security 
Act (42 U.S.C. 1395t)) such sums as are necessary to offset the costs 
attributable to the operation of section 1860B(a)(1)(B) of the Social 
Security Act (as added by section 3) (relating to catastrophic benefit 
payment amounts) in that fiscal year.
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