II 

Calendar No. 138

108TH CONGRESS 

1ST SESSION S. 1

To amend title XVIII of the Social Security Act to make improvements 

in the medicare program, to provide prescription drug coverage under 

the medicare program, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JUNE 11, 2003

Mr. FRIST (for himself, Mr. GRASSLEY, and Mr. BAUCUS) introduced the 

following bill; which was read twice and referred to the Committee on Finance 

JUNE 13, 2003

Reported by Mr. GRASSLEY, with an amendment and an amendment to the 

title. 

[Strike out all after the enacting clause and insert the part printed in italic] 

A BILL

To amend title XVIII of the Social Security Act to make 

improvements in the medicare program, to provide prescription drug coverage under the medicare program, 

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE; SENSE OF THE CONGRESS. 

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

3 ‘‘Prescription Drug and Medicare Improvement Act of 

4 2003’’. 

5 (b) SENSE OF THE CONGRESS.—It is the Sense of 

6 the Congress that the Congress should enact, and the 

7 President should sign, legislation to amend title XVIII of 

8 the Social Security Act to make improvements in the 

9 medicare program and to provide prescription drug cov10 erage under the medicare program.

11 SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU12 RITY ACT; REFERENCES TO BIPA AND SEC13 RETARY; TABLE OF CONTENTS. 

14 (a) SHORT TITLE.—This Act may be cited as the ‘‘Pre15 scription Drug and Medicare Improvement Act of 2003’’. 

16 (b) AMENDMENTS TO SOCIAL SECURITY ACT.—Except 

17 as otherwise specifically provided, whenever in this Act an 

18 amendment is expressed in terms of an amendment to or 

19 repeal of a section or other provision, the reference shall 

20 be considered to be made to that section or other provision 

21 of the Social Security Act. 

22 (c) BIPA; SECRETARY.—In this Act: 

23 (1) BIPA.—The term ‘‘BIPA’’ means the Medi24 care, Medicaid, and SCHIP Benefits Improvement 

25 and Protection Act of 2000, as enacted into law by 

26 section 1(a)(6) of Public Law 106–554. 
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1 (2) SECRETARY.—The term ‘‘Secretary’’ means 

2 the Secretary of Health and Human Services. 

3 (d) TABLE OF CONTENTS.—The table of contents of 

4 this Act is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to BIPA and 

Secretary; table of contents. 

TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT 

Subtitle A—Medicare Voluntary Prescription Drug Delivery Program 

Sec. 101. Medicare voluntary prescription drug delivery program. 

‘‘PART D—VOLUNTARY PRESCRIPTION DRUG DELIVERY PROGRAM

‘‘Sec. 1860D. Definitions; treatment of references to provisions in 

MedicareAdvantage program. 

‘‘Subpart 1—Establishment of Voluntary Prescription Drug Delivery Program 

‘‘Sec. 1860D–1. Establishment of voluntary prescription drug delivery program. 

‘‘Sec. 1860D–2. Enrollment under program. 

‘‘Sec. 1860D–3. Election of a Medicare Prescription Drug plan. 

‘‘Sec. 1860D–4. Providing information to beneficiaries. 

‘‘Sec. 1860D–5. Beneficiary protections. 

‘‘Sec. 1860D–6. Prescription drug benefits. 

‘‘Sec. 1860D–7. Requirements for entities offering Medicare Prescription 

Drug plans; establishment of standards. 

‘‘Subpart 2—Prescription Drug Delivery System 

‘‘Sec. 1860D–10. Establishment of service areas. 

‘‘Sec. 1860D–11. Publication of risk adjusters. 

‘‘Sec. 1860D–12. Submission of bids for proposed Medicare Prescription 

Drug plans. 

‘‘Sec. 1860D–13. Approval of proposed Medicare Prescription Drug plans. 

‘‘Sec. 1860D–14. Computation of monthly standard prescription drug coverage premiums. 

‘‘Sec. 1860D–15. Computation of monthly national average premium. 

‘‘Sec. 1860D–16. Payments to eligible entities. 

‘‘Sec. 1860D–17. Computation of monthly beneficiary obligation. 

‘‘Sec. 1860D–18. Collection of monthly beneficiary obligation. 

‘‘Sec. 1860D–19. Premium and cost-sharing subsidies for low-income individuals. 

‘‘Sec. 1860D–20. Reinsurance payments for expenses incurred in providing 

prescription drug coverage above the annual out-of-pocket 

threshold. 

‘‘Sec. 1860D–21. Direct subsidy for sponsor of a qualified retiree prescription drug plan for plan enrollees eligible for, but not enrolled in, this part. 
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‘‘Subpart 3—Miscellaneous Provisions 

‘‘Sec. 1860D–25. Prescription Drug Account in the Federal Supplementary 

Medical Insurance Trust Fund. 

‘‘Sec. 1860D–26. Other related provisions. 

Sec. 102. Study and report on permitting part B only individuals to enroll in 

medicare voluntary prescription drug delivery program. 

Sec. 103. Rules relating to medigap policies that provide prescription drug coverage. 

Sec. 104. Medicaid and other amendments related to low-income beneficiaries. 

Sec. 105. Expansion of membership and duties of Medicare Payment Advisory 

Commission (MedPAC). 

Sec. 106. Study regarding variations in spending and drug utilization. 

Subtitle B—Medicare Prescription Drug Discount Card and Transitional 

Assistance for Low-Income Beneficiaries 

Sec. 111. Medicare prescription drug discount card and transitional assistance 

for low-income beneficiaries. 

Subtitle C—Standards for Electronic Prescribing 

Sec. 121. Standards for electronic prescribing. 

Subtitle D—Other Provisions 

Sec. 131. Additional requirements for annual financial report and oversight on 

medicare program. 

Sec. 132. Trustees’ report on medicare’s unfunded obligations. 

TITLE II—MEDICAREADVANTAGE 

Subtitle A—MedicareAdvantage Competition 

Sec. 201. Eligibility, election, and enrollment. 

Sec. 202. Benefits and beneficiary protections. 

Sec. 203. Payments to MedicareAdvantage organizations. 

Sec. 204. Submission of bids; premiums. 

Sec. 205. Special rules for prescription drug benefits. 

Sec. 206. Facilitating employer participation. 

Sec. 207. Administration by the Center for Medicare Choices. 

Sec. 208. Conforming amendments. 

Sec. 209. Effective date. 

Subtitle B—Preferred Provider Organizations 

Sec. 211. Establishment of MedicareAdvantage preferred provider program option. 

Subtitle C—Other Managed Care Reforms 

Sec. 221. Extension of reasonable cost contracts. 

Sec. 222. Specialized Medicare+Choice plans for special needs beneficiaries. 

Sec. 223. Payment by PACE providers for medicare and medicaid services furnished by noncontract providers. 

Sec. 224. Institute of Medicine evaluation and report on health care performance 

measures.
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Sec. 225. Expanding the work of medicare quality improvement organizations to 

include parts C and D. 

TITLE III—CENTER FOR MEDICARE CHOICES 

Sec. 301. Establishment of the Center for Medicare Choices. 

Sec. 302. Miscellaneous administrative provisions. 

TITLE IV—MEDICARE FEE-FOR-SERVICE IMPROVEMENTS 

Subtitle A—Provisions Relating to Part A 

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

medicare inpatient hospital prospective payment system. 

Sec. 402. Adjustment to the medicare inpatient hospital PPS wage index to revise 

the labor-related share of such index. 

Sec. 403. Medicare inpatient hospital payment adjustment for low-volume hospitals. 

Sec. 404. Fairness in the medicare disproportionate share hospital (DSH) adjustment for rural hospitals. 

Sec. 405. Critical access hospital (CAH) improvements. 

Sec. 406. Authorizing use of arrangements to provide core hospice services in certain circumstances. 

Sec. 407. Services provided to hospice patients by nurse practitioners, clinical 

nurse specialists, and physician assistants. 

Sec. 408. Authority to include costs of training of psychologists in payments to 

hospitals under medicare. 

Sec. 409. Revision of Federal rate for hospitals in Puerto Rico. 

Sec. 410. Authority regarding geriatric fellowships. 

Sec. 411. Clarification of congressional intent regarding the counting of residents 

in a nonprovider setting and a technical amendment regarding 

the 3-year rolling average and the IME ratio. 

Sec. 412. Limitation on charges for inpatient hospital contract health services 

provided to Indians by medicare participating hospitals. 

Sec. 413. GAO study and report on appropriateness of payments under the prospective payment system for inpatient hospital services. 

Subtitle B—Provisions Relating to Part B 

Sec. 421. Establishment of floor on geographic adjustments of payments for physicians’ services. 

Sec. 422. Medicare incentive payment program improvements. 

Sec. 423. Increase in renal dialysis composite rate. 

Sec. 424. Extension of hold harmless provisions for small rural hospitals and 

treatment of certain sole community hospitals to limit decline in 

payment under the OPD PPS. 

Sec. 425. Increase in payments for certain services furnished by small rural and 

sole community hospitals under medicare prospective payment 

system for hospital outpatient department services. 

Sec. 426. Increase for ground ambulance services furnished in a rural area. 

Sec. 427. Ensuring appropriate coverage of air ambulance services under ambulance fee schedule. 

Sec. 428. Treatment of certain clinical diagnostic laboratory tests furnished by a 

sole community hospital. 

Sec. 429. Improvement in rural health clinic reimbursement. 

Sec. 430. Elimination of consolidated billing for certain services under the medicare PPS for skilled nursing facility services. 
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Sec. 431. Freeze in payments for certain items of durable medical equipment and 

certain orthotics; establishment of quality standards and accreditation requirements for DME providers. 

Sec. 432. Application of coinsurance and deductible for clinical diagnostic laboratory tests. 

Sec. 433. Basing medicare payments for covered outpatient drugs on market 

prices. 

Sec. 434. Indexing part B deductible to inflation. 

Sec. 435. Revisions to reassignment provisions. 

Sec. 436. Extension of treatment of certain physician pathology services under 

medicare. 

Sec. 437. Treatment of pass-through drugs and the prospective payment system 

for hospital outpatient department services. 

Sec. 438. Limitation of application of functional equivalence standard. 

Sec. 439. Medicare coverage of routine costs associated with certain clinical trials. 

Sec. 440. Waiver of part B late enrollment penalty for certain military retirees; 

special enrollment period. 

Sec. 441. Demonstration of coverage of chiropractic services under medicare. 

Sec. 442. Medicare health care quality demonstration programs. 

Sec. 443. Medicare complex clinical care management payment demonstration. 

Sec. 444. Medicare fee-for-service care coordination demonstration program. 

Sec. 445. GAO study of geographic differences in payments for physicians’ services. 

Subtitle C—Provisions Relating to Parts A and B 

Sec. 451. Increase for home health services furnished in a rural area. 

Sec. 452. Limitation on reduction in area wage adjustment factors under the prospective payment system for home health services. 

Sec. 453. Exception to physician referral limitation for certain transfers from 

specialty hospitals to general hospitals. 

Sec. 454. Demonstration program for substitute adult day services. 

TITLE V—MEDICARE APPEALS, REGULATORY, AND CONTRACTING 

IMPROVEMENTS 

Subtitle A—Regulatory Reform 

Sec. 501. Rules for the publication of a final regulation based on the previous 

publication of an interim final regulation. 

Sec. 502. Compliance with changes in regulations and policies. 

Sec. 503. Report on legal and regulatory inconsistencies. 

Subtitle B—Appeals Process Reform 

Sec. 511. Submission of plan for transfer of responsibility for medicare appeals. 

Sec. 512. Expedited access to judicial review. 

Sec. 513. Expedited review of certain provider agreement determinations. 

Sec. 514. Revisions to medicare appeals process. 

Sec. 515. Hearing rights related to decisions by the Secretary to deny or not 

renew a medicare enrollment agreement; consultation before 

changing provider enrollment forms. 

Sec. 516. Appeals by providers when there is no other party available. 

Sec. 517. Provider access to review of local coverage determinations. 
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Subtitle C—Contracting Reform 

Sec. 521. Increased flexibility in medicare administration. 

Subtitle D—Education and Outreach Improvements 

Sec. 531. Provider education and technical assistance. 

Sec. 532. Access to and prompt responses from medicare contractors. 

Sec. 533. Reliance on guidance. 

Sec. 534. Medicare provider ombudsman. 

Sec. 535. Beneficiary outreach demonstration programs. 

Subtitle E—Review, Recovery, and Enforcement Reform 

Sec. 541. Prepayment review. 

Sec. 542. Recovery of overpayments. 

Sec. 543. Process for correction of minor errors and omissions on claims without 

pursuing appeals process. 

Sec. 544. Authority to waive a program exclusion. 

TITLE VI—OTHER PROVISIONS 

Sec. 601. Increase in medicaid DSH allotments for fiscal years 2004 and 2005. 

Sec. 602. Increase in floor for treatment as an extremely low DSH State under 

the medicaid program for fiscal years 2004 and 2005. 

Sec. 603. Increased reporting requirements to ensure the appropriateness of payment adjustments to disproportionate share hospitals under the 

medicaid program. 

Sec. 604. Clarification of inclusion of inpatient drug prices charged to certain 

public hospitals in the best price exemptions for the medicaid 

drug rebate program. 

Sec. 605. Assistance with coverage of legal immigrants under the medicaid program and SCHIP. 

Sec. 606. Establishment of consumer ombudsman account. 

Sec. 607. GAO study regarding impact of assets test for low-income beneficiaries. 

Sec. 608. Health care infrastructure improvement. 

Sec. 609. Capital infrastructure revolving loan program. 

Sec. 610. Federal reimbursement of emergency health services furnished to undocumented aliens. 

Sec. 611. Increase in appropriation to the health care fraud and abuse control 

account. 

Sec. 612. Increase in civil penalties under the False Claims Act. 

Sec. 613. Increase in civil monetary penalties under the Social Security Act. 

Sec. 614. Extension of customs user fees.
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1 TITLE I—MEDICARE 

2 PRESCRIPTION DRUG BENEFIT 

3 Subtitle A—Medicare Voluntary 

4 Prescription Drug Delivery Pro5 gram 

6 SEC. 101. MEDICARE VOLUNTARY PRESCRIPTION DRUG DE7 LIVERY PROGRAM. 

8 (a) ESTABLISHMENT.—Title XVIII (42 U.S.C. 1395 et 

9 seq.) is amended by redesignating part D as part E and 

10 by inserting after part C the following new part: 

11 ‘‘PART D—VOLUNTARY PRESCRIPTION DRUG DELIVERY

12 PROGRAM

13 ‘‘DEFINITIONS; TREATMENT OF REFERENCES TO

14 PROVISIONS IN MEDICAREADVANTAGE PROGRAM

15 ‘‘SEC. 1860D. (a) DEFINITIONS.—In this part: 

16 ‘‘(1) ADMINISTRATOR.—The term ‘Adminis17 trator’ means the Administrator of the Center for 

18 Medicare Choices as established under section 1808. 

19 ‘‘(2) COVERED DRUG.—

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

21 subparagraphs (B), (C), and (D), the term ‘cov22 ered drug’ means—

23 ‘‘(i) a drug that may be dispensed only 

24 upon a prescription and that is described in 
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1 clause (i) or (ii) of subparagraph (A) of sec2 tion 1927(k)(2); or 

3 ‘‘(ii) a biological product described in 

4 clauses (i) through (iii) of subparagraph 

5 (B) of such section; or 

6 ‘‘(iii) insulin described in subpara7 graph (C) of such section; 

8 and such term includes a vaccine licensed under 

9 section 351 of the Public Health Service Act and 

10 any use of a covered drug for a medically accept11 ed indication (as defined in section 1927(k)(6)). 

12 ‘‘(B) EXCLUSIONS.—

13 ‘‘(i) IN GENERAL.—The term ‘covered 

14 drug’ does not include drugs or classes of 

15 drugs, or their medical uses, which may be 

16 excluded from coverage or otherwise re17 stricted under section 1927(d)(2), other than 

18 subparagraph (E) thereof (relating to smok19 ing cessation agents), or under section 

20 1927(d)(3). 

21 ‘‘(ii) AVOIDANCE OF DUPLICATE COV22 ERAGE.—A drug prescribed for an indi23 vidual that would otherwise be a covered 

24 drug under this part shall not be so consid25 ered if payment for such drug is available 
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1 under part A or B, but shall be so consid2 ered if such payment is not available under 

3 part A or B or because benefits under such 

4 parts have been exhausted. 

5 ‘‘(C) APPLICATION OF FORMULARY RESTRIC6 TIONS.—A drug prescribed for an individual 

7 that would otherwise be a covered drug under 

8 this part shall not be so considered under a plan 

9 if the plan excludes the drug under a formulary 

10 and such exclusion is not successfully resolved 

11 under subsection (d) or (e)(2) of section 1860D–

12 5. 

13 ‘‘(D) APPLICATION OF GENERAL EXCLUSION

14 PROVISIONS.—A Medicare Prescription Drug 

15 plan or a MedicareAdvantage plan may exclude 

16 from qualified prescription drug coverage any 

17 covered drug—

18 ‘‘(i) for which payment would not be 

19 made if section 1862(a) applied to part D; 

20 or 

21 ‘‘(ii) which are not prescribed in ac22 cordance with the plan or this part. 

23 Such exclusions are determinations subject to re24 consideration and appeal pursuant to section 

25 1860D–5(e).
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1 ‘‘(3) ELIGIBLE BENEFICIARY.—The term ‘eligible 

2 beneficiary’ means an individual who is entitled to, 

3 or enrolled for, benefits under part A and enrolled 

4 under part B (other than a dual eligible individual, 

5 as defined in section 1860D–19(a)(4)(E)). 

6 ‘‘(4) ELIGIBLE ENTITY.—The term ‘eligible enti7 ty’ means any risk-bearing entity that the Adminis8 trator determines to be appropriate to provide eligible 

9 beneficiaries with the benefits under a Medicare Pre10 scription Drug plan, including—

11 ‘‘(A) a pharmaceutical benefit management 

12 company; 

13 ‘‘(B) a wholesale or retail pharmacist deliv14 ery system; 

15 ‘‘(C) an insurer (including an insurer that 

16 offers medicare supplemental policies under sec17 tion 1882); 

18 ‘‘(D) any other risk-bearing entity; or 

19 ‘‘(E) any combination of the entities de20 scribed in subparagraphs (A) through (D). 

21 ‘‘(5) INITIAL COVERAGE LIMIT.—The term ‘ini22 tial coverage limit’ means the limit as established 

23 under section 1860D–6(c)(3), or, in the case of cov24 erage that is not standard prescription drug coverage, 
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1 the comparable limit (if any) established under the 

2 coverage. 

3 ‘‘(6) MEDICAREADVANTAGE ORGANIZATION; 

4 MEDICAREADVANTAGE PLAN.—The terms 

5 ‘MedicareAdvantage organization’ and 

6 ‘MedicareAdvantage plan’ have the meanings given 

7 such terms in subsections (a)(1) and (b)(1), respec8 tively, of section 1859 (relating to definitions relating 

9 to MedicareAdvantage organizations). 

10 ‘‘(7) MEDICARE PRESCRIPTION DRUG PLAN.—

11 The term ‘Medicare Prescription Drug plan’ means 

12 prescription drug coverage that is offered under a pol13 icy, contract, or plan—

14 ‘‘(A) that has been approved under section 

15 1860D–13; and 

16 ‘‘(B) by an eligible entity pursuant to, and 

17 in accordance with, a contract between the Ad18 ministrator and the entity under section 1860D–

19 7(b). 

20 ‘‘(8) PRESCRIPTION DRUG ACCOUNT.—The term 

21 ‘Prescription Drug Account’ means the Prescription 

22 Drug Account (as established under section 1860D–

23 25) in the Federal Supplementary Medical Insurance 

24 Trust Fund under section 1841. 
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1 ‘‘(9) QUALIFIED PRESCRIPTION DRUG COV2 ERAGE.—The term ‘qualified prescription drug cov3 erage’ means the coverage described in section 1860D–

4 6(a)(1). 

5 ‘‘(10) STANDARD PRESCRIPTION DRUG COV6 ERAGE.—The term ‘standard prescription drug cov7 erage’ means the coverage described in section 1860D–

8 6(c). 

9 ‘‘(b) APPLICATION OF MEDICAREADVANTAGE PROVI10 SIONS UNDER THIS PART.—For purposes of applying pro11 visions of part C under this part with respect to a Medicare 

12 Prescription Drug plan and an eligible entity, unless other13 wise provided in this part such provisions shall be applied 

14 as if—

15 ‘‘(1) any reference to a MedicareAdvantage plan 

16 included a reference to a Medicare Prescription Drug 

17 plan; 

18 ‘‘(2) any reference to a provider-sponsored orga19 nization included a reference to an eligible entity; 

20 ‘‘(3) any reference to a contract under section 

21 1857 included a reference to a contract under section 

22 1860D–7(b); and 

23 ‘‘(4) any reference to part C included a reference 

24 to this part. 
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1 ‘‘Subpart 1—Establishment of Voluntary Prescription 

2 Drug Delivery Program 

3 ‘‘ESTABLISHMENT OF VOLUNTARY PRESCRIPTION DRUG

4 DELIVERY PROGRAM

5 ‘‘SEC. 1860D–1. (a) PROVISION OF BENEFIT.—

6 ‘‘(1) IN GENERAL.—The Administrator shall pro7 vide for and administer a voluntary prescription 

8 drug delivery program under which each eligible bene9 ficiary enrolled under this part shall be provided with 

10 access to qualified prescription drug coverage as fol11 lows: 

12 ‘‘(A) MEDICAREADVANTAGE ENROLLEES RE13 CEIVE COVERAGE THROUGH

14 MEDICAREADVANTAGE PLAN.—

15 ‘‘(i) IN GENERAL.—Except as provided 

16 in clause (ii), an eligible beneficiary who is 

17 enrolled under this part and enrolled in a 

18 MedicareAdvantage plan offered by a 

19 MedicareAdvantage organization shall re20 ceive coverage of benefits under this part 

21 through such plan. 

22 ‘‘(ii) EXCEPTION FOR ENROLLEES IN

23 MEDICAREADVANTAGE MSA PLANS.—An eli24 gible beneficiary who is enrolled under this 

25 part and enrolled in an MSA plan under 
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1 part C shall receive coverage of benefits 

2 under this part through enrollment in a 

3 Medicare Prescription Drug plan that is of4 fered in the geographic area in which the 

5 beneficiary resides. For purposes of this 

6 part, the term ‘MSA plan’ has the meaning 

7 given such term in section 1859(b)(3). 

8 ‘‘(iii) EXCEPTION FOR ENROLLEES IN

9 MEDICAREADVANTAGE PRIVATE FEE-FOR10 SERVICE PLANS.—An eligible beneficiary 

11 who is enrolled under this part and enrolled 

12 in a private fee-for-service plan under part 

13 C shall—

14 ‘‘(i) receive benefits under this 

15 part through such plan if the plan pro16 vides qualified prescription drug cov17 erage; and 

18 ‘‘(ii) if the plan does not provide 

19 qualified prescription drug coverage, 

20 receive coverage of benefits under this 

21 part through enrollment in a Medicare 

22 Prescription Drug plan that is offered 

23 in the geographic area in which the 

24 beneficiary resides. For purposes of 

25 this part, the term ‘private fee-for-serv-
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1 ice plan’ has the meaning given such 

2 term in section 1859(b)(2). 

3 ‘‘(B) FEE-FOR-SERVICE ENROLLEES RE4 CEIVE COVERAGE THROUGH A MEDICARE PRE5 SCRIPTION DRUG PLAN.—An eligible beneficiary 

6 who is enrolled under this part but is not en7 rolled in a MedicareAdvantage plan (except for 

8 an MSA plan or a private fee-for-service plan 

9 that does not provide qualified prescription drug 

10 coverage) shall receive coverage of benefits under 

11 this part through enrollment in a Medicare Pre12 scription Drug plan that is offered in the geo13 graphic area in which the beneficiary resides. 

14 ‘‘(2) VOLUNTARY NATURE OF PROGRAM.—Noth15 ing in this part shall be construed as requiring an el16 igible beneficiary to enroll in the program under this 

17 part. 

18 ‘‘(3) SCOPE OF BENEFITS.—Pursuant to section 

19 1860D–6(b)(3)(C), the program established under this 

20 part shall provide for coverage of all therapeutic cat21 egories and classes of covered drugs (although not nec22 essarily for all drugs within such categories and class23 es). 

24 ‘‘(4) PROGRAM TO BEGIN IN 2006.—The Adminis25 trator shall establish the program under this part in
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1 a manner so that benefits are first provided beginning 

2 on January 1, 2006. 

3 ‘‘(b) ACCESS TO ALTERNATIVE PRESCRIPTION DRUG

4 COVERAGE.—In the case of an eligible beneficiary who has 

5 creditable prescription drug coverage (as defined in section 

6 1860D–2(b)(1)(F)), such beneficiary—

7 ‘‘(1) may continue to receive such coverage and 

8 not enroll under this part; and 

9 ‘‘(2) pursuant to section 1860D–2(b)(1)(C), is 

10 permitted to subsequently enroll under this part with11 out any penalty and obtain access to qualified pre12 scription drug coverage in the manner described in 

13 subsection (a) if the beneficiary involuntarily loses 

14 such coverage. 

15 ‘‘(c) FINANCING.—The costs of providing benefits 

16 under this part shall be payable from the Prescription Drug 

17 Account. 

18 ‘‘ENROLLMENT UNDER PROGRAM

19 ‘‘SEC. 1860D–2. (a) ESTABLISHMENT OF ENROLL20 MENT PROCESS.—

21 ‘‘(1) PROCESS SIMILAR TO PART B ENROLL22 MENT.—The Administrator shall establish a process 

23 through which an eligible beneficiary (including an 

24 eligible beneficiary enrolled in a MedicareAdvantage 

25 plan offered by a MedicareAdvantage organization) 

26 may make an election to enroll under this part. Such 
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1 process shall be similar to the process for enrollment 

2 in part B under section 1837, including the deeming 

3 provisions of such section. 

4 ‘‘(2) CONDITION OF ENROLLMENT.—An eligible 

5 beneficiary must be enrolled under this part in order 

6 to be eligible to receive access to qualified prescription 

7 drug coverage. 

8 ‘‘(b) SPECIAL ENROLLMENT PROCEDURES.—

9 ‘‘(1) LATE ENROLLMENT PENALTY.—

10 ‘‘(A) INCREASE IN MONTHLY BENEFICIARY

11 OBLIGATION.—Subject to the succeeding provi12 sions of this paragraph, in the case of an eligible 

13 beneficiary whose coverage period under this 

14 part began pursuant to an enrollment after the 

15 beneficiary’s initial enrollment period under 

16 part B (determined pursuant to section 1837(d)) 

17 and not pursuant to the open enrollment period 

18 described in paragraph (2), the Administrator 

19 shall establish procedures for increasing the 

20 amount of the monthly beneficiary obligation 

21 under section 1860D–17 applicable to such bene22 ficiary by an amount that the Administrator de23 termines is actuarially sound for each full 12-

24 month period (in the same continuous period of 

25 eligibility) in which the eligible beneficiary could 
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1 have been enrolled under this part but was not 

2 so enrolled. 

3 ‘‘(B) PERIODS TAKEN INTO ACCOUNT.—For 

4 purposes of calculating any 12-month period 

5 under subparagraph (A), there shall be taken 

6 into account—

7 ‘‘(i) the months which elapsed between 

8 the close of the eligible beneficiary’s initial 

9 enrollment period and the close of the en10 rollment period in which the beneficiary en11 rolled; and 

12 ‘‘(ii) in the case of an eligible bene13 ficiary who reenrolls under this part, the 

14 months which elapsed between the date of 

15 termination of a previous coverage period 

16 and the close of the enrollment period in 

17 which the beneficiary reenrolled. 

18 ‘‘(C) PERIODS NOT TAKEN INTO ACCOUNT.—

19 ‘‘(i) IN GENERAL.—For purposes of 

20 calculating any 12-month period under sub21 paragraph (A), subject to clause (ii), there 

22 shall not be taken into account months for 

23 which the eligible beneficiary can dem24 onstrate that the beneficiary had creditable 
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1 prescription drug coverage (as defined in 

2 subparagraph (F)). 

3 ‘‘(ii) BENEFICIARY MUST INVOLUN4 TARILY LOSE COVERAGE.—Clause (i) shall 

5 only apply with respect to coverage—

6 ‘‘(I) in the case of coverage de7 scribed in clause (ii) of subparagraph 

8 (F), if the plan terminates, ceases to 

9 provide, or reduces the value of the pre10 scription drug coverage under such 

11 plan to below the actuarial value of 

12 standard prescription drug coverage 

13 (as determined under section 1860D–

14 6(f)); 

15 ‘‘(II) in the case of coverage de16 scribed in clause (i), (iii), or (iv) of 

17 subparagraph (F), if the beneficiary is 

18 involuntarily disenrolled or becomes 

19 ineligible for such coverage; or 

20 ‘‘(III) in the case of a beneficiary 

21 with coverage described in clause (v) of 

22 subparagraph (F), if the issuer of the 

23 policy terminates coverage under the 

24 policy. 
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1 ‘‘(D) PERIODS TREATED SEPARATELY.—

2 Any increase in an eligible beneficiary’s monthly 

3 beneficiary obligation under subparagraph (A) 

4 with respect to a particular continuous period of 

5 eligibility shall not be applicable with respect to 

6 any other continuous period of eligibility which 

7 the beneficiary may have. 

8 ‘‘(E) CONTINUOUS PERIOD OF ELIGI9 BILITY.—

10 ‘‘(i) IN GENERAL.—Subject to clause 

11 (ii), for purposes of this paragraph, an eli12 gible beneficiary’s ‘continuous period of eli13 gibility’ is the period that begins with the 

14 first day on which the beneficiary is eligible 

15 to enroll under section 1836 and ends with 

16 the beneficiary’s death. 

17 ‘‘(ii) SEPARATE PERIOD.—Any period 

18 during all of which an eligible beneficiary 

19 satisfied paragraph (1) of section 1836 and 

20 which terminated in or before the month 

21 preceding the month in which the bene22 ficiary attained age 65 shall be a separate 

23 ‘continuous period of eligibility’ with re24 spect to the beneficiary (and each such pe25 riod which terminates shall be deemed not 
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1 to have existed for purposes of subsequently 

2 applying this paragraph). 

3 ‘‘(F) CREDITABLE PRESCRIPTION DRUG

4 COVERAGE DEFINED.—Subject to subparagraph 

5 (G), for purposes of this part, the term ‘cred6 itable prescription drug coverage’ means any of 

7 the following: 

8 ‘‘(i) DRUG-ONLY COVERAGE UNDER

9 MEDICAID.—Coverage of covered outpatient 

10 drugs (as defined in section 1927) under 

11 title XIX or a waiver under 1115 that is 

12 provided to an individual who is not a dual 

13 eligible individual (as defined in section 

14 1860D–19(a)(4)(E)). 

15 ‘‘(ii) PRESCRIPTION DRUG COVERAGE

16 UNDER A GROUP HEALTH PLAN.—Any out17 patient prescription drug coverage under a 

18 group health plan, including a health bene19 fits plan under chapter 89 of title 5, United 

20 States Code (commonly known as the Fed21 eral employees health benefits program), 

22 and a qualified retiree prescription drug 

23 plan (as defined in section 1860D–

24 20(e)(4)).
23

•S 1 RS 

1 ‘‘(iii) STATE PHARMACEUTICAL AS2 SISTANCE PROGRAM.—Coverage of prescrip3 tion drugs under a State pharmaceutical 

4 assistance program. 

5 ‘‘(iv) VETERANS’ COVERAGE OF PRE6 SCRIPTION DRUGS.—Coverage of prescrip7 tion drugs for veterans, and survivors and 

8 dependents of veterans, under chapter 17 of 

9 title 38, United States Code. 

10 ‘‘(v) PRESCRIPTION DRUG COVERAGE

11 UNDER MEDIGAP POLICIES.—Coverage 

12 under a medicare supplemental policy 

13 under section 1882 that provides benefits for 

14 prescription drugs (whether or not such cov15 erage conforms to the standards for pack16 ages of benefits under section 1882(p)(1)). 

17 ‘‘(G) REQUIREMENT FOR CREDITABLE COV18 ERAGE.—Coverage described in clauses (i) 

19 through (v) of subparagraph (F) shall not be 

20 considered to be creditable coverage under this 

21 part unless the coverage provides coverage of the 

22 cost of prescription drugs the actuarial value of 

23 which (as defined by the Administrator) to the 

24 beneficiary equals or exceeds the actuarial value 
24

•S 1 RS 

1 of standard prescription drug coverage (as deter2 mined under section 1860D–6(f)). 

3 ‘‘(H) DISCLOSURE.—

4 ‘‘(i) IN GENERAL.—Each entity that 

5 offers coverage of the type described in 

6 clause (ii) (iii), (iv), or (v) of subparagraph 

7 (F) shall provide for disclosure, consistent 

8 with standards established by the Adminis9 trator, of whether the coverage provides cov10 erage of the cost of prescription drugs the 

11 actuarial value of which (as defined by the 

12 Administrator) to the beneficiary equals or 

13 exceeds the actuarial value of standard pre14 scription drug coverage (as determined 

15 under section 1860D–6(f)). 

16 ‘‘(ii) WAIVER OF LIMITATIONS.—An 

17 individual may apply to the Administrator 

18 to waive the application of subparagraph 

19 (G) if the individual establishes that the in20 dividual was not adequately informed that 

21 the coverage the beneficiary was enrolled in 

22 did not provide the level of benefits required 

23 in order for the coverage to be considered 

24 creditable coverage under subparagraph (F). 

25 ‘‘(2) INITIAL ELECTION PERIODS.—
25

•S 1 RS 

1 ‘‘(A) OPEN ENROLLMENT PERIOD FOR CUR2 RENT BENEFICIARIES IN WHICH LATE ENROLL3 MENT PROCEDURES DO NOT APPLY.—In the case 

4 of an individual who is an eligible beneficiary as 

5 of November 1, 2005, there shall be an open en6 rollment period of 6 months beginning on that 

7 date under which such beneficiary may enroll 

8 under this part without the application of the 

9 late enrollment procedures established under 

10 paragraph (1)(A). 

11 ‘‘(B) INDIVIDUAL COVERED IN FUTURE.—In 

12 the case of an individual who becomes an eligible 

13 beneficiary after such date, there shall be an ini14 tial election period which is the same as the ini15 tial enrollment period under section 1837(d). 

16 ‘‘(3) SPECIAL ENROLLMENT PERIOD FOR BENE17 FICIARIES WHO INVOLUNTARILY LOSE CREDITABLE

18 PRESCRIPTION DRUG COVERAGE.—

19 ‘‘(A) ESTABLISHMENT.—The Administrator 

20 shall establish a special open enrollment period 

21 (as described in subparagraph (B)) for an eligi22 ble beneficiary that loses creditable prescription 

23 drug coverage. 

24 ‘‘(B) SPECIAL OPEN ENROLLMENT PE25 RIOD.—The special open enrollment period de-
26

•S 1 RS 

1 scribed in this subparagraph is the 63-day pe2 riod that begins on—

3 ‘‘(i) in the case of a beneficiary with 

4 coverage described in clause (ii) of para5 graph (1)(F), the later of the date on which 

6 the plan terminates, ceases to provide, or 

7 substantially reduces (as defined by the Ad8 ministrator) the value of the prescription 

9 drug coverage under such plan or the date 

10 the beneficiary is provided with notice of 

11 such termination or reduction; 

12 ‘‘(ii) in the case of a beneficiary with 

13 coverage described in clause (i), (iii), or (iv) 

14 of paragraph (1)(F), the later of the date on 

15 which the beneficiary is involuntarily 

16 disenrolled or becomes ineligible for such 

17 coverage or the date the beneficiary is pro18 vided with notice of such loss of eligibility; 

19 or 

20 ‘‘(iii) in the case of a beneficiary with 

21 coverage described in clause (v) of para22 graph (1)(F), the latter of the date on which 

23 the issuer of the policy terminates coverage 

24 under the policy or the date the beneficiary 

25 is provided with notice of such termination. 
27

•S 1 RS 

1 ‘‘(c) PERIOD OF COVERAGE.—

2 ‘‘(1) IN GENERAL.—Except as provided in para3 graph (2) and subject to paragraph (3), an eligible 

4 beneficiary’s coverage under the program under this 

5 part shall be effective for the period provided in sec6 tion 1838, as if that section applied to the program 

7 under this part. 

8 ‘‘(2) OPEN AND SPECIAL ENROLLMENT.—

9 ‘‘(A) OPEN ENROLLMENT.—An eligible bene10 ficiary who enrolls under the program under this 

11 part pursuant to subsection (b)(2) shall be enti12 tled to the benefits under this part beginning on 

13 January 1, 2006. 

14 ‘‘(B) SPECIAL ENROLLMENT.—Subject to 

15 paragraph (3), an eligible beneficiary who en16 rolls under the program under this part pursu17 ant to subsection (b)(3) shall be entitled to the 

18 benefits under this part beginning on the first 

19 day of the month following the month in which 

20 such enrollment occurs. 

21 ‘‘(3) LIMITATION.—Coverage under this part 

22 shall not begin prior to January 1, 2006. 

23 ‘‘(d) TERMINATION.—
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•S 1 RS 

1 ‘‘(1) IN GENERAL.—The causes of termination 

2 specified in section 1838 shall apply to this part in 

3 the same manner as such causes apply to part B. 

4 ‘‘(2) COVERAGE TERMINATED BY TERMINATION

5 OF COVERAGE UNDER PART A OR B.—

6 ‘‘(A) IN GENERAL.—In addition to the 

7 causes of termination specified in paragraph (1), 

8 the Administrator shall terminate an individ9 ual’s coverage under this part if the individual 

10 is no longer enrolled in both parts A and B. 

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

12 described in subparagraph (A) shall be effective 

13 on the effective date of termination of coverage 

14 under part A or (if earlier) under part B. 

15 ‘‘(3) PROCEDURES REGARDING TERMINATION OF

16 A BENEFICIARY UNDER A PLAN.—The Administrator 

17 shall establish procedures for determining the status of 

18 an eligible beneficiary’s enrollment under this part if 

19 the beneficiary’s enrollment in a Medicare Prescrip20 tion Drug plan offered by an eligible entity under 

21 this part is terminated by the entity for cause (pursu22 ant to procedures established by the Administrator 

23 under section 1860D–3(a)(1)). 

24 ‘‘ELECTION OF A MEDICARE PRESCRIPTION DRUG PLAN

25 ‘‘SEC. 1860D–3. (a) IN GENERAL.—

26 ‘‘(1) PROCESS.—
29

•S 1 RS 

1 ‘‘(A) ELECTION.—

2 ‘‘(i) IN GENERAL.—The Administrator 

3 shall establish a process through which an 

4 eligible beneficiary who is enrolled under 

5 this part but not enrolled in a 

6 MedicareAdvantage plan (except for an 

7 MSA plan or a private fee-for-service plan 

8 that does not provide qualified prescription 

9 drug coverage) offered by a 

10 MedicareAdvantage organization—

11 ‘‘(I) shall make an election to en12 roll in any Medicare Prescription 

13 Drug plan that is offered by an eligible 

14 entity and that serves the geographic 

15 area in which the beneficiary resides; 

16 and 

17 ‘‘(II) may make an annual elec18 tion to change the election under this 

19 clause. 

20 ‘‘(ii) CLARIFICATION REGARDING EN21 ROLLMENT.—The process established under 

22 clause (i) shall include, in the case of an el23 igible beneficiary who is enrolled under this 

24 part but who has failed to make an election 

25 of a Medicare Prescription Drug plan in an 
30

•S 1 RS 

1 area, for the enrollment in any Medicare 

2 Prescription Drug plan that has been des3 ignated by the Administrator in the area. 

4 The Administrator shall establish a process 

5 for designating a plan or plans in order to 

6 carry out the preceding sentence. 

7 ‘‘(B) REQUIREMENTS FOR PROCESS.—In es8 tablishing the process under subparagraph (A), 

9 the Administrator shall—

10 ‘‘(i) use rules similar to the rules for 

11 enrollment, disenrollment, and termination 

12 of enrollment with a MedicareAdvantage 

13 plan under section 1851, including—

14 ‘‘(I) the establishment of special 

15 election periods under subsection (e)(4) 

16 of such section; and 

17 ‘‘(II) the application of the guar18 anteed issue and renewal provisions of 

19 section 1851(g) (other than clause (i) 

20 and the second sentence of clause (ii) of 

21 paragraph (3)(C), relating to default 

22 enrollment); and 

23 ‘‘(ii) coordinate enrollments, 

24 disenrollments, and terminations of enroll25 ment under part C with enrollments, 
31

•S 1 RS 

1 disenrollments, and terminations of enroll2 ment under this part. 

3 ‘‘(2) FIRST ENROLLMENT PERIOD FOR PLAN EN4 ROLLMENT.—The process developed under paragraph 

5 (1) shall ensure that eligible beneficiaries who enroll 

6 under this part during the open enrollment period 

7 under section 1860D–2(b)(2) are permitted to elect an 

8 eligible entity prior to January 1, 2006, in order to 

9 ensure that coverage under this part is effective as of 

10 such date. 

11 ‘‘(b) ENROLLMENT IN A MEDICAREADVANTAGE

12 PLAN.—

13 ‘‘(1) IN GENERAL.—An eligible beneficiary who 

14 is enrolled under this part and enrolled in a 

15 MedicareAdvantage plan (except for an MSA plan or 

16 a private fee-for-service plan that does not provide 

17 qualified prescription drug coverage) offered by a 

18 MedicareAdvantage organization shall receive access 

19 to such coverage under this part through such plan. 

20 ‘‘(2) RULES.—Enrollment in a 

21 MedicareAdvantage plan is subject to the rules for en22 rollment in such plan under section 1851. 

23 ‘‘PROVIDING INFORMATION TO BENEFICIARIES

24 ‘‘SEC. 1860D–4. (a) ACTIVITIES.—

25 ‘‘(1) IN GENERAL.—The Administrator shall con26 duct activities that are designed to broadly dissemi-
32

•S 1 RS 

1 nate information to eligible beneficiaries (and pro2 spective eligible beneficiaries) regarding the coverage 

3 provided under this part. 

4 ‘‘(2) SPECIAL RULE FOR FIRST ENROLLMENT

5 UNDER THE PROGRAM.—The activities described in 

6 paragraph (1) shall ensure that eligible beneficiaries 

7 are provided with such information at least 30 days 

8 prior to the first enrollment period described in sec9 tion 1860D–3(a)(2). 

10 ‘‘(b) REQUIREMENTS.—

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

12 subsection (a) shall—

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

14 by the Administrator under section 1851(d); 

15 ‘‘(B) be coordinated with the activities per16 formed by—

17 ‘‘(i) the Administrator under such sec18 tion; and 

19 ‘‘(ii) the Secretary under section 1804; 

20 and 

21 ‘‘(C) provide for the dissemination of infor22 mation comparing the plans offered by eligible 

23 entities under this part that are available to eli24 gible beneficiaries residing in an area. 
33

•S 1 RS 

1 ‘‘(2) COMPARATIVE INFORMATION.—The com2 parative information described in paragraph (1)(C) 

3 shall include a comparison of the following: 

4 ‘‘(A) BENEFITS.—The benefits provided 

5 under the plan and the formularies and griev6 ance and appeals processes under the plan. 

7 ‘‘(B) MONTHLY BENEFICIARY OBLIGA8 TION.—The monthly beneficiary obligation under 

9 the plan. 

10 ‘‘(C) QUALITY AND PERFORMANCE.—The 

11 quality and performance of the eligible entity of12 fering the plan. 

13 ‘‘(D) BENEFICIARY COST-SHARING.—The 

14 cost-sharing required of eligible beneficiaries 

15 under the plan. 

16 ‘‘(E) CONSUMER SATISFACTION SURVEYS.—

17 The results of consumer satisfaction surveys re18 garding the plan and the eligible entity offering 

19 such plan (conducted pursuant to section 

20 1860D–5(h). 

21 ‘‘(F) ADDITIONAL INFORMATION.—Such ad22 ditional information as the Administrator may 

23 prescribe. 

24 ‘‘BENEFICIARY PROTECTIONS

25 ‘‘SEC. 1860D–5. (a) DISSEMINATION OF INFORMA26 TION.—
34

•S 1 RS 

1 ‘‘(1) GENERAL INFORMATION.—An eligible entity 

2 offering a Medicare Prescription Drug plan shall dis3 close, in a clear, accurate, and standardized form to 

4 each enrollee at the time of enrollment, and at least 

5 annually thereafter, the information described in sec6 tion 1852(c)(1) relating to such plan. Such informa7 tion includes the following: 

8 ‘‘(A) Access to covered drugs, including ac9 cess through pharmacy networks. 

10 ‘‘(B) How any formulary used by the entity 

11 functions. 

12 ‘‘(C) Copayments, coinsurance, and deduct13 ible requirements. 

14 ‘‘(D) Grievance and appeals processes. 

15 The information described in the preceding sentence 

16 shall also be made available on request to prospective 

17 enrollees during open enrollment periods. 

18 ‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL

19 COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA20 TION.—Upon request of an individual eligible to en21 roll in a Medicare Prescription Drug plan, the eligi22 ble entity offering such plan shall provide informa23 tion similar (as determined by the Administrator) to 

24 the information described in subparagraphs (A), (B), 

25 and (C) of section 1852(c)(2) to such individual.
35

•S 1 RS 

1 ‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—

2 An eligible entity offering a Medicare Prescription 

3 Drug plan shall have a mechanism for providing on 

4 a timely basis specific information to enrollees upon 

5 request, including information on the coverage of spe6 cific drugs and changes in its formulary. 

7 ‘‘(4) CLAIMS INFORMATION.—An eligible entity 

8 offering a Medicare Prescription Drug plan must fur9 nish to enrolled individuals in a form easily under10 standable to such individuals—

11 ‘‘(A) an explanation of benefits (in accord12 ance with section 1806(a) or in a comparable 

13 manner); and 

14 ‘‘(B) when prescription drug benefits are 

15 provided under this part, a notice of the benefits 

16 in relation to the initial coverage limit and an17 nual out-of-pocket limit for the current year (ex18 cept that such notice need not be provided more 

19 often than monthly). 

20 ‘‘(5) APPROVAL OF MARKETING MATERIAL AND

21 APPLICATION FORMS.—The provisions of section 

22 1851(h) shall apply to marketing material and appli23 cation forms under this part in the same manner as 

24 such provisions apply to marketing material and ap25 plication forms under part C. 
36

•S 1 RS 

1 ‘‘(b) ACCESS TO COVERED DRUGS.—

2 ‘‘(1) ACCESS TO NEGOTIATED PRICES FOR PRE3 SCRIPTION DRUGS.—An eligible entity offering a 

4 Medicare Prescription Drug plan shall have in place 

5 procedures to ensure that beneficiaries are not charged 

6 more than the negotiated price of a covered drug. 

7 Such procedures shall include the issuance of a card 

8 (or other technology) that may be used by an enrolled 

9 beneficiary for the purchase of prescription drugs for 

10 which coverage is not otherwise provided under the 

11 Medicare Prescription Drug plan. 

12 ‘‘(2) ASSURING PHARMACY ACCESS.—

13 ‘‘(A) IN GENERAL.—An eligible entity offer14 ing a Medicare Prescription Drug plan shall se15 cure the participation in its network of a suffi16 cient number of pharmacies that dispense (other 

17 than by mail order) drugs directly to patients to 

18 ensure convenient access (as determined by the 

19 Administrator and including adequate emer20 gency access) for enrolled beneficiaries, in ac21 cordance with standards established by the Ad22 ministrator under section 1860D–7(g) that en23 sure such convenient access. Such standards shall 

24 take into account reasonable distances to phar25 macy services in both urban and rural areas. 
37

•S 1 RS 

1 ‘‘(B) USE OF POINT-OF-SERVICE SYSTEM.—

2 An eligible entity offering a Medicare Prescrip3 tion Drug plan shall establish an optional point4 of-service method of operation under which—

5 ‘‘(i) the plan provides access to any or 

6 all pharmacies that are not participating 

7 pharmacies in its network; and 

8 ‘‘(ii) the plan may charge beneficiaries 

9 through adjustments in copayments any ad10 ditional costs associated with the point-of11 service option. 

12 The additional copayments so charged shall not 

13 count toward the application of section 1860D–

14 6(c). 

15 ‘‘(3) REQUIREMENTS ON DEVELOPMENT AND AP16 PLICATION OF FORMULARIES.—If an eligible entity of17 fering a Medicare Prescription Drug plan uses a for18 mulary, the following requirements must be met: 

19 ‘‘(A) PHARMACY AND THERAPEUTIC (P&T)

20 COMMITTEE.—

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

22 must establish a pharmacy and therapeutic 

23 committee that develops and reviews the for24 mulary. 
38

•S 1 RS 

1 ‘‘(ii) COMPOSITION.—A pharmacy and 

2 therapeutic committee shall include at least 

3 1 academic expert, at least 1 practicing 

4 physician, and at least 1 practicing phar5 macist, all of whom have expertise in the 

6 care of elderly or disabled persons, and a 

7 majority of the members of such committee 

8 shall consist of individuals who are a prac9 ticing physician or a practicing pharmacist 

10 (or both). 

11 ‘‘(B) FORMULARY DEVELOPMENT.—In de12 veloping and reviewing the formulary, the com13 mittee shall base clinical decisions on the 

14 strength of scientific evidence and standards of 

15 practice, including assessing peer-reviewed med16 ical literature, such as randomized clinical 

17 trials, pharmacoeconomic studies, outcomes re18 search data, and such other information as the 

19 committee determines to be appropriate. 

20 ‘‘(C) INCLUSION OF DRUGS IN ALL THERA21 PEUTIC CATEGORIES AND CLASSES.—

22 ‘‘(i) IN GENERAL.—The formulary 

23 must include drugs within each therapeutic 

24 category and class of covered drugs (as de25 fined by the Administrator), although not 
39

•S 1 RS 

1 necessarily for all drugs within such cat2 egories and classes. 

3 ‘‘(ii) REQUIREMENT.—In defining 

4 therapeutic categories and classes of covered 

5 drugs pursuant to clause (i), the Adminis6 trator shall use—

7 ‘‘(I) the compendia referred to sec8 tion 1927(g)(1)(B)(i); and 

9 ‘‘(II) other recognized sources of 

10 drug classifications and categorizations 

11 determined appropriate by the Admin12 istrator. 

13 ‘‘(D) PROVIDER EDUCATION.—The com14 mittee shall establish policies and procedures to 

15 educate and inform health care providers con16 cerning the formulary. 

17 ‘‘(E) NOTICE BEFORE REMOVING DRUGS

18 FROM FORMULARY.—Any removal of a drug from 

19 a formulary shall take effect only after appro20 priate notice is made available to beneficiaries, 

21 physicians, and pharmacists. 

22 ‘‘(F) APPEALS AND EXCEPTIONS TO APPLI23 CATION.—The eligible entity must have, as part 

24 of the appeals process under subsection (e), a 
40

•S 1 RS 

1 process for timely appeals for denials of coverage 

2 based on such application of the formulary. 

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

4 ASSURANCE; MEDICATION THERAPY MANAGEMENT PRO5 GRAM.—

6 ‘‘(1) IN GENERAL.—An eligible entity shall have 

7 in place the following with respect to covered drugs: 

8 ‘‘(A) A cost-effective drug utilization man9 agement program, including incentives to reduce 

10 costs when appropriate. 

11 ‘‘(B) Quality assurance measures to reduce 

12 medical errors and adverse drug interactions 

13 and to improve medication use, which—

14 ‘‘(i) shall include a medication therapy 

15 management program described in para16 graph (2); and 

17 ‘‘(ii) may include beneficiary edu18 cation programs, counseling, medication re19 fill reminders, and special packaging. 

20 ‘‘(C) A program to control fraud, abuse, 

21 and waste. 

22 Nothing in this section shall be construed as impair23 ing an eligible entity from applying cost management 

24 tools (including differential payments) under all 

25 methods of operation.
41

•S 1 RS 

1 ‘‘(2) MEDICATION THERAPY MANAGEMENT PRO2 GRAM.—

3 ‘‘(A) IN GENERAL.—A medication therapy 

4 management program described in this para5 graph is a program of drug therapy management 

6 and medication administration that is designed 

7 to assure, with respect to beneficiaries with 

8 chronic diseases (such as diabetes, asthma, hy9 pertension, hyperlipidemia, and congestive heart 

10 failure) or multiple prescriptions, that covered 

11 drugs under the Medicare Prescription Drug 

12 plan are appropriately used to optimize thera13 peutic outcomes through improved medication 

14 use and to achieve therapeutic goals and reduce 

15 the risk of adverse events, including adverse drug 

16 interactions. 

17 ‘‘(B) ELEMENTS.—Such program may in18 clude—

19 ‘‘(i) enhanced beneficiary under20 standing of such appropriate use through 

21 beneficiary education, counseling, and other 

22 appropriate means; 

23 ‘‘(ii) increased beneficiary adherence 

24 with prescription medication regimens 

25 through medication refill reminders, special 
42

•S 1 RS 

1 packaging, and other appropriate means; 

2 and 

3 ‘‘(iii) detection of patterns of overuse 

4 and underuse of prescription drugs. 

5 ‘‘(C) DEVELOPMENT OF PROGRAM IN CO6 OPERATION WITH LICENSED PHARMACISTS.—The 

7 program shall be developed in cooperation with 

8 licensed and practicing pharmacists and physi9 cians. 

10 ‘‘(D) CONSIDERATIONS IN PHARMACY

11 FEES.—The eligible entity offering a Medicare 

12 Prescription Drug plan shall take into account, 

13 in establishing fees for pharmacists and others 

14 providing services under the medication therapy 

15 management program, the resources and time 

16 used in implementing the program. 

17 ‘‘(3) PUBLIC DISCLOSURE OF PHARMACEUTICAL

18 PRICES FOR EQUIVALENT DRUGS.—The eligible entity 

19 offering a Medicare Prescription Drug plan shall pro20 vide that each pharmacy or other dispenser that ar21 ranges for the dispensing of a covered drug shall in22 form the beneficiary at the time of purchase of the 

23 drug of any differential between the price of the pre24 scribed drug to the enrollee and the price of the lowest 
43

•S 1 RS 

1 cost generic drug covered under the plan that is thera2 peutically equivalent and bioequivalent. 

3 ‘‘(d) GRIEVANCE MECHANISM, COVERAGE DETERMINA4 TIONS, AND RECONSIDERATIONS.—

5 ‘‘(1) IN GENERAL.—An eligible entity shall pro6 vide meaningful procedures for hearing and resolving 

7 grievances between the eligible entity (including any 

8 entity or individual through which the eligible entity 

9 provides covered benefits) and enrollees with Medicare 

10 Prescription Drug plans of the eligible entity under 

11 this part in accordance with section 1852(f). 

12 ‘‘(2) APPLICATION OF COVERAGE DETERMINA13 TION AND RECONSIDERATION PROVISIONS.—The re14 quirements of paragraphs (1) through (3) of section 

15 1852(g) shall apply to an eligible entity with respect 

16 to covered benefits under the Medicare Prescription 

17 Drug plan it offers under this part in the same man18 ner as such requirements apply to a 

19 MedicareAdvantage organization with respect to bene20 fits it offers under a MedicareAdvantage plan under 

21 part C. 

22 ‘‘(3) REQUEST FOR REVIEW OF TIERED FOR23 MULARY DETERMINATIONS.—In the case of a Medicare 

24 Prescription Drug plan offered by an eligible entity 

25 that provides for tiered cost-sharing for drugs in-
44

•S 1 RS 

1 cluded within a formulary and provides lower cost2 sharing for preferred drugs included within the for3 mulary, an individual who is enrolled in the plan 

4 may request coverage of a nonpreferred drug under 

5 the terms applicable for preferred drugs if the pre6 scribing physician determines that the preferred drug 

7 for treatment of the same condition is not as effective 

8 for the individual or has adverse effects for the indi9 vidual. 

10 ‘‘(e) APPEALS.—

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

12 requirements of paragraphs (4) and (5) of section 

13 1852(g) shall apply to an eligible entity with respect 

14 to drugs not included on any formulary in a manner 

15 that is similar (as determined by the Administrator) 

16 to the manner that such requirements apply to a 

17 MedicareAdvantage organization with respect to bene18 fits it offers under a MedicareAdvantage plan under 

19 part C. 

20 ‘‘(2) FORMULARY DETERMINATIONS.—An indi21 vidual who is enrolled in a Medicare Prescription 

22 Drug plan offered by an eligible entity may appeal 

23 to obtain coverage for a covered drug that is not on 

24 a formulary of the entity under the terms applicable 

25 for a formulary drug if the prescribing physician de-
45

•S 1 RS 

1 termines that the formulary drug for treatment of the 

2 same condition is not as effective for the individual 

3 or has adverse effects for the individual. 

4 ‘‘(f) PRIVACY, CONFIDENTIALITY, AND ACCURACY OF

5 ENROLLEE RECORDS.—Insofar as an eligible entity main6 tains individually identifiable medical records or other 

7 health information regarding eligible beneficiaries enrolled 

8 in the Medicare Prescription Drug plan offered by the enti9 ty, the entity shall have in place procedures to—

10 ‘‘(1) safeguard the privacy of any individually 

11 identifiable beneficiary information in a manner con12 sistent with the Federal regulations (concerning the 

13 privacy of individually identifiable health informa14 tion) promulgated under section 264(c) of the Health 

15 Insurance Portability and Accountability Act of 1996; 

16 ‘‘(2) maintain such records and information in 

17 a manner that is accurate and timely; 

18 ‘‘(3) ensure timely access by such beneficiaries to 

19 such records and information; and 

20 ‘‘(4) otherwise comply with applicable laws re21 lating to patient privacy and confidentiality. 

22 ‘‘(g) UNIFORM MONTHLY PLAN PREMIUM.—An eligible 

23 entity shall ensure that the monthly plan premium for a 

24 Medicare Prescription Drug plan charged under this part 

25 is the same for all eligible beneficiaries enrolled in the plan.
46

•S 1 RS 

1 ‘‘(h) CONSUMER SATISFACTION SURVEYS.—An eligible 

2 entity shall conduct consumer satisfaction surveys with re3 spect to the plan and the entity. The Administrator shall 

4 establish uniform requirements for such surveys. 

5 ‘‘PRESCRIPTION DRUG BENEFITS

6 ‘‘SEC. 1860D–6. (a) REQUIREMENTS.—

7 ‘‘(1) IN GENERAL.—For purposes of this part 

8 and part C, the term ‘qualified prescription drug cov9 erage’ means either of the following: 

10 ‘‘(A) STANDARD PRESCRIPTION DRUG COV11 ERAGE WITH ACCESS TO NEGOTIATED PRICES.—

12 Standard prescription drug coverage (as defined 

13 in subsection (c)) and access to negotiated prices 

14 under subsection (e). 

15 ‘‘(B) ACTUARIALLY EQUIVALENT PRESCRIP16 TION DRUG COVERAGE WITH ACCESS TO NEGO17 TIATED PRICES.—Coverage of covered drugs 

18 which meets the alternative coverage require19 ments of subsection (d) and access to negotiated 

20 prices under subsection (e), but only if it is ap21 proved by the Administrator as provided under 

22 subsection (d). 

23 ‘‘(2) PERMITTING ADDITIONAL PRESCRIPTION

24 DRUG COVERAGE.—

25 ‘‘(A) IN GENERAL.—Subject to subpara26 graph (B) and section 1860D–13(c)(2), nothing 
47

•S 1 RS 

1 in this part shall be construed as preventing 

2 qualified prescription drug coverage from includ3 ing coverage of covered drugs that exceeds the 

4 coverage required under paragraph (1). 

5 ‘‘(B) REQUIREMENT.—An eligible entity 

6 may not offer a Medicare Prescription Drug 

7 plan that provides additional benefits pursuant 

8 to subparagraph (A) in an area unless the eligi9 ble entity offering such plan also offers a Medi10 care Prescription Drug plan in the area that 

11 only provides the coverage of prescription drugs 

12 that is required under paragraph (1). 

13 ‘‘(3) COST CONTROL MECHANISMS.—In pro14 viding qualified prescription drug coverage, the entity 

15 offering the Medicare Prescription Drug plan or the 

16 MedicareAdvantage plan may use a variety of cost 

17 control mechanisms, including the use of formularies, 

18 tiered copayments, selective contracting with pro19 viders of prescription drugs, and mail order phar20 macies. 

21 ‘‘(b) APPLICATION OF SECONDARY PAYOR PROVI22 SIONS.—The provisions of section 1852(a)(4) shall apply 

23 under this part in the same manner as they apply under 

24 part C. 
48

•S 1 RS 

1 ‘‘(c) STANDARD PRESCRIPTION DRUG COVERAGE.—

2 For purposes of this part and part C, the term ‘standard 

3 prescription drug coverage’ means coverage of covered drugs 

4 that meets the following requirements: 

5 ‘‘(1) DEDUCTIBLE.—

6 ‘‘(A) IN GENERAL.—The coverage has an 

7 annual deductible—

8 ‘‘(i) for 2006, that is equal to $275; or 

9 ‘‘(ii) for a subsequent year, that is 

10 equal to the amount specified under this 

11 paragraph for the previous year increased 

12 by the percentage specified in paragraph (5) 

13 for the year involved. 

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

15 under subparagraph (A)(ii) that is not a mul16 tiple of $1 shall be rounded to the nearest mul17 tiple of $1. 

18 ‘‘(2) LIMITS ON COST-SHARING.—The coverage 

19 has cost-sharing (for costs above the annual deductible 

20 specified in paragraph (1) and up to the initial cov21 erage limit under paragraph (3)) that is equal to 50 

22 percent or that is actuarially consistent (using proc23 esses established under subsection (f)) with an average 

24 expected payment of 50 percent of such costs. 

25 ‘‘(3) INITIAL COVERAGE LIMIT.—
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1 ‘‘(A) IN GENERAL.—Subject to paragraph 

2 (4), the coverage has an initial coverage limit on 

3 the maximum costs that may be recognized for 

4 payment purposes (including the annual deduct5 ible)—

6 ‘‘(i) for 2006, that is equal to $4,500; 

7 or 

8 ‘‘(ii) for a subsequent year, that is 

9 equal to the amount specified in this para10 graph for the previous year, increased by 

11 the annual percentage increase described in 

12 paragraph (5) for the year involved. 

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

14 under subparagraph (A)(ii) that is not a mul15 tiple of $1 shall be rounded to the nearest mul16 tiple of $1. 

17 ‘‘(4) LIMITATION ON OUT-OF-POCKET EXPENDI18 TURES BY BENEFICIARY.—

19 ‘‘(A) IN GENERAL.—The coverage provides 

20 benefits with cost-sharing that is equal to 10 per21 cent after the individual has incurred costs (as 

22 described in subparagraph (C)) for covered drugs 

23 in a year equal to the annual out-of-pocket limit 

24 specified in subparagraph (B). 

25 ‘‘(B) ANNUAL OUT-OF-POCKET LIMIT.—
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1 ‘‘(i) IN GENERAL.—For purposes of 

2 this part, the ‘annual out-of-pocket limit’ 

3 specified in this subparagraph—

4 ‘‘(I) for 2006, is equal to $3,700; 

5 or 

6 ‘‘(II) for a subsequent year, is 

7 equal to the amount specified in this 

8 subparagraph for the previous year, 

9 increased by the annual percentage in10 crease described in paragraph (5) for 

11 the year involved. 

12 ‘‘(ii) ROUNDING.—Any amount deter13 mined under clause (i)(II) that is not a 

14 multiple of $1 shall be rounded to the near15 est multiple of $1. 

16 ‘‘(C) APPLICATION.—In applying subpara17 graph (A)—

18 ‘‘(i) incurred costs shall only include 

19 costs incurred, with respect to covered 

20 drugs, for the annual deductible (described 

21 in paragraph (1)), cost-sharing (described 

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

23 benefits are not provided because of the ap24 plication of the initial coverage limit de25 scribed in paragraph (3) (including costs 
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1 incurred for covered drugs described in sec2 tion 1860D(a)(2)(C)); and 

3 ‘‘(ii) such costs shall be treated as in4 curred only if they are paid by the indi5 vidual (or by another individual, such as a 

6 family member, on behalf of the individual), 

7 under section 1860D–19, under title XIX, 

8 or under a State pharmaceutical assistance 

9 program and the individual (or other indi10 vidual) is not reimbursed through insurance 

11 or otherwise, a group health plan, or other 

12 third-party payment arrangement for such 

13 costs. 

14 ‘‘(5) ANNUAL PERCENTAGE INCREASE.—For pur15 poses of this part, the annual percentage increase 

16 specified in this paragraph for a year is equal to the 

17 annual percentage increase in average per capita ag18 gregate expenditures for covered drugs in the United 

19 States for beneficiaries under this title, as determined 

20 by the Administrator for the 12-month period ending 

21 in July of the previous year. 

22 ‘‘(d) ALTERNATIVE COVERAGE REQUIREMENTS.—A 

23 Medicare Prescription Drug plan or MedicareAdvantage 

24 plan may provide a different prescription drug benefit de25 sign from the standard prescription drug coverage described 
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1 in subsection (c) so long as the Administrator determines 

2 (based on an actuarial analysis by the Administrator) that 

3 the following requirements are met and the plan applies 

4 for, and receives, the approval of the Administrator for such 

5 benefit design: 

6 ‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIVA7 LENT PRESCRIPTION DRUG COVERAGE.—

8 ‘‘(A) ASSURING EQUIVALENT VALUE OF

9 TOTAL COVERAGE.—The actuarial value of the 

10 total coverage (as determined under subsection 

11 (f)) is at least equal to the actuarial value (as 

12 so determined) of standard prescription drug 

13 coverage. 

14 ‘‘(B) ASSURING EQUIVALENT UNSUBSIDIZED

15 VALUE OF COVERAGE.—The unsubsidized value 

16 of the coverage is at least equal to the unsub17 sidized value of standard prescription drug cov18 erage. For purposes of this subparagraph, the 

19 unsubsidized value of coverage is the amount by 

20 which the actuarial value of the coverage (as de21 termined under subsection (f)) exceeds the actu22 arial value of the amounts associated with the 

23 application of section 1860D–17(c) and reinsur24 ance payments under section 1860D–20 with re25 spect to such coverage.
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1 ‘‘(C) ASSURING STANDARD PAYMENT FOR

2 COSTS AT INITIAL COVERAGE LIMIT.—The cov3 erage is designed, based upon an actuarially rep4 resentative pattern of utilization (as determined 

5 under subsection (f)), to provide for the payment, 

6 with respect to costs incurred that are equal to 

7 the initial coverage limit under subsection (c)(3), 

8 of an amount equal to at least the product of—

9 ‘‘(i) such initial coverage limit minus 

10 the deductible under subsection (c)(1); and 

11 ‘‘(ii) the percentage specified in sub12 section (c)(2). 

13 Benefits other than qualified prescription drug cov14 erage shall not be taken into account for purposes of 

15 this paragraph. 

16 ‘‘(2) DEDUCTIBLE AND LIMITATION ON OUT-OF17 POCKET EXPENDITURES BY BENEFICIARIES MAY NOT

18 VARY.—The coverage may not vary the deductible 

19 under subsection (c)(1) for the year or the limitation 

20 on out-of-pocket expenditures by beneficiaries de21 scribed in subsection (c)(4) for the year. 

22 ‘‘(e) ACCESS TO NEGOTIATED PRICES.—

23 ‘‘(1) ACCESS.—

24 ‘‘(A) IN GENERAL.—Under qualified pre25 scription drug coverage offered by an eligible en-
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1 tity or a MedicareAdvantage organization, the 

2 entity or organization shall provide beneficiaries 

3 with access to negotiated prices used for payment 

4 for covered drugs, regardless of the fact that no 

5 benefits may be payable under the coverage with 

6 respect to such drugs because of the application 

7 of the deductible, any cost-sharing, or an initial 

8 coverage limit (described in subsection (c)(3)). 

9 For purposes of this part, the term ‘negotiated 

10 prices’ includes all discounts, direct or indirect 

11 subsidies, rebates, or other price concessions or 

12 direct or indirect remunerations. 

13 ‘‘(B) MEDICAID RELATED PROVISIONS.—In14 sofar as a State elects to provide medical assist15 ance under title XIX for a drug based on the 

16 prices negotiated under a Medicare Prescription 

17 Drug plan under this part, the requirements of 

18 section 1927 shall not apply to such drugs. The 

19 prices negotiated under a Medicare Prescription 

20 Drug plan with respect to covered drugs, under 

21 a MedicareAdvantage plan with respect to such 

22 drugs, or under a qualified retiree prescription 

23 drug plan (as defined in section 1860D–20(e)(4)) 

24 with respect to such drugs, on behalf of eligible 

25 beneficiaries, shall (notwithstanding any other 
55

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1 provision of law) not be taken into account for 

2 the purposes of establishing the best price under 

3 section 1927(c)(1)(C). 

4 ‘‘(2) CARDS OR OTHER TECHNOLOGY.—

5 ‘‘(A) IN GENERAL.—In providing the access 

6 under paragraph (1), the eligible entity or 

7 MedicareAdvantage organization shall issue a 

8 card or use other technology pursuant to section 

9 1860D–5(b)(1). 

10 ‘‘(B) NATIONAL STANDARDS.—

11 ‘‘(i) DEVELOPMENT.—The Adminis12 trator shall provide for the development of 

13 national standards relating to a standard14 ized format for the card or other technology 

15 required under subparagraph (A). Such 

16 standards shall be compatible with parts C 

17 and D of title XI and may be based on 

18 standards developed by an appropriate 

19 standard setting organization. 

20 ‘‘(ii) CONSULTATION.—In developing 

21 the standards under clause (i), the Adminis22 trator shall consult with the National Coun23 cil for Prescription Drug Programs and 

24 other standard-setting organizations deter25 mined appropriate by the Administrator. 
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1 ‘‘(iii) IMPLEMENTATION.—The Admin2 istrator shall implement the standards de3 veloped under clause (i) by January 1, 

4 2008. 

5 ‘‘(f) ACTUARIAL VALUATION; DETERMINATION OF AN6 NUAL PERCENTAGE INCREASES.—

7 ‘‘(1) PROCESSES.—For purposes of this section, 

8 the Administrator shall establish processes and meth9 ods—

10 ‘‘(A) for determining the actuarial valu11 ation of prescription drug coverage, including—

12 ‘‘(i) an actuarial valuation of standard 

13 prescription drug coverage and of the rein14 surance payments under section 1860D–20; 

15 ‘‘(ii) the use of generally accepted actu16 arial principles and methodologies; and 

17 ‘‘(iii) applying the same methodology 

18 for determinations of alternative coverage 

19 under subsection (d) as is used with respect 

20 to determinations of standard prescription 

21 drug coverage under subsection (c); and 

22 ‘‘(B) for determining annual percentage in23 creases described in subsection (c)(5). 

24 ‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the 

25 processes under paragraph (1)(A), eligible entities 
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1 and MedicareAdvantage organizations may use actu2 arial opinions certified by independent, qualified ac3 tuaries to establish actuarial values, but the Adminis4 trator shall determine whether such actuarial values 

5 meet the requirements under subsection (c)(1). 

6 ‘‘REQUIREMENTS FOR ENTITIES OFFERING MEDICARE PRE7 SCRIPTION DRUG PLANS; ESTABLISHMENT OF STAND8 ARDS

9 ‘‘SEC. 1860D–7. (a) GENERAL REQUIREMENTS.—An 

10 eligible entity offering a Medicare Prescription Drug plan 

11 shall meet the following requirements: 

12 ‘‘(1) LICENSURE.—Subject to subsection (c), the 

13 entity is organized and licensed under State law as 

14 a risk-bearing entity eligible to offer health insurance 

15 or health benefits coverage in each State in which it 

16 offers a Medicare Prescription Drug plan. 

17 ‘‘(2) ASSUMPTION OF FINANCIAL RISK.—

18 ‘‘(A) IN GENERAL.—Subject to subpara19 graph (B) and subsections (d)(2) and (e) of sec20 tion 1860D–13, to the extent that the entity is at 

21 risk pursuant to such section 1860D–16, the en22 tity assumes financial risk on a prospective basis 

23 for the benefits that it offers under a Medicare 

24 Prescription Drug plan and that is not covered 

25 under section 1860D–20. 
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1 ‘‘(B) REINSURANCE PERMITTED.—To the 

2 extent that the entity is at risk pursuant to sec3 tion 1860D–16, the entity may obtain insurance 

4 or make other arrangements for the cost of cov5 erage provided to any enrolled member under 

6 this part. 

7 ‘‘(3) SOLVENCY FOR UNLICENSED ENTITIES.—In 

8 the case of an eligible entity that is not described in 

9 paragraph (1) and for which a waiver has been ap10 proved under subsection (c), such entity shall meet 

11 solvency standards established by the Administrator 

12 under subsection (d). 

13 ‘‘(b) CONTRACT REQUIREMENTS.—The Administrator 

14 shall not permit an eligible beneficiary to elect a Medicare 

15 Prescription Drug plan offered by an eligible entity under 

16 this part, and the entity shall not be eligible for payments 

17 under section 1860D–16 or 1860D–20, unless the Adminis18 trator has entered into a contract under this subsection with 

19 the entity with respect to the offering of such plan. Such 

20 a contract with an entity may cover more than 1 Medicare 

21 Prescription Drug plan. Such contract shall provide that 

22 the entity agrees to comply with the applicable requirements 

23 and standards of this part and the terms and conditions 

24 of payment as provided for in this part.
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1 ‘‘(c) WAIVER OF CERTAIN REQUIREMENTS IN ORDER

2 TO ENSURE BENEFICIARY CHOICE.—

3 ‘‘(1) IN GENERAL.—In the case of an eligible en4 tity that seeks to offer a Medicare Prescription Drug 

5 plan in a State, the Administrator shall waive the re6 quirement of subsection (a)(1) that the entity be li7 censed in that State if the Administrator determines, 

8 based on the application and other evidence presented 

9 to the Administrator, that any of the grounds for ap10 proval of the application described in paragraph (2) 

11 have been met. 

12 ‘‘(2) GROUNDS FOR APPROVAL.—The grounds for 

13 approval under this paragraph are the grounds for 

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

15 (D) of section 1855(a)(2), and also include the appli16 cation by a State of any grounds other than those re17 quired under Federal law. 

18 ‘‘(3) APPLICATION OF WAIVER PROCEDURES.—

19 With respect to an application for a waiver (or a 

20 waiver granted) under this subsection, the provisions 

21 of subparagraphs (E), (F), and (G) of section 

22 1855(a)(2) shall apply. 

23 ‘‘(4) REFERENCES TO CERTAIN PROVISIONS.—

24 For purposes of this subsection, in applying the pro25 visions of section 1855(a)(2) under this subsection to 
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1 Medicare Prescription Drug plans and eligible enti2 ties—

3 ‘‘(A) any reference to a waiver application 

4 under section 1855 shall be treated as a reference 

5 to a waiver application under paragraph (1); 

6 and 

7 ‘‘(B) any reference to solvency standards 

8 were treated as a reference to solvency standards 

9 established under subsection (d). 

10 ‘‘(d) SOLVENCY STANDARDS FOR NON-LICENSED ENTI11 TIES.—

12 ‘‘(1) ESTABLISHMENT AND PUBLICATION.—The 

13 Administrator, in consultation with the National As14 sociation of Insurance Commissioners, shall establish 

15 and publish, by not later than January 1, 2005, fi16 nancial solvency and capital adequacy standards for 

17 entities described in paragraph (2). 

18 ‘‘(2) COMPLIANCE WITH STANDARDS.—An eligi19 ble entity that is not licensed by a State under sub20 section (a)(1) and for which a waiver application has 

21 been approved under subsection (c) shall meet sol22 vency and capital adequacy standards established 

23 under paragraph (1). The Administrator shall estab24 lish certification procedures for such eligible entities 
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1 with respect to such solvency standards in the manner 

2 described in section 1855(c)(2). 

3 ‘‘(e) LICENSURE DOES NOT SUBSTITUTE FOR OR CON4 STITUTE CERTIFICATION.—The fact that an entity is li5 censed in accordance with subsection (a)(1) or has a waiver 

6 application approved under subsection (c) does not deem 

7 the eligible entity to meet other requirements imposed under 

8 this part for an eligible entity. 

9 ‘‘(f) INCORPORATION OF CERTAIN

10 MEDICAREADVANTAGE CONTRACT REQUIREMENTS.—The 

11 following provisions of section 1857 shall apply, subject to 

12 subsection (c)(4), to contracts under this section in the same 

13 manner as they apply to contracts under section 1857(a): 

14 ‘‘(1) PROTECTIONS AGAINST FRAUD AND BENE15 FICIARY PROTECTIONS.—Section 1857(d). 

16 ‘‘(2) INTERMEDIATE SANCTIONS.—Section 

17 1857(g), except that in applying such section—

18 ‘‘(A) the reference in section 1857(g)(1)(B) 

19 to section 1854 is deemed a reference to this 

20 part; and 

21 ‘‘(B) the reference in section 1857(g)(1)(F) 

22 to section 1852(k)(2)(A)(ii) shall not be applied. 

23 ‘‘(3) PROCEDURES FOR TERMINATION.—Section 

24 1857(h). 
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1 ‘‘(g) OTHER STANDARDS.—The Administrator shall 

2 establish by regulation other standards (not described in 

3 subsection (d)) for eligible entities and Medicare Prescrip4 tion Drug plans consistent with, and to carry out, this part. 

5 The Administrator shall publish such regulations by Janu6 ary 1, 2005. 

7 ‘‘(h) PERIODIC REVIEW AND REVISION OF STAND8 ARDS.—

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

10 Administrator shall periodically review the standards 

11 established under this section and, based on such re12 view, may revise such standards if the Administrator 

13 determines such revision to be appropriate. 

14 ‘‘(2) PROHIBITION OF MIDYEAR IMPLEMENTA15 TION OF SIGNIFICANT NEW REGULATORY REQUIRE16 MENTS.—The Administrator may not implement, 

17 other than at the beginning of a calendar year, regu18 lations under this section that impose new, signifi19 cant regulatory requirements on an eligible entity or 

20 a Medicare Prescription Drug plan. 

21 ‘‘(h) RELATION TO STATE LAWS.—

22 ‘‘(1) IN GENERAL.—The standards established 

23 under this part shall supersede any State law or reg24 ulation (including standards described in paragraph 

25 (2)) with respect to Medicare Prescription Drug plans 
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1 which are offered by eligible entities under this 

2 part—

3 ‘‘(A) to the extent such law or regulation is 

4 inconsistent with such standards; and 

5 ‘‘(B) in the same manner as such laws and 

6 regulations are superseded under section 

7 1856(b)(3). 

8 ‘‘(2) STANDARDS SPECIFICALLY SUPERSEDED.—

9 State standards relating to the following are super10 seded under this section: 

11 ‘‘(A) Benefit requirements, including re12 quirements relating to cost-sharing and the 

13 structure of formularies. 

14 ‘‘(B) Premiums. 

15 ‘‘(C) Requirements relating to inclusion or 

16 treatment of providers. 

17 ‘‘(D) Coverage determinations (including 

18 related appeals and grievance processes). 

19 ‘‘(E) Requirements relating to marketing 

20 materials and summaries and schedules of bene21 fits regarding a Medicare Prescription Drug 

22 plan. 

23 ‘‘(3) PROHIBITION OF STATE IMPOSITION OF

24 PREMIUM TAXES.—No State may impose a premium 

25 tax or similar tax with respect to—
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1 ‘‘(A) monthly beneficiary obligations paid 

2 to the Administrator for Medicare Prescription 

3 Drug plans under this part; or 

4 ‘‘(B) any payments made by the Adminis5 trator under this part to an eligible entity offer6 ing such a plan. 

7 ‘‘Subpart 2—Prescription Drug Delivery System 

8 ‘‘ESTABLISHMENT OF SERVICE AREAS

9 ‘‘SEC. 1860D–10. (a) ESTABLISHMENT.—

10 ‘‘(1) INITIAL ESTABLISHMENT.—Not later than 

11 April 15, 2005, the Administrator shall establish and 

12 publish the service areas in which Medicare Prescrip13 tion Drug plans may offer benefits under this part. 

14 ‘‘(2) PERIODIC REVIEW AND REVISION OF SERV15 ICE AREAS.—The Administrator shall periodically re16 view the service areas applicable under this section 

17 and, based on such review, may revise such service 

18 areas if the Administrator determines such revision to 

19 be appropriate. 

20 ‘‘(b) REQUIREMENTS FOR ESTABLISHMENT OF SERV21 ICE AREAS.—

22 ‘‘(1) IN GENERAL.—The Administrator shall es23 tablish the service areas under subsection (a) in a 

24 manner that—
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1 ‘‘(A) maximizes the availability of Medicare 

2 Prescription Drug plans to eligible beneficiaries; 

3 and 

4 ‘‘(B) minimizes the ability of eligible enti5 ties offering such plans to favorably select eligible 

6 beneficiaries. 

7 ‘‘(2) ADDITIONAL REQUIREMENTS.—The Admin8 istrator shall establish the service areas under sub9 section (a) consistent with the following requirements: 

10 ‘‘(A) There shall be at least 10 service areas. 

11 ‘‘(B) Each service area must include at 

12 least 1 State. 

13 ‘‘(C) The Administrator may not divide 

14 States so that portions of the State are in dif15 ferent service areas. 

16 ‘‘(D) To the extent possible, the Adminis17 trator shall include multistate metropolitan sta18 tistical areas in a single service area. The Ad19 ministrator may divide metropolitan statistical 

20 areas where it is necessary to establish service 

21 areas of such size and geography as to maximize 

22 the participation of Medicare Prescription Drug 

23 plans. 

24 ‘‘(3) MAY CONFORM TO MEDICAREADVANTAGE

25 PREFERRED PROVIDER REGIONS.—The Administrator 
66

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1 may conform the service areas established under this 

2 section to the preferred provider regions established 

3 under section 1858(a)(3). 

4 ‘‘PUBLICATION OF RISK ADJUSTERS

5 ‘‘SEC. 1860D–11. (a) PUBLICATION.—Not later than 

6 April 15 of each year (beginning in 2005), the Adminis7 trator shall publish the risk adjusters established under sub8 section (b) to be used in computing—

9 ‘‘(1) the amount of payment to Medicare Pre10 scription Drug plans in the subsequent year under 

11 section 1860D–16(a), insofar as it is attributable to 

12 standard prescription drug coverage (or actuarially 

13 equivalent prescription drug coverage); and 

14 ‘‘(2) the amount of payment to 

15 MedicareAdvantage plans in the subsequent year 

16 under section 1858A(c), insofar as it is attributable 

17 to standard prescription drug coverage (or actuarially 

18 equivalent prescription drug coverage). 

19 ‘‘(b) ESTABLISHMENT OF RISK ADJUSTERS.—

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

21 Administrator shall establish an appropriate method22 ology for adjusting the amount of payment to plans 

23 referred to in subsection (a) to take into account vari24 ation in costs based on the differences in actuarial 

25 risk of different enrollees being served. Any such risk 

26 adjustment shall be designed in a manner as to not 
67

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1 result in a change in the aggregate payments de2 scribed in paragraphs (1) and (2) of subsection (a). 

3 ‘‘(2) CONSIDERATIONS.—In establishing the 

4 methodology under paragraph (1), the Administrator 

5 may take into account the similar methodologies used 

6 under section 1853(a)(3) to adjust payments to 

7 MedicareAdvantage organizations. 

8 ‘‘(3) DATA COLLECTION.—In order to carry out 

9 this subsection, the Administrator shall require—

10 ‘‘(A) eligible entities to submit data regard11 ing drug claims that can be linked at the bene12 ficiary level to part A and part B data and such 

13 other information as the Administrator deter14 mines necessary; and 

15 ‘‘(B) MedicareAdvantage organizations (ex16 cept MSA plans or a private fee-for-service plan 

17 that does not provide qualified prescription drug 

18 coverage) to submit data regarding drug claims 

19 that can be linked to other data that such orga20 nizations are required to submit to the Adminis21 trator and such other information as the Admin22 istrator determines necessary. 

23 ‘‘SUBMISSION OF BIDS FOR PROPOSED MEDICARE

24 PRESCRIPTION DRUG PLANS

25 ‘‘SEC. 1860D–12. (a) SUBMISSION.—
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1 ‘‘(1) IN GENERAL.—Each eligible entity that in2 tends to offer a Medicare Prescription Drug plan in 

3 an area in a year (beginning with 2006) shall submit 

4 to the Administrator, at such time in the previous 

5 year and in such manner as the Administrator may 

6 specify, such information as the Administrator may 

7 require, including the information described in sub8 section (b). 

9 ‘‘(2) ANNUAL SUBMISSION.—An eligible entity 

10 shall submit the information required under para11 graph (1) with respect to a Medicare Prescription 

12 Drug plan that the entity intends to offer on an an13 nual basis. 

14 ‘‘(b) INFORMATION DESCRIBED.—The information de15 scribed in this subsection includes information on each of 

16 the following: 

17 ‘‘(1) The benefits under the plan (as required 

18 under section 1860D–6). 

19 ‘‘(2) The actuarial value of the qualified pre20 scription drug coverage. 

21 ‘‘(3) The amount of the monthly plan premium 

22 under the plan, including an actuarial certification 

23 of—

24 ‘‘(A) the actuarial basis for such monthly 

25 plan premium; 
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1 ‘‘(B) the portion of such monthly plan pre2 mium attributable to standard prescription drug 

3 coverage or actuarially equivalent prescription 

4 drug coverage and, if applicable, to benefits that 

5 are in addition to such coverage; and 

6 ‘‘(C) the reduction in such monthly plan 

7 premium resulting from the payments provided 

8 under section 1860D–20. 

9 ‘‘(4) The service area for the plan. 

10 ‘‘(5) Whether the entity plans to use any funds 

11 in the plan stabilization reserve fund in the Prescrip12 tion Drug Account that are available to the entity to 

13 stabilize or reduce the monthly plan premium sub14 mitted under paragraph (3), and if so, the amount in 

15 such reserve fund that is to be used. 

16 ‘‘(6) Such other information as the Adminis17 trator may require to carry out this part. 

18 ‘‘(c) OPTIONS REGARDING SERVICE AREAS.—

19 ‘‘(1) IN GENERAL.—The service area of a Medi20 care Prescription Drug plan shall be either—

21 ‘‘(A) the entire area of 1 of the service areas 

22 established by the Administrator under section 

23 1860D–10; or 

24 ‘‘(B) the entire area covered by the medicare 

25 program.
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1 ‘‘(2) RULE OF CONSTRUCTION.—Nothing in this 

2 part shall be construed as prohibiting an eligible enti3 ty from submitting separate bids in multiple service 

4 areas as long as each bid is for a single service area. 

5 ‘‘APPROVAL OF PROPOSED MEDICARE PRESCRIPTION DRUG

6 PLANS

7 ‘‘SEC. 1860D–13. (a) APPROVAL.—

8 ‘‘(1) IN GENERAL.—The Administrator shall re9 view the information filed under section 1860D–12 

10 and shall approve or disapprove the Medicare Pre11 scription Drug plan. 

12 ‘‘(2) REQUIREMENTS FOR APPROVAL.—The Ad13 ministrator may not approve a Medicare Prescription 

14 Drug plan unless the following requirements are met: 

15 ‘‘(A) COMPLIANCE WITH REQUIREMENTS.—

16 The plan and the entity offering the plan comply 

17 with the requirements under this part. 

18 ‘‘(B) APPLICATION OF FEHBP STANDARD.—

19 (i) The portion of the monthly plan premium 

20 submitted under section 1860D–12(b) that is at21 tributable to standard prescription drug coverage 

22 reasonably and equitably reflects the actuarial 

23 value of the standard prescription drug coverage 

24 less the actuarial value of the reinsurance pay25 ments under section 1860D–20 and the amount 

26 of any funds in the plan stabilization reserve 
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1 fund in the Prescription Drug Account used to 

2 stabilize or reduce the monthly plan premium. 

3 ‘‘(ii) If the plan provides additional pre4 scription drug coverage pursuant to section 

5 1860D–6(a)(2), the monthly plan premium rea6 sonably and equitably reflects the actuarial value 

7 of the coverage provided less the actuarial value 

8 of the reinsurance payments under section 

9 1860D–20 and the amount of any funds in the 

10 plan stabilization reserve fund in the Prescrip11 tion Drug Account used to stabilize or reduce the 

12 monthly plan premium. 

13 ‘‘(b) NEGOTIATION.—In exercising the authority under 

14 subsection (a), the Administrator shall have the authority 

15 to—

16 ‘‘(1) negotiate the terms and conditions of the 

17 proposed monthly plan premiums submitted and 

18 other terms and conditions of a proposed plan; and 

19 ‘‘(2) disapprove, or limit enrollment in, a pro20 posed plan based on—

21 ‘‘(A) the costs to beneficiaries under the 

22 plan; 

23 ‘‘(B) the quality of the coverage and benefits 

24 under the plan; 
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1 ‘‘(C) the adequacy of the network under the 

2 plan; or 

3 ‘‘(D) other factors determined appropriate 

4 by the Administrator. 

5 ‘‘(c) SPECIAL RULES FOR APPROVAL.—The Adminis6 trator may approve a Medicare Prescription Drug plan 

7 submitted under section 1860D–12 only if the benefits 

8 under such plan—

9 ‘‘(1) include the required benefits under section 

10 1860D–6(a)(1); and 

11 ‘‘(2) are not designed in such a manner that the 

12 Administrator finds is likely to result in favorable se13 lection of eligible beneficiaries. 

14 ‘‘(d) ACCESS TO COMPETITIVE COVERAGE.—

15 ‘‘(1) NUMBER OF CONTRACTS.—The Adminis16 trator, consistent with the requirements of this part 

17 and the goal of containing costs under this title, shall, 

18 with respect to a year, approve at least 2 contracts 

19 to offer a Medicare Prescription Drug plan in each 

20 service area (established under section 1860D–10) for 

21 the year. 

22 ‘‘(2) AUTHORITY TO REDUCE RISK TO ENSURE

23 ACCESS.—

24 ‘‘(A) IN GENERAL.—Subject to subpara25 graph (B), if the Administrator determines, with 
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1 respect to an area, that the access required under 

2 paragraph (1) is not going to be provided in the 

3 area during the subsequent year, the Adminis4 trator shall— 

5 ‘‘(i) adjust the percents specified in 

6 paragraphs (2) and (4) of section 1860D–

7 16(b) in an area in a year; or 

8 ‘‘(ii) increase the percent specified in 

9 section 1860D–20(c)(1) in an area in a 

10 year. 

11 The administrator shall exercise the authority 

12 under the preceding sentence only so long as 

13 (and to the extent) necessary to assure the access 

14 guaranteed under paragraph (1). 

15 ‘‘(B) REQUIREMENTS FOR USE OF AUTHOR16 ITY.—In exercising authority under subpara17 graph (A), the Administrator—

18 ‘‘(i) shall not provide for the full un19 derwriting of financial risk for any eligible 

20 entity; 

21 ‘‘(ii) shall not provide for any under22 writing of financial risk for a public eligi23 ble entity with respect to the offering of a 

24 nationwide Medicare Prescription Drug 

25 plan; and 
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1 ‘‘(iii) shall seek to maximize the as2 sumption of financial risk by eligible enti3 ties to ensure fair competition among Medi4 care Prescription Drug plans. 

5 ‘‘(C) REQUIREMENT TO ACCEPT 2 FULL6 RISK QUALIFIED BIDS BEFORE EXERCISING AU7 THORITY.—The Administrator may not exercise 

8 the authority under subparagraph (A) with re9 spect to an area and year if 2 or more qualified 

10 bids are submitted by eligible entities to offer a 

11 Medicare Prescription Drug plan in the area for 

12 the year under paragraph (1) before the applica13 tion of subparagraph (A). 

14 ‘‘(D) REPORTS.—The Administrator, in 

15 each annual report to Congress under section 

16 1808(c)(1)(D), shall include information on the 

17 exercise of authority under subparagraph (A). 

18 The Administrator also shall include such rec19 ommendations as may be appropriate to limit 

20 the exercise of such authority. 

21 ‘‘(e) GUARANTEED ACCESS.—

22 ‘‘(1) ACCESS.—In order to assure access to quali23 fied prescription drug coverage in an area, the Ad24 ministrator shall take the following steps:
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1 ‘‘(A) DETERMINATION.—Not later than Sep2 tember 1 of each year (beginning in 2005) and 

3 for each area (established under section 1860D–

4 10), the Administrator shall make a determina5 tion as to whether the access required under sub6 section (d)(1) is going to be provided in the area 

7 during the subsequent year. Such determination 

8 shall be made after the Administrator has exer9 cised the authority under subsection (d)(2). 

10 ‘‘(B) CONTRACT WITH AN ENTITY TO PRO11 VIDE COVERAGE IN AN AREA.—Subject to para12 graph (3), if the Administrator makes a deter13 mination under subparagraph (A) that the ac14 cess required under subsection (d)(1) is not going 

15 to be provided in an area during the subsequent 

16 year, the Administrator shall enter into a con17 tract with an entity to provide eligible bene18 ficiaries enrolled under this part (and not, ex19 cept for an MSA plan or a private fee-for-service 

20 plan that does not provide qualified prescription 

21 drug coverage enrolled in a MedicareAdvantage 

22 plan) and residing in the area with standard 

23 prescription drug coverage (including access to 

24 negotiated prices for such beneficiaries pursuant 

25 to section 1860D–6(e)) during the subsequent 
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1 year. An entity may be awarded a contract for 

2 more than 1 of the areas for which the Adminis3 trator is required to enter into a contract under 

4 this paragraph but the Administrator may enter 

5 into only 1 such contract in each such area. An 

6 entity with a contract under this part shall meet 

7 the requirements described in section 1860D–5 

8 and such other requirements determined appro9 priate by the Administrator. 

10 ‘‘(C) REQUIREMENT TO ACCEPT 2 REDUCED11 RISK QUALIFIED BIDS BEFORE ENTERING INTO

12 CONTRACT.—The Administrator may not enter 

13 into a contract under subparagraph (B) with re14 spect to an area and year if 2 or more qualified 

15 bids are submitted by eligible entities to offer a 

16 Medicare Prescription Drug plan in the area for 

17 the year after the Administrator has exercised 

18 the authority under subsection (d)(2) in the area 

19 for the year. 

20 ‘‘(D) ENTITY REQUIRED TO MEET BENE21 FICIARY PROTECTION AND OTHER REQUIRE22 MENTS.—An entity with a contract under sub23 paragraph (B) shall meet the requirements de24 scribed in section 1860D–5 and such other re-
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1 quirements determined appropriate by the Ad2 ministrator. 

3 ‘‘(E) COMPETITIVE PROCEDURES.—Com4 petitive procedures (as defined in section 4(5) of 

5 the Office of Federal Procurement Policy Act (41 

6 U.S.C. 403(5))) shall be used to enter into a con7 tract under subparagraph (B). 

8 ‘‘(2) MONTHLY BENEFICIARY OBLIGATION FOR

9 ENROLLMENT.—

10 ‘‘(A) IN GENERAL.—In the case of an eligi11 ble beneficiary receiving access to qualified pre12 scription drug coverage through enrollment with 

13 an entity with a contract under paragraph 

14 (1)(B), the monthly beneficiary obligation of 

15 such beneficiary for such enrollment shall be an 

16 amount equal to the applicable percent (for the 

17 area in which the beneficiary resides, as deter18 mined under section 1860D–17(c)) of the month19 ly national average premium (as computed 

20 under section 1860D–15) for the year as adjusted 

21 using the geographic adjuster under subpara22 graph (B). 

23 ‘‘(B) ESTABLISHMENT OF GEOGRAPHIC AD24 JUSTER.—The Administrator shall establish an 

25 appropriate methodology for adjusting the 
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1 monthly national average premium (as com2 puted under subsection (a)) for the year in an 

3 area to take into account differences in drug 

4 prices among areas. In establishing such method5 ology, the Administrator may take into account 

6 differences in drug utilization between eligible 

7 beneficiaries in an area and eligible beneficiaries 

8 in other areas and the results of the ongoing 

9 study required under section 106. Any such ad10 justment shall be applied in a manner so as to 

11 not result in a change in the aggregate payments 

12 made under this part that would have been made 

13 if the Administrator had not applied such ad14 justment. 

15 ‘‘(3) PAYMENTS UNDER THE CONTRACT.—

16 ‘‘(A) IN GENERAL.—A contract entered into 

17 under paragraph (1)(B) shall provide for—

18 ‘‘(i) payment for the negotiated costs of 

19 covered drugs provided to eligible bene20 ficiaries enrolled with the entity; and 

21 ‘‘(ii) payment of prescription manage22 ment fees that are tied to performance re23 quirements established by the Administrator 

24 for the management, administration, and 

25 delivery of the benefits under the contract.
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1 ‘‘(B) PERFORMANCE REQUIREMENTS.—The 

2 performance requirements established by the Ad3 ministrator pursuant to subparagraph (A)(ii) 

4 shall include the following: 

5 ‘‘(i) The entity contains costs to the 

6 Prescription Drug Account and to eligible 

7 beneficiaries enrolled under this part and 

8 with the entity. 

9 ‘‘(ii) The entity provides such bene10 ficiaries with quality clinical care. 

11 ‘‘(iii) The entity provides such bene12 ficiaries with quality services. 

13 ‘‘(C) ENTITY ONLY AT RISK TO THE EXTENT

14 OF THE FEES TIED TO PERFORMANCE REQUIRE15 MENTS.—An entity with a contract under para16 graph (1)(B) shall only be at risk for the provi17 sion of benefits under the contract to the extent 

18 that the management fees paid to the entity are 

19 tied to performance requirements under subpara20 graph (A)(ii). 

21 ‘‘(4) ELIGIBLE ENTITY THAT SUBMITTED A BID

22 FOR THE AREA NOT ELIGIBLE TO BE AWARDED THE

23 CONTRACT.—An eligible entity that submitted a bid to 

24 offer a Medicare Prescription Drug plan for an area 

25 for a year under section 1860D–12, including a bid 
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1 submitted after the Administrator has exercised the 

2 authority under subsection (d)(2), may not be award3 ed a contract under paragraph (1)(B) for that area 

4 and year. The previous sentence shall apply to an en5 tity that was awarded a contract under paragraph 

6 (1)(B) for the area in the previous year and sub7 mitted such a bid under section 1860D–12 for the 

8 year. 

9 ‘‘(5) TERM OF CONTRACT.—A contract entered 

10 into under paragraph (1)(B) shall be for a 1-year pe11 riod. Such contract may provide for renewal at the 

12 discretion of the Administrator if the Administrator 

13 is required to enter into a contract under such para14 graph with respect to the area covered by such con15 tract for the subsequent year. 

16 ‘‘(6) ENTITY NOT PERMITTED TO MARKET OR

17 BRAND THE CONTRACT.—An entity with a contract 

18 under paragraph (1)(B) may not engage in any mar19 keting or branding of such contract. For purposes of 

20 providing information to beneficiaries under sections 

21 1860D–4 and 1860D–5(a), such contract shall be 

22 identified as the Medicare plan. 

23 ‘‘(7) RULES FOR AREAS WHERE ONLY 1 COM24 PETITIVELY BID PLAN WAS APPROVED.—In the case of 

25 an area where (before the application of this sub-
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1 section) only 1 Medicare Prescription Drug plan was 

2 approved for a year—

3 ‘‘(A) the plan may (at the option of the 

4 plan) be offered in the area for the year (under 

5 rules applicable to such plans under this part 

6 and not under this subsection); 

7 ‘‘(B) eligible beneficiaries described in para8 graph (1)(B) may receive access to qualified pre9 scription drug coverage through enrollment in 

10 the plan or with an entity with a contract under 

11 paragraph (1)(B); and 

12 ‘‘(C) for purposes of applying section 

13 1860D–3(a)(1)(A)(ii), such plan shall be the 

14 plan designated in the area under such section. 

15 ‘‘(f) TWO-YEAR CONTRACTS.—Except for a contract 

16 entered into under subsection (e)(1)(B), a contract approved 

17 under this part (including a contract under) shall be for 

18 a 2-year period. 

19 ‘‘COMPUTATION OF MONTHLY STANDARD PRESCRIPTION

20 DRUG COVERAGE PREMIUMS

21 ‘‘SEC. 1860D–14. (a) IN GENERAL.—For each year 

22 (beginning with 2006), the Administrator shall compute a 

23 monthly standard prescription drug coverage premium for 

24 each Medicare Prescription Drug plan approved under sec25 tion 1860D–13 and for each MedicareAdvantage plan. 
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1 ‘‘(b) REQUIREMENTS.—The monthly standard pre2 scription drug coverage premium for a plan for a year shall 

3 be equal to—

4 ‘‘(1) in the case of a plan offered by an eligible 

5 entity or MedicareAdvantage organization that pro6 vides standard prescription drug coverage or an actu7 arially equivalent prescription drug coverage and 

8 does not provide additional prescription drug cov9 erage pursuant to section 1860D–6(a)(2), the monthly 

10 plan premium approved for the plan under section 

11 1860D–13 for the year; and 

12 ‘‘(2) in the case of a plan offered by an eligible 

13 entity or MedicareAdvantage organization that pro14 vides additional prescription drug coverage pursuant 

15 to section 1860D–6(a)(2)—

16 ‘‘(A) an amount that reflects only the actu17 arial value of the standard prescription drug 

18 coverage offered under the plan; or 

19 ‘‘(B) if determined appropriate by the Ad20 ministrator, the monthly plan premium ap21 proved under section 1860D–13 for the year for 

22 the Medicare Prescription Drug plan (or, if ap23 plicable, the MedicareAdvantage plan) that, as 

24 required under section 1860D–6(a)(2)(B) for a 
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1 Medicare Prescription Drug plans and a 

2 MedicareAdvantage plan—

3 ‘‘(i) is offered by such entity or organi4 zation in the same area as the plan; and 

5 ‘‘(ii) does not provide additional pre6 scription drug coverage pursuant to such 

7 section. 

8 ‘‘COMPUTATION OF MONTHLY NATIONAL AVERAGE PREMIUM

9 ‘‘SEC. 1860D–15. (a) COMPUTATION.—

10 ‘‘(1) IN GENERAL.—For each year (beginning 

11 with 2006) the Administrator shall compute a month12 ly national average premium equal to the average of 

13 the monthly standard prescription drug coverage pre14 mium for each Medicare Prescription Drug plan and 

15 each MedicareAdvantage plan (as computed under 

16 section 1860D–14). Such premium may be adjusted 

17 pursuant to any methodology determined under sub18 section (b), as determined appropriate by the Admin19 istrator. 

20 ‘‘(2) WEIGHTED AVERAGE.—The monthly na21 tional average premium computed under paragraph 

22 (1) shall be a weighted average, with the weight for 

23 each plan being equal to the average number of bene24 ficiaries enrolled under such plan in the previous 

25 year.
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1 ‘‘(b) GEOGRAPHIC ADJUSTMENT.—The Administrator 

2 shall establish an appropriate methodology for adjusting the 

3 monthly national average premium (as computed under 

4 subsection (a)) for the year in an area to take into account 

5 differences in prices for covered drugs among different 

6 areas. In establishing such methodology, the Administrator 

7 may take into account differences in drug utilization be8 tween eligible beneficiaries in that area and other eligible 

9 beneficiaries. Any such adjustment shall be applied in a 

10 manner as to not result in a change in aggregate payments 

11 made under this part than would have been made if the 

12 Administrator had not applied such adjustment. 

13 ‘‘(c) SPECIAL RULE FOR 2006.—For purposes of ap14 plying this section for 2006, the Administrator shall estab15 lish procedures for determining the weighted average under 

16 subsection (a)(2) for 2005. 

17 ‘‘PAYMENTS TO ELIGIBLE ENTITIES

18 ‘‘SEC. 1860D–16. (a) PAYMENT OF MONTHLY PLAN

19 PREMIUMS.—For each year (beginning with 2006), the Ad20 ministrator shall pay to each entity offering a Medicare 

21 Prescription Drug plan in which an eligible beneficiary is 

22 enrolled an amount equal to the full amount of the monthly 

23 plan premium approved for the plan under section 1860D–

24 13 on behalf of each eligible beneficiary enrolled in such 

25 plan for the year, as adjusted using the risk adjusters that 
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1 apply to the standard prescription drug coverage published 

2 under section 1860D–11. 

3 ‘‘(b) PORTION OF TOTAL PAYMENTS OF MONTHLY

4 PLAN PREMIUMS SUBJECT TO RISK.—

5 ‘‘(1) NOTIFICATION OF SPENDING UNDER THE

6 PLAN.—

7 ‘‘(A) IN GENERAL.—For each year (begin8 ning in 2007), the eligible entity offering a 

9 Medicare Prescription Drug plan shall notify the 

10 Administrator of the following: 

11 ‘‘(i) TOTAL ACTUAL COSTS.—The total 

12 amount of costs that the entity incurred in 

13 providing standard prescription drug cov14 erage (or prescription drug coverage that is 

15 actuarially equivalent pursuant to section 

16 1860D–6(a)(1)(B)) for all enrollees under 

17 the plan in the previous year. 

18 ‘‘(ii) ACTUAL COSTS FOR SPECIFIC

19 DRUGS.—With respect to the total amount 

20 under clause (i) for the year, a breakdown 

21 of— 

22 ‘‘(I) each covered drug that con23 stitutes a portion of such amount; 

24 ‘‘(II) the negotiated price for the 

25 eligible entity for each such drug; 
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1 ‘‘(III) the number of prescrip2 tions; and 

3 ‘‘(IV) the average beneficiary co4 insurance rate for a each covered drug 

5 that constitutes a portion of such 

6 amount. 

7 ‘‘(B) CERTAIN EXPENSES NOT INCLUDED.—

8 The amounts under clauses (i) and (ii)(II) of 

9 subparagraph (A) may not include—

10 ‘‘(i) administrative expenses incurred 

11 in providing the coverage described in sub12 paragraph (A)(i); 

13 ‘‘(ii) amounts expended on providing 

14 additional prescription drug coverage pur15 suant to section 1860D–6(a)(2); or 

16 ‘‘(iii) amounts expended for which the 

17 entity is subsequently provided with rein18 surance payments under section 1860D–20. 

19 ‘‘(2) ADJUSTMENT OF PAYMENT.—

20 ‘‘(A) NO ADJUSTMENT IF ALLOWABLE COSTS

21 WITHIN RISK CORRIDOR.—If the allowable costs 

22 (specified in paragraph (3)) for the plan for the 

23 year are not more than the first threshold upper 

24 limit of the risk corridor (specified in paragraph 

25 (4)(A)(iii)) and are not less than the first thresh-
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1 old lower limit of the risk corridor (specified in 

2 paragraph (4)(A)(i)) for the plan for the year, 

3 then no additional payments shall be made by 

4 the Administrator and no payments shall be 

5 made by (or collected from) the eligible entity of6 fering the plan. 

7 ‘‘(B) INCREASE IN PAYMENT IF ALLOWABLE

8 COSTS ABOVE UPPER LIMIT OF RISK COR9 RIDOR.—

10 ‘‘(i) IN GENERAL.—If the allowable 

11 costs for the plan for the year are more than 

12 the first threshold upper limit of the risk 

13 corridor for the plan for the year, then the 

14 Administrator shall increase the total of the 

15 monthly payments made to the entity offer16 ing the plan for the year under subsection 

17 (a) by an amount equal to the sum of—

18 ‘‘(I) the applicable percent (as de19 fined in subparagraph (D)) of such al20 lowable costs which are more than such 

21 first threshold upper limit of the risk 

22 corridor and not more than the second 

23 threshold upper limit of the risk cor24 ridor for the plan for the year (as spec25 ified under paragraph (4)(A)(iv)); and
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1 ‘‘(II) 90 percent of such allowable 

2 costs which are more than such second 

3 threshold upper limit of the risk cor4 ridor. 

5 ‘‘(ii) SPECIAL TRANSITIONAL COR6 RIDOR FOR 2006 AND 2007.—If the Adminis7 trator determines with respect to 2006 or 

8 2007 that at least 60 percent of Medicare 

9 Prescription Drug plans and 

10 MedicareAdvantage Plans (excluding MSA 

11 plans or private fee-for-service plans that do 

12 not provide qualified prescription drug cov13 erage) have allowable costs for the plan for 

14 the year that are more than the first thresh15 old upper limit of the risk corridor for the 

16 plan for the year and that such plans rep17 resent at least 60 percent of eligible bene18 ficiaries enrolled under this part, clause 

19 (i)(I) shall be applied by substituting ‘90 

20 percent’ for ‘applicable percent’. 

21 ‘‘(C) PLAN PAYMENT IF ALLOWABLE COSTS

22 BELOW LOWER LIMIT OF RISK CORRIDOR.—If the 

23 allowable costs for the plan for the year are less 

24 than the first threshold lower limit of the risk 

25 corridor for the plan for the year, then the entity 
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1 offering the plan shall a make a payment to the 

2 Administrator of an amount (or the Adminis3 trator shall otherwise recover from the plan an 

4 amount) equal to—

5 ‘‘(i) the applicable percent (as so de6 fined) of such allowable costs which are less 

7 than such first threshold lower limit of the 

8 risk corridor and not less than the second 

9 threshold lower limit of the risk corridor for 

10 the plan for the year (as specified under 

11 paragraph (4)(A)(ii)); and 

12 ‘‘(ii) 90 percent of such allowable costs 

13 which are less than such second threshold 

14 lower limit of the risk corridor. 

15 ‘‘(D) APPLICABLE PERCENT DEFINED.—For 

16 purposes of this paragraph, the term ‘applicable 

17 percent’ means—

18 ‘‘(i) for 2006 and 2007, 75 percent; 

19 and 

20 ‘‘(ii) for 2008 and subsequent years, 50 

21 percent. 

22 ‘‘(3) ESTABLISHMENT OF ALLOWABLE COSTS.—

23 ‘‘(A) IN GENERAL.—For each year, the Ad24 ministrator shall establish the allowable costs for 

25 each Medicare Prescription Drug plan for the 
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1 year. The allowable costs for a plan for a year 

2 shall be equal to the amount described in para3 graph (1)(A)(i) for the plan for the year, ad4 justed under subparagraph (B)(ii). 

5 ‘‘(B) REPRICING OF COSTS.—

6 ‘‘(i) CALCULATION OF AVERAGE PLAN

7 COST.—Utilizing the information obtained 

8 under paragraph (1)(A)(ii) and section 

9 1860D–20(b)(1)(B), for each year (begin10 ning with 2006), the Administrator shall es11 tablish an average negotiated price with re12 spect to all Medicare Prescription Drug 

13 plans for each covered drug. 

14 ‘‘(ii) ADJUSTMENT IF ACTUAL COSTS

15 EXCEED AVERAGE COSTS.—With respect to 

16 a Medicare Prescription Drug plan for a 

17 year, the Administrator shall reduce the 

18 amount described in paragraph (1)(A)(i) 

19 for the plan for the year to the extent such 

20 amount is based on costs of specific covered 

21 drugs furnished under the plan in the year 

22 (as specified under paragraph (1)(A)(ii)) 

23 for which the negotiated prices are greater 

24 than the average negotiated price for the 
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1 covered drug for the year (as determined 

2 under clause (i)). 

3 ‘‘(4) ESTABLISHMENT OF RISK CORRIDORS.—

4 ‘‘(A) IN GENERAL.—For each year (begin5 ning with 2006), the Administrator shall estab6 lish a risk corridor for each Medicare Prescrip7 tion Drug plan. The risk corridor for a plan for 

8 a year shall be equal to a range as follows: 

9 ‘‘(i) FIRST THRESHOLD LOWER

10 LIMIT.—The first threshold lower limit of 

11 such corridor shall be equal to—

12 ‘‘(I) the target amount described 

13 in subparagraph (B) for the plan; 

14 minus 

15 ‘‘(II) an amount equal to the first 

16 threshold risk percentage for the plan 

17 (as determined under subparagraph 

18 (C)(i)) of such target amount. 

19 ‘‘(ii) SECOND THRESHOLD LOWER

20 LIMIT.—The second threshold lower limit of 

21 such corridor shall be equal to—

22 ‘‘(I) the target amount described 

23 in subparagraph (B) for the plan; 

24 minus 
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1 ‘‘(II) an amount equal to the sec2 ond threshold risk percentage for the 

3 plan (as determined under subpara4 graph (C)(ii)) of such target amount. 

5 ‘‘(iii) FIRST THRESHOLD UPPER

6 LIMIT.—The first threshold upper limit of 

7 such corridor shall be equal to the sum of—

8 ‘‘(I) such target amount; and 

9 ‘‘(II) the amount described in 

10 clause (i)(II). 

11 ‘‘(iv) SECOND THRESHOLD UPPER

12 LIMIT.—The second threshold upper limit of 

13 such corridor shall be equal to the sum of—

14 ‘‘(I) such target amount; and 

15 ‘‘(II) the amount described in 

16 clause (ii)(II). 

17 ‘‘(B) TARGET AMOUNT DESCRIBED.—The 

18 target amount described in this paragraph is, 

19 with respect to a Medicare Prescription Drug 

20 plan offered by an eligible entity in a year—

21 ‘‘(i) in the case of a plan offered by an 

22 eligible entity that provides standard pre23 scription drug coverage or actuarially 

24 equivalent prescription drug coverage and 

25 does not provide additional prescription 
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1 drug coverage pursuant to section 1860D–

2 6(a)(2), an amount equal to the total of the 

3 monthly plan premiums paid to such entity 

4 for such plan for the year pursuant to sub5 section (a), reduced by the percentage speci6 fied in subparagraph (D); and 

7 ‘‘(ii) in the case of a plan offered by 

8 an eligible entity that provides additional 

9 prescription drug coverage pursuant to sec10 tion 1860D–6(a)(2), an amount equal to the 

11 total of the monthly plan premiums paid to 

12 such entity for such plan for the year pur13 suant to subsection (a) that are related to 

14 standard prescription drug coverage (deter15 mined using the rules under section 1860D–

16 14(b)), reduced by the percentage specified 

17 in subparagraph (D). 

18 ‘‘(C) FIRST AND SECOND THRESHOLD RISK

19 PERCENTAGE DEFINED.—

20 ‘‘(i) FIRST THRESHOLD RISK PER21 CENTAGE.—Subject to clause (iii), for pur22 poses of this section, the first threshold risk 

23 percentage is—

24 ‘‘(I) for 2006 and 2007, and 2.5 

25 percent;
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1 ‘‘(II) for 2008 through 2011, 5 

2 percent; and 

3 ‘‘(III) for 2012 and subsequent 

4 years, a percentage established by the 

5 Administrator, but in no case less than 

6 5 percent. 

7 ‘‘(ii) SECOND THRESHOLD RISK PER8 CENTAGE.—Subject to clause (iii), for pur9 poses of this section, the second threshold 

10 risk percentage is—

11 ‘‘(I) for 2006 and 2007, 5.0 per12 cent; 

13 ‘‘(II) for 2008 through 2011, 10 

14 percent 

15 ‘‘(III) for 2012 and subsequent 

16 years, a percentage established by the 

17 Administrator that is greater than the 

18 percent established for the year under 

19 clause (i)(III), but in no case less than 

20 10 percent. 

21 ‘‘(iii) REDUCTION OF RISK PERCENT22 AGE TO ENSURE 2 PLANS IN AN AREA.—

23 Pursuant to paragraph (2) of section 

24 1860D–13(d), the Administrator may re25 duce the applicable first or second threshold 
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1 risk percentage in an area in a year in 

2 order to ensure the access to plans required 

3 under paragraph (1) of such section. 

4 ‘‘(D) TARGET AMOUNT NOT TO INCLUDE AD5 MINISTRATIVE EXPENSES NEGOTIATED BETWEEN

6 THE ADMINISTRATOR AND THE ENTITY OFFERING

7 THE PLAN.—For each year (beginning in 2006), 

8 the Administrator and the entity offering a 

9 Medicare Prescription Drug plan shall negotiate, 

10 as part of the negotiation process described in 

11 section 1860D–13(b) during the previous year, 

12 the percentage of the payments to the entity 

13 under subsection (a) with respect to the plan 

14 that are attributable and reasonably incurred for 

15 administrative expenses for providing standard 

16 prescription drug coverage or actuarially equiva17 lent prescription drug coverage in the year. 

18 ‘‘(5) PLANS AT RISK FOR ENTIRE AMOUNT OF

19 ADDITIONAL PRESCRIPTION DRUG COVERAGE.—An el20 igible entity that offers a Medicare Prescription Drug 

21 plan that provides additional prescription drug cov22 erage pursuant to section 1860D–6(a)(2) shall be at 

23 full financial risk for the provision of such additional 

24 coverage. 
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1 ‘‘(6) NO EFFECT ON ELIGIBLE BENEFICIARIES.—

2 No change in payments made by reason of this sub3 section shall affect the beneficiary obligation under 

4 section 1860D–17 for the year in which such change 

5 in payments is made. 

6 ‘‘(7) DISCLOSURE OF INFORMATION.—

7 ‘‘(A) IN GENERAL.—Each contract under 

8 this part shall provide that—

9 ‘‘(i) the entity offering a Medicare Pre10 scription Drug plan shall provide the Ad11 ministrator with such information as the 

12 Administrator determines is necessary to 

13 carry out this section; and 

14 ‘‘(ii) the Administrator shall have the 

15 right to inspect and audit any books and 

16 records of the eligible entity that pertain to 

17 the information regarding costs provided to 

18 the Administrator under paragraph (1). 

19 ‘‘(B) RESTRICTION ON USE OF INFORMA20 TION.—Information disclosed or obtained pursu21 ant to the provisions of this section may be used 

22 by officers and employees of the Department of 

23 Health and Human Services only for the pur24 poses of, and to the extent necessary in, carrying 

25 out this section. 
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1 ‘‘(c) STABILIZATION RESERVE FUND.—

2 ‘‘(1) ESTABLISHMENT.—

3 ‘‘(A) IN GENERAL.—There is established, 

4 within the Prescription Drug Account, a sta5 bilization reserve fund in which the Adminis6 trator shall deposit amounts on behalf of eligible 

7 entities in accordance with paragraph (2) and 

8 such amounts shall be made available by the Sec9 retary for the use of eligible entities in contract 

10 year 2008 and subsequent contract years in ac11 cordance with paragraph (3). 

12 ‘‘(B) REVERSION OF UNUSED AMOUNTS.—

13 Any amount in the stabilization reserve fund es14 tablished under subparagraph (A) that is not ex15 pended by an eligible entity in accordance with 

16 paragraph (3) or that was deposited for the use 

17 of an eligible entity that no longer has a contract 

18 under this part shall revert for the use of the 

19 Prescription Drug Account. 

20 ‘‘(2) DEPOSIT OF AMOUNTS FOR 5 YEARS.—

21 ‘‘(A) IN GENERAL.—If the target amount for 

22 a Medicare Prescription Drug plan for 2006, 

23 2007, 2008, 2009, or 2010 (as determined under 

24 subsection (b)(4)(B)) exceeds the applicable costs 
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1 for the plan for the year by more than 3 percent, 

2 then—

3 ‘‘(i) the entity offering the plan shall 

4 make a payment to the Administrator of an 

5 amount (or the Administrator shall other6 wise recover from the plan an amount) 

7 equal to the portion of such excess that is in 

8 excess of 3 percent of the target amount; 

9 and 

10 ‘‘(ii) the Administrator shall deposit 

11 an amount equal to the amount collected or 

12 otherwise recovered under clause (i) in the 

13 stabilization reserve fund on behalf of the el14 igible entity offering such plan. 

15 ‘‘(B) APPLICABLE COSTS.—For purposes of 

16 subparagraph (A), the term ‘applicable costs’ 

17 means, with respect to a Medicare Prescription 

18 Drug plan and year, an amount equal the sum 

19 of—

20 ‘‘(i) the allowable costs for the plan 

21 and year (as determined under subsection 

22 (b)(3)(A); and 

23 ‘‘(ii) the total amount by which month24 ly payments to the plan were reduced (or 
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1 otherwise recovered from the plan) for the 

2 year under subsection (b)(2)(C). 

3 ‘‘(3) USE OF RESERVE FUND TO STABILIZE OR

4 REDUCE MONTHLY PLAN PREMIUMS.—

5 ‘‘(A) IN GENERAL.—For any contract year 

6 beginning after 2007, an eligible entity offering 

7 a Medicare Prescription Drug plan may use 

8 funds in the stabilization reserve fund in the 

9 Prescription Drug Account that were deposited 

10 in such fund on behalf of the entity to stabilize 

11 or reduce monthly plan premiums submitted 

12 under section 1860D–12(b)(3). 

13 ‘‘(B) PROCEDURES.—The Administrator 

14 shall establish procedures for— 

15 ‘‘(i) reducing monthly plan premiums 

16 submitted under section 1860D–12(b)(3) 

17 pursuant to subparagraph (A); and 

18 ‘‘(ii) making payments from the plan 

19 stabilization reserve fund in the Prescrip20 tion Drug Account to eligible entities that 

21 inform the Secretary under section 1860D–

22 12(b)(5) of the entity’s intent to use funds 

23 in such reserve fund to reduce such pre24 miums.
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1 ‘‘(d) PORTION OF PAYMENTS OF MONTHLY PLAN PRE2 MIUMS ATTRIBUTABLE TO ADMINISTRATIVE EXPENSES

3 TIED TO PERFORMANCE REQUIREMENTS.—

4 ‘‘(1) IN GENERAL.—The Administrator shall es5 tablish procedures to adjust the portion of the pay6 ments made to an entity under subsection (a) that are 

7 attributable to administrative expenses (as deter8 mined pursuant to subsection (b)(4)(D)) to ensure 

9 that the entity meets the performance requirements 

10 described in clauses (ii) and (iii) of section 1860D–

11 13(e)(4)(B). 

12 ‘‘(2) NO EFFECT ON ELIGIBLE BENEFICIARIES.—

13 No change in payments made by reason of this sub14 section shall affect the beneficiary obligation under 

15 section 1860D–17 for the year in which such change 

16 in payments is made. 

17 ‘‘(e) PAYMENT TERMS.—

18 ‘‘(1) ADMINISTRATOR PAYMENTS.—Payments to 

19 an entity offering a Medicare Prescription Drug plan 

20 under this section shall be made in a manner deter21 mined by the Administrator and based upon the man22 ner in which payments are made under section 

23 1853(a) (relating to payments to MedicareAdvantage 

24 organizations). 
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1 ‘‘(2) PLAN PAYMENTS.—The Administrator shall 

2 establish a process for collecting (or other otherwise 

3 recovering) amounts that an entity offering a Medi4 care Prescription Drug plan is required to make to 

5 the Administrator under this section. 

6 ‘‘(f) PAYMENTS TO MEDICAREADVANTAGE PLANS.—

7 For provisions related to payments to MedicareAdvantage 

8 organizations offering MedicareAdvantage plans for quali9 fied prescription drug coverage made available under the 

10 plan, see section 1858A(c). 

11 ‘‘(g) SECONDARY PAYER PROVISIONS.—The provisions 

12 of section 1862(b) shall apply to the benefits provided under 

13 this part. 

14 ‘‘COMPUTATION OF MONTHLY BENEFICIARY OBLIGATION

15 ‘‘SEC. 1860D–17. (a) BENEFICIARIES ENROLLED IN A

16 MEDICARE PRESCRIPTION DRUG PLAN.—In the case of an 

17 eligible beneficiary enrolled under this part and in a Medi18 care Prescription Drug plan, the monthly beneficiary obli19 gation for enrollment in such plan in a year shall be deter20 mined as follows: 

21 ‘‘(1) MONTHLY PLAN PREMIUM EQUALS MONTHLY

22 NATIONAL AVERAGE PREMIUM.—If the amount of the 

23 monthly plan premium approved by the Adminis24 trator under section 1860D–13 for a Medicare Pre25 scription Drug plan for the year is equal to the 

26 monthly national average premium (as computed 
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1 under section 1860D–15) for the year, the monthly 

2 beneficiary obligation of the eligible beneficiary in 

3 that year shall be an amount equal to the applicable 

4 percent (for the area in which the beneficiary resides, 

5 as determined in subsection (c)) of the amount of the 

6 monthly national average premium. 

7 ‘‘(2) MONTHLY PLAN PREMIUM LESS THAN

8 MONTHLY NATIONAL AVERAGE PREMIUM.—If the 

9 amount of the monthly plan premium approved by 

10 the Administrator under section 1860D–13 for the 

11 Medicare Prescription Drug plan for the year is less 

12 than the monthly national average premium (as com13 puted under section 1860D–15) for the year, the 

14 monthly beneficiary obligation of the eligible bene15 ficiary in that year shall be an amount equal to—

16 ‘‘(A) the applicable percent (for the area in 

17 which the beneficiary resides) of the amount of 

18 the monthly national average premium; minus 

19 ‘‘(B) the amount by which the monthly na20 tional average premium exceeds the amount of 

21 the monthly plan premium approved by the Ad22 ministrator for the plan. 

23 ‘‘(3) MONTHLY PLAN PREMIUM EXCEEDS MONTH24 LY NATIONAL AVERAGE PREMIUM.—If the amount of 

25 the monthly plan premium approved by the Adminis-
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1 trator under section 1860D–13 for a Medicare Pre2 scription Drug plan for the year exceeds the monthly 

3 national average premium (as computed under sec4 tion 1860D–15) for the year, the monthly beneficiary 

5 obligation of the eligible beneficiary in that year shall 

6 be an amount equal to the sum of—

7 ‘‘(A) the applicable percent (for the area in 

8 which the beneficiary resides) of the amount of 

9 the monthly national average premium; plus 

10 ‘‘(B) the amount by which the monthly plan 

11 premium approved by the Administrator for the 

12 plan exceeds the amount of the monthly national 

13 average premium. 

14 ‘‘(b) BENEFICIARIES ENROLLED IN A

15 MEDICAREADVANTAGE PLAN.—In the case of an eligible 

16 beneficiary that is enrolled in a MedicareAdvantage plan 

17 (except for an MSA plan or a private fee-for-service plan 

18 that does not provide qualified prescription drug coverage), 

19 the Medicare monthly beneficiary obligation for qualified 

20 prescription drug coverage shall be determined pursuant to 

21 section 1858A(d). 

22 ‘‘(c) APPLICABLE PERCENT.—

23 ‘‘(1) IN GENERAL.—For purposes of this section, 

24 except as provided in section 1860D–19 (relating to 

25 premium subsidies for low-income individuals), the 
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1 term applicable percent for any year is the percentage 

2 equal to a fraction—

3 ‘‘(A) the numerator of which is 32 percent; 

4 and 

5 ‘‘(B) the denominator of which is 100 per6 cent minus a percentage equal to—

7 ‘‘(i) the total reinsurance payments 

8 which the Administrator estimates will be 

9 made under section 1860D–20 to qualifying 

10 entities described in subparagraphs (A) and 

11 (B) of subsection (e)(3) of such section dur12 ing the year; divided by 

13 ‘‘(ii) the sum of—

14 ‘‘(I) the amount estimated under 

15 clause (i) for the year; and 

16 ‘‘(II) the total payments which the 

17 Administrator estimates will be made 

18 under sections 1860D–16 and 1858A(c) 

19 during the year that relate to standard 

20 prescription drug coverage (or actuari21 ally equivalent prescription drug cov22 erage). 

23 ‘‘(2) GEOGRAPHIC ADJUSTMENT.—

24 ‘‘(A) ADJUSTMENT.—The applicable percent 

25 determined under paragraph (1) for a year shall 
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1 be adjusted using the methodology established 

2 under subparagraph (B). 

3 ‘‘(B) METHODOLOGY.—The Administrator 

4 shall establish an appropriate methodology for 

5 adjusting the applicable percent referred to in 

6 paragraph (1) to take into account variations in 

7 input prices for covered drugs in different service 

8 areas established under section 1860D–10. Any 

9 such adjustment shall be applied in a manner as 

10 to not result in a change in aggregate payments 

11 made under this part than would have been 

12 made if the Administrator had not applied such 

13 adjustment. 

14 ‘‘COLLECTION OF MONTHLY BENEFICIARY OBLIGATION

15 ‘‘SEC. 1860D–18. (a) COLLECTION OF AMOUNT IN

16 SAME MANNER AS PART B PREMIUM.—

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

18 amount of the monthly beneficiary obligation (deter19 mined under section 1860D–17) applicable to an eli20 gible beneficiary under this part (after application of 

21 any increase under section 1860D–2(b)(1)(A)) shall 

22 be collected and credited to the Prescription Drug Ac23 count in the same manner as the monthly premium 

24 determined under section 1839 is collected and cred25 ited to the Federal Supplementary Medical Insurance 

26 Trust Fund under section 1840.
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1 ‘‘(2) PROCEDURES FOR SPONSOR TO PAY OBLIGA2 TION ON BEHALF OF RETIREE.—The Administrator 

3 shall establish procedures under which an eligible ben4 eficiary enrolled in a Medicare Prescription Drug 

5 plan may elect to have the sponsor (as defined in 

6 paragraph (5) of section 1860D–20(e)) of employ7 ment-based retiree health coverage (as defined in 

8 paragraph (4)(B) of such section) in which the bene9 ficiary is enrolled pay the amount of the monthly 

10 beneficiary obligation applicable to the beneficiary 

11 under this part directly to the Administrator. 

12 ‘‘(b) INFORMATION NECESSARY FOR COLLECTION.—In 

13 order to carry out subsection (a), the Administrator shall 

14 transmit to the Commissioner of Social Security—

15 ‘‘(1) by the beginning of each year, the name, so16 cial security account number, monthly beneficiary ob17 ligation owed by each individual enrolled in a Medi18 care Prescription Drug plan for each month during 

19 the year, and other information determined appro20 priate by the Administrator; and 

21 ‘‘(2) periodically throughout the year, informa22 tion to update the information previously transmitted 

23 under this paragraph for the year. 

24 ‘‘(c) COLLECTION FOR BENEFICIARIES ENROLLED IN

25 A MEDICAREADVANTAGE PLAN.—For provisions related to 
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1 the collection of the monthly beneficiary obligation for 

2 qualified prescription drug coverage under a 

3 MedicareAdvantage plan, see section 1858A(e). 

4 ‘‘PREMIUM AND COST-SHARING SUBSIDIES FOR LOW5 INCOME INDIVIDUALS

6 ‘‘SEC. 1860D–19. (a) AMOUNT OF SUBSIDIES.—

7 ‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION

8 OF COST-SHARING FOR QUALIFIED MEDICARE BENE9 FICIARIES.—In the case of a qualified medicare bene10 ficiary (as defined in paragraph (4)(A))—

11 ‘‘(A) section 1860D–17 shall be applied—

12 ‘‘(i) in subsection (c), by substituting 

13 ‘0 percent’ for the applicable percent that 

14 would otherwise apply under such section in 

15 the service area in which the qualified 

16 medicare beneficiary resides; and 

17 ‘‘(ii) in subsection (a)(3)(B), by sub18 stituting ‘the amount of the monthly plan 

19 premium for the Medicare Prescription 

20 Drug plan with the lowest monthly plan 

21 premium in the area that the beneficiary 

22 resides’ for ‘the amount of the monthly na23 tional average premium’, but only if there 

24 is no Medicare Prescription Drug plan of25 fered in the area in which the individual re26 sides that has a monthly plan premium for 
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1 the year that is equal to or less than the 

2 monthly national average premium (as 

3 computed under section 1860D–15) for the 

4 year; 

5 ‘‘(B) the annual deductible applicable under 

6 section 1860D–6(c)(1) in a year shall be reduced 

7 to $0; 

8 ‘‘(C) section 1860D–6(c)(2) shall be applied 

9 by substituting ‘2.5 percent’ for ‘50 percent’ each 

10 place it appears; 

11 ‘‘(D) such individual shall be responsible for 

12 cost-sharing for the cost of any covered drug pro13 vided in the year (after the individual has 

14 reached such initial coverage limit and before the 

15 individual has reached the annual out-of-pocket 

16 limit under section 1860D–6(c)(4)(A)), that is 

17 equal to 5.0 percent; and 

18 ‘‘(E) section 1860D–6(c)(4)(A) shall be ap19 plied by substituting ‘2.5 percent’ for ‘10 per20 cent’. 

21 In no case may the application of subparagraph (A) 

22 result in a monthly beneficiary obligation that is 

23 below 0. 

24 ‘‘(2) FULL PREMIUM SUBSIDY AND REDUCTION

25 OF COST-SHARING FOR SPECIFIED LOW INCOME MEDI-
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1 CARE BENEFICIARIES AND QUALIFYING INDIVID2 UALS.—In the case of a specified low income medicare 

3 beneficiary (as defined in paragraph (4)(B)) or a 

4 qualifying individual (as defined in paragraph 

5 (4)(C))—

6 ‘‘(A) section 1860D–17 shall be applied—

7 ‘‘(i) in subsection (c), by substituting 

8 ‘0 percent’ for the applicable percent that 

9 would otherwise apply under such section in 

10 the service area in which the specified low 

11 income medicare beneficiary or the quali12 fying individual (as the case may be) re13 sides; and 

14 ‘‘(ii) in subsection (a)(3)(B), by sub15 stituting ‘the amount of the monthly plan 

16 premium for the Medicare Prescription 

17 Drug plan with the lowest monthly plan 

18 premium in the area that the beneficiary 

19 resides’ for ‘the amount of the monthly na20 tional average premium’, but only if there 

21 is no Medicare Prescription Drug plan of22 fered in the area in which the individual re23 sides that has a monthly plan premium for 

24 the year that is equal to or less than the 

25 monthly national average premium (as 
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1 computed under section 1860D–15) for the 

2 year; 

3 ‘‘(B) the annual deductible applicable under 

4 section 1860D–6(c)(1) in a year shall be reduced 

5 to $0; 

6 ‘‘(C) section 1860D–6(c)(2) shall be applied 

7 by substituting ‘5.0 percent’ for ‘50 percent’ each 

8 place it appears; 

9 ‘‘(D) such individual shall be responsible for 

10 cost-sharing for the cost of any covered drug pro11 vided in the year (after the individual has 

12 reached such initial coverage limit and before the 

13 individual has reached the annual out-of-pocket 

14 limit under section 1860D–6(c)(4)(A)), that is 

15 equal to 10.0 percent; and 

16 ‘‘(E) section 1860D–6(c)(4)(A) shall be ap17 plied by substituting ‘2.5 percent’ for ‘10 per18 cent’. 

19 In no case may the application of subparagraph (A) 

20 result in a monthly beneficiary obligation that is 

21 below 0. 

22 ‘‘(3) SLIDING SCALE PREMIUM SUBSIDY AND RE23 DUCTION OF COST-SHARING FOR SUBSIDY-ELIGIBLE

24 INDIVIDUALS.—
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1 ‘‘(A) IN GENERAL.—In the case of a sub2 sidy-eligible individual (as defined in paragraph 

3 (4)(D))—

4 ‘‘(i) section 1860D–17 shall be ap5 plied—

6 ‘‘(I) in subsection (c), by sub7 stituting ‘subsidy percent’ for the per8 centage that would otherwise apply 

9 under such section in the service area 

10 in which the subsidy-eligible indi11 vidual resides; and 

12 ‘‘(II) in subparagraphs (A) and 

13 (B) of subsection (a)(3), by sub14 stituting ‘the amount of the monthly 

15 plan premium for the Medicare Pre16 scription Drug plan with the lowest 

17 monthly plan premium in the area 

18 that the beneficiary resides’ for ‘the 

19 amount of the monthly national aver20 age premium’, but only if there is no 

21 Medicare Prescription Drug plan of22 fered in the area in which the indi23 vidual resides that has a monthly plan 

24 premium for the year that is equal to 

25 or less than the monthly national aver-
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1 age premium (as computed under sec2 tion 1860D–15) for the year; and 

3 ‘‘(ii) the annual deductible applicable 

4 under section 1860D–6(c)(1) in a year shall 

5 be reduced to $50; 

6 ‘‘(iii) section 1860D–6(c)(2) shall be 

7 applied by substituting ‘10.0 percent’ for 

8 ‘50 percent’ each place it appears; 

9 ‘‘(iv) such individual shall be respon10 sible for cost-sharing for the cost of any cov11 ered drug provided in the year (after the in12 dividual has reached such initial coverage 

13 limit and before the individual has reached 

14 the annual out-of-pocket limit under section 

15 1860D–6(c)(4)(A)), that is equal to 20.0 

16 percent; and 

17 ‘‘(v) such individual shall be respon18 sible for the cost-sharing described in section 

19 1860D–6(c)(4)(A). 

20 In no case may the application of clause (i) re21 sult in a monthly beneficiary obligation that is 

22 below 0. 

23 ‘‘(B) SUBSIDY PERCENT DEFINED.—For 

24 purposes of subparagraph (A)(i), the term ‘sub25 sidy percent’ means, with respect to a State, a 
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1 percent determined on a linear sliding scale 

2 ranging from—

3 ‘‘(i) 0 percent with respect to a sub4 sidy-eligible individual residing in the 

5 State whose income does not exceed 135 per6 cent of the poverty line; to 

7 ‘‘(ii) the highest percentage that would 

8 otherwise apply under section 1860D–17 in 

9 the service area in which the subsidy-eligible 

10 individual resides, in the case of a subsidy11 eligible individual residing in the State 

12 whose income equals 160 percent of the pov13 erty line. 

14 ‘‘(4) DEFINITIONS.—In this part: 

15 ‘‘(A) QUALIFIED MEDICARE BENEFICIARY.—

16 Subject to subparagraph (H), the term ‘qualified 

17 medicare beneficiary’ means an individual 

18 who—

19 ‘‘(i) is enrolled under this part, includ20 ing an individual who is enrolled under a 

21 MedicareAdvantage plan; 

22 ‘‘(ii) is described in section 1905(p)(1); 

23 and 

24 ‘‘(iii) is not—
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1 ‘‘(I) a specified low-income medi2 care beneficiary; 

3 ‘‘(II) a qualifying individual; or 

4 ‘‘(III) a dual eligible individual. 

5 ‘‘(B) SPECIFIED LOW INCOME MEDICARE

6 BENEFICIARY.—Subject to subparagraph (H), the 

7 term ‘specified low income medicare beneficiary’ 

8 means an individual who—

9 ‘‘(i) is enrolled under this part, includ10 ing an individual who is enrolled under a 

11 MedicareAdvantage plan; 

12 ‘‘(ii) is described in section 

13 1902(a)(10)(E)(iii); and 

14 ‘‘(iii) is not—

15 ‘‘(I) a qualified medicare bene16 ficiary; 

17 ‘‘(II) a qualifying individual; or 

18 ‘‘(III) a dual eligible individual. 

19 ‘‘(C) QUALIFYING INDIVIDUAL.—Subject to 

20 subparagraph (H), the term ‘qualifying indi21 vidual’ means an individual who—

22 ‘‘(i) is enrolled under this part, includ23 ing an individual who is enrolled under a 

24 MedicareAdvantage plan; 
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1 ‘‘(ii) is described in section 

2 1902(a)(10)(E)(iv) (without regard to any 

3 termination of the application of such sec4 tion under title XIX); and 

5 ‘‘(iii) is not—

6 ‘‘(I) a qualified medicare bene7 ficiary; 

8 ‘‘(II) a specified low-income medi9 care beneficiary; or 

10 ‘‘(III) a dual eligible individual. 

11 ‘‘(D) SUBSIDY-ELIGIBLE INDIVIDUAL.—Sub12 ject to subparagraph (H), the term ‘subsidy-eligi13 ble individual’ means an individual—

14 ‘‘(i) who is enrolled under this part, 

15 including an individual who is enrolled 

16 under a MedicareAdvantage plan; 

17 ‘‘(ii) whose income is less than 160 

18 percent of the poverty line; and 

19 ‘‘(iii) who is not—

20 ‘‘(I) a qualified medicare bene21 ficiary; 

22 ‘‘(II) a specified low-income medi23 care beneficiary; 

24 ‘‘(III) a qualifying individual; or 

25 ‘‘(IV) a dual eligible individual.
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1 ‘‘(E) DUAL ELIGIBLE INDIVIDUAL.—

2 ‘‘(i) IN GENERAL.—The term ‘dual eli3 gible individual’ means an individual who 

4 is—

5 ‘‘(I) enrolled under title XIX or 

6 under a waiver under section 1115 of 

7 the requirements of such title for med8 ical assistance that is not less than the 

9 medical assistance provided to an indi10 vidual described in section 

11 1902(a)(10)(A)(i) and includes covered 

12 outpatient drugs (as such term is de13 fined for purposes of section 1927); and 

14 ‘‘(II) entitled to benefits under 

15 part A and enrolled under part B. 

16 ‘‘(ii) INCLUSION OF MEDICALLY

17 NEEDY.—Such term includes an individual 

18 described in section 1902(a)(10)(C). 

19 ‘‘(F) POVERTY LINE.—The term ‘poverty 

20 line’ has the meaning given such term in section 

21 673(2) of the Community Services Block Grant 

22 Act (42 U.S.C. 9902(2)), including any revision 

23 required by such section. 

24 ‘‘(G) ELIGIBILITY DETERMINATIONS.—Be25 ginning on November 1, 2005, the determination 
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1 of whether an individual residing in a State is 

2 an individual described in subparagraph (A), 

3 (B), (C), (D), or (E) and, for purposes of para4 graph (3), the amount of an individual’s income, 

5 shall be determined under the State medicaid 

6 plan for the State under section 1935(a). In the 

7 case of a State that does not operate such a med8 icaid plan (either under title XIX or under a 

9 statewide waiver granted under section 1115), 

10 such determination shall be made under arrange11 ments made by the Administrator. 

12 ‘‘(H) NONAPPLICATION TO DUAL ELIGIBLE

13 INDIVIDUALS AND TERRITORIAL RESIDENTS.—In 

14 the case of an individual who is a dual eligible 

15 individual or an individual who is not a resi16 dent of the 50 States or the District of Colum17 bia—

18 ‘‘(i) the subsidies provided under this 

19 section shall not apply; and 

20 ‘‘(ii) such individuals may be provided 

21 with medical assistance for covered out22 patient drugs (as such term is defined for 

23 purposes of section 1927) in accordance 

24 with section 1935 under the State medicaid 

25 program under title XIX. 
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1 ‘‘(b) RULES IN APPLYING COST-SHARING SUB2 SIDIES.—Nothing in this section shall be construed as pre3 venting an eligible entity offering a Medicare Prescription 

4 Drug plan or a MedicareAdvantage organization offering 

5 a MedicareAdvantage plan from waiving or reducing the 

6 amount of the deductible or other cost-sharing otherwise ap7 plicable pursuant to section 1860D–6(a)(2). 

8 ‘‘(c) ADMINISTRATION OF SUBSIDY PROGRAM.—The 

9 Administrator shall establish a process whereby, in the case 

10 of an individual eligible for a cost-sharing subsidy under 

11 subsection (a) who is enrolled in a Medicare Prescription 

12 Drug plan or a MedicareAdvantage plan—

13 ‘‘(1) the Administrator provides for a notifica14 tion of the eligible entity or MedicareAdvantage orga15 nization involved that the individual is eligible for a 

16 cost-sharing subsidy and the amount of the subsidy 

17 under such subsection; 

18 ‘‘(2) the entity or organization involved reduces 

19 the cost-sharing otherwise imposed by the amount of 

20 the applicable subsidy and submits to the Adminis21 trator information on the amount of such reduction; 

22 and 

23 ‘‘(3) the Administrator periodically and on a 

24 timely basis reimburses the entity or organization for 

25 the amount of such reductions. 
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1 The reimbursement under paragraph (3) may be computed 

2 on a capitated basis, taking into account the actuarial 

3 value of the subsidies and with appropriate adjustments to 

4 reflect differences in the risks actually involved. 

5 ‘‘(d) RELATION TO MEDICAID PROGRAM.—For provi6 sions providing for eligibility determinations and addi7 tional Federal payments for expenditures related to pro8 viding prescription drug coverage for dual eligible individ9 uals and territorial residents under the medicaid program, 

10 see section 1935. 

11 ‘‘REINSURANCE PAYMENTS FOR EXPENSES INCURRED IN

12 PROVIDING PRESCRIPTION DRUG COVERAGE ABOVE

13 THE ANNUAL OUT-OF-POCKET THRESHOLD

14 ‘‘SEC. 1860D–20. (a) REINSURANCE PAYMENTS.—

15 ‘‘(1) IN GENERAL.—Subject to section 1860D–

16 21(b), the Administrator shall provide in accordance 

17 with this section for payment to a qualifying entity 

18 of the reinsurance payment amount (as specified in 

19 subsection (c)(1)) for costs incurred by the entity in 

20 providing prescription drug coverage for a qualifying 

21 covered individual after the individual has reached 

22 the annual out-of-pocket threshold specified in section 

23 1860D–6(c)(4)(B) for the year. 

24 ‘‘(2) BUDGET AUTHORITY.—This section con25 stitutes budget authority in advance of appropria26 tions Acts and represents the obligation of the Admin-
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1 istrator to provide for the payment of amounts pro2 vided under this section. 

3 ‘‘(b) NOTIFICATION OF SPENDING UNDER THE PLAN

4 FOR COSTS INCURRED IN PROVIDING PRESCRIPTION DRUG

5 COVERAGE ABOVE THE ANNUAL OUT-OF-POCKET THRESH6 OLD.— 

7 ‘‘(1) IN GENERAL.—Each qualifying entity shall 

8 notify the Administrator of the following with respect 

9 to a qualifying covered individual for a coverage 

10 year: 

11 ‘‘(A) TOTAL ACTUAL COSTS.—The total 

12 amount (if any) of costs that the qualifying enti13 ty incurred in providing prescription drug cov14 erage for the individual in the year after the in15 dividual had reached the annual out-of-pocket 

16 threshold specified in section 1860D–6(c)(4)(B) 

17 for the year. 

18 ‘‘(B) ACTUAL COSTS FOR SPECIFIC

19 DRUGS.—With respect to the total amount under 

20 subparagraph (A) for the year, a breakdown of— 

21 ‘‘(i) each covered drug that constitutes 

22 a portion of such amount; 

23 ‘‘(ii) the negotiated price for the quali24 fying entity for each such drug; 

25 ‘‘(iii) the number of prescriptions; and 
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1 ‘‘(iv) the average beneficiary coinsur2 ance rate for a each covered drug that con3 stitutes a portion of such amount. 

4 ‘‘(2) CERTAIN EXPENSES NOT INCLUDED.—The 

5 amounts under subparagraphs (A) and (B)(ii) of 

6 paragraph (1) may not include—

7 ‘‘(A) administrative expenses incurred in 

8 providing the coverage described in paragraph 

9 (1)(A); or 

10 ‘‘(B) amounts expended on providing addi11 tional prescription drug coverage pursuant to 

12 section 1860D–6(a)(2). 

13 ‘‘(3) RESTRICTION ON USE OF INFORMATION.—

14 The restriction specified in section 1860D–16(b)(7)(B) 

15 shall apply to information disclosed or obtained pur16 suant to the provisions of this section. 

17 ‘‘(c) REINSURANCE PAYMENT AMOUNT.—

18 ‘‘(1) IN GENERAL.—The reinsurance payment 

19 amount under this subsection for a qualifying covered 

20 individual for a coverage year is an amount equal to 

21 80 percent of the allowable costs (as specified in para22 graph (2)) incurred by the qualifying entity with re23 spect to the individual and year. 

24 ‘‘(2) ALLOWABLE COSTS.—
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1 ‘‘(A) IN GENERAL.—In the case of a quali2 fying entity that has incurred costs described in 

3 subsection (b)(1)(A) with respect to a qualifying 

4 covered individual for a coverage year, the Ad5 ministrator shall establish the allowable costs for 

6 the individual and year. Such allowable costs 

7 shall be equal to the amount described in such 

8 subsection for the individual and year, adjusted 

9 under subparagraph (B). 

10 ‘‘(B) REPRICING OF COSTS IF ACTUAL

11 COSTS EXCEED AVERAGE COSTS.—The Adminis12 trator shall reduce the amount described in sub13 section (b)(1)(A) with respect to a qualifying 

14 covered individual for a coverage year to the ex15 tent such amount is based on costs of specific 

16 covered drugs furnished under the plan in the 

17 year (as specified under subsection (b)(1)(B)) 

18 that are greater than the average cost for the cov19 ered drug for the year (as determined under sec20 tion 1860D–16(b)(3)(A)). 

21 ‘‘(d) PAYMENT METHODS.—

22 ‘‘(1) IN GENERAL.—Payments under this section 

23 shall be based on such a method as the Administrator

24 determines. The Administrator may establish a pay25 ment method by which interim payments of amounts 
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1 under this section are made during a year based on 

2 the Administrator’s best estimate of amounts that will 

3 be payable after obtaining all of the information. 

4 ‘‘(2) SOURCE OF PAYMENTS.—Payments under 

5 this section shall be made from the Prescription Drug 

6 Account. 

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

8 ‘‘(1) COVERAGE YEAR.—The term ‘coverage year’ 

9 means a calendar year in which covered drugs are 

10 dispensed if a claim for payment is made under the 

11 plan for such drugs, regardless of when the claim is 

12 paid. 

13 ‘‘(2) QUALIFYING COVERED INDIVIDUAL.—The 

14 term ‘qualifying covered individual’ means an indi15 vidual who—

16 ‘‘(A) is enrolled in this part and in a Medi17 care Prescription Drug plan; 

18 ‘‘(B) is enrolled in this part and in a 

19 MedicareAdvantage plan (except for an MSA 

20 plan or a private fee-for-service plan that does 

21 not provide qualified prescription drug cov22 erage); or 

23 ‘‘(C) is eligible for, but not enrolled in, the 

24 program under this part, and is covered under 

25 a qualified retiree prescription drug plan. 
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1 ‘‘(3) QUALIFYING ENTITY.—The term ‘qualifying 

2 entity’ means any of the following that has entered 

3 into an agreement with the Administrator to provide 

4 the Administrator with such information as may be 

5 required to carry out this section: 

6 ‘‘(A) An eligible entity offering a Medicare 

7 Prescription Drug plan under this part. 

8 ‘‘(B) A MedicareAdvantage organization of9 fering a MedicareAdvantage plan under part C 

10 (except for an MSA plan or a private fee-for11 service plan that does not provide qualified pre12 scription drug coverage). 

13 ‘‘(C) The sponsor of a qualified retiree pre14 scription drug plan. 

15 ‘‘(4) QUALIFIED RETIREE PRESCRIPTION DRUG

16 PLAN.—

17 ‘‘(A) IN GENERAL.—The term ‘qualified re18 tiree prescription drug plan’ means employment19 based retiree health coverage if, with respect to a 

20 qualifying covered individual who is covered 

21 under the plan, the following requirements are 

22 met: 

23 ‘‘(i) ASSURANCE.—The sponsor of the 

24 plan shall annually attest, and provide such 

25 assurances as the Administrator may re-
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1 quire, that the coverage meets or exceeds the 

2 requirements for qualified prescription drug 

3 coverage. 

4 ‘‘(ii) DISCLOSURE OF INFORMATION.—

5 The sponsor complies with the requirements 

6 described in clauses (i) and (ii) of section 

7 1860D–16(b)(7)(A). 

8 ‘‘(B) EMPLOYMENT-BASED RETIREE

9 HEALTH COVERAGE.—The term ‘employment10 based retiree health coverage’ means health in11 surance or other coverage, whether provided by 

12 voluntary insurance coverage or pursuant to 

13 statutory or contractual obligation, of health care 

14 costs for retired individuals (or for such individ15 uals and their spouses and dependents) based on 

16 their status as former employees or labor union 

17 members. 

18 ‘‘(5) SPONSOR.—The term ‘sponsor’ means a 

19 plan sponsor, as defined in section 3(16)(B) of the 

20 Employee Retirement Income Security Act of 1974. 

21 ‘‘DIRECT SUBSIDY FOR SPONSOR OF A QUALIFIED RETIREE

22 PRESCRIPTION DRUG PLAN FOR PLAN ENROLLEES EL23 IGIBLE FOR, BUT NOT ENROLLED IN, THIS PART

24 ‘‘SEC. 1860D–21. (a) DIRECT SUBSIDY.—

25 ‘‘(1) IN GENERAL.—The Administrator shall pro26 vide for the payment to a sponsor of a qualified re-
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1 tiree prescription drug plan (as defined in section 

2 1860D–20(e)(4)) for each qualifying covered indi3 vidual (described in subparagraph (C) of section 

4 1860D–20(e)(2)) enrolled in the plan for each month 

5 for which such individual is so enrolled. 

6 ‘‘(2) AMOUNT OF PAYMENT.—

7 ‘‘(A) IN GENERAL.—The amount of the pay8 ment under paragraph (1) shall be an amount 

9 equal to the direct subsidy percent (for the area 

10 for the year) of the monthly national average 

11 premium for the year (determined under section 

12 1860D–15), as adjusted using the risk adjusters 

13 that apply to the standard prescription drug 

14 coverage published under section 1860D–11. 

15 ‘‘(B) DIRECT SUBSIDY PERCENT.—For pur16 poses of subparagraph (A), the term ‘direct sub17 sidy percent’ means the percentage equal to—

18 ‘‘(i) 100 percent; minus 

19 ‘‘(ii) the applicable percent for the year 

20 and for the area in which the individual re21 sides for the year (as determined under sec22 tion 1860D–17(c). 

23 ‘‘(b) PAYMENT METHODS.—

24 ‘‘(1) IN GENERAL.—Payments under this section 

25 shall be based on such a method as the Administrator 
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1 determines. The Administrator may establish a pay2 ment method by which interim payments of amounts 

3 under this section are made during a year based on 

4 the Administrator’s best estimate of amounts that will 

5 be payable after obtaining all of the information. 

6 ‘‘(2) SOURCE OF PAYMENTS.—Payments under 

7 this section shall be made from the Prescription Drug 

8 Account. 

9 ‘‘Subpart 3—Miscellaneous Provisions 

10 ‘‘PRESCRIPTION DRUG ACCOUNT IN THE FEDERAL

11 SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND

12 ‘‘SEC. 1860D–25. (a) ESTABLISHMENT.—

13 ‘‘(1) IN GENERAL.—There is created within the 

14 Federal Supplementary Medical Insurance Trust 

15 Fund established by section 1841 an account to be 

16 known as the ‘Prescription Drug Account’ (in this 

17 section referred to as the ‘Account’). 

18 ‘‘(2) FUNDS.—The Account shall consist of such 

19 gifts and bequests as may be made as provided in sec20 tion 201(i)(1), and such amounts as may be deposited 

21 in, or appropriated to, the Account as provided in 

22 this part. 

23 ‘‘(3) SEPARATE FROM REST OF TRUST FUND.—

24 Funds provided under this part to the Account shall 
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1 be kept separate from all other funds within the Fed2 eral Supplementary Medical Insurance Trust Fund. 

3 ‘‘(b) PAYMENTS FROM ACCOUNT.—

4 ‘‘(1) IN GENERAL.—The Managing Trustee shall 

5 pay from time to time from the Account such 

6 amounts as the Secretary certifies are necessary to 

7 make payments to operate the program under this 

8 part, including—

9 ‘‘(A) payments to eligible entities under sec10 tion 1860D–16; 

11 ‘‘(B) payments under 1860D–19 for low-in12 come subsidy payments for cost-sharing; 

13 ‘‘(C) reinsurance payments under section 

14 1860D–20; 

15 ‘‘(D) payments to sponsors of qualified re16 tiree prescription drug plans under section 

17 1860D–21; 

18 ‘‘(E) payments to MedicareAdvantage orga19 nizations for the provision of qualified prescrip20 tion drug coverage under section 1858A(c); and 

21 ‘‘(F) payments with respect to administra22 tive expenses under this part in accordance with 

23 section 201(g). 

24 ‘‘(2) TREATMENT IN RELATION TO PART B PRE25 MIUM.—Amounts payable from the Account shall not 
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1 be taken into account in computing actuarial rates or 

2 premium amounts under section 1839. 

3 ‘‘(c) APPROPRIATIONS TO COVER BENEFITS AND AD4 MINISTRATIVE COSTS.—There are appropriated to the Ac5 count in a fiscal year, out of any moneys in the Treasury 

6 not otherwise appropriated, an amount equal to the pay7 ments and transfers made from the Account in the year. 

8 ‘‘OTHER RELATED PROVISIONS

9 ‘‘SEC. 1860D–26. (a) RESTRICTION ON ENROLLMENT

10 IN A MEDICARE PRESCRIPTION DRUG PLAN OFFERED BY

11 A SPONSOR OF EMPLOYMENT-BASED RETIREE HEALTH

12 COVERAGE.—

13 ‘‘(1) IN GENERAL.—In the case of a Medicare 

14 Prescription Drug plan offered by an eligible entity 

15 that is a sponsor (as defined in paragraph (5) of sec16 tion 1860D–20(e)) of employment-based retiree health 

17 coverage (as defined in paragraph (4)(B) of such sec18 tion), notwithstanding any other provision of this 

19 part and in accordance with regulations of the Ad20 ministrator, the entity offering the plan may restrict 

21 the enrollment of eligible beneficiaries enrolled under 

22 this part to eligible beneficiaries who are enrolled in 

23 such coverage. 

24 ‘‘(2) LIMITATION.—The sponsor of the employ25 ment-based retiree health coverage described in para26 graph (1) may not offer enrollment in the Medicare 
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1 Prescription Drug plan described in such paragraph 

2 based on the health status of eligible beneficiaries en3 rolled for such coverage. 

4 ‘‘(b) COORDINATION WITH STATE PHARMACEUTICAL

5 ASSISTANCE PROGRAMS.—

6 ‘‘(1) IN GENERAL.—An eligible entity offering a 

7 Medicare Prescription Drug plan, or a 

8 MedicareAdvantage organization offering a 

9 MedicareAdvantage plan (other than an MSA plan or 

10 a private fee-for-service plan that does not provide 

11 qualified prescription drug coverage), may enter into 

12 an agreement with a State pharmaceutical assistance 

13 program described in paragraph (2) to coordinate the 

14 coverage provided under the plan with the assistance 

15 provided under the State pharmaceutical assistance 

16 program. 

17 ‘‘(2) STATE PHARMACEUTICAL ASSISTANCE PRO18 GRAM DESCRIBED.—For purposes of paragraph (1), a 

19 State pharmaceutical assistance program described in 

20 this paragraph is a program that has been established 

21 pursuant to a waiver under section 1115 or otherwise. 

22 (c) REGULATIONS TO CARRY OUT THIS PART.—

23 (1) AUTHORITY FOR INTERIM FINAL REGULA24 TIONS.—The Secretary may promulgate initial regu-
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1 lations implementing this part in interim final form 

2 without prior opportunity for public comment. 

3 (2) FINAL REGULATIONS.—A final regulation re4 flecting public comments must be published within 1 

5 year of the interim final regulation promulgated 

6 under paragraph (1).’’. 

7 (b) CONFORMING AMENDMENTS TO FEDERAL SUPPLE8 MENTARY MEDICAL INSURANCE TRUST FUND.—Section 

9 1841 (42 U.S.C. 1395t) is amended—

10 (1) in the last sentence of subsection (a)—

11 (A) by striking ‘‘and’’ before ‘‘such 

12 amounts’’; and 

13 (B) by inserting before the period the fol14 lowing: ‘‘, and such amounts as may be depos15 ited in, or appropriated to, the Prescription 

16 Drug Account established by section 1860D–25’’; 

17 (2) in subsection (g), by inserting after ‘‘by this 

18 part,’’ the following: ‘‘the payments provided for 

19 under part D (in which case the payments shall be 

20 made from the Prescription Drug Account in the 

21 Trust Fund),’’; 

22 (3) in subsection (h), by inserting after 

23 ‘‘1840(d)’’ the following: ‘‘and sections 1860D–18 and 

24 1858A(e) (in which case the payments shall be made
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1 from the Prescription Drug Account in the Trust 

2 Fund)’’; and 

3 (4) in subsection (i), by inserting after ‘‘section 

4 1840(b)(1)’’ the following: ‘‘, sections 1860D–18 and 

5 1858A(e) (in which case the payments shall be made 

6 from the Prescription Drug Account in the Trust 

7 Fund),’’. 

8 (c) CONFORMING REFERENCES TO PREVIOUS PART

9 D.—Any reference in law (in effect before the date of enact10 ment of this Act) to part D of title XVIII of the Social 

11 Security Act is deemed a reference to part F of such title 

12 (as in effect after such date). 

13 (d) SUBMISSION OF LEGISLATIVE PROPOSAL.—Not 

14 later than 6 months after the date of the enactment of this 

15 Act, the Secretary shall submit to the appropriate commit16 tees of Congress a legislative proposal providing for such 

17 technical and conforming amendments in the law as are 

18 required by the provisions of this Act. 

19 SEC. 102. STUDY AND REPORT ON PERMITTING PART B 

20 ONLY INDIVIDUALS TO ENROLL IN MEDICARE 

21 VOLUNTARY PRESCRIPTION DRUG DELIVERY 

22 PROGRAM. 

23 (a) STUDY.—The Administrator of the Center for 

24 Medicare Choices (as established under section 1808 of the 

25 Social Security Act, as added by section 301(a)) shall con-
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1 duct a study on the need for rules relating to permitting 

2 individuals who are enrolled under part B of title XVIII 

3 of the Social Security Act but are not entitled to benefits 

4 under part A of such title to buy into the medicare vol5 untary prescription drug delivery program under part D 

6 of such title (as so added). 

7 (b) REPORT.—Not later than January 1, 2005, the Ad8 ministrator of the Center for Medicare Choices shall submit 

9 a report to Congress on the study conducted under sub10 section (a), together with any recommendations for legisla11 tion that the Administrator determines to be appropriate 

12 as a result of such study. 

13 SEC. 103. RULES RELATING TO MEDIGAP POLICIES THAT 

14 PROVIDE PRESCRIPTION DRUG COVERAGE. 

15 (a) RULES RELATING TO MEDIGAP POLICIES THAT

16 PROVIDE PRESCRIPTION DRUG COVERAGE.—Section 1882 

17 (42 U.S.C. 1395ss) is amended by adding at the end the 

18 following new subsection: 

19 ‘‘(v) RULES RELATING TO MEDIGAP POLICIES THAT

20 PROVIDE PRESCRIPTION DRUG COVERAGE.—

21 ‘‘(1) PROHIBITION ON SALE, ISSUANCE, AND RE22 NEWAL OF POLICIES THAT PROVIDE PRESCRIPTION

23 DRUG COVERAGE TO PART D ENROLLEES.—

24 ‘‘(A) IN GENERAL.—Notwithstanding any 

25 other provision of law, on or after January 1, 
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1 2006, no medicare supplemental policy that pro2 vides coverage of expenses for prescription drugs 

3 may be sold, issued, or renewed under this sec4 tion to an individual who is enrolled under part 

5 D. 

6 ‘‘(B) PENALTIES.—The penalties described 

7 in subsection (d)(3)(A)(ii) shall apply with re8 spect to a violation of subparagraph (A). 

9 ‘‘(2) ISSUANCE OF SUBSTITUTE POLICIES IF THE

10 POLICYHOLDER OBTAINS PRESCRIPTION DRUG COV11 ERAGE UNDER PART D.—

12 ‘‘(A) IN GENERAL.—The issuer of a medi13 care supplemental policy—

14 ‘‘(i) may not deny or condition the 

15 issuance or effectiveness of a medicare sup16 plemental policy that has a benefit package 

17 classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’, ‘F’ (in18 cluding the benefit package classified as ‘F’ 

19 with a high deductible feature, as described 

20 in subsection (p)(11)), or ‘G’ (under the 

21 standards established under subsection 

22 (p)(2)) and that is offered and is available 

23 for issuance to new enrollees by such issuer; 

24 ‘‘(ii) may not discriminate in the pric25 ing of such policy, because of health status, 
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1 claims experience, receipt of health care, or 

2 medical condition; and 

3 ‘‘(iii) may not impose an exclusion of 

4 benefits based on a pre-existing condition 

5 under such policy, 

6 in the case of an individual described in sub7 paragraph (B) who seeks to enroll under the pol8 icy during the open enrollment period established 

9 under section 1860D–2(b)(2) and who submits 

10 evidence that they meet the requirements under 

11 subparagraph (B) along with the application for 

12 such medicare supplemental policy. 

13 ‘‘(B) INDIVIDUAL DESCRIBED.—An indi14 vidual described in this subparagraph is an in15 dividual who—

16 ‘‘(i) enrolls in the medicare prescrip17 tion drug delivery program under part D; 

18 and 

19 ‘‘(ii) at the time of such enrollment 

20 was enrolled and terminates enrollment in 

21 a medicare supplemental policy which has a 

22 benefit package classified as ‘H’, ‘I’, or ‘J’ 

23 (including the benefit package classified as 

24 ‘J’ with a high deductible feature, as de25 scribed in section 1882(p)(11)) under the 
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1 standards referred to in subparagraph 

2 (A)(i) or terminates enrollment in a policy 

3 to which such standards do not apply but 

4 which provides benefits for prescription 

5 drugs. 

6 ‘‘(C) ENFORCEMENT.—The provisions of 

7 subparagraph (A) shall be enforced as though 

8 they were included in subsection (s). 

9 ‘‘(3) NOTICE REQUIRED TO BE PROVIDED TO

10 CURRENT POLICYHOLDERS WITH PRESCRIPTION DRUG

11 COVERAGE.—No medicare supplemental policy of an 

12 issuer shall be deemed to meet the standards in sub13 section (c) unless the issuer provides written notice 

14 during the 60-day period immediately preceding the 

15 period established for the open enrollment period es16 tablished under section 1860D–2(b)(2), to each indi17 vidual who is a policyholder or certificate holder of 

18 a medicare supplemental policy issued by that issuer 

19 that provides some coverage of expenses for prescrip20 tion drugs (at the most recent available address of 

21 that individual) of—

22 ‘‘(A) the ability to enroll in a new medicare 

23 supplemental policy pursuant to paragraph (2); 

24 and
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1 ‘‘(B) the fact that, so long as such indi2 vidual retains coverage under such policy, the 

3 individual shall be ineligible for coverage of pre4 scription drugs under part D.’’. 

5 (b) RULE OF CONSTRUCTION.—

6 (1) IN GENERAL.—Nothing in this Act shall be 

7 construed to require an issuer of a medicare supple8 mental policy under section 1882 of the Social Secu9 rity Act (42 U.S.C. 1395rr) to participate as an eligi10 ble entity under part D of such Act, as added by sec11 tion 101, as a condition for issuing such policy. 

12 (2) PROHIBITION ON STATE REQUIREMENT.—A 

13 State may not require an issuer of a medicare supple14 mental policy under section 1882 of the Social Secu15 rity Act (42 U.S.C. 1395rr) to participate as an eligi16 ble entity under part D of such Act, as added by sec17 tion 101, as a condition for issuing such policy. 

18 SEC. 104. MEDICAID AND OTHER AMENDMENTS RELATED 

19 TO LOW-INCOME BENEFICIARIES. 

20 (a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN21 COME SUBSIDIES.—

22 (1) REQUIREMENT.—Section 1902 (42 U.S.C. 

23 1396a) is amended—

24 (A) in subsection (a)—
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1 (i) by striking ‘‘and’’ at the end of 

2 paragraph (64); 

3 (ii) by striking the period at the end of 

4 paragraph (65) and inserting ‘‘; and’’; and 

5 (iii) by inserting after paragraph (65) 

6 the following new paragraph: 

7 ‘‘(66) provide for making eligibility determina8 tions under section 1935(a).’’. 

9 (2) NEW SECTION.—Title XIX (42 U.S.C. 1396 

10 et seq.) is amended—

11 (A) by redesignating section 1935 as section 

12 1936; and 

13 (B) by inserting after section 1934 the fol14 lowing new section: 

15 ‘‘SPECIAL PROVISIONS RELATING TO MEDICARE

16 PRESCRIPTION DRUG BENEFIT

17 ‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI18 BILITY DETERMINATIONS FOR LOW-INCOME SUBSIDIES.—

19 As a condition of its State plan under this title under sec20 tion 1902(a)(66) and receipt of any Federal financial as21 sistance under section 1903(a), a State shall satisfy the fol22 lowing: 

23 ‘‘(1) DETERMINATION OF ELIGIBILITY FOR TRAN24 SITIONAL PRESCRIPTION DRUG ASSISTANCE CARD

25 PROGRAM FOR ELIGIBLE LOW-INCOME BENE26 FICIARIES.—For purposes of section 1807A, submit to 
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1 the Secretary an eligibility plan under which the 

2 State—

3 ‘‘(A) establishes eligibility standards con4 sistent with the provisions of that section; 

5 ‘‘(B) establishes procedures for providing 

6 presumptive eligibility for eligible low-income 

7 beneficiaries (as defined in section 1807A(i)(2)) 

8 under that section in a manner that is similar 

9 to the manner in which presumptive eligibility 

10 is provided to children and pregnant women 

11 under this title; 

12 ‘‘(C) makes determinations of eligibility 

13 and income for purposes of identifying eligible 

14 low-income beneficiaries (as so defined) under 

15 that section; and 

16 ‘‘(D) communicates to the Secretary deter17 minations of eligibility or discontinuation of eli18 gibility under that section for purposes of noti19 fying prescription drug card sponsors under that 

20 section of the identity of eligible medicare low21 income beneficiaries. 

22 ‘‘(2) DETERMINATION OF ELIGIBILITY FOR PRE23 MIUM AND COST-SHARING SUBSIDIES UNDER PART D 

24 OF TITLE XVIII FOR LOW-INCOME INDIVIDUALS.—Be-
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1 ginning November 1, 2005, for purposes of section 

2 1860D–19—

3 ‘‘(A) make determinations of eligibility for 

4 premium and cost-sharing subsidies under and 

5 in accordance with such section; 

6 ‘‘(B) establish procedures for providing pre7 sumptive eligibility for individuals eligible for 

8 subsidies under that section in a manner that is 

9 similar to the manner in which presumptive eli10 gibility is provided to children and pregnant 

11 women under this title; 

12 ‘‘(C) inform the Administrator of the Center 

13 for Medicare Choices of such determinations in 

14 cases in which such eligibility is established; and 

15 ‘‘(D) otherwise provide such Administrator 

16 with such information as may be required to 

17 carry out part D of title XVIII (including sec18 tion 1860D–19). 

19 ‘‘(3) AGREEMENT TO ESTABLISH INFORMATION

20 AND ENROLLMENT SITES AT SOCIAL SECURITY FIELD

21 OFFICES.—Enter into an agreement with the Com22 missioner of Social Security to use all Social Security 

23 field offices located in the State as information and 

24 enrollment sites for making the eligibility determina25 tions required under paragraphs (1) and (2).
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1 ‘‘(b) FEDERAL SUBSIDY OF ADMINISTRATIVE

2 COSTS.—

3 ‘‘(1) ENHANCED MATCH FOR ELIGIBILITY DETER4 MINATIONS.—Subject to paragraphs (2) and (4), with 

5 respect to calendar quarters beginning on or after 

6 January 1, 2004, the amounts expended by a State 

7 in carrying out subsection (a) are expenditures reim8 bursable under section 1903(a)(7) except that, in ap9 plying such section with respect to such expenditures 

10 incurred for—

11 ‘‘(A) such calendar quarters occurring in 

12 fiscal year 2004 or 2005, ‘75 percent’ shall be 

13 substituted for ‘50 per centum’; 

14 ‘‘(B) calendar quarters occurring in fiscal 

15 year 2006, ‘70 percent’ shall be substituted for 

16 ‘50 per centum’; 

17 ‘‘(C) calendar quarters occurring in fiscal 

18 year 2007, ‘65 percent’ shall be substituted for 

19 ‘50 per centum’; and 

20 ‘‘(D) calendar quarters occurring in fiscal 

21 year 2008 or any fiscal year thereafter, ‘60 per22 cent’ shall be substituted for ‘50 per centum’. 

23 ‘‘(2) 100 PERCENT MATCH FOR ELIGIBILITY DE24 TERMINATIONS FOR SUBSIDY-ELIGIBLE INDIVID25 UALS.—In the case of amounts expended by a State 
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1 on or after November 1, 2005, to determine whether 

2 an individual is a subsidy-eligible individual for pur3 poses of section 1860D–19, such expenditures shall be 

4 reimbursed under section 1903(a)(7) by substituting 

5 ‘100 percent’ for ‘50 per centum’. 

6 ‘‘(3) ENHANCED MATCH FOR UPDATES OR IM7 PROVEMENTS TO ELIGIBILITY DETERMINATION SYS8 TEMS.—With respect to calendar quarters occurring 

9 in fiscal year 2004, 2005, or 2006, the Secretary, in 

10 addition to amounts otherwise paid under section 

11 1903(a), shall pay to each State which has a plan ap12 proved under this title, for each such quarter an 

13 amount equal to 90 percent of so much of the sums 

14 expended during such quarter as are attributable to 

15 the design, development, acquisition, or installation of 

16 improved eligibility determination systems (including 

17 hardware and software for such systems) in order to 

18 carry out the requirements of subsection (a) and sec19 tion 1807A(h)(1). No payment shall be made to a 

20 State under the preceding sentence unless the State’s 

21 improved eligibility determination system—

22 ‘‘(A) satisfies such standards for improve23 ment as the Secretary may establish; and 

24 ‘‘(B) complies, and is compatible, with the 

25 standards established under part C of title XI 
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1 and any regulations promulgated under section 

2 264(c) of the Health Insurance Portability and 

3 Accountability Act of 1996 (42 U.S.C. 1320d–2 

4 note). 

5 ‘‘(4) COORDINATION.—The State shall provide 

6 the Secretary with such information as may be nec7 essary to properly allocate expenditures described in 

8 paragraph (1), (2), or (3) that may otherwise be 

9 made for similar eligibility determinations or expend10 itures. 

11 ‘‘(c) FEDERAL PAYMENT OF MEDICARE PART B PRE12 MIUM FOR STATES PROVIDING PRESCRIPTION DRUG COV13 ERAGE FOR DUAL ELIGIBLE INDIVIDUALS.—

14 ‘‘(1) IN GENERAL.—Subject to paragraph (4), in 

15 the case of a State that provides medical assistance 

16 for covered drugs (as such term is defined in section 

17 1860D(a)(2)) to dual eligible individuals under this 

18 title that satisfies the minimum standards described 

19 in paragraph (2), the Secretary shall be responsible 

20 in accordance with section 1841(f)(2) for paying 100 

21 percent of the medicare cost-sharing described in sec22 tion 1905(p)(3)(A)(ii) (relating to premiums under 

23 section 1839) for individuals—

24 ‘‘(A) who are dual eligible individuals or 

25 qualified medicare beneficiaries; and 
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1 ‘‘(B) whose family income is at least 74 

2 percent, but not more than 100 percent, of the 

3 poverty line (as defined in section 2110(c)(5)) 

4 applicable to a family of the size involved. 

5 ‘‘(2) MINIMUM STANDARDS DESCRIBED.—For 

6 purposes of paragraph (1), the minimum standards 

7 described in this paragraph are the following: 

8 ‘‘(A) In providing medical assistance for 

9 dual eligible individuals for such covered drugs, 

10 the State satisfies the requirements of this title 

11 (including limitations on cost-sharing imposed 

12 under section 1916) applicable to the provision 

13 of medical assistance for prescribed drugs to dual 

14 eligible individuals. 

15 ‘‘(B) In providing medical assistance for 

16 dual eligible individuals for such covered drugs, 

17 the State provides such individuals with bene18 ficiary protections that the Secretary determines 

19 are equivalent to the beneficiary protections ap20 plicable under section 1860D–5 to eligible enti21 ties offering a Medicare Prescription Drug plan 

22 under part D of title XVIII. 

23 ‘‘(C) In providing medical assistance for 

24 such individuals for such covered drugs, the 

25 State does not impose a limitation on the num-
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1 ber of prescriptions an individual may have 

2 filled. 

3 ‘‘(3) NONAPPLICATION.—Section 1927(d)(2)(E) 

4 shall not apply to a State for purposes of providing 

5 medical assistance for covered drugs (as such term is 

6 defined in section 1860D(a)(2)) to dual eligible indi7 viduals that satisfies the minimum standards de8 scribed in paragraph (2). 

9 ‘‘(4) LIMITATION.—Paragraph (1) shall not 

10 apply to any State before January 1, 2006. 

11 ‘‘(d) FEDERAL PAYMENT OF MEDICARE PART A COST12 SHARING FOR CERTAIN STATES.—

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

14 the case of a State that, as of the date of enactment 

15 of the Prescription Drug and Medicare Improvement 

16 Act of 2003, provides medical assistance for individ17 uals described in section 1902(a)(10)(A)(ii))(X), the 

18 Secretary shall be responsible in accordance with sec19 tion 1817(g)(2), for paying 100 percent of the medi20 care cost-sharing described in subparagraphs (B) and 

21 (C) of section 1905(p)(3) (relating to coninsurance 

22 and deductibles established under title XVIII) for the 

23 individuals provided medical assistance under section 

24 1902(a)(10)(A)(ii)(X), but only—
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1 ‘‘(A) with respect to such medicare cost2 sharing that is incurred under part A of title 

3 XVIII; and 

4 ‘‘(B) for so long as the State elects to pro5 vide medical assistance under section 

6 1902(a)(10)(A)(ii)(X). 

7 ‘‘(2) LIMITATION.—Paragraph (1) shall not 

8 apply to any State before January 1, 2006. 

9 ‘‘(e) TREATMENT OF TERRITORIES.—

10 ‘‘(1) IN GENERAL.—In the case of a State, other 

11 than the 50 States and the District of Columbia—

12 ‘‘(A) the previous provisions of this section 

13 shall not apply to residents of such State; and 

14 ‘‘(B) if the State establishes a plan de15 scribed in paragraph (2), the amount otherwise 

16 determined under section 1108(f) (as increased 

17 under section 1108(g)) for the State shall be fur18 ther increased by the amount specified in para19 graph (3). 

20 ‘‘(2) PLAN.—The plan described in this para21 graph is a plan that—

22 ‘‘(A) provides medical assistance with re23 spect to the provision of covered drugs (as de24 fined in section 1860D(a)(2)) to individuals de-
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1 scribed in subparagraph (A), (B), (C), or (D) of 

2 section 1860D–19(a)(3); and 

3 ‘‘(B) ensures that additional amounts re4 ceived by the State that are attributable to the 

5 operation of this subsection are used only for 

6 such assistance. 

7 ‘‘(3) INCREASED AMOUNT.—

8 ‘‘(A) IN GENERAL.—The amount specified 

9 in this paragraph for a State for a fiscal year 

10 is equal to the product of—

11 ‘‘(i) the aggregate amount specified in 

12 subparagraph (B); and 

13 ‘‘(ii) the amount specified in section 

14 1108(g)(1) for that State, divided by the 

15 sum of the amounts specified in such section 

16 for all such States. 

17 ‘‘(B) AGGREGATE AMOUNT.—The aggregate 

18 amount specified in this subparagraph for—

19 ‘‘(i) the last 3 quarters of fiscal year 

20 2006, is equal to $22,500,000; 

21 ‘‘(ii) fiscal year 2007, is equal to 

22 $30,000,000; and 

23 ‘‘(iii) any subsequent fiscal year, is 

24 equal to the aggregate amount specified in 

25 this subparagraph for the previous fiscal 
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1 year increased by the annual percentage in2 crease specified in section 1860D–6(c)(5) for 

3 the calendar year beginning in such fiscal 

4 year. 

5 ‘‘(4) NONAPPLICATION.—Section 1927(d)(2)(E) 

6 shall not apply to a State described in paragraph (1) 

7 for purposes of providing medical assistance described 

8 in paragraph (2)(A). 

9 ‘‘(5) REPORT.—The Secretary shall submit to 

10 Congress a report on the application of this subsection 

11 and may include in the report such recommendations 

12 as the Secretary deems appropriate.’’. 

13 ‘‘(f) DEFINITIONS.—For purposes of this section, the 

14 terms ‘qualified medicare beneficiary’, ‘subsidy-eligible in15 dividual’, and ‘dual eligible individual’ have the meanings 

16 given such terms in subparagraphs (A), (D), and (E), re17 spectively, of section 1860D–19(a)(4).’’. 

18 (B) CONFORMING AMENDMENT.—Section 

19 1108(f) (42 U.S.C. 1308(f)) is amended by in20 serting ‘‘and section 1935(e)(1)(B)’’ after ‘‘Sub21 ject to subsection (g)’’. 

22 (3) TRANSFER OF FEDERALLY ASSUMED POR23 TIONS OF MEDICARE COST-SHARING.—

24 (A) TRANSFER OF ASSUMPTION OF PART B

25 PREMIUM FOR STATES PROVIDING PRESCRIPTION
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1 DRUG COVERAGE FOR DUAL ELIGIBLE INDIVID2 UALS TO THE FEDERAL SUPPLEMENTARY MED3 ICAL INSURANCE TRUST FUND.—Section 1841(f) 

4 (42 U.S.C. 1395t(f)) is amended—

5 (i) by inserting ‘‘(1)’’ after ‘‘(f)’’; and 

6 (ii) by adding at the end the following 

7 new paragraph: 

8 ‘‘(2) There shall be transferred periodically (but not 

9 less often than once each fiscal year) to the Trust Fund from 

10 the Treasury amounts which the Secretary of Health and 

11 Human Services shall have certified are equivalent to the 

12 amounts determined under section 1935(c)(1) with respect 

13 to all States for a fiscal year.’’. 

14 (B) TRANSFER OF ASSUMPTION OF PART A

15 COST-SHARING FOR CERTAIN STATES.—Section 

16 1817(g) (42 U.S.C. 1395i(g)) is amended—

17 (i) by inserting ‘‘(1)’’ after ‘‘(g)’’; and 

18 (ii) by adding at the end the following 

19 new paragraph: 

20 ‘‘(2) There shall be transferred periodically (but not 

21 less often than once each fiscal year) to the Trust Fund from 

22 the Treasury amounts which the Secretary of Health and 

23 Human Services shall have certified are equivalent to the 

24 amounts determined under section 1935(d)(1) with respect 

25 to certain States for a fiscal year.’’. 
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1 (4) AMENDMENT TO BEST PRICE.—Section 

2 1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)), as 

3 amended by section 111(b), is amended—

4 (A) by striking ‘‘and’’ at the end of sub5 clause (IV); 

6 (B) by striking the period at the end of sub7 clause (V) and inserting ‘‘; and’’; and 

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

9 subclause: 

10 ‘‘(VI) any prices charged which 

11 are negotiated under a Medicare Pre12 scription Drug plan under part D of 

13 title XVIII with respect to covered 

14 drugs, under a MedicareAdvantage 

15 plan under part C of such title with 

16 respect to such drugs, or under a quali17 fied retiree prescription drug plan (as 

18 defined in section 1860D–20(f)(1)) 

19 with respect to such drugs, on behalf of 

20 eligible beneficiaries (as defined in sec21 tion 1860D(a)(3)’’. 

22 (c) EXTENSION OF MEDICARE COST-SHARING FOR

23 PART B PREMIUM FOR QUALIFYING INDIVIDUALS

24 THROUGH 2008.—
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1 (1) IN GENERAL.—Section 1902(a)(10)(E)(iv) 

2 (42 U.S.C. 1396a(a)(10)(E)(iv)) is amended to read 

3 as follows: 

4 ‘‘(iv) subject to sections 1933 and 

5 1905(p)(4), for making medical assistance avail6 able (but only for premiums payable with respect 

7 to months during the period beginning with Jan8 uary 1998, and ending with December 2008) for 

9 medicare cost-sharing described in section 

10 1905(p)(3)(A)(ii) for individuals who would be 

11 qualified medicare beneficiaries described in sec12 tion 1905(p)(1) but for the fact that their income 

13 exceeds the income level established by the State 

14 under section 1905(p)(2) and is at least 120 per15 cent, but less than 135 percent, of the official 

16 poverty line (referred to in such section) for a 

17 family of the size involved and who are not oth18 erwise eligible for medical assistance under the 

19 State plan;’’. 

20 (2) TOTAL AMOUNT AVAILABLE FOR ALLOCA21 TION.—Section 1933(c) (42 U.S.C. 1396u–3(c)) is 

22 amended—

23 (A) in paragraph (1)—

24 (i) in subparagraph (D), by striking 

25 ‘‘and’’ at the end; 
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1 (ii) in subparagraph (E)—

2 (I) by striking ‘‘fiscal year 2002’’ 

3 and inserting ‘‘each of fiscal years 

4 2002 through 2008’’; and 

5 (II) by striking the period and in6 serting ‘‘; and’’; and 

7 (iii) by adding at the end the following 

8 new subparagraph: 

9 ‘‘(F) the first quarter of fiscal year 2009, 

10 $100,000,000.’’; and 

11 (B) in paragraph (2)(A), by striking ‘‘the 

12 sum of’’ and all that follows through 

13 ‘‘1902(a)(10)(E)(iv)(II) in the State; to’’ and in14 serting ‘‘twice the total number of individuals 

15 described in section 1902(a)(10)(E)(iv) in the 

16 State; to’’. 

17 (d) OUTREACH BY THE COMMISSIONER OF SOCIAL SE18 CURITY.—Section 1144 (42 U.S.C. 1320b–14) is amended—

19 (1) in the section heading, by inserting ‘‘AND

20 SUBSIDIES FOR LOW-INCOME INDIVIDUALS UNDER

21 TITLE XVIII’’ after ‘‘COST-SHARING’’; 

22 (2) in subsection (a)—

23 (A) in paragraph (1)—

24 (i) in subparagraph (A), by inserting 

25 ‘‘for the transitional prescription drug as-
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1 sistance card program under section 1807A, 

2 or for premium and cost-sharing subsidies 

3 under section 1860D–19’’ before the semi4 colon; and 

5 (ii) in subparagraph (B), by inserting 

6 ‘‘, program, and subsidies’’ after ‘‘medical 

7 assistance’’; and 

8 (B) in paragraph (2)—

9 (i) in the matter preceding subpara10 graph (A), by inserting ‘‘, the transitional 

11 prescription drug assistance card program 

12 under section 1807A, or premium and cost13 sharing subsidies under section 1860D–19’’ 

14 after ‘‘assistance’’; and 

15 (ii) in subparagraph (A), by striking 

16 ‘‘such eligibility’’ and inserting ‘‘eligibility 

17 for medicare cost-sharing under the med18 icaid program’’; and 

19 (3) in subsection (b)—

20 (A) in paragraph (1)(A), by inserting ‘‘, for 

21 the transitional prescription drug assistance 

22 card program under section 1807A, or for pre23 mium and cost-sharing subsidies for low-income 

24 individuals under section 1860D–19’’ after 

25 ‘‘1933’’; and 
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1 (B) in paragraph (2), by inserting ‘‘, pro2 gram, and subsidies’’ after ‘‘medical assistance’’. 

3 (e) REPORT REGARDING VOLUNTARY ENROLLMENT OF

4 DUAL ELIGIBLE INDIVIDUALS IN PART D.—Not later than 

5 January 1, 2005, the Secretary shall submit a report to 

6 Congress that contains such recommendations for legisla7 tion as the Secretary determines are necessary in order to 

8 establish a voluntary option for dual eligible individuals 

9 (as defined in 1860D–19(a)(4)(E) of the Social Security 

10 Act (as added by section 101)) to enroll under part D of 

11 title XVIII of such Act for prescription drug coverage. 

12 SEC. 105. EXPANSION OF MEMBERSHIP AND DUTIES OF 

13 MEDICARE PAYMENT ADVISORY COMMISSION 

14 (MEDPAC). 

15 (a) EXPANSION OF MEMBERSHIP.—

16 (1) IN GENERAL.—Section 1805(c) (42 U.S.C. 

17 1395b–6(c)) is amended—

18 (A) in paragraph (1), by striking ‘‘17’’ and 

19 inserting ‘‘19’’; and 

20 (B) in paragraph (2)(B), by inserting ‘‘ex21 perts in the area of pharmacology and prescrip22 tion drug benefit programs,’’ after ‘‘other health 

23 professionals,’’. 

24 (2) INITIAL TERMS OF ADDITIONAL MEMBERS.—
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1 (A) IN GENERAL.—For purposes of stag2 gering the initial terms of members of the Medi3 care Payment Advisory Commission under sec4 tion 1805(c)(3) of the Social Security Act (42 

5 U.S.C. 1395b–6(c)(3)), the initial terms of the 2 

6 additional members of the Commission provided 

7 for by the amendment under paragraph (1)(A) 

8 are as follows: 

9 (i) One member shall be appointed for 

10 1 year. 

11 (ii) One member shall be appointed for 

12 2 years. 

13 (B) COMMENCEMENT OF TERMS.—Such 

14 terms shall begin on January 1, 2005. 

15 (b) EXPANSION OF DUTIES.—Section 1805(b)(2) (42 

16 U.S.C. 1395b–6(b)(2)) is amended by adding at the end the 

17 following new subparagraph: 

18 ‘‘(D) VOLUNTARY PRESCRIPTION DRUG DE19 LIVERY PROGRAM.—Specifically, the Commission 

20 shall review, with respect to the voluntary pre21 scription drug delivery program under part D, 

22 competition among eligible entities offering 

23 Medicare Prescription Drug plans and bene24 ficiary access to such plans and covered drugs, 

25 particularly in rural areas.’’. 
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1 SEC. 106. STUDY REGARDING VARIATIONS IN SPENDING 

2 AND DRUG UTILIZATION. 

3 (a) STUDY.—The Secretary shall study on an ongoing 

4 basis variations in spending and drug utilization under 

5 part D of title XVIII of the Social Security Act for covered 

6 drugs to determine the impact of such variations on pre7 miums imposed by eligible entities offering Medicare Pre8 scription Drug plans under that part. In conducting such 

9 study, the Secretary shall examine the impact of geographic 

10 adjustments of the monthly national average premium 

11 under section 1860D–15 of such Act on—

12 (1) maximization of competition under part D of 

13 title XVIII of such Act; and 

14 (2) the ability of eligible entities offering Medi15 care Prescription Drug plans to contain costs for cov16 ered drugs. 

17 (b) REPORT.—Beginning with 2007, the Secretary 

18 shall submit annual reports to Congress on the study re19 quired under subsection (a).
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1 Subtitle B—Medicare Prescription 

2 Drug Discount Card and Transi3 tional Assistance for Low-In4 come Beneficiaries 

5 SEC. 111. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD 

6 AND TRANSITIONAL ASSISTANCE FOR LOW7 INCOME BENEFICIARIES. 

8 (a) IN GENERAL.—Title XVIII is amended by insert9 ing after section 1806 the following new sections: 

10 ‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD

11 ENDORSEMENT PROGRAM

12 ‘‘SEC. 1807. (a) ESTABLISHMENT.—There is estab13 lished a medicare prescription drug discount card endorse14 ment program under which the Secretary shall—

15 ‘‘(1) endorse prescription drug discount card 

16 programs offered by prescription drug card sponsors 

17 that meet the requirements of this section; and 

18 ‘‘(2) make available to eligible beneficiaries in19 formation regarding such endorsed programs. 

20 ‘‘(b) ELIGIBILITY, ELECTION OF PROGRAM, AND EN21 ROLLMENT FEES.—

22 ‘‘(1) ELIGIBILITY AND ELECTION OF PROGRAM.—

23 ‘‘(A) IN GENERAL.—Subject to subpara24 graph (B), the Secretary shall establish proce25 dures—
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1 ‘‘(i) for identifying eligible bene2 ficiaries; and 

3 ‘‘(ii) under which such beneficiaries 

4 may make an election to enroll in any pre5 scription drug discount card program en6 dorsed under this section and disenroll from 

7 such a program. 

8 ‘‘(B) LIMITATION.—An eligible beneficiary 

9 may not be enrolled in more than 1 prescription 

10 drug discount card program at any time. 

11 ‘‘(2) ENROLLMENT FEES.—

12 ‘‘(A) IN GENERAL.—A prescription drug 

13 card sponsor may charge an annual enrollment 

14 fee to each eligible beneficiary enrolled in a pre15 scription drug discount card program offered by 

16 such sponsor. 

17 ‘‘(B) AMOUNT.—No enrollment fee charged 

18 under subparagraph (A) may exceed $25. 

19 ‘‘(C) UNIFORM ENROLLMENT FEE.—A pre20 scription drug card sponsor shall ensure that the 

21 enrollment fee for a prescription drug discount 

22 card program endorsed under this section is the 

23 same for all eligible medicare beneficiaries en24 rolled in the program. 
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1 ‘‘(D) COLLECTION.—Any enrollment fee 

2 shall be collected by the prescription drug card 

3 sponsor. 

4 ‘‘(c) PROVIDING INFORMATION TO ELIGIBLE BENE5 FICIARIES.—

6 ‘‘(1) PROMOTION OF INFORMED CHOICE.—

7 ‘‘(A) BY THE SECRETARY.—In order to pro8 mote informed choice among endorsed prescrip9 tion drug discount card programs, the Secretary 

10 shall provide for the dissemination of informa11 tion which compares the costs and benefits of 

12 such programs. Such dissemination shall be co13 ordinated with the dissemination of educational 

14 information on other medicare options. 

15 ‘‘(B) BY PRESCRIPTION DRUG CARD SPON16 SORS.—Each prescription drug card sponsor 

17 shall make available to each eligible beneficiary 

18 (through the Internet and otherwise) informa19 tion—

20 ‘‘(i) that the Secretary identifies as 

21 being necessary to promote informed choice 

22 among endorsed prescription drug discount 

23 card programs by eligible beneficiaries, in24 cluding information on enrollment fees, ne25 gotiated prices for prescription drugs 
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1 charged to beneficiaries, and services relat2 ing to prescription drugs offered under the 

3 program; 

4 ‘‘(ii) on how any formulary used by 

5 such sponsor functions. 

6 ‘‘(2) USE OF MEDICARE TOLL-FREE NUMBER.—

7 The Secretary shall provide through the 1-800-MEDI8 CARE toll free telephone number for the receipt and 

9 response to inquiries and complaints concerning the 

10 medicare prescription drug discount card endorse11 ment program established under this section and pre12 scription drug discount card programs endorsed 

13 under such program. 

14 ‘‘(d) BENEFICIARY PROTECTIONS.—

15 ‘‘(1) IN GENERAL.—Each prescription drug dis16 count card program endorsed under this section shall 

17 meet such requirements as the Secretary identifies to 

18 protect and promote the interest of eligible bene19 ficiaries, including requirements that—

20 ‘‘(A) relate to appeals by eligible bene21 ficiaries and marketing practices; and 

22 ‘‘(B) ensure that beneficiaries are not 

23 charged more than the lower of the negotiated re24 tail price or the usual and customary price.
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1 ‘‘(2) ENSURING PHARMACY ACCESS.—Each pre2 scription drug card sponsor offering a prescription 

3 drug discount card program endorsed under this sec4 tion shall secure the participation in its network of 

5 a sufficient number of pharmacies that dispense 

6 (other than by mail order) drugs directly to patients 

7 to ensure convenient access (as determined by the Sec8 retary and including adequate emergency access) for 

9 enrolled beneficiaries. Such standards shall take into 

10 account reasonable distances to pharmacy services in 

11 both urban and rural areas. 

12 ‘‘(3) QUALITY ASSURANCE.—Each prescription 

13 drug card sponsor offering a prescription drug dis14 count card program endorsed under this section shall 

15 have in place adequate procedures for assuring that 

16 quality service is provided to eligible beneficiaries en17 rolled in a prescription drug discount card program 

18 offered by such sponsor. 

19 ‘‘(4) CONFIDENTIALITY OF ENROLLEE

20 RECORDS.—Insofar as a prescription drug card spon21 sor maintains individually identifiable medical 

22 records or other health information regarding eligible 

23 beneficiaries enrolled in a prescription drug discount 

24 card program endorsed under this section, the pre25 scription drug card sponsor shall have in place proce-
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1 dures to safeguard the privacy of any individually 

2 identifiable beneficiary information in a manner that 

3 the Secretary determines is consistent with the Fed4 eral regulations (concerning the privacy of individ5 ually identifiable health information) promulgated 

6 under section 264(c) of the Health Insurance Port7 ability and Accountability Act of 1996. 

8 ‘‘(5) NO OTHER FEES.—A prescription drug 

9 card sponsor may not charge any fee to an eligible 

10 beneficiary under a prescription drug discount card 

11 program endorsed under this section other than an 

12 enrollment fee charged under subsection (b)(2)(A). 

13 ‘‘(6) PRICES.—

14 ‘‘(A) AVOIDANCE OF HIGH PRICED

15 DRUGS.—A prescription drug card sponsor may 

16 not recommend switching an eligible beneficiary 

17 to a drug with a higher negotiated price absent 

18 a recommendation by a licensed health profes19 sional that there is a clinical indication with re20 spect to the patient for such a switch. 

21 ‘‘(B) PRICE STABILITY.—Negotiated prices 

22 charged for prescription drugs covered under a 

23 prescription drug discount card program en24 dorsed under this section may not change more 

25 frequently than once every 60 days. 
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1 ‘‘(e) PRESCRIPTION DRUG BENEFITS.—

2 ‘‘(1) IN GENERAL.—Each prescription drug card 

3 sponsor may only provide benefits that relate to pre4 scription drugs (as defined in subsection (i)(2)) under 

5 a prescription drug discount card program endorsed 

6 under this section. 

7 ‘‘(2) SAVINGS TO ELIGIBLE BENEFICIARIES.—

8 ‘‘(A) IN GENERAL.—Subject to subpara9 graph (D), each prescription drug card sponsor 

10 shall provide eligible beneficiaries who enroll in 

11 a prescription drug discount card program of12 fered by such sponsor that is endorsed under this 

13 section with access to negotiated prices used by 

14 the sponsor with respect to prescription drugs 

15 dispensed to eligible beneficiaries. 

16 ‘‘(B) INAPPLICABILITY OF MEDICAID BEST

17 PRICE RULES.—The requirements of section 1927 

18 relating to manufacturer best price shall not 

19 apply to the negotiated prices for prescription 

20 drugs made available under a prescription drug 

21 discount card program endorsed under this sec22 tion. 

23 ‘‘(C) GUARANTEED ACCESS TO NEGOTIATED

24 PRICES.—The Secretary, in consultation with the 

25 Inspector General of the Department of Health 
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1 and Human Services, shall establish procedures 

2 to ensure that eligible beneficiaries have access to 

3 the negotiated prices for prescription drugs pro4 vided under subparagraph (A). 

5 ‘‘(D) APPLICATION OF FORMULARY RE6 STRICTIONS.—A drug prescribed for an eligible 

7 beneficiary that would otherwise be a covered 

8 drug under this section shall not be so considered 

9 under a prescription drug discount card pro10 gram if the program excludes the drug under a 

11 formulary. 

12 ‘‘(3) BENEFICIARY SERVICES.—Each prescrip13 tion drug discount card program endorsed under this 

14 section shall provide pharmaceutical support services, 

15 such as education, counseling, and services to prevent 

16 adverse drug interactions. 

17 ‘‘(4) DISCOUNT CARDS.—Each prescription drug 

18 card sponsor shall issue a card to eligible beneficiaries 

19 enrolled in a prescription drug discount card pro20 gram offered by such sponsor that the beneficiary may 

21 use to obtain benefits under the program. 

22 ‘‘(f) SUBMISSION OF APPLICATIONS FOR ENDORSE23 MENT AND APPROVAL.—

24 ‘‘(1) SUBMISSION OF APPLICATIONS FOR EN25 DORSEMENT.—Each prescription drug card sponsor
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1 that seeks endorsement of a prescription drug dis2 count card program under this section shall submit 

3 to the Secretary, at such time and in such manner 

4 as the Secretary may specify, such information as the 

5 Secretary may require. 

6 ‘‘(2) APPROVAL.—The Secretary shall review the 

7 information submitted under paragraph (1) and shall 

8 determine whether to endorse the prescription drug 

9 discount card program to which such information re10 lates. The Secretary may not approve a program un11 less the program and prescription drug card sponsor 

12 offering the program comply with the requirements 

13 under this section. 

14 ‘‘(g) REQUIREMENTS ON DEVELOPMENT AND APPLICA15 TION OF FORMULARIES.—If a prescription drug card spon16 sor offering a prescription drug discount card program uses 

17 a formulary, the following requirements must be met: 

18 ‘‘(1) PHARMACY AND THERAPEUTIC (P&T)COM19 MITTEE.—

20 ‘‘(A) IN GENERAL.—The eligible entity must 

21 establish a pharmacy and therapeutic committee 

22 that develops and reviews the formulary. 

23 ‘‘(B) COMPOSITION.—A pharmacy and 

24 therapeutic committee shall include at least 1 

25 academic expert, at least 1 practicing physician, 
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1 and at least 1 practicing pharmacist, all of 

2 whom have expertise in the care of elderly or dis3 abled persons, and a majority of the members of 

4 such committee shall consist of individuals who 

5 are a practicing physician or a practicing phar6 macist (or both). 

7 ‘‘(2) FORMULARY DEVELOPMENT.—In developing 

8 and reviewing the formulary, the committee shall base 

9 clinical decisions on the strength of scientific evidence 

10 and standards of practice, including assessing peer11 reviewed medical literature, such as randomized clin12 ical trials, pharmacoeconomic studies, outcomes re13 search data, and such other information as the com14 mittee determines to be appropriate. 

15 ‘‘(3) INCLUSION OF DRUGS IN ALL THERAPEUTIC

16 CATEGORIES AND CLASSES.—

17 ‘‘(A) IN GENERAL.—The formulary must in18 clude drugs within each therapeutic category and 

19 class of covered outpatient drugs (as defined by 

20 the Secretary), although not necessarily for all 

21 drugs within such categories and classes. 

22 ‘‘(B) REQUIREMENT.—In defining thera23 peutic categories and classes of covered out24 patient drugs pursuant to subparagraph (A), the 

25 Secretary shall use the compendia referred to sec-
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1 tion 1927(g)(1)(B)(i) or other recognized sources 

2 for categorizing drug therapeutic categories and 

3 classes. 

4 ‘‘(4) PROVIDER EDUCATION.—The committee 

5 shall establish policies and procedures to educate and 

6 inform health care providers concerning the for7 mulary. 

8 ‘‘(5) NOTICE BEFORE REMOVING DRUGS FROM

9 FORMULARY.—Any removal of a drug from a for10 mulary shall take effect only after appropriate notice 

11 is made available to beneficiaries and pharmacies. 

12 ‘‘(h) FRAUD AND ABUSE PREVENTION.—

13 ‘‘(1) IN GENERAL.—The Secretary shall provide 

14 appropriate oversight to ensure compliance of en15 dorsed programs with the requirements of this section, 

16 including verification of the negotiated prices and 

17 services provided. 

18 ‘‘(2) DISQUALIFICATION FOR ABUSIVE PRAC19 TICES.—The Secretary may implement intermediate 

20 sanctions and may revoke the endorsement of a pro21 gram that the Secretary determines no longer meets 

22 the requirements of this section or that has engaged 

23 in false or misleading marketing practices. 

24 ‘‘(3) AUTHORITY WITH RESPECT TO CIVIL MONEY

25 PENALTIES.—The Secretary may impose a civil 
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1 money penalty in an amount not to exceed $10,000 

2 for any violation of this section. The provisions of sec3 tion 1128A (other than subsections (a) and (b)) shall 

4 apply to a civil money penalty under the previous 

5 sentence in the same manner as such provisions apply 

6 to a penalty or proceeding under section 1128A(a). 

7 ‘‘(4) REPORTING TO SECRETARY.—Each pre8 scription drug card sponsor offering a prescription 

9 drug discount card program endorsed under this sec10 tion shall report information relating to program per11 formance, use of prescription drugs by eligible bene12 ficiaries enrolled in the program, financial informa13 tion of the sponsor, and such other information as the 

14 Secretary may specify. The Secretary may not dis15 close any proprietary data reported under this para16 graph. 

17 ‘‘(5) DRUG UTILIZATION REVIEW.—The Sec18 retary may use claims data from parts A and B for 

19 purposes of conducting a drug utilization review pro20 gram. 

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

22 ‘‘(1) ELIGIBLE BENEFICIARY.—

23 ‘‘(A) IN GENERAL.—The term ‘eligible bene24 ficiary’ means an individual who—
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1 ‘‘(i) is entitled to, or enrolled for, benefits 

2 under part A and enrolled under part B; and 

3 ‘‘(ii) is not a dual eligible individual 

4 (as defined in subparagraph (B)). 

5 ‘‘(B) DUAL ELIGIBLE INDIVIDUAL.—

6 ‘‘(i) IN GENERAL.—The term ‘dual eli7 gible individual’ means an individual who 

8 is—

9 ‘‘(I) enrolled under title XIX or 

10 under a waiver under section 1115 of 

11 the requirements of such title for med12 ical assistance that is not less than the 

13 medical assistance provided to an indi14 vidual described in section 

15 1902(a)(10)(A)(i) and includes covered 

16 outpatient drugs (as such term is de17 fined for purposes of section 1927); and 

18 ‘‘(II) entitled to benefits under 

19 part A and enrolled under part B. 

20 ‘‘(ii) INCLUSION OF MEDICALLY

21 NEEDY.—Such term includes an individual 

22 described in section 1902(a)(10)(C). 

23 ‘‘(2) PRESCRIPTION DRUG.—
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1 ‘‘(A) IN GENERAL.—Except as provided in 

2 subparagraph (B), the term ‘prescription drug’ 

3 means—

4 ‘‘(i) a drug that may be dispensed only 

5 upon a prescription and that is described in 

6 clause (i) or (ii) of subparagraph (A) of sec7 tion 1927(k)(2); or 

8 ‘‘(ii) a biological product or insulin 

9 described in subparagraph (B) or (C) of 

10 such section, 

11 and such term includes a vaccine licensed under 

12 section 351 of the Public Health Service Act and 

13 any use of a covered outpatient drug for a medi14 cally accepted indication (as defined in section 

15 1927(k)(6)). 

16 ‘‘(B) EXCLUSIONS.—The term ‘prescription 

17 drug’ does not include drugs or classes of drugs, 

18 or their medical uses, which may be excluded 

19 from coverage or otherwise restricted under sec20 tion 1927(d)(2), other than subparagraph (E) 

21 thereof (relating to smoking cessation agents), or 

22 under section 1927(d)(3). 

23 ‘‘(3) NEGOTIATED PRICE.—The term ‘negotiated 

24 price’ includes all discounts, direct or indirect sub-
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1 sidies, rebates, price concessions, and direct or indi2 rect remunerations. 

3 ‘‘(4) PRESCRIPTION DRUG CARD SPONSOR.—The 

4 term ‘prescription drug card sponsor’ means any en5 tity with demonstrated experience and expertise in 

6 operating a prescription drug discount card program, 

7 an insurance program that provides coverage for pre8 scription drugs, or a similar program that the Sec9 retary determines to be appropriate to provide eligible 

10 beneficiaries with the benefits under a prescription 

11 drug discount card program endorsed by the Sec12 retary under this section, including—

13 ‘‘(A) a pharmaceutical benefit management 

14 company; 

15 ‘‘(B) a wholesale or retail pharmacist deliv16 ery system; 

17 ‘‘(C) an insurer (including an insurer that 

18 offers medicare supplemental policies under sec19 tion 1882); 

20 ‘‘(D) any other entity; or 

21 ‘‘(E) any combination of the entities de22 scribed in subparagraphs (A) through (D). 

23 ‘‘TRANSITIONAL PRESCRIPTION DRUG ASSISTANCE CARD

24 PROGRAM FOR ELIGIBLE LOW-INCOME BENEFICIARIES

25 ‘‘SEC. 1807A. (a) ESTABLISHMENT.—
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1 ‘‘(1) IN GENERAL.—There is established a pro2 gram under which the Secretary shall award con3 tracts to prescription drug card sponsors offering a 

4 prescription drug discount card that has been en5 dorsed by the Secretary under section 1807 under 

6 which such sponsors shall offer a prescription drug 

7 assistance card program to eligible low-income bene8 ficiaries in accordance with the requirements of this 

9 section. 

10 ‘‘(2) APPLICATION OF DISCOUNT CARD PROVI11 SIONS.—Except as otherwise provided in this section, 

12 the provisions of section 1807 shall apply to the pro13 gram established under this section. 

14 ‘‘(b) ELIGIBILITY, ELECTION OF PROGRAM, AND EN15 ROLLMENT FEES.—

16 ‘‘(1) ELIGIBILITY AND ELECTION OF PROGRAM.—

17 ‘‘(A) IN GENERAL.—Subject to the suc18 ceeding provisions of this paragraph, the enroll19 ment procedures established under section 

20 1807(b)(1)(A)(ii) shall apply for purposes of this 

21 section. 

22 ‘‘(B) ENROLLMENT OF ANY ELIGIBLE LOW23 INCOME BENEFICIARY.—Each prescription drug 

24 card sponsor offering a prescription drug assist25 ance card program under this section shall per-
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1 mit any eligible low-income beneficiary to enroll 

2 in such program if it serves the geographic area 

3 in which the beneficiary resides. 

4 ‘‘(C) SIMULTANEOUS ENROLLMENT IN PRE5 SCRIPTION DRUG DISCOUNT CARD PROGRAM.—

6 An eligible low-income beneficiary who enrolls in 

7 a prescription drug assistance card program of8 fered by a prescription drug card sponsor under 

9 this section shall be simultaneously enrolled in a 

10 prescription drug discount card program offered 

11 by such sponsor. 

12 ‘‘(2) WAIVER OF ENROLLMENT FEES.—

13 ‘‘(A) IN GENERAL.—A prescription drug 

14 card sponsor may not charge an enrollment fee 

15 to any eligible low-income beneficiary enrolled in 

16 a prescription drug discount card program of17 fered by such sponsor. 

18 ‘‘(B) PAYMENT BY SECRETARY.—Under a 

19 contract awarded under subsection (f)(2), the 

20 Secretary shall pay to each prescription drug 

21 card sponsor an amount equal to any enrollment 

22 fee charged under section 1807(b)(2)(A) on behalf 

23 of each eligible low-income beneficiary enrolled 

24 in a prescription drug discount card program 

25 under paragraph (1)(C) offered by such sponsor.
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1 ‘‘(c) ADDITIONAL BENEFICIARY PROTECTIONS.—

2 ‘‘(1) PROVIDING INFORMATION TO ELIGIBLE

3 LOW-INCOME BENEFICIARIES.—In addition to the in4 formation provided to eligible beneficiaries under sec5 tion 1807(c), the prescription drug card sponsor 

6 shall—

7 ‘‘(A) periodically notify each eligible low-in8 come beneficiary enrolled in a prescription drug 

9 assistance card program offered by such sponsor 

10 of the amount of coverage for prescription drugs 

11 remaining under subsection (d)(2)(A); and 

12 ‘‘(B) notify each eligible low-income bene13 ficiary enrolled in a prescription drug assistance 

14 card program offered by such sponsor of the 

15 grievance and appeals processes under the pro16 gram. 

17 ‘‘(2) CONVENIENT ACCESS IN LONG-TERM CARE

18 FACILITIES.—For purposes of determining whether 

19 convenient access has been provided under section 

20 1807(d)(2) with respect to eligible low-income bene21 ficiaries enrolled in a prescription drug assistance 

22 card program, the Secretary may only make a deter23 mination that such access has been provided if an ap24 propriate arrangement is in place for eligible low-in25 come beneficiaries who are in a long-term care facil-
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1 ity (as defined by the Secretary) to receive prescrip2 tion drug benefits under the program. 

3 ‘‘(3) COORDINATION OF BENEFITS.—

4 ‘‘(A) IN GENERAL.—The Secretary shall es5 tablish procedures under which eligible low-in6 come beneficiaries who are enrolled for coverage 

7 described in subparagraph (B) and enrolled in a 

8 prescription drug assistance card program have 

9 access to the prescription drug benefits available 

10 under such program. 

11 ‘‘(B) COVERAGE DESCRIBED.—Coverage de12 scribed in this subparagraph is as follows: 

13 ‘‘(i) Coverage of prescription drugs 

14 under a State pharmaceutical assistance 

15 program. 

16 ‘‘(ii) Enrollment in a 

17 Medicare+Choice plan under part C. 

18 ‘‘(4) GRIEVANCE MECHANISM.—Each prescrip19 tion drug card sponsor with a contract under this sec20 tion shall provide in accordance with section 1852(f) 

21 meaningful procedures for hearing and resolving 

22 grievances between the prescription drug card sponsor 

23 (including any entity or individual through which 

24 the prescription drug card sponsor provides covered 
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1 benefits) and enrollees in a prescription drug assist2 ance card program offered by such sponsor. 

3 ‘‘(5) APPLICATION OF COVERAGE DETERMINA4 TION AND RECONSIDERATION PROVISIONS.—

5 ‘‘(A) IN GENERAL.—The requirements of 

6 paragraphs (1) through (3) of section 1852(g) 

7 shall apply with respect to covered benefits under 

8 a prescription drug assistance card program 

9 under this section in the same manner as such 

10 requirements apply to a Medicare+Choice orga11 nization with respect to benefits it offers under 

12 a Medicare+Choice plan under part C. 

13 ‘‘(B) REQUEST FOR REVIEW OF TIERED

14 FORMULARY DETERMINATIONS.—In the case of a 

15 prescription drug assistance card program of16 fered by a prescription drug card sponsor that 

17 provides for tiered pricing for drugs included 

18 within a formulary and provides lower prices for 

19 preferred drugs included within the formulary, 

20 an eligible low-income beneficiary who is en21 rolled in the program may request coverage of a 

22 nonpreferred drug under the terms applicable for 

23 preferred drugs if the prescribing physician de24 termines that the preferred drug for treatment of 

25 the same condition is not as effective for the eli-
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1 gible low-income beneficiary or has adverse ef2 fects for the eligible low-income beneficiary. 

3 ‘‘(C) FORMULARY DETERMINATIONS.—An 

4 eligible low-income beneficiary who is enrolled in 

5 a prescription drug assistance card program of6 fered by a prescription drug card sponsor may 

7 appeal to obtain coverage for a covered drug that 

8 is not on a formulary of the entity if the pre9 scribing physician determines that the formulary 

10 drug for treatment of the same condition is not 

11 as effective for the eligible low-income beneficiary 

12 or has adverse effects for the eligible low-income 

13 beneficiary. 

14 ‘‘(6) APPEALS.—

15 ‘‘(A) IN GENERAL.—Subject to subpara16 graph (B), a prescription drug card sponsor 

17 shall meet the requirements of paragraphs (4) 

18 and (5) of section 1852(g) with respect to drugs 

19 not included on any formulary in a similar 

20 manner (as determined by the Secretary) as such 

21 requirements apply to a Medicare+Choice orga22 nization with respect to benefits it offers under 

23 a Medicare+Choice plan under part C. 

24 ‘‘(B) FORMULARY DETERMINATIONS.—An 

25 eligible low-income beneficiary who is enrolled in 
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1 a prescription drug assistance card program of2 fered by a prescription drug card sponsor may 

3 appeal to obtain coverage for a covered drug that 

4 is not on a formulary of the entity if the pre5 scribing physician determines that the formulary 

6 drug for treatment of the same condition is not 

7 as effective for the eligible low-income beneficiary 

8 or has adverse effects for the eligible low-income 

9 beneficiary. 

10 ‘‘(C) APPEALS AND EXCEPTIONS TO APPLI11 CATION.—The prescription drug card sponsor 

12 must have, as part of the appeals process under 

13 this paragraph, a process for timely appeals for 

14 denials of coverage based on the application of 

15 the formulary. 

16 ‘‘(d) PRESCRIPTION DRUG BENEFITS.—

17 ‘‘(1) IN GENERAL.—Subject to paragraph (5), all 

18 the benefits available under a prescription drug dis19 count card program offered by a prescription drug 

20 card sponsor and endorsed under section 1807 shall 

21 be available to eligible low-income beneficiaries en22 rolled in a prescription drug assistance card program 

23 offered by such sponsor. 

24 ‘‘(2) ASSISTANCE FOR ELIGIBLE LOW-INCOME

25 BENEFICIARIES.—
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1 ‘‘(A) $600 ANNUAL ASSISTANCE.—Subject to 

2 subparagraphs (B) and (C) and paragraph (5), 

3 each prescription drug card sponsor with a con4 tract under this section shall provide coverage for 

5 the first $600 of expenses for prescription drugs 

6 incurred during each calendar year by an eligi7 ble low-income beneficiary enrolled in a pre8 scription drug assistance card program offered 

9 by such sponsor. 

10 ‘‘(B) COINSURANCE.—

11 ‘‘(i) IN GENERAL.—The prescription 

12 drug card sponsor shall determine an 

13 amount of coinsurance to collect from each 

14 eligible low-income beneficiary enrolled in a 

15 prescription drug assistance card program 

16 offered by such sponsor for which coverage 

17 is available under subparagraph (A). 

18 ‘‘(ii) AMOUNT.—The amount of coin19 surance collected under clause (i) shall be at 

20 least 10 percent of the negotiated price of 

21 each prescription drug dispensed to an eli22 gible low-income beneficiary. 

23 ‘‘(iii) CONSTRUCTION.—Amounts col24 lected under clause (i) shall not be counted 
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1 against the total amount of coverage avail2 able under subparagraph (A). 

3 ‘‘(C) REDUCTION FOR LATE ENROLL4 MENT.—For each month during a calendar quar5 ter in which an eligible low-income beneficiary is 

6 not enrolled in a prescription drug assistance 

7 card program offered by a prescription drug 

8 card sponsor with a contract under this section, 

9 the amount of assistance available under sub10 paragraph (A) shall be reduced by $50. 

11 ‘‘(D) CREDITING OF UNUSED BENEFITS TO12 WARD FUTURE YEARS.—The dollar amount of 

13 coverage described in subparagraph (A) shall be 

14 increased by any amount of coverage described 

15 in such subparagraph that was not used during 

16 the previous calendar year. 

17 ‘‘(E) WAIVER TO ENSURE PROVISION OF

18 BENEFIT.—The Secretary may waive such re19 quirements of this section and section 1807 as 

20 may be necessary to ensure that each eligible 

21 low-income beneficiaries has access to the assist22 ance described in subparagraph (A). 

23 ‘‘(3) ADDITIONAL DISCOUNTS.—A prescription 

24 drug card sponsor with a contract under this section 

25 shall provide each eligible low-income beneficiary en-
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1 rolled in a prescription drug assistance program of2 fered by the sponsor with access to negotiated prices 

3 that reflect a minimum average discount of at least 

4 20 percent of the average wholesale price for prescrip5 tion drugs covered under that program. 

6 ‘‘(4) ASSISTANCE CARDS.—Each prescription 

7 drug card sponsor shall permit eligible low-income 

8 beneficiaries enrolled in a prescription drug assist9 ance card program offered by such sponsor to use the 

10 discount card issued under section 1807(e)(4) to ob11 tain benefits under the program. 

12 ‘‘(5) APPLICATION OF FORMULARY RESTRIC13 TIONS.—A drug prescribed for an eligible low-income 

14 beneficiary that would otherwise be a covered drug 

15 under this section shall not be so considered under a 

16 prescription drug assistance card program if the pro17 gram excludes the drug under a formulary and such 

18 exclusion is not successfully resolved under paragraph 

19 (4), (5), or (6) of subsection (c). 

20 ‘‘(e) REQUIREMENTS FOR PRESCRIPTION DRUG CARD

21 SPONSORS THAT OFFER PRESCRIPTION DRUG ASSISTANCE

22 CARD PROGRAMS.—

23 ‘‘(1) IN GENERAL.—Each prescription drug card 

24 sponsor shall—
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1 ‘‘(A) process claims made by eligible low-in2 come beneficiaries; 

3 ‘‘(B) negotiate with brand name and ge4 neric prescription drug manufacturers and oth5 ers for low prices on prescription drugs; 

6 ‘‘(C) track individual beneficiary expendi7 tures in a format and periodicity specified by 

8 the Secretary; and 

9 ‘‘(D) perform such other functions as the 

10 Secretary may assign. 

11 ‘‘(2) DATA EXCHANGES.—Each prescription drug 

12 card sponsor shall receive data exchanges in a format 

13 specified by the Secretary and shall maintain real14 time beneficiary files. 

15 ‘‘(3) PUBLIC DISCLOSURE OF PHARMACEUTICAL

16 PRICES FOR EQUIVALENT DRUGS.—The prescription 

17 drug card sponsor offering the prescription drug as18 sistance card program shall provide that each phar19 macy or other dispenser that arranges for the dis20 pensing of a covered drug shall inform the eligible 

21 low-income beneficiary at the time of purchase of the 

22 drug of any differential between the price of the pre23 scribed drug to the enrollee and the price of the lowest 

24 priced generic drug covered under the plan that is 
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1 therapeutically equivalent and bioequivalent and 

2 available at such pharmacy or other dispenser. 

3 ‘‘(f) SUBMISSION OF BIDS AND AWARDING OF CON4 TRACTS.—

5 ‘‘(1) SUBMISSION OF BIDS.—Each prescription 

6 drug card sponsor that seeks to offer a prescription 

7 drug assistance card program under this section shall 

8 submit to the Secretary, at such time and in such 

9 manner as the Secretary may specify, such informa10 tion as the Secretary may require. 

11 ‘‘(2) AWARDING OF CONTRACTS.—The Secretary 

12 shall review the information submitted under para13 graph (1) and shall determine whether to award a 

14 contract to the prescription drug card sponsor offer15 ing the program to which such information relates. 

16 The Secretary may not approve a program unless the 

17 program and prescription drug card sponsor offering 

18 the program comply with the requirements under this 

19 section. 

20 ‘‘(3) NUMBER OF CONTRACTS.—There shall be no 

21 limit on the number of prescription drug card spon22 sors that may be awarded contracts under paragraph 

23 (2). 

24 ‘‘(4) CONTRACT PROVISIONS.—
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1 ‘‘(A) DURATION.—A contract awarded 

2 under paragraph (2) shall be for the lifetime of 

3 the program under this section. 

4 ‘‘(B) WITHDRAWAL.—A prescription drug 

5 card sponsor that desires to terminate the con6 tract awarded under paragraph (2) may termi7 nate such contract without penalty if such spon8 sor gives notice—

9 ‘‘(i) to the Secretary 90 days prior to 

10 the termination of such contract; and 

11 ‘‘(ii) to each eligible low-income bene12 ficiary that is enrolled in a prescription 

13 drug assistance card program offered by 

14 such sponsor 60 days prior to such termi15 nation. 

16 ‘‘(C) SERVICE AREA.—The service area 

17 under the contract shall be the same as the area 

18 served by the prescription drug card sponsor 

19 under section 1807. 

20 ‘‘(5) SIMULTANEOUS APPROVAL OF DISCOUNT

21 CARD AND ASSISTANCE PROGRAMS.—A prescription 

22 drug card sponsor may submit an application for en23 dorsement under section 1807 as part of the bid sub24 mitted under paragraph (1) and the Secretary may 
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1 approve such application at the same time as the Sec2 retary awards a contract under this section. 

3 ‘‘(g) PAYMENTS TO PRESCRIPTION DRUG CARD SPON4 SORS.—

5 ‘‘(1) IN GENERAL.—The Secretary shall pay to 

6 each prescription drug card sponsor offering a pre7 scription drug assistance card program in which an 

8 eligible low-income beneficiary is enrolled an amount 

9 equal to the amount agreed to by the Secretary and 

10 the sponsor in the contract awarded under subsection 

11 (f)(2). 

12 ‘‘(2) PAYMENT FROM PART B TRUST FUND.—The 

13 costs of providing benefits under this section shall be 

14 payable from the Federal Supplementary Medical In15 surance Trust Fund established under section 1841. 

16 ‘‘(h) ELIGIBILITY DETERMINATIONS MADE BY STATES; 

17 PRESUMPTIVE ELIGIBILITY.—States shall perform the func18 tions described in section 1935(a)(1). 

19 ‘‘(i) APPROPRIATIONS.—There are appropriated from 

20 the Federal Supplementary Medical Insurance Trust Fund 

21 established under section 1841 such sums as may be nec22 essary to carry out the program under this section. 

23 ‘‘(j) DEFINITIONS.—In this section: 

24 ‘‘(1) ELIGIBLE BENEFICIARY; NEGOTIATED

25 PRICE; PRESCRIPTION DRUG.—The terms ‘eligible ben-
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1 eficiary’, ‘negotiated price’, and ‘prescription drug’ 

2 have the meanings given those terms in section 

3 1807(i). 

4 ‘‘(2) ELIGIBLE LOW-INCOME BENEFICIARY.—

5 ‘‘(A) IN GENERAL.—Subject to subpara6 graphs (B) and (C), the term ‘eligible low-income 

7 beneficiary’ means an individual who—

8 ‘‘(i) is an eligible beneficiary (as de9 fined in section 1807(i)); and 

10 ‘‘(ii) is described in clause (iii) or (iv) 

11 of section 1902(a)(10)(E) or in section 

12 1905(p)(1). 

13 ‘‘(3) PRESCRIPTION DRUG CARD SPONSOR.—The 

14 term ‘prescription drug card sponsor’ has the mean15 ing given that term in section 1807(i), except that 

16 such sponsor shall also be an entity that the Secretary 

17 determines is—

18 ‘‘(A) is appropriate to provide eligible low19 income beneficiaries with the benefits under a 

20 prescription drug assistance card program under 

21 this section; and 

22 ‘‘(B) is able to manage the monetary assist23 ance made available under subsection (d)(2); 

24 ‘‘(C) agrees to submit to audits by the Sec25 retary; and 
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1 ‘‘(D) provides such other assurances as the 

2 Secretary may require. 

3 ‘‘(4) STATE.—The term ‘State’ has the meaning 

4 given such term for purposes of title XIX.’’. 

5 (b) EXCLUSION OF PRICES FROM DETERMINATION OF

6 BEST PRICE.—Section 1927(c)(1)(C)(i) (42 U.S.C. 1396r–

7 8(c)(1)(C)(i)) is amended—

8 (1) by striking ‘‘and’’ at the end of subclause 

9 (III); 

10 (2) by striking the period at the end of subclause 

11 (IV) and inserting ‘‘; and’’; and 

12 (3) by adding at the end the following new sub13 clause: 

14 ‘‘(V) any negotiated prices 

15 charged under the medicare prescrip16 tion drug discount card endorsement 

17 program under section 1807 or under 

18 the transitional prescription drug as19 sistance card program for eligible low20 income beneficiaries under section 

21 1807A.’’. 

22 (c) EXCLUSION OF PRESCRIPTION DRUG ASSISTANCE

23 CARD COSTS FROM DETERMINATION OF PART B MONTHLY

24 PREMIUM.—Section 1839(g) of the Social Security Act (42 

25 U.S.C. 1395r(g)) is amended—
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1 (1) by striking ‘‘attributable to the application of 

2 section’’ and inserting ‘‘attributable to—

3 ‘‘(1) the application of section’’; 

4 (2) by striking the period and inserting ‘‘; and’’; 

5 and 

6 (3) by adding at the end the following new para7 graph: 

8 ‘‘(2) the prescription drug assistance card pro9 gram under section 1807A.’’. 

10 (d) REGULATIONS.—

11 (1) AUTHORITY FOR INTERIM FINAL REGULA12 TIONS.—The Secretary may promulgate initial regu13 lations implementing sections 1807 and 1807A of the 

14 Social Security Act (as added by this section) in in15 terim final form without prior opportunity for public 

16 comment. 

17 (2) FINAL REGULATIONS.—A final regulation re18 flecting public comments must be published within 1 

19 year of the interim final regulation promulgated 

20 under paragraph (1). 

21 (3) EXEMPTION FROM THE PAPERWORK REDUC22 TION ACT.—The promulgation of the regulations 

23 under this subsection and the administration the pro24 grams established by sections 1807 and 1807A of the 

25 Social Security Act (as added by this section) shall 
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1 be made without regard to chapter 35 of title 44, 

2 United States Code (commonly known as the ‘‘Paper3 work Reduction Act’’). 

4 (e) IMPLEMENTATION; TRANSITION.—

5 (1) IMPLEMENTATION.—The Secretary shall im6 plement the amendments made by this section in a 

7 manner that discounts are available to eligible bene8 ficiaries under section 1807 of the Social Security Act 

9 and assistance is available to eligible low-income 

10 beneficiaries under section 1807A of such Act not 

11 later than January 1, 2004. 

12 (2) TRANSITION.—The Secretary shall provide 

13 for an appropriate transition and discontinuation of 

14 the programs under section 1807 and 1807A of the 

15 Social Security Act. Such transition and discontinu16 ation shall ensure that such programs continue to op17 erate until the date on which the first enrollment pe18 riod under part D ends. 

19 Subtitle C—Standards for 

20 Electronic Prescribing 

21 SEC. 121. STANDARDS FOR ELECTRONIC PRESCRIBING. 

22 Title XI (42 U.S.C. 1301 et seq.) is amended by adding 

23 at the end the following new part: 
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1 ‘‘PART D—ELECTRONIC PRESCRIBING

2 ‘‘STANDARDS FOR ELECTRONIC PRESCRIBING

3 ‘‘SEC. 1180. (a) STANDARDS.—

4 ‘‘(1) DEVELOPMENT AND ADOPTION.—

5 ‘‘(A) IN GENERAL.—The Secretary shall de6 velop or adopt standards for transactions and 

7 data elements for such transactions (in this sec8 tion referred to as ‘standards’) to enable the elec9 tronic transmission of medication history, eligi10 bility, benefit, and other prescription informa11 tion. 

12 ‘‘(B) CONSULTATION.—In developing and 

13 adopting the standards under subparagraph (A), 

14 the Secretary shall consult with representatives 

15 of physicians, hospitals, pharmacists, standard 

16 setting organizations, pharmacy benefit man17 agers, beneficiary information exchange net18 works, technology experts, and representatives of 

19 the Departments of Veterans Affairs and Defense 

20 and other interested parties. 

21 ‘‘(2) OBJECTIVE.—Any standards developed or 

22 adopted under this part shall be consistent with the 

23 objectives of improving—

24 ‘‘(A) patient safety; and 
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1 ‘‘(B) the quality of care provided to pa2 tients. 

3 ‘‘(3) REQUIREMENTS.—Any standards developed 

4 or adopted under this part shall comply with the fol5 lowing: 

6 ‘‘(A) ELECTRONIC TRANSMITTAL OF PRE7 SCRIPTIONS.—

8 ‘‘(i) IN GENERAL.—Except as provided 

9 in clause (ii), the standards require that 

10 prescriptions be written and transmitted 

11 electronically. 

12 ‘‘(ii) EXCEPTIONS.—The standards 

13 shall not require a prescription to be writ14 ten and transmitted electronically—

15 ‘‘(I) in emergency cases and other 

16 exceptional circumstances recognized 

17 by the Administrator; or 

18 ‘‘(II) if the patient requests that 

19 the prescription not be transmitted 

20 electronically. 

21 If a patient makes a request under sub22 clause (II), no additional charges may be 

23 imposed on the patient for making such re24 quest.
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1 ‘‘(B) PATIENT-SPECIFIC MEDICATION HIS2 TORY, ELIGIBILITY, BENEFIT, AND OTHER PRE3 SCRIPTION INFORMATION.—

4 ‘‘(i) IN GENERAL.—The standards shall 

5 accommodate electronic transmittal of pa6 tient-specific medication history, eligibility, 

7 benefit, and other prescription information 

8 among prescribing and dispensing profes9 sionals at the point of care. 

10 ‘‘(ii) REQUIRED INFORMATION.—The 

11 information described in clause (i) shall in12 clude the following: 

13 ‘‘(I) Information (to the extent 

14 available and feasible) on the drugs 

15 being prescribed for that patient and 

16 other information relating to the medi17 cation history of the patient that may 

18 be relevant to the appropriate prescrip19 tion for that patient. 

20 ‘‘(II) Cost-effective alternatives (if 

21 any) to the drug prescribed. 

22 ‘‘(III) Information on eligibility 

23 and benefits, including the drugs in24 cluded in the applicable formulary and 
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1 any requirements for prior authoriza2 tion. 

3 ‘‘(IV) Information on potential 

4 interactions with drugs listed on the 

5 medication history, graded by severity 

6 of the potential interaction. 

7 ‘‘(V) Other information to im8 prove the quality of patient care and 

9 to reduce medical errors. 

10 ‘‘(C) UNDUE BURDEN.—The standards shall 

11 be designed so that, to the extent practicable, the 

12 standards do not impose an undue administra13 tive burden on the practice of medicine, phar14 macy, or other health professions. 

15 ‘‘(D) COMPATIBILITY WITH ADMINISTRATIVE

16 SIMPLIFICATION AND PRIVACY LAWS.—The stand17 ards shall be—

18 ‘‘(i) consistent with the Federal regula19 tions (concerning the privacy of individ20 ually identifiable health information) pro21 mulgated under section 264(c) of the Health 

22 Insurance Portability and Accountability 

23 Act of 1996; and 

24 ‘‘(ii) compatible with the standards 

25 adopted under part C. 
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1 ‘‘(4) TRANSFER OF INFORMATION.—The Sec2 retary shall develop and adopt standards for transfer3 ring among prescribing and insurance entities and 

4 other necessary entities appropriate standard data 

5 elements needed for the electronic exchange of medica6 tion history, eligibility, benefit, and other prescrip7 tion drug information and other health information 

8 determined appropriate in compliance with the 

9 standards adopted or modified under this part. 

10 ‘‘(b) TIMETABLE FOR ADOPTION OF STANDARDS.—

11 ‘‘(1) IN GENERAL.—The Secretary shall adopt 

12 the standards under this part by January 1, 2006. 

13 ‘‘(2) ADDITIONS AND MODIFICATIONS TO STAND14 ARDS.—The Secretary shall, in consultation with ap15 propriate representatives of interested parties, review 

16 the standards developed or adopted under this part 

17 and adopt modifications to the standards (including 

18 additions to the standards), as determined appro19 priate. Any addition or modification to such stand20 ards shall be completed in a manner which minimizes 

21 the disruption and cost of compliance. 

22 ‘‘(c) COMPLIANCE WITH STANDARDS.—

23 ‘‘(1) REQUIREMENT FOR ALL INDIVIDUALS AND

24 ENTITIES THAT TRANSMIT OR RECEIVE PRESCRIP25 TIONS ELECTRONICALLY.—
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1 ‘‘(A) IN GENERAL.—Individuals or entities 

2 that transmit or receive electronic medication 

3 history, eligibility, benefit and prescription in4 formation, shall comply with the standards 

5 adopted or modified under this part. 

6 ‘‘(B) RELATION TO STATE LAWS.—The 

7 standards adopted or modified under this part 

8 shall supersede any State law or regulations per9 taining to the electronic transmission of medica10 tion history, eligibility, benefit and prescription 

11 information. 

12 ‘‘(2) TIMETABLE FOR COMPLIANCE.—

13 ‘‘(A) INITIAL COMPLIANCE.—

14 ‘‘(i) IN GENERAL.—Not later than 24 

15 months after the date on which an initial 

16 standard is adopted under this part, each 

17 individual or entity to whom the standard 

18 applies shall comply with the standard. 

19 ‘‘(ii) SPECIAL RULE FOR SMALL

20 HEALTH PLANS.—In the case of a small 

21 health plan, as defined by the Secretary for 

22 purposes of section 1175(b)(1)(B), clause (i) 

23 shall be applied by substituting ‘36 months’ 

24 for ‘24 months’. 
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1 ‘‘(d) CONSULTATION WITH ATTORNEY GENERAL.—The 

2 Secretary shall consult with the Attorney General before de3 veloping, adopting, or modifying a standard under this 

4 part to ensure that the standard accommodates secure elec5 tronic transmission of prescriptions for controlled sub6 stances in a manner that minimizes the possibility of viola7 tions under the Comprehensive Drug Abuse Prevention and 

8 Control Act of 1970 and related Federal laws. 

9 ‘‘GRANTS TO HEALTH CARE PROVIDERS TO IMPLEMENT

10 ELECTRONIC PRESCRIPTION PROGRAMS

11 ‘‘SEC. 1180A. (a) IN GENERAL.—The Secretary is au12 thorized to make grants to health care providers for the pur13 pose of assisting such entities to implement electronic pre14 scription programs that comply with the standards adopted 

15 or modified under this part. 

16 ‘‘(b) APPLICATION.—No grant may be made under this 

17 section except pursuant to a grant application that is sub18 mitted in a time, manner, and form approved by the Sec19 retary. 

20 ‘‘(c) AUTHORIZATION OF APPROPRIATIONS.—There are 

21 authorized to be appropriated for each of fiscal years 2006, 

22 2007, and 2008, such sums as may be necessary to carry 

23 out this section.’’.
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1 Subtitle D—Other Provisions 

2 SEC. 131. ADDITIONAL REQUIREMENTS FOR ANNUAL FI3 NANCIAL REPORT AND OVERSIGHT ON MEDI4 CARE PROGRAM. 

5 (a) IN GENERAL.—Section 1817 (42 U.S.C. 1395i) is 

6 amended by adding at the end the following new subsection: 

7 ‘‘(l) COMBINED REPORT ON OPERATION AND STATUS

8 OF THE TRUST FUND AND THE FEDERAL SUPPLEMENTARY

9 MEDICAL INSURANCE TRUST FUND (INCLUDING THE PRE10 SCRIPTION DRUG ACCOUNT).—In addition to the duty of 

11 the Board of Trustees to report to Congress under subsection 

12 (b), on the date the Board submits the report required under 

13 subsection (b)(2), the Board shall submit to Congress a re14 port on the operation and status of the Trust Fund and 

15 the Federal Supplementary Medical Insurance Trust Fund 

16 established under section 1841 (including the Prescription 

17 Drug Account within such Trust Fund), in this subsection 

18 referred to as the ‘Trust Funds’. Such report shall include 

19 the following information: 

20 ‘‘(1) OVERALL SPENDING FROM THE GENERAL

21 FUND OF THE TREASURY.—A statement of total 

22 amounts obligated during the preceding fiscal year 

23 from the General Revenues of the Treasury to the 

24 Trust Funds, separately stated in terms of the total 

25 amount and in terms of the percentage such amount 
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1 bears to all other amounts obligated from such Gen2 eral Revenues during such fiscal year, for each of the 

3 following amounts: 

4 ‘‘(A) MEDICARE BENEFITS.—The amount 

5 expended for payment of benefits covered under 

6 this title. 

7 ‘‘(B) ADMINISTRATIVE AND OTHER EX8 PENSES.—The amount expended for payments 

9 not related to the benefits described in subpara10 graph (A). 

11 ‘‘(2) HISTORICAL OVERVIEW OF SPENDING.—

12 From the date of the inception of the program of in13 surance under this title through the fiscal year in14 volved, a statement of the total amounts referred to in 

15 paragraph (1), separately stated for the amounts de16 scribed in subparagraphs (A) and (B) of such para17 graph. 

18 ‘‘(3) 10-YEAR AND 50-YEAR PROJECTIONS.—An 

19 estimate of total amounts referred to in paragraph 

20 (1), separately stated for the amounts described in 

21 subparagraphs (A) and (B) of such paragraph, re22 quired to be obligated for payment for benefits covered 

23 under this title for each of the 10 fiscal years suc24 ceeding the fiscal year involved and for the 50-year 

25 period beginning with the succeeding fiscal year. 
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1 ‘‘(4) RELATION TO OTHER MEASURES OF

2 GROWTH.—A comparison of the rate of growth of the 

3 total amounts referred to in paragraph (1), separately 

4 stated for the amounts described in subparagraphs 

5 (A) and (B) of such paragraph, to the rate of growth 

6 for the same period in—

7 ‘‘(A) the gross domestic product; 

8 ‘‘(B) health insurance costs in the private 

9 sector; 

10 ‘‘(C) employment-based health insurance 

11 costs in the public and private sectors; and 

12 ‘‘(D) other areas as determined appropriate 

13 by the Board of Trustees.’’. 

14 (b) EFFECTIVE DATE.—The amendment made by sub15 section (a) shall apply with respect to fiscal years beginning 

16 on or after the date of enactment of this Act. 

17 (c) CONGRESSIONAL HEARINGS.—It is the sense of 

18 Congress that the committees of jurisdiction of Congress 

19 shall hold hearings on the reports submitted under section 

20 1817(l) of the Social Security Act (as added by subsection 

21 (a)). 

22 SEC. 132. TRUSTEES’ REPORT ON MEDICARE’S UNFUNDED 

23 OBLIGATIONS. 

24 (a) REPORT.—The report submitted under sections 

25 1817(b)(2) and 1841(b)(2) of the Social Security Act (42 
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1 U.S.C. 1395i(b)(2) and 1395t(b)(2)) during 2004 shall in2 clude an analysis of the total amount of the unfunded obli3 gations of the Medicare program under title XVIII of the 

4 Social Security Act. 

5 (b) MATTERS ANALYZED.—The analysis described in 

6 subsection (A) shall compare the long-term obligations of 

7 the Medicare program to the dedicated funding sources for 

8 that program (other than general revenue transfers), includ9 ing the combined obligations of the Federal Hospital Insur10 ance Trust Fund established under section 1817 of such Act 

11 (42 U.S.C. 1395i) and the Federal Supplementary Medical 

12 Insurance Trust Fund established under section 1841 of 

13 such Act (42 U.S.C. 1395t).

14 TITLE II—MEDICAREADVANTAGE 

15 Subtitle A—MedicareAdvantage 

16 Competition 

17 SEC. 201. ELIGIBILITY, ELECTION, AND ENROLLMENT. 

18 Section 1851 (42 U.S.C. 1395w–21) is amended to 

19 read as follows: 

20 ‘‘ELIGIBILITY, ELECTION, AND ENROLLMENT

21 ‘‘SEC. 1851. (a) CHOICE OF MEDICARE BENEFITS

22 THROUGH MEDICAREADVANTAGE PLANS.—

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

24 this section, each MedicareAdvantage eligible indi25 vidual (as defined in paragraph (3)) is entitled to 

26 elect to receive benefits under this title—
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1 ‘‘(A) through—

2 ‘‘(i) the original Medicare fee-for-serv3 ice program under parts A and B; and 

4 ‘‘(ii) the voluntary prescription drug 

5 delivery program under part D; or 

6 ‘‘(B) through enrollment in a 

7 MedicareAdvantage plan under this part. 

8 ‘‘(2) TYPES OF MEDICAREADVANTAGE PLANS

9 THAT MAY BE AVAILABLE.—A MedicareAdvantage 

10 plan may be any of the following types of plans of 

11 health insurance: 

12 ‘‘(A) COORDINATED CARE PLANS.—Coordi13 nated care plans which provide health care serv14 ices, including health maintenance organization 

15 plans (with or without point of service options) 

16 and plans offered by provider-sponsored organi17 zations (as defined in section 1855(d)). 

18 ‘‘(B) COMBINATION OF MSA PLAN AND CON19 TRIBUTIONS TO MEDICAREADVANTAGE MSA.—An 

20 MSA plan, as defined in section 1859(b)(3), and 

21 a contribution into a MedicareAdvantage med22 ical savings account (MSA). 

23 ‘‘(C) PRIVATE FEE-FOR-SERVICE PLANS.—A 

24 MedicareAdvantage private fee-for-service plan, 

25 as defined in section 1859(b)(2).
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1 ‘‘(3) MEDICAREADVANTAGE ELIGIBLE INDI2 VIDUAL.—

3 ‘‘(A) IN GENERAL.—Subject to subpara4 graph (B), in this title, the term 

5 ‘MedicareAdvantage eligible individual’ means 

6 an individual who is entitled to (or enrolled for) 

7 benefits under part A, enrolled under part B, 

8 and enrolled under part D. 

9 ‘‘(B) SPECIAL RULE FOR END-STAGE RENAL

10 DISEASE.—Such term shall not include an indi11 vidual medically determined to have end-stage 

12 renal disease, except that—

13 ‘‘(i) an individual who develops end14 stage renal disease while enrolled in a 

15 Medicare+Choice or a MedicareAdvantage 

16 plan may continue to be enrolled in that 

17 plan; and 

18 ‘‘(ii) in the case of such an individual 

19 who is enrolled in a Medicare+Choice plan 

20 or a MedicareAdvantage plan under clause 

21 (i) (or subsequently under this clause), if 

22 the enrollment is discontinued under cir23 cumstances described in section 

24 1851(e)(4)(A), then the individual will be 

25 treated as a ‘MedicareAdvantage eligible in-
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1 dividual’ for purposes of electing to con2 tinue enrollment in another 

3 MedicareAdvantage plan. 

4 ‘‘(b) SPECIAL RULES.—

5 ‘‘(1) RESIDENCE REQUIREMENT.—

6 ‘‘(A) IN GENERAL.—Except as the Secretary 

7 may otherwise provide and except as provided in 

8 subparagraph (C), an individual is eligible to 

9 elect a MedicareAdvantage plan offered by a 

10 MedicareAdvantage organization only if the plan 

11 serves the geographic area in which the indi12 vidual resides. 

13 ‘‘(B) CONTINUATION OF ENROLLMENT PER14 MITTED.—Pursuant to rules specified by the Sec15 retary, the Secretary shall provide that a plan 

16 may offer to all individuals residing in a geo17 graphic area the option to continue enrollment 

18 in the plan, notwithstanding that the individual 

19 no longer resides in the service area of the plan, 

20 so long as the plan provides that individuals ex21 ercising this option have, as part of the basic 

22 benefits described in section 1852(a)(1)(A), rea23 sonable access within that geographic area to the 

24 full range of basic benefits, subject to reasonable 

25 cost-sharing liability in obtaining such benefits. 
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1 ‘‘(C) CONTINUATION OF ENROLLMENT PER2 MITTED WHERE SERVICE CHANGED.—Notwith3 standing subparagraph (A) and in addition to 

4 subparagraph (B), if a MedicareAdvantage orga5 nization eliminates from its service area a 

6 MedicareAdvantage payment area that was pre7 viously within its service area, the organization 

8 may elect to offer individuals residing in all or 

9 portions of the affected area who would otherwise 

10 be ineligible to continue enrollment the option to 

11 continue enrollment in a MedicareAdvantage 

12 plan it offers so long as—

13 ‘‘(i) the enrollee agrees to receive the 

14 full range of basic benefits (excluding emer15 gency and urgently needed care) exclusively 

16 at facilities designated by the organization 

17 within the plan service area; and 

18 ‘‘(ii) there is no other 

19 MedicareAdvantage plan offered in the area 

20 in which the enrollee resides at the time of 

21 the organization’s election. 

22 ‘‘(2) SPECIAL RULE FOR CERTAIN INDIVIDUALS

23 COVERED UNDER FEHBP OR ELIGIBLE FOR VETERANS

24 OR MILITARY HEALTH BENEFITS.—
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1 ‘‘(A) FEHBP.—An individual who is en2 rolled in a health benefit plan under chapter 89 

3 of title 5, United States Code, is not eligible to 

4 enroll in an MSA plan until such time as the 

5 Director of the Office of Management and Budget 

6 certifies to the Secretary that the Office of Per7 sonnel Management has adopted policies which 

8 will ensure that the enrollment of such individ9 uals in such plans will not result in increased 

10 expenditures for the Federal Government for 

11 health benefit plans under such chapter. 

12 ‘‘(B) VA AND DOD.—The Secretary may 

13 apply rules similar to the rules described in sub14 paragraph (A) in the case of individuals who are 

15 eligible for health care benefits under chapter 55 

16 of title 10, United States Code, or under chapter 

17 17 of title 38 of such Code. 

18 ‘‘(3) LIMITATION ON ELIGIBILITY OF QUALIFIED

19 MEDICARE BENEFICIARIES AND OTHER MEDICAID

20 BENEFICIARIES TO ENROLL IN AN MSA PLAN.—An in21 dividual who is a qualified medicare beneficiary (as 

22 defined in section 1905(p)(1)), a qualified disabled 

23 and working individual (described in section 

24 1905(s)), an individual described in section 

25 1902(a)(10)(E)(iii), or otherwise entitled to medicare 
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1 cost-sharing under a State plan under title XIX is 

2 not eligible to enroll in an MSA plan. 

3 ‘‘(4) COVERAGE UNDER MSA PLANS ON A DEM4 ONSTRATION BASIS.—

5 ‘‘(A) IN GENERAL.—An individual is not el6 igible to enroll in an MSA plan under this 

7 part—

8 ‘‘(i) on or after January 1, 2004, un9 less the enrollment is the continuation of 

10 such an enrollment in effect as of such date; 

11 or 

12 ‘‘(ii) as of any date if the number of 

13 such individuals so enrolled as of such date 

14 has reached 390,000. 

15 Under rules established by the Secretary, an in16 dividual is not eligible to enroll (or continue en17 rollment) in an MSA plan for a year unless the 

18 individual provides assurances satisfactory to the 

19 Secretary that the individual will reside in the 

20 United States for at least 183 days during the 

21 year. 

22 ‘‘(B) EVALUATION.—The Secretary shall 

23 regularly evaluate the impact of permitting en24 rollment in MSA plans under this part on selec25 tion (including adverse selection), use of preven-
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1 tive care, access to care, and the financial status 

2 of the Trust Funds under this title. 

3 ‘‘(C) REPORTS.—The Secretary shall submit 

4 to Congress periodic reports on the numbers of 

5 individuals enrolled in such plans and on the 

6 evaluation being conducted under subparagraph 

7 (B). 

8 ‘‘(c) PROCESS FOR EXERCISING CHOICE.—

9 ‘‘(1) IN GENERAL.—The Secretary shall establish 

10 a process through which elections described in sub11 section (a) are made and changed, including the form 

12 and manner in which such elections are made and 

13 changed. Such elections shall be made or changed only 

14 during coverage election periods specified under sub15 section (e) and shall become effective as provided in 

16 subsection (f). 

17 ‘‘(2) COORDINATION THROUGH

18 MEDICAREADVANTAGE ORGANIZATIONS.—

19 ‘‘(A) ENROLLMENT.—Such process shall 

20 permit an individual who wishes to elect a 

21 MedicareAdvantage plan offered by a 

22 MedicareAdvantage organization to make such 

23 election through the filing of an appropriate elec24 tion form with the organization.
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1 ‘‘(B) DISENROLLMENT.—Such process shall 

2 permit an individual, who has elected a 

3 MedicareAdvantage plan offered by a 

4 MedicareAdvantage organization and who wishes 

5 to terminate such election, to terminate such elec6 tion through the filing of an appropriate election 

7 form with the organization. 

8 ‘‘(3) DEFAULT.—

9 ‘‘(A) INITIAL ELECTION.—

10 ‘‘(i) IN GENERAL.—Subject to clause 

11 (ii), an individual who fails to make an 

12 election during an initial election period 

13 under subsection (e)(1) is deemed to have 

14 chosen the original medicare fee-for-service 

15 program option. 

16 ‘‘(ii) SEAMLESS CONTINUATION OF

17 COVERAGE.—The Secretary may establish 

18 procedures under which an individual who 

19 is enrolled in a Medicare+Choice plan or 

20 another health plan (other than a 

21 MedicareAdvantage plan) offered by a 

22 MedicareAdvantage organization at the 

23 time of the initial election period and who 

24 fails to elect to receive coverage other than 

25 through the organization is deemed to have 
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1 elected the MedicareAdvantage plan offered 

2 by the organization (or, if the organization 

3 offers more than 1 such plan, such plan or 

4 plans as the Secretary identifies under such 

5 procedures). 

6 ‘‘(B) CONTINUING PERIODS.—An individual 

7 who has made (or is deemed to have made) an 

8 election under this section is considered to have 

9 continued to make such election until such time 

10 as—

11 ‘‘(i) the individual changes the election 

12 under this section; or 

13 ‘‘(ii) the MedicareAdvantage plan with 

14 respect to which such election is in effect is 

15 discontinued or, subject to subsection 

16 (b)(1)(B), no longer serves the area in 

17 which the individual resides. 

18 ‘‘(d) PROVIDING INFORMATION TO PROMOTE IN19 FORMED CHOICE.—

20 ‘‘(1) IN GENERAL.—The Secretary shall provide 

21 for activities under this subsection to broadly dissemi22 nate information to medicare beneficiaries (and pro23 spective medicare beneficiaries) on the coverage op24 tions provided under this section in order to promote 

25 an active, informed selection among such options. 
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1 ‘‘(2) PROVISION OF NOTICE.—

2 ‘‘(A) OPEN SEASON NOTIFICATION.—At least 

3 15 days before the beginning of each annual, co4 ordinated election period (as defined in sub5 section (e)(3)(B)), the Secretary shall mail to 

6 each MedicareAdvantage eligible individual re7 siding in an area the following: 

8 ‘‘(i) GENERAL INFORMATION.—The 

9 general information described in paragraph 

10 (3). 

11 ‘‘(ii) LIST OF PLANS AND COMPARISON

12 OF PLAN OPTIONS.—A list identifying the 

13 MedicareAdvantage plans that are (or will 

14 be) available to residents of the area and in15 formation described in paragraph (4) con16 cerning such plans. Such information shall 

17 be presented in a comparative form. 

18 ‘‘(iii) ADDITIONAL INFORMATION.—

19 Any other information that the Secretary 

20 determines will assist the individual in 

21 making the election under this section. 

22 The mailing of such information shall be coordi23 nated, to the extent practicable, with the mailing 

24 of any annual notice under section 1804. 
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1 ‘‘(B) NOTIFICATION TO NEWLY ELIGIBLE

2 MEDICAREADVANTAGE ELIGIBLE INDIVIDUALS.—

3 To the extent practicable, the Secretary shall, not 

4 later than 30 days before the beginning of the 

5 initial MedicareAdvantage enrollment period for 

6 an individual described in subsection (e)(1), 

7 mail to the individual the information described 

8 in subparagraph (A). 

9 ‘‘(C) FORM.—The information disseminated 

10 under this paragraph shall be written and for11 matted using language that is easily understand12 able by medicare beneficiaries. 

13 ‘‘(D) PERIODIC UPDATING.—The informa14 tion described in subparagraph (A) shall be up15 dated on at least an annual basis to reflect 

16 changes in the availability of MedicareAdvantage 

17 plans, the benefits under such plans, and the 

18 MedicareAdvantage monthly basic beneficiary 

19 premium, MedicareAdvantage monthly bene20 ficiary premium for enhanced medical benefits, 

21 and MedicareAdvantage monthly beneficiary ob22 ligation for qualified prescription drug coverage 

23 for such plans. 

24 ‘‘(3) GENERAL INFORMATION.—General informa25 tion under this paragraph, with respect to coverage 
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1 under this part during a year, shall include the fol2 lowing: 

3 ‘‘(A) BENEFITS UNDER THE ORIGINAL

4 MEDICARE FEE-FOR-SERVICE PROGRAM OP5 TION.—A general description of the benefits cov6 ered under parts A and B of the original medi7 care fee-for-service program, including—

8 ‘‘(i) covered items and services; 

9 ‘‘(ii) beneficiary cost-sharing, such as 

10 deductibles, coinsurance, and copayment 

11 amounts; and 

12 ‘‘(iii) any beneficiary liability for bal13 ance billing. 

14 ‘‘(B) CATASTROPHIC COVERAGE AND COM15 BINED DEDUCTIBLE.—A description of the cata16 strophic coverage and unified deductible applica17 ble under the plan. 

18 ‘‘(C) OUTPATIENT PRESCRIPTION DRUG

19 COVERAGE BENEFITS.—The information required 

20 under section 1860D–4 with respect to coverage 

21 for prescription drugs under the plan. 

22 ‘‘(D) ELECTION PROCEDURES.—Informa23 tion and instructions on how to exercise election 

24 options under this section.
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1 ‘‘(E) RIGHTS.—A general description of 

2 procedural rights (including grievance and ap3 peals procedures) of beneficiaries under the origi4 nal medicare fee-for-service program (including 

5 such rights under part D) and the 

6 MedicareAdvantage program and the right to be 

7 protected against discrimination based on health 

8 status-related factors under section 1852(b). 

9 ‘‘(F) INFORMATION ON MEDIGAP AND MEDI10 CARE SELECT.—A general description of the ben11 efits, enrollment rights, and other requirements 

12 applicable to medicare supplemental policies 

13 under section 1882 and provisions relating to 

14 medicare select policies described in section 

15 1882(t). 

16 ‘‘(G) POTENTIAL FOR CONTRACT TERMI17 NATION.—The fact that a MedicareAdvantage or18 ganization may terminate its contract, refuse to 

19 renew its contract, or reduce the service area in20 cluded in its contract, under this part, and the 

21 effect of such a termination, nonrenewal, or serv22 ice area reduction may have on individuals en23 rolled with the MedicareAdvantage plan under 

24 this part. 
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1 ‘‘(4) INFORMATION COMPARING PLAN OPTIONS.—

2 Information under this paragraph, with respect to a 

3 MedicareAdvantage plan for a year, shall include the 

4 following: 

5 ‘‘(A) BENEFITS.—The benefits covered 

6 under the plan, including the following: 

7 ‘‘(i) Covered items and services beyond 

8 those provided under the original medicare 

9 fee-for-service program option. 

10 ‘‘(ii) Beneficiary cost-sharing for any 

11 items and services described in clause (i) 

12 and paragraph (3)(A)(i), including infor13 mation on the unified deductible under sec14 tion 1852(a)(1)(C). 

15 ‘‘(iii) The maximum limitations on 

16 out-of-pocket expenses under section 

17 1852(a)(1)(C). 

18 ‘‘(iv) In the case of an MSA plan, dif19 ferences in cost-sharing, premiums, and bal20 ance billing under such a plan compared to 

21 under other MedicareAdvantage plans. 

22 ‘‘(v) In the case of a 

23 MedicareAdvantage private fee-for-service 

24 plan, differences in cost-sharing, premiums, 

25 and balance billing under such a plan com-
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1 pared to under other MedicareAdvantage 

2 plans. 

3 ‘‘(vi) The extent to which an enrollee 

4 may obtain benefits through out-of-network 

5 health care providers. 

6 ‘‘(vii) The extent to which an enrollee 

7 may select among in-network providers and 

8 the types of providers participating in the 

9 plan’s network. 

10 ‘‘(viii) The organization’s coverage of 

11 emergency and urgently needed care. 

12 ‘‘(ix) The comparative information de13 scribed in section 1860D–4(b)(2) relating to 

14 prescription drug coverage under the plan. 

15 ‘‘(B) PREMIUMS.—

16 ‘‘(i) IN GENERAL.—The 

17 MedicareAdvantage monthly basic bene18 ficiary premium and MedicareAdvantage 

19 monthly beneficiary premium for enhanced 

20 medical benefits, if any, for the plan or, in 

21 the case of an MSA plan, the 

22 MedicareAdvantage monthly MSA pre23 mium. 

24 ‘‘(ii) REDUCTIONS.—The reduction in 

25 part B premiums, if any. 
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1 ‘‘(iii) NATURE OF THE PREMIUM FOR

2 ENHANCED MEDICAL BENEFITS.—Whether 

3 the MedicareAdvantage monthly premium 

4 for enhanced benefits is optional or manda5 tory. 

6 ‘‘(C) SERVICE AREA.—The service area of 

7 the plan. 

8 ‘‘(D) QUALITY AND PERFORMANCE.—Plan 

9 quality and performance indicators for the bene10 fits under the plan (and how such indicators 

11 compare to quality and performance indicators 

12 under the original medicare fee-for-service pro13 gram under parts A and B and under the vol14 untary prescription drug delivery program 

15 under part D in the area involved), including—

16 ‘‘(i) disenrollment rates for medicare 

17 enrollees electing to receive benefits through 

18 the plan for the previous 2 years (excluding 

19 disenrollment due to death or moving out20 side the plan’s service area); 

21 ‘‘(ii) information on medicare enrollee 

22 satisfaction; 

23 ‘‘(iii) information on health outcomes; 

24 and
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1 ‘‘(iv) the recent record regarding com2 pliance of the plan with requirements of 

3 this part (as determined by the Secretary). 

4 ‘‘(5) MAINTAINING A TOLL-FREE NUMBER AND

5 INTERNET SITE.—The Secretary shall maintain a 

6 toll-free number for inquiries regarding 

7 MedicareAdvantage options and the operation of this 

8 part in all areas in which MedicareAdvantage plans 

9 are offered and an Internet site through which indi10 viduals may electronically obtain information on 

11 such options and MedicareAdvantage plans. 

12 ‘‘(6) USE OF NON-FEDERAL ENTITIES.—The Sec13 retary may enter into contracts with non-Federal en14 tities to carry out activities under this subsection. 

15 ‘‘(7) PROVISION OF INFORMATION.—A 

16 MedicareAdvantage organization shall provide the 

17 Secretary with such information on the organization 

18 and each MedicareAdvantage plan it offers as may be 

19 required for the preparation of the information re20 ferred to in paragraph (2)(A). 

21 ‘‘(e) COVERAGE ELECTION PERIODS.—

22 ‘‘(1) INITIAL CHOICE UPON ELIGIBILITY TO MAKE

23 ELECTION IF MEDICAREADVANTAGE PLANS AVAILABLE

24 TO INDIVIDUAL.—If, at the time an individual first 

25 becomes eligible to elect to receive benefits under part 
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1 B or D (whichever is later), there is 1 or more 

2 MedicareAdvantage plans offered in the area in which 

3 the individual resides, the individual shall make the 

4 election under this section during a period specified 

5 by the Secretary such that if the individual elects a 

6 MedicareAdvantage plan during the period, coverage 

7 under the plan becomes effective as of the first date 

8 on which the individual may receive such coverage. 

9 ‘‘(2) OPEN ENROLLMENT AND DISENROLLMENT

10 OPPORTUNITIES.—Subject to paragraph (5), the fol11 lowing rules shall apply: 

12 ‘‘(A) CONTINUOUS OPEN ENROLLMENT AND

13 DISENROLLMENT THROUGH 2005.—At any time 

14 during the period beginning January 1, 1998, 

15 and ending on December 31, 2005, a 

16 Medicare+Choice eligible individual may change 

17 the election under subsection (a)(1). 

18 ‘‘(B) CONTINUOUS OPEN ENROLLMENT AND

19 DISENROLLMENT FOR FIRST 6 MONTHS DURING

20 2006.—

21 ‘‘(i) IN GENERAL.—Subject to clause 

22 (ii) and subparagraph (D), at any time 

23 during the first 6 months of 2006, or, if the 

24 individual first becomes a 

25 MedicareAdvantage eligible individual dur-
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1 ing 2006, during the first 6 months during 

2 2006 in which the individual is a 

3 MedicareAdvantage eligible individual, a 

4 MedicareAdvantage eligible individual may 

5 change the election under subsection (a)(1). 

6 ‘‘(ii) LIMITATION OF 1 CHANGE.—An 

7 individual may exercise the right under 

8 clause (i) only once. The limitation under 

9 this clause shall not apply to changes in 

10 elections effected during an annual, coordi11 nated election period under paragraph (3) 

12 or during a special enrollment period under 

13 the first sentence of paragraph (4). 

14 ‘‘(C) CONTINUOUS OPEN ENROLLMENT AND

15 DISENROLLMENT FOR FIRST 3 MONTHS IN SUB16 SEQUENT YEARS.—

17 ‘‘(i) IN GENERAL.—Subject to clause 

18 (ii) and subparagraph (D), at any time 

19 during the first 3 months of 2007 and each 

20 subsequent year, or, if the individual first 

21 becomes a MedicareAdvantage eligible indi22 vidual during 2007 or any subsequent year, 

23 during the first 3 months of such year in 

24 which the individual is a 

25 MedicareAdvantage eligible individual, a 
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•S 1 RS 

1 MedicareAdvantage eligible individual may 

2 change the election under subsection (a)(1). 

3 ‘‘(ii) LIMITATION OF 1 CHANGE DURING

4 OPEN ENROLLMENT PERIOD EACH YEAR.—

5 An individual may exercise the right under 

6 clause (i) only once during the applicable 3-

7 month period described in such clause in 

8 each year. The limitation under this clause 

9 shall not apply to changes in elections ef10 fected during an annual, coordinated elec11 tion period under paragraph (3) or during 

12 a special enrollment period under para13 graph (4). 

14 ‘‘(D) CONTINUOUS OPEN ENROLLMENT FOR

15 INSTITUTIONALIZED INDIVIDUALS.—At any time 

16 during 2006 or any subsequent year, in the case 

17 of a MedicareAdvantage eligible individual who 

18 is institutionalized (as defined by the Secretary), 

19 the individual may elect under subsection 

20 (a)(1)—

21 ‘‘(i) to enroll in a MedicareAdvantage 

22 plan; or 

23 ‘‘(ii) to change the MedicareAdvantage 

24 plan in which the individual is enrolled. 
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•S 1 RS 

1 ‘‘(3) ANNUAL, COORDINATED ELECTION PE2 RIOD.—

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

4 (5), each individual who is eligible to make an 

5 election under this section may change such elec6 tion during an annual, coordinated election pe7 riod. 

8 ‘‘(B) ANNUAL, COORDINATED ELECTION PE9 RIOD.—For purposes of this section, the term 

10 ‘annual, coordinated election period’ means, with 

11 respect to a year before 2003 and after 2006, the 

12 month of November before such year and with re13 spect to 2003, 2004, 2005, and 2006, the period 

14 beginning on November 15 and ending on De15 cember 31 of the year before such year. 

16 ‘‘(C) MEDICAREADVANTAGE HEALTH INFOR17 MATION FAIRS.—During the fall season of each 

18 year (beginning with 2006), in conjunction with 

19 the annual coordinated election period defined in 

20 subparagraph (B), the Secretary shall provide 

21 for a nationally coordinated educational and 

22 publicity campaign to inform 

23 MedicareAdvantage eligible individuals about 

24 MedicareAdvantage plans and the election proc25 ess provided under this section.
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1 ‘‘(D) SPECIAL INFORMATION CAMPAIGN IN

2 2005.—During the period beginning on November 

3 15, 2005, and ending on December 31, 2005, the 

4 Secretary shall provide for an educational and 

5 publicity campaign to inform 

6 MedicareAdvantage eligible individuals about the 

7 availability of MedicareAdvantage plans, and el8 igible organizations with risk-sharing contracts 

9 under section 1876, offered in different areas and 

10 the election process provided under this section. 

11 ‘‘(4) SPECIAL ELECTION PERIODS.—Effective on 

12 and after January 1, 2006, an individual may dis13 continue an election of a MedicareAdvantage plan of14 fered by a MedicareAdvantage organization other 

15 than during an annual, coordinated election period 

16 and make a new election under this section if—

17 ‘‘(A)(i) the certification of the organization 

18 or plan under this part has been terminated, or 

19 the organization or plan has notified the indi20 vidual of an impending termination of such cer21 tification; or 

22 ‘‘(ii) the organization has terminated or 

23 otherwise discontinued providing the plan in the 

24 area in which the individual resides, or has noti-
223

•S 1 RS 

1 fied the individual of an impending termination 

2 or discontinuation of such plan; 

3 ‘‘(B) the individual is no longer eligible to 

4 elect the plan because of a change in the individ5 ual’s place of residence or other change in cir6 cumstances (specified by the Secretary, but not 

7 including termination of the individual’s enroll8 ment on the basis described in clause (i) or (ii) 

9 of subsection (g)(3)(B)); 

10 ‘‘(C) the individual demonstrates (in ac11 cordance with guidelines established by the Sec12 retary) that—

13 ‘‘(i) the organization offering the plan 

14 substantially violated a material provision 

15 of the organization’s contract under this 

16 part in relation to the individual (includ17 ing the failure to provide an enrollee on a 

18 timely basis medically necessary care for 

19 which benefits are available under the plan 

20 or the failure to provide such covered care 

21 in accordance with applicable quality 

22 standards); or 

23 ‘‘(ii) the organization (or an agent or 

24 other entity acting on the organization’s be25 half) materially misrepresented the plan’s 
224

•S 1 RS 

1 provisions in marketing the plan to the in2 dividual; or 

3 ‘‘(D) the individual meets such other excep4 tional conditions as the Secretary may provide. 

5 Effective on and after January 1, 2006, an indi6 vidual who, upon first becoming eligible for benefits 

7 under part A at age 65, enrolls in a 

8 MedicareAdvantage plan under this part, the indi9 vidual may discontinue the election of such plan, and 

10 elect coverage under the original fee-for-service plan, 

11 at any time during the 12-month period beginning on 

12 the effective date of such enrollment. 

13 ‘‘(5) SPECIAL RULES FOR MSA PLANS.—Notwith14 standing the preceding provisions of this subsection, 

15 an individual—

16 ‘‘(A) may elect an MSA plan only during—

17 ‘‘(i) an initial open enrollment period 

18 described in paragraph (1); 

19 ‘‘(ii) an annual, coordinated election 

20 period described in paragraph (3)(B); or 

21 ‘‘(iii) the month of November 1998; 

22 ‘‘(B) subject to subparagraph (C), may not 

23 discontinue an election of an MSA plan except 

24 during the periods described in clause (ii) or 
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•S 1 RS 

1 (iii) of subparagraph (A) and under the first 

2 sentence of paragraph (4); and 

3 ‘‘(C) who elects an MSA plan during an 

4 annual, coordinated election period, and who 

5 never previously had elected such a plan, may 

6 revoke such election, in a manner determined by 

7 the Secretary, by not later than December 15 fol8 lowing the date of the election. 

9 ‘‘(6) OPEN ENROLLMENT PERIODS.—Subject to 

10 paragraph (5), a MedicareAdvantage organization—

11 ‘‘(A) shall accept elections or changes to 

12 elections during the initial enrollment periods 

13 described in paragraph (1), during the period be14 ginning on November 15, 2005, and ending on 

15 December 31, 2005, and during the annual, co16 ordinated election period under paragraph (3) 

17 for each subsequent year, and during special 

18 election periods described in the first sentence of 

19 paragraph (4); and 

20 ‘‘(B) may accept other changes to elections 

21 at such other times as the organization provides. 

22 ‘‘(f) EFFECTIVENESS OF ELECTIONS AND CHANGES OF

23 ELECTIONS.—

24 ‘‘(1) DURING INITIAL COVERAGE ELECTION PE25 RIOD.—An election of coverage made during the ini-
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1 tial coverage election period under subsection 

2 (e)(1)(A) shall take effect upon the date the individual 

3 becomes entitled to (or enrolled for) benefits under 

4 part A, enrolled under part B, and enrolled under 

5 part D, except as the Secretary may provide (con6 sistent with sections 1838 and 1860D–2)) in order to 

7 prevent retroactive coverage. 

8 ‘‘(2) DURING CONTINUOUS OPEN ENROLLMENT

9 PERIODS.—An election or change of coverage made 

10 under subsection (e)(2) shall take effect with the first 

11 day of the first calendar month following the date on 

12 which the election or change is made. 

13 ‘‘(3) ANNUAL, COORDINATED ELECTION PE14 RIOD.—An election or change of coverage made dur15 ing an annual, coordinated election period (as defined 

16 in subsection (e)(3)(B)) in a year shall take effect as 

17 of the first day of the following year. 

18 ‘‘(4) OTHER PERIODS.—An election or change of 

19 coverage made during any other period under sub20 section (e)(4) shall take effect in such manner as the 

21 Secretary provides in a manner consistent (to the ex22 tent practicable) with protecting continuity of health 

23 benefit coverage. 

24 ‘‘(g) GUARANTEED ISSUE AND RENEWAL.—
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1 ‘‘(1) IN GENERAL.—Except as provided in this 

2 subsection, a MedicareAdvantage organization shall 

3 provide that at any time during which elections are 

4 accepted under this section with respect to a 

5 MedicareAdvantage plan offered by the organization, 

6 the organization will accept without restrictions indi7 viduals who are eligible to make such election. 

8 ‘‘(2) PRIORITY.—If the Secretary determines that 

9 a MedicareAdvantage organization, in relation to a 

10 MedicareAdvantage plan it offers, has a capacity 

11 limit and the number of MedicareAdvantage eligible 

12 individuals who elect the plan under this section ex13 ceeds the capacity limit, the organization may limit 

14 the election of individuals of the plan under this sec15 tion but only if priority in election is provided—

16 ‘‘(A) first to such individuals as have elect17 ed the plan at the time of the determination; and 

18 ‘‘(B) then to other such individuals in such 

19 a manner that does not discriminate, on a basis 

20 described in section 1852(b), among the individ21 uals (who seek to elect the plan). 

22 The preceding sentence shall not apply if it would re23 sult in the enrollment of enrollees substantially non24 representative, as determined in accordance with reg-
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1 ulations of the Secretary, of the medicare population 

2 in the service area of the plan. 

3 ‘‘(3) LIMITATION ON TERMINATION OF ELEC4 TION.—

5 ‘‘(A) IN GENERAL.—Subject to subpara6 graph (B), a MedicareAdvantage organization 

7 may not for any reason terminate the election of 

8 any individual under this section for a 

9 MedicareAdvantage plan it offers. 

10 ‘‘(B) BASIS FOR TERMINATION OF ELEC11 TION.—A MedicareAdvantage organization may 

12 terminate an individual’s election under this sec13 tion with respect to a MedicareAdvantage plan it 

14 offers if—

15 ‘‘(i) any MedicareAdvantage monthly 

16 basic beneficiary premium, 

17 MedicareAdvantage monthly beneficiary ob18 ligation for qualified prescription drug cov19 erage, or MedicareAdvantage monthly bene20 ficiary premium for required or optional 

21 enhanced medical benefits required with re22 spect to such plan are not paid on a timely 

23 basis (consistent with standards under sec24 tion 1856 that provide for a grace period 

25 for late payment of such premiums); 
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1 ‘‘(ii) the individual has engaged in 

2 disruptive behavior (as specified in such 

3 standards); or 

4 ‘‘(iii) the plan is terminated with re5 spect to all individuals under this part in 

6 the area in which the individual resides. 

7 ‘‘(C) CONSEQUENCE OF TERMINATION.—

8 ‘‘(i) TERMINATIONS FOR CAUSE.—Any 

9 individual whose election is terminated 

10 under clause (i) or (ii) of subparagraph (B) 

11 is deemed to have elected to receive benefits 

12 under the original medicare fee-for-service 

13 program option. 

14 ‘‘(ii) TERMINATION BASED ON PLAN

15 TERMINATION OR SERVICE AREA REDUC16 TION.—Any individual whose election is 

17 terminated under subparagraph (B)(iii) 

18 shall have a special election period under 

19 subsection (e)(4)(A) in which to change cov20 erage to coverage under another 

21 MedicareAdvantage plan. Such an indi22 vidual who fails to make an election during 

23 such period is deemed to have chosen to 

24 change coverage to the original medicare 

25 fee-for-service program option.
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1 ‘‘(D) ORGANIZATION OBLIGATION WITH RE2 SPECT TO ELECTION FORMS.—Pursuant to a 

3 contract under section 1857858., each 

4 MedicareAdvantage organization receiving an 

5 election form under subsection (c)(2) shall trans6 mit to the Secretary (at such time and in such 

7 manner as the Secretary may specify) a copy of 

8 such form or such other information respecting 

9 the election as the Secretary may specify. 

10 ‘‘(h) APPROVAL OF MARKETING MATERIAL AND APPLI11 CATION FORMS.—

12 ‘‘(1) SUBMISSION.—No marketing material or 

13 application form may be distributed by a 

14 MedicareAdvantage organization to (or for the use of) 

15 MedicareAdvantage eligible individuals unless—

16 ‘‘(A) at least 45 days (or 10 days in the 

17 case described in paragraph (5)) before the date 

18 of distribution the organization has submitted 

19 the material or form to the Secretary for review; 

20 and 

21 ‘‘(B) the Secretary has not disapproved the 

22 distribution of such material or form. 

23 ‘‘(2) REVIEW.—The standards established under 

24 section 1856 shall include guidelines for the review of 

25 any material or form submitted and under such 
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1 guidelines the Secretary shall disapprove (or later re2 quire the correction of) such material or form if the 

3 material or form is materially inaccurate or mis4 leading or otherwise makes a material misrepresenta5 tion. 

6 ‘‘(3) DEEMED APPROVAL (1-STOP SHOPPING).—

7 In the case of material or form that is submitted 

8 under paragraph (1)(A) to the Secretary or a re9 gional office of the Department of Health and Human 

10 Services and the Secretary or the office has not dis11 approved the distribution of marketing material or 

12 form under paragraph (1)(B) with respect to a 

13 MedicareAdvantage plan in an area, the Secretary is 

14 deemed not to have disapproved such distribution in 

15 all other areas covered by the plan and organization 

16 except with regard to that portion of such material or 

17 form that is specific only to an area involved. 

18 ‘‘(4) PROHIBITION OF CERTAIN MARKETING

19 PRACTICES.—Each MedicareAdvantage organization 

20 shall conform to fair marketing standards, in relation 

21 to MedicareAdvantage plans offered under this part, 

22 included in the standards established under section 

23 1856. Such standards—

24 ‘‘(A) shall not permit a MedicareAdvantage 

25 organization to provide for cash or other mone-
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1 tary rebates as an inducement for enrollment or 

2 otherwise (other than as an additional benefit 

3 described in section 1854(g)(1)(C)(i)); and 

4 ‘‘(B) may include a prohibition against a 

5 MedicareAdvantage organization (or agent of 

6 such an organization) completing any portion of 

7 any election form used to carry out elections 

8 under this section on behalf of any individual. 

9 ‘‘(5) SPECIAL TREATMENT OF MARKETING MATE10 RIAL FOLLOWING MODEL MARKETING LANGUAGE.—In 

11 the case of marketing material of an organization 

12 that uses, without modification, proposed model lan13 guage specified by the Secretary, the period specified 

14 in paragraph (1)(A) shall be reduced from 45 days to 

15 10 days. 

16 ‘‘(i) EFFECT OF ELECTION OF MEDICAREADVANTAGE

17 PLAN OPTION.—

18 ‘‘(1) PAYMENTS TO ORGANIZATIONS.—Subject to 

19 sections 1852(a)(5), 1853(h), 1853(i), 1886(d)(11), 

20 and 1886(h)(3)(D), payments under a contract with 

21 a MedicareAdvantage organization under section 

22 1853(a) with respect to an individual electing a 

23 MedicareAdvantage plan offered by the organization 

24 shall be instead of the amounts which (in the absence 

25 of the contract) would otherwise be payable under 
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1 parts A, B, and D for items and services furnished 

2 to the individual. 

3 ‘‘(2) ONLY ORGANIZATION ENTITLED TO PAY4 MENT.—Subject to sections 1853(f), 1853(h), 1853(i), 

5 1857(f)(2), 1886(d)(11), and 1886(h)(3)(D), only the 

6 MedicareAdvantage organization shall be entitled to 

7 receive payments from the Secretary under this title 

8 for services furnished to the individual.’’. 

9 SEC. 202. BENEFITS AND BENEFICIARY PROTECTIONS. 

10 Section 1852 (42 U.S.C. 1395w–22) is amended to 

11 read as follows: 

12 ‘‘BENEFITS AND BENEFICIARY PROTECTIONS

13 ‘‘SEC. 1852. (a) BASIC BENEFITS.—

14 ‘‘(1) IN GENERAL.—Except as provided in sec15 tion 1859(b)(3) for MSA plans, each 

16 MedicareAdvantage plan shall provide to members en17 rolled under this part, through providers and other 

18 persons that meet the applicable requirements of this 

19 title and part A of title XI—

20 ‘‘(A) those items and services (other than 

21 hospice care) for which benefits are available 

22 under parts A and B to individuals residing in 

23 the area served by the plan; 

24 ‘‘(B) except as provided in paragraph 

25 (2)(D), qualified prescription drug coverage 
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1 under part D to individuals residing in the area 

2 served by the plan; 

3 ‘‘(C) a maximum limitation on out-of-pock4 et expenses and a unified deductible; and 

5 ‘‘(D) additional benefits required under sec6 tion 1854(d)(1). 

7 ‘‘(2) SATISFACTION OF REQUIREMENT.—

8 ‘‘(A) IN GENERAL.—A MedicareAdvantage 

9 plan (other than an MSA plan) offered by a 

10 MedicareAdvantage organization satisfies para11 graph (1)(A), with respect to benefits for items 

12 and services furnished other than through a pro13 vider or other person that has a contract with 

14 the organization offering the plan, if the plan 

15 provides payment in an amount so that—

16 ‘‘(i) the sum of such payment amount 

17 and any cost-sharing provided for under the 

18 plan; is equal to at least 

19 ‘‘(ii) the total dollar amount of pay20 ment for such items and services as would 

21 otherwise be authorized under parts A and 

22 B (including any balance billing permitted 

23 under such parts). 

24 ‘‘(B) REFERENCE TO RELATED PROVI25 SIONS.—For provisions relating to—
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1 ‘‘(i) limitations on balance billing 

2 against MedicareAdvantage organizations 

3 for noncontract providers, see sections 

4 1852(k) and 1866(a)(1)(O); and 

5 ‘‘(ii) limiting actuarial value of en6 rollee liability for covered benefits, see sec7 tion 1854(f). 

8 ‘‘(C) ELECTION OF UNIFORM COVERAGE

9 POLICY.—In the case of a MedicareAdvantage or10 ganization that offers a MedicareAdvantage plan 

11 in an area in which more than 1 local coverage 

12 policy is applied with respect to different parts 

13 of the area, the organization may elect to have 

14 the local coverage policy for the part of the area 

15 that is most beneficial to MedicareAdvantage en16 rollees (as identified by the Secretary) apply 

17 with respect to all MedicareAdvantage enrollees 

18 enrolled in the plan. 

19 ‘‘(D) SPECIAL RULE FOR PRIVATE FEE-FOR20 SERVICE PLANS.—

21 ‘‘(i) IN GENERAL.—A private fee-for22 service plan may elect not to provide quali23 fied prescription drug coverage under part 

24 D to individuals residing in the area served 

25 by the plan. 
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1 ‘‘(ii) AVAILABILITY OF DRUG COV2 ERAGE FOR ENROLLEES.—If a beneficiary 

3 enrolls in a plan making the election de4 scribed in clause (i), the beneficiary may 

5 enroll for drug coverage under part D with 

6 an eligible entity under such part. 

7 ‘‘(3) ENHANCED MEDICAL BENEFITS.—

8 ‘‘(A) BENEFITS INCLUDED SUBJECT TO SEC9 RETARY’S APPROVAL.—Each MedicareAdvantage 

10 organization may provide to individuals enrolled 

11 under this part, other than under an MSA plan 

12 (without affording those individuals an option to 

13 decline the coverage), enhanced medical benefits 

14 that the Secretary may approve. The Secretary 

15 shall approve any such enhanced medical bene16 fits unless the Secretary determines that includ17 ing such enhanced medical benefits would sub18 stantially discourage enrollment by 

19 MedicareAdvantage eligible individuals with the 

20 organization. 

21 ‘‘(B) AT ENROLLEES’ OPTION.—A 

22 MedicareAdvantage organization may not pro23 vide, under an MSA plan, enhanced medical 

24 benefits that cover the deductible described in sec25 tion 1859(b)(2)(B). In applying the previous 
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1 sentence, health benefits described in section 

2 1882(u)(2)(B) shall not be treated as covering 

3 such deductible. 

4 ‘‘(C) APPLICATION TO MEDICAREADVANTAGE

5 PRIVATE FEE-FOR-SERVICE PLANS.—Nothing in 

6 this paragraph shall be construed as preventing 

7 a MedicareAdvantage private fee-for-service plan 

8 from offering enhanced medical benefits that in9 clude payment for some or all of the balance bill10 ing amounts permitted consistent with section 

11 1852(k) and coverage of additional services that 

12 the plan finds to be medically necessary. 

13 ‘‘(D) RULE FOR APPROVAL OF MEDICAL AND

14 PRESCRIPTION DRUG BENEFITS.—Notwith15 standing the preceding provisions of this para16 graph, the Secretary may not approve any en17 hanced medical benefit that provides for the cov18 erage of any prescription drug (other than that 

19 relating to prescription drugs covered under the 

20 original medicare fee-for-service program op21 tion). 

22 ‘‘(4) ORGANIZATION AS SECONDARY PAYER.—

23 Notwithstanding any other provision of law, a 

24 MedicareAdvantage organization may (in the case of 

25 the provision of items and services to an individual 
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1 under a MedicareAdvantage plan under cir2 cumstances in which payment under this title is 

3 made secondary pursuant to section 1862(b)(2)) 

4 charge or authorize the provider of such services to 

5 charge, in accordance with the charges allowed under 

6 a law, plan, or policy described in such section—

7 ‘‘(A) the insurance carrier, employer, or 

8 other entity which under such law, plan, or pol9 icy is to pay for the provision of such services; 

10 or 

11 ‘‘(B) such individual to the extent that the 

12 individual has been paid under such law, plan, 

13 or policy for such services. 

14 ‘‘(5) NATIONAL COVERAGE DETERMINATIONS AND

15 LEGISLATIVE CHANGES IN BENEFITS.—If there is a 

16 national coverage determination or legislative change 

17 in benefits required to be provided under this part 

18 made in the period beginning on the date of an an19 nouncement under section 1853(b) and ending on the 

20 date of the next announcement under such section and 

21 the Secretary projects that the determination will re22 sult in a significant change in the costs to a 

23 MedicareAdvantage organization of providing the 

24 benefits that are the subject of such national coverage 

25 determination and that such change in costs was not 
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1 incorporated in the determination of the benchmark 

2 amount announced under section 1853(b)(1)(A) at the 

3 beginning of such period, then, unless otherwise re4 quired by law—

5 ‘‘(A) such determination or legislative 

6 change in benefits shall not apply to contracts 

7 under this part until the first contract year that 

8 begins after the end of such period; and 

9 ‘‘(B) if such coverage determination or leg10 islative change provides for coverage of addi11 tional benefits or coverage under additional cir12 cumstances, section 1851(i)(1) shall not apply to 

13 payment for such additional benefits or benefits 

14 provided under such additional circumstances 

15 until the first contract year that begins after the 

16 end of such period. 

17 The projection under the previous sentence shall be 

18 based on an analysis by the Secretary of the actuarial 

19 costs associated with the coverage determination or 

20 legislative change in benefits. 

21 ‘‘(6) AUTHORITY TO PROHIBIT RISK SELEC22 TION.—The Secretary shall have the authority to dis23 approve any MedicareAdvantage plan that the Sec24 retary determines is designed to attract a population
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1 that is healthier than the average population residing 

2 in the service area of the plan. 

3 ‘‘(7) UNIFIED DEDUCTIBLE DEFINED.—In this 

4 part, the term ‘unified deductible’ means an annual 

5 deductible amount that is applied in lieu of the inpa6 tient hospital deductible under section 1813(b)(1) and 

7 the deductible under section 1833(b). Nothing in this 

8 part shall be construed as preventing a 

9 MedicareAdvantage organization from requiring coin10 surance or a copayment for inpatient hospital serv11 ices after the unified deductible is satisfied, subject to 

12 the limitation on enrollee liability under section 

13 1854(f). 

14 ‘‘(b) ANTIDISCRIMINATION.—

15 ‘‘(1) BENEFICIARIES.—

16 ‘‘(A) IN GENERAL.—A MedicareAdvantage 

17 organization may not deny, limit, or condition 

18 the coverage or provision of benefits under this 

19 part, for individuals permitted to be enrolled 

20 with the organization under this part, based on 

21 any health status-related factor described in sec22 tion 2702(a)(1) of the Public Health Service Act. 

23 ‘‘(B) CONSTRUCTION.—Except as provided 

24 under section 1851(a)(3)(B), subparagraph (A) 

25 shall not be construed as requiring a 
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1 MedicareAdvantage organization to enroll indi2 viduals who are determined to have end-stage 

3 renal disease. 

4 ‘‘(2) PROVIDERS.—A MedicareAdvantage organi5 zation shall not discriminate with respect to partici6 pation, reimbursement, or indemnification as to any 

7 provider who is acting within the scope of the pro8 vider’s license or certification under applicable State 

9 law, solely on the basis of such license or certification. 

10 This paragraph shall not be construed to prohibit a 

11 plan from including providers only to the extent nec12 essary to meet the needs of the plan’s enrollees or from 

13 establishing any measure designed to maintain qual14 ity and control costs consistent with the responsibil15 ities of the plan. 

16 ‘‘(c) DISCLOSURE REQUIREMENTS.—

17 ‘‘(1) DETAILED DESCRIPTION OF PLAN PROVI18 SIONS.—A MedicareAdvantage organization shall dis19 close, in clear, accurate, and standardized form to 

20 each enrollee with a MedicareAdvantage plan offered 

21 by the organization under this part at the time of en22 rollment and at least annually thereafter, the fol23 lowing information regarding such plan: 

24 ‘‘(A) SERVICE AREA.—The plan’s service 

25 area. 
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1 ‘‘(B) BENEFITS.—Benefits offered under the 

2 plan, including information described section 

3 1852(a)(1) (relating to benefits under the origi4 nal medicare fee-for-service program option, the 

5 maximum limitation in out-of-pocket expenses 

6 and the unified deductible, and qualified pre7 scription drug coverage under part D, respec8 tively) and exclusions from coverage and, if it is 

9 an MSA plan, a comparison of benefits under 

10 such a plan with benefits under other 

11 MedicareAdvantage plans. 

12 ‘‘(C) ACCESS.—The number, mix, and dis13 tribution of plan providers, out-of-network cov14 erage (if any) provided by the plan, and any 

15 point-of-service option (including the 

16 MedicareAdvantage monthly beneficiary pre17 mium for enhanced medical benefits for such op18 tion). 

19 ‘‘(D) OUT-OF-AREA COVERAGE.—Out-of20 area coverage provided by the plan. 

21 ‘‘(E) EMERGENCY COVERAGE.—Coverage of 

22 emergency services, including—

23 ‘‘(i) the appropriate use of emergency 

24 services, including use of the 911 telephone 

25 system or its local equivalent in emergency 
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1 situations and an explanation of what con2 stitutes an emergency situation; 

3 ‘‘(ii) the process and procedures of the 

4 plan for obtaining emergency services; and 

5 ‘‘(iii) the locations of—

6 ‘‘(I) emergency departments; and 

7 ‘‘(II) other settings, in which plan 

8 physicians and hospitals provide emer9 gency services and post-stabilization 

10 care. 

11 ‘‘(F) ENHANCED MEDICAL BENEFITS.—En12 hanced medical benefits available from the orga13 nization offering the plan, including—

14 ‘‘(i) whether the enhanced medical ben15 efits are optional; 

16 ‘‘(ii) the enhanced medical benefits cov17 ered; and 

18 ‘‘(iii) the MedicareAdvantage monthly 

19 beneficiary premium for enhanced medical 

20 benefits. 

21 ‘‘(G) PRIOR AUTHORIZATION RULES.—

22 Rules regarding prior authorization or other re23 view requirements that could result in non24 payment.
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1 ‘‘(H) PLAN GRIEVANCE AND APPEALS PRO2 CEDURES.—All plan appeal or grievance rights 

3 and procedures. 

4 ‘‘(I) QUALITY ASSURANCE PROGRAM.—A de5 scription of the organization’s quality assurance 

6 program under subsection (e). 

7 ‘‘(2) DISCLOSURE UPON REQUEST.—Upon re8 quest of a MedicareAdvantage eligible individual, a 

9 MedicareAdvantage organization must provide the fol10 lowing information to such individual: 

11 ‘‘(A) The general coverage information and 

12 general comparative plan information made 

13 available under clauses (i) and (ii) of section 

14 1851(d)(2)(A). 

15 ‘‘(B) Information on procedures used by the 

16 organization to control utilization of services 

17 and expenditures. 

18 ‘‘(C) Information on the number of griev19 ances, reconsiderations, and appeals and on the 

20 disposition in the aggregate of such matters. 

21 ‘‘(D) An overall summary description as to 

22 the method of compensation of participating 

23 physicians. 

24 ‘‘(E) The information described in subpara25 graphs (A) through (C) in relation to the quali-
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1 fied prescription drug coverage provided by the 

2 organization. 

3 ‘‘(d) ACCESS TO SERVICES.—

4 ‘‘(1) IN GENERAL.—A MedicareAdvantage orga5 nization offering a MedicareAdvantage plan may se6 lect the providers from whom the benefits under the 

7 plan are provided so long as—

8 ‘‘(A) the organization makes such benefits 

9 available and accessible to each individual elect10 ing the plan within the plan service area with 

11 reasonable promptness and in a manner which 

12 assures continuity in the provision of benefits; 

13 ‘‘(B) when medically necessary the organi14 zation makes such benefits available and acces15 sible 24 hours a day and 7 days a week; 

16 ‘‘(C) the plan provides for reimbursement 

17 with respect to services which are covered under 

18 subparagraphs (A) and (B) and which are pro19 vided to such an individual other than through 

20 the organization, if—

21 ‘‘(i) the services were not emergency 

22 services (as defined in paragraph (3)), 

23 but—

24 ‘‘(I) the services were medically 

25 necessary and immediately required 
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1 because of an unforeseen illness, injury, 

2 or condition; and 

3 ‘‘(II) it was not reasonable given 

4 the circumstances to obtain the services 

5 through the organization; 

6 ‘‘(ii) the services were renal dialysis 

7 services and were provided other than 

8 through the organization because the indi9 vidual was temporarily out of the plan’s 

10 service area; or 

11 ‘‘(iii) the services are maintenance care 

12 or post-stabilization care covered under the 

13 guidelines established under paragraph (2); 

14 ‘‘(D) the organization provides access to ap15 propriate providers, including credentialed spe16 cialists, for medically necessary treatment and 

17 services; and 

18 ‘‘(E) coverage is provided for emergency 

19 services (as defined in paragraph (3)) without 

20 regard to prior authorization or the emergency 

21 care provider’s contractual relationship with the 

22 organization. 

23 ‘‘(2) GUIDELINES RESPECTING COORDINATION OF

24 POST-STABILIZATION CARE.—A MedicareAdvantage 

25 plan shall comply with such guidelines as the Sec-
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1 retary may prescribe relating to promoting efficient 

2 and timely coordination of appropriate maintenance 

3 and post-stabilization care of an enrollee after the en4 rollee has been determined to be stable under section 

5 1867. 

6 ‘‘(3) DEFINITION OF EMERGENCY SERVICES.—In 

7 this subsection—

8 ‘‘(A) IN GENERAL.—The term ‘emergency 

9 services’ means, with respect to an individual 

10 enrolled with an organization, covered inpatient 

11 and outpatient services that—

12 ‘‘(i) are furnished by a provider that is 

13 qualified to furnish such services under this 

14 title; and 

15 ‘‘(ii) are needed to evaluate or stabilize 

16 an emergency medical condition (as defined 

17 in subparagraph (B)). 

18 ‘‘(B) EMERGENCY MEDICAL CONDITION

19 BASED ON PRUDENT LAYPERSON.—The term 

20 ‘emergency medical condition’ means a medical 

21 condition manifesting itself by acute symptoms 

22 of sufficient severity (including severe pain) such 

23 that a prudent layperson, who possesses an aver24 age knowledge of health and medicine, could rea-
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1 sonably expect the absence of immediate medical 

2 attention to result in—

3 ‘‘(i) placing the health of the indi4 vidual (or, with respect to a pregnant 

5 woman, the health of the woman or her un6 born child) in serious jeopardy; 

7 ‘‘(ii) serious impairment to bodily 

8 functions; or 

9 ‘‘(iii) serious dysfunction of any bodily 

10 organ or part. 

11 ‘‘(4) ASSURING ACCESS TO SERVICES IN

12 MEDICAREADVANTAGE PRIVATE FEE-FOR-SERVICE

13 PLANS.—In addition to any other requirements 

14 under this part, in the case of a 

15 MedicareAdvantage private fee-for-service plan, 

16 the organization offering the plan must dem17 onstrate to the Secretary that the organization 

18 has sufficient number and range of health care 

19 professionals and providers willing to provide 

20 services under the terms of the plan. The Sec21 retary shall find that an organization has met 

22 such requirement with respect to any category of 

23 health care professional or provider if, with re24 spect to that category of provider—
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1 ‘‘(A) the plan has established payment 

2 rates for covered services furnished by that 

3 category of provider that are not less than 

4 the payment rates provided for under part 

5 A, B, or D for such services; or 

6 ‘‘(B) the plan has contracts or agree7 ments with a sufficient number and range 

8 of providers within such category to provide 

9 covered services under the terms of the plan, 

10 or a combination of both. The previous sentence 

11 shall not be construed as restricting the persons 

12 from whom enrollees under such a plan may ob13 tain covered benefits. 

14 ‘‘(e) QUALITY ASSURANCE PROGRAM.—

15 ‘‘(1) IN GENERAL.—Each MedicareAdvantage or16 ganization must have arrangements, consistent with 

17 any regulation, for an ongoing quality assurance pro18 gram for health care services it provides to individ19 uals enrolled with MedicareAdvantage plans of the or20 ganization. 

21 ‘‘(2) ELEMENTS OF PROGRAM.—

22 ‘‘(A) IN GENERAL.—The quality assurance 

23 program of an organization with respect to a 

24 MedicareAdvantage plan (other than a 
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1 MedicareAdvantage private fee-for-service plan 

2 or a nonnetwork MSA plan) it offers shall—

3 ‘‘(i) stress health outcomes and provide 

4 for the collection, analysis, and reporting of 

5 data (in accordance with a quality meas6 urement system that the Secretary recog7 nizes) that will permit measurement of out8 comes and other indices of the quality of 

9 MedicareAdvantage plans and organiza10 tions; 

11 ‘‘(ii) monitor and evaluate high vol12 ume and high risk services and the care of 

13 acute and chronic conditions; 

14 ‘‘(iii) provide access to disease man15 agement and chronic care services; 

16 ‘‘(iv) provide access to preventive bene17 fits and information for enrollees on such 

18 benefits; 

19 ‘‘(v) evaluate the continuity and co20 ordination of care that enrollees receive; 

21 ‘‘(vi) be evaluated on an ongoing basis 

22 as to its effectiveness; 

23 ‘‘(vii) include measures of consumer 

24 satisfaction; 
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1 ‘‘(viii) provide the Secretary with such 

2 access to information collected as may be 

3 appropriate to monitor and ensure the qual4 ity of care provided under this part; 

5 ‘‘(ix) provide review by physicians and 

6 other health care professionals of the process 

7 followed in the provision of such health care 

8 services; 

9 ‘‘(x) provide for the establishment of 

10 written protocols for utilization review, 

11 based on current standards of medical prac12 tice; 

13 ‘‘(xi) have mechanisms to detect both 

14 underutilization and overutilization of serv15 ices; 

16 ‘‘(xii) after identifying areas for im17 provement, establish or alter practice pa18 rameters; 

19 ‘‘(xiii) take action to improve quality 

20 and assesses the effectiveness of such action 

21 through systematic followup; and 

22 ‘‘(xiv) make available information on 

23 quality and outcomes measures to facilitate 

24 beneficiary comparison and choice of health 

25 coverage options (in such form and on such 
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1 quality and outcomes measures as the Sec2 retary determines to be appropriate). 

3 Such program shall include a separate focus 

4 (with respect to all the elements described in this 

5 subparagraph) on racial and ethnic minorities. 

6 ‘‘(B) ELEMENTS OF PROGRAM FOR ORGANI7 ZATIONS OFFERING MEDICAREADVANTAGE PRI8 VATE FEE-FOR-SERVICE PLANS, AND NONNET9 WORK MSA PLANS.—The quality assurance pro10 gram of an organization with respect to a 

11 MedicareAdvantage private fee-for-service plan 

12 or a nonnetwork MSA plan it offers shall—

13 ‘‘(i) meet the requirements of clauses 

14 (i) through (viii) of subparagraph (A); 

15 ‘‘(ii) insofar as it provides for the es16 tablishment of written protocols for utiliza17 tion review, base such protocols on current 

18 standards of medical practice; and 

19 ‘‘(iii) have mechanisms to evaluate uti20 lization of services and inform providers 

21 and enrollees of the results of such evalua22 tion. 

23 Such program shall include a separate focus 

24 (with respect to all the elements described in this 

25 subparagraph) on racial and ethnic minorities.
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1 ‘‘(C) DEFINITION OF NONNETWORK MSA

2 PLAN.—In this subsection, the term ‘nonnetwork 

3 MSA plan’ means an MSA plan offered by a 

4 MedicareAdvantage organization that does not 

5 provide benefits required to be provided by this 

6 part, in whole or in part, through a defined set 

7 of providers under contract, or under another ar8 rangement, with the organization. 

9 ‘‘(3) EXTERNAL REVIEW.—

10 ‘‘(A) IN GENERAL.—Each 

11 MedicareAdvantage organization shall, for each 

12 MedicareAdvantage plan it operates, have an 

13 agreement with an independent quality review 

14 and improvement organization approved by the 

15 Secretary to perform functions of the type de16 scribed in paragraphs (4)(B) and (14) of section 

17 1154(a) with respect to services furnished by 

18 MedicareAdvantage plans for which payment is 

19 made under this title. The previous sentence shall 

20 not apply to a MedicareAdvantage private fee21 for-service plan or a nonnetwork MSA plan that 

22 does not employ utilization review. 

23 ‘‘(B) NONDUPLICATION OF ACCREDITA24 TION.—Except in the case of the review of qual25 ity complaints, and consistent with subpara-
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1 graph (C), the Secretary shall ensure that the ex2 ternal review activities conducted under sub3 paragraph (A) are not duplicative of review ac4 tivities conducted as part of the accreditation 

5 process. 

6 ‘‘(C) WAIVER AUTHORITY.—The Secretary 

7 may waive the requirement described in sub8 paragraph (A) in the case of an organization if 

9 the Secretary determines that the organization 

10 has consistently maintained an excellent record 

11 of quality assurance and compliance with other 

12 requirements under this part. 

13 ‘‘(4) TREATMENT OF ACCREDITATION.—

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

15 provide that a MedicareAdvantage organization 

16 is deemed to meet all the requirements described 

17 in any specific clause of subparagraph (B) if the 

18 organization is accredited (and periodically re19 accredited) by a private accrediting organization 

20 under a process that the Secretary has deter21 mined assures that the accrediting organization 

22 applies and enforces standards that meet or ex23 ceed the standards established under section 1856 

24 to carry out the requirements in such clause. 
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1 ‘‘(B) REQUIREMENTS DESCRIBED.—The 

2 provisions described in this subparagraph are 

3 the following: 

4 ‘‘(i) Paragraphs (1) and (2) of this 

5 subsection (relating to quality assurance 

6 programs). 

7 ‘‘(ii) Subsection (b) (relating to anti8 discrimination). 

9 ‘‘(iii) Subsection (d) (relating to access 

10 to services). 

11 ‘‘(iv) Subsection (h) (relating to con12 fidentiality and accuracy of enrollee 

13 records). 

14 ‘‘(v) Subsection (i) (relating to infor15 mation on advance directives). 

16 ‘‘(vi) Subsection (j) (relating to pro17 vider participation rules). 

18 ‘‘(C) TIMELY ACTION ON APPLICATIONS.—

19 The Secretary shall determine, within 210 days 

20 after the date the Secretary receives an applica21 tion by a private accrediting organization and 

22 using the criteria specified in section 1865(b)(2), 

23 whether the process of the private accrediting or24 ganization meets the requirements with respect 

25 to any specific clause in subparagraph (B) with 
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1 respect to which the application is made. The 

2 Secretary may not deny such an application on 

3 the basis that it seeks to meet the requirements 

4 with respect to only one, or more than one, such 

5 specific clause. 

6 ‘‘(D) CONSTRUCTION.—Nothing in this 

7 paragraph shall be construed as limiting the au8 thority of the Secretary under section 1857, in9 cluding the authority to terminate contracts with 

10 MedicareAdvantage organizations under sub11 section (c)(2) of such section. 

12 ‘‘(5) REPORT TO CONGRESS.—

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

14 submit to Congress a biennial report regarding 

15 how quality assurance programs conducted 

16 under this subsection focus on racial and ethnic 

17 minorities. 

18 ‘‘(B) CONTENTS OF REPORT.—Each such re19 port shall include the following: 

20 ‘‘(i) A description of the means by 

21 which such programs focus on such racial 

22 and ethnic minorities. 

23 ‘‘(ii) An evaluation of the impact of 

24 such programs on eliminating health dis25 parities and on improving health outcomes, 
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1 continuity and coordination of care, man2 agement of chronic conditions, and con3 sumer satisfaction. 

4 ‘‘(iii) Recommendations on ways to re5 duce clinical outcome disparities among ra6 cial and ethnic minorities. 

7 ‘‘(f) GRIEVANCE MECHANISM.—Each 

8 MedicareAdvantage organization must provide meaningful 

9 procedures for hearing and resolving grievances between the 

10 organization (including any entity or individual through 

11 which the organization provides health care services) and 

12 enrollees with MedicareAdvantage plans of the organization 

13 under this part. 

14 ‘‘(g) COVERAGE DETERMINATIONS, RECONSIDER15 ATIONS, AND APPEALS.—

16 ‘‘(1) DETERMINATIONS BY ORGANIZATION.—

17 ‘‘(A) IN GENERAL.—A MedicareAdvantage 

18 organization shall have a procedure for making 

19 determinations regarding whether an individual 

20 enrolled with the plan of the organization under 

21 this part is entitled to receive a health service 

22 under this section and the amount (if any) that 

23 the individual is required to pay with respect to 

24 such service. Subject to paragraph (3), such pro-
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1 cedures shall provide for such determination to 

2 be made on a timely basis. 

3 ‘‘(B) EXPLANATION OF DETERMINATION.—

4 Such a determination that denies coverage, in 

5 whole or in part, shall be in writing and shall 

6 include a statement in understandable language 

7 of the reasons for the denial and a description of 

8 the reconsideration and appeals processes. 

9 ‘‘(2) RECONSIDERATIONS.—

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

11 provide for reconsideration of a determination 

12 described in paragraph (1)(B) upon request by 

13 the enrollee involved. The reconsideration shall be 

14 within a time period specified by the Secretary, 

15 but shall be made, subject to paragraph (3), not 

16 later than 60 days after the date of the receipt 

17 of the request for reconsideration. 

18 ‘‘(B) PHYSICIAN DECISION ON CERTAIN RE19 CONSIDERATIONS.—A reconsideration relating to 

20 a determination to deny coverage based on a lack 

21 of medical necessity shall be made only by a 

22 physician with appropriate expertise in the field 

23 of medicine which necessitates treatment who is 

24 other than a physician involved in the initial de25 termination.
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1 ‘‘(3) EXPEDITED DETERMINATIONS AND RECON2 SIDERATIONS.—

3 ‘‘(A) RECEIPT OF REQUESTS.—

4 ‘‘(i) ENROLLEE REQUESTS.—An en5 rollee in a MedicareAdvantage plan may re6 quest, either in writing or orally, an expe7 dited determination under paragraph (1) or 

8 an expedited reconsideration under para9 graph (2) by the MedicareAdvantage orga10 nization. 

11 ‘‘(ii) PHYSICIAN REQUESTS.—A physi12 cian, regardless whether the physician is af13 filiated with the organization or not, may 

14 request, either in writing or orally, such an 

15 expedited determination or reconsideration. 

16 ‘‘(B) ORGANIZATION PROCEDURES.—

17 ‘‘(i) IN GENERAL.—The 

18 MedicareAdvantage organization shall 

19 maintain procedures for expediting organi20 zation determinations and reconsiderations 

21 when, upon request of an enrollee, the orga22 nization determines that the application of 

23 the normal timeframe for making a deter24 mination (or a reconsideration involving a 

25 determination) could seriously jeopardize 
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1 the life or health of the enrollee or the en2 rollee’s ability to regain maximum function. 

3 ‘‘(ii) EXPEDITION REQUIRED FOR PHY4 SICIAN REQUESTS.—In the case of a request 

5 for an expedited determination or reconsid6 eration made under subparagraph (A)(ii), 

7 the organization shall expedite the deter8 mination or reconsideration if the request 

9 indicates that the application of the normal 

10 timeframe for making a determination (or a 

11 reconsideration involving a determination) 

12 could seriously jeopardize the life or health 

13 of the enrollee or the enrollee’s ability to re14 gain maximum function. 

15 ‘‘(iii) TIMELY RESPONSE.—In cases de16 scribed in clauses (i) and (ii), the organiza17 tion shall notify the enrollee (and the physi18 cian involved, as appropriate) of the deter19 mination or reconsideration under time 

20 limitations established by the Secretary, but 

21 not later than 72 hours of the time of re22 ceipt of the request for the determination or 

23 reconsideration (or receipt of the informa24 tion necessary to make the determination or 
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1 reconsideration), or such longer period as 

2 the Secretary may permit in specified cases. 

3 ‘‘(4) INDEPENDENT REVIEW OF CERTAIN COV4 ERAGE DENIALS.—The Secretary shall contract with 

5 an independent, outside entity to review and resolve 

6 in a timely manner reconsiderations that affirm de7 nial of coverage, in whole or in part. The provisions 

8 of section 1869(c)(5) shall apply to independent out9 side entities under contract with the Secretary under 

10 this paragraph. 

11 ‘‘(5) APPEALS.—An enrollee with a 

12 MedicareAdvantage plan of a MedicareAdvantage or13 ganization under this part who is dissatisfied by rea14 son of the enrollee’s failure to receive any health serv15 ice to which the enrollee believes the enrollee is enti16 tled and at no greater charge than the enrollee believes 

17 the enrollee is required to pay is entitled, if the 

18 amount in controversy is $100 or more, to a hearing 

19 before the Secretary to the same extent as is provided 

20 in section 205(b), and in any such hearing the Sec21 retary shall make the organization a party. If the 

22 amount in controversy is $1,000 or more, the indi23 vidual or organization shall, upon notifying the other 

24 party, be entitled to judicial review of the Secretary’s 

25 final decision as provided in section 205(g), and both 
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1 the individual and the organization shall be entitled 

2 to be parties to that judicial review. In applying sub3 sections (b) and (g) of section 205 as provided in this 

4 paragraph, and in applying section 205(l) thereto, 

5 any reference therein to the Commissioner of Social 

6 Security or the Social Security Administration shall 

7 be considered a reference to the Secretary or the De8 partment of Health and Human Services, respec9 tively. 

10 ‘‘(h) CONFIDENTIALITY AND ACCURACY OF ENROLLEE

11 RECORDS.—Insofar as a MedicareAdvantage organization 

12 maintains medical records or other health information re13 garding enrollees under this part, the MedicareAdvantage 

14 organization shall establish procedures—

15 ‘‘(1) to safeguard the privacy of any individ16 ually identifiable enrollee information; 

17 ‘‘(2) to maintain such records and information 

18 in a manner that is accurate and timely; and 

19 ‘‘(3) to assure timely access of enrollees to such 

20 records and information. 

21 ‘‘(i) INFORMATION ON ADVANCE DIRECTIVES.—Each 

22 MedicareAdvantage organization shall meet the requirement 

23 of section 1866(f) (relating to maintaining written policies 

24 and procedures respecting advance directives). 

25 ‘‘(j) RULES REGARDING PROVIDER PARTICIPATION.—
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1 ‘‘(1) PROCEDURES.—Insofar as a 

2 MedicareAdvantage organization offers benefits under 

3 a MedicareAdvantage plan through agreements with 

4 physicians, the organization shall establish reasonable 

5 procedures relating to the participation (under an 

6 agreement between a physician and the organization) 

7 of physicians under such a plan. Such procedures 

8 shall include—

9 ‘‘(A) providing notice of the rules regarding 

10 participation; 

11 ‘‘(B) providing written notice of participa12 tion decisions that are adverse to physicians; 

13 and 

14 ‘‘(C) providing a process within the organi15 zation for appealing such adverse decisions, in16 cluding the presentation of information and 

17 views of the physician regarding such decision. 

18 ‘‘(2) CONSULTATION IN MEDICAL POLICIES.—A 

19 MedicareAdvantage organization shall consult with 

20 physicians who have entered into participation agree21 ments with the organization regarding the organiza22 tion’s medical policy, quality, and medical manage23 ment procedures. 

24 ‘‘(3) PROHIBITING INTERFERENCE WITH PRO25 VIDER ADVICE TO ENROLLEES.—
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1 ‘‘(A) IN GENERAL.—Subject to subpara2 graphs (B) and (C), a MedicareAdvantage orga3 nization (in relation to an individual enrolled 

4 under a MedicareAdvantage plan offered by the 

5 organization under this part) shall not prohibit 

6 or otherwise restrict a covered health care profes7 sional (as defined in subparagraph (D)) from 

8 advising such an individual who is a patient of 

9 the professional about the health status of the in10 dividual or medical care or treatment for the in11 dividual’s condition or disease, regardless of 

12 whether benefits for such care or treatment are 

13 provided under the plan, if the professional is 

14 acting within the lawful scope of practice. 

15 ‘‘(B) CONSCIENCE PROTECTION.—Subpara16 graph (A) shall not be construed as requiring a 

17 MedicareAdvantage plan to provide, reimburse 

18 for, or provide coverage of a counseling or refer19 ral service if the MedicareAdvantage organiza20 tion offering the plan—

21 ‘‘(i) objects to the provision of such 

22 service on moral or religious grounds; and 

23 ‘‘(ii) in the manner and through the 

24 written instrumentalities such 

25 MedicareAdvantage organization deems ap-
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1 propriate, makes available information on 

2 its policies regarding such service to pro3 spective enrollees before or during enroll4 ment and to enrollees within 90 days after 

5 the date that the organization or plan 

6 adopts a change in policy regarding such a 

7 counseling or referral service. 

8 ‘‘(C) CONSTRUCTION.—Nothing in subpara9 graph (B) shall be construed to affect disclosure 

10 requirements under State law or under the Em11 ployee Retirement Income Security Act of 1974. 

12 ‘‘(D) HEALTH CARE PROFESSIONAL DE13 FINED.—For purposes of this paragraph, the 

14 term ‘health care professional’ means a physi15 cian (as defined in section 1861(r)) or other 

16 health care professional if coverage for the profes17 sional’s services is provided under the 

18 MedicareAdvantage plan for the services of the 

19 professional. Such term includes a podiatrist, 

20 optometrist, chiropractor, psychologist, dentist, 

21 licensed pharmacist, physician assistant, phys22 ical or occupational therapist and therapy as23 sistant, speech-language pathologist, audiologist, 

24 registered or licensed practical nurse (including 

25 nurse practitioner, clinical nurse specialist, cer-
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1 tified registered nurse anesthetist, and certified 

2 nurse-midwife), licensed certified social worker, 

3 registered respiratory therapist, and certified res4 piratory therapy technician. 

5 ‘‘(4) LIMITATIONS ON PHYSICIAN INCENTIVE

6 PLANS.—

7 ‘‘(A) IN GENERAL.—No MedicareAdvantage 

8 organization may operate any physician incen9 tive plan (as defined in subparagraph (B)) un10 less the following requirements are met: 

11 ‘‘(i) No specific payment is made di12 rectly or indirectly under the plan to a phy13 sician or physician group as an inducement 

14 to reduce or limit medically necessary serv15 ices provided with respect to a specific indi16 vidual enrolled with the organization. 

17 ‘‘(ii) If the plan places a physician or 

18 physician group at substantial financial 

19 risk (as determined by the Secretary) for 

20 services not provided by the physician or 

21 physician group, the organization—

22 ‘‘(I) provides stop-loss protection 

23 for the physician or group that is ade24 quate and appropriate, based on stand25 ards developed by the Secretary that 
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1 take into account the number of physi2 cians placed at such substantial finan3 cial risk in the group or under the 

4 plan and the number of individuals 

5 enrolled with the organization who re6 ceive services from the physician or 

7 group; and 

8 ‘‘(II) conducts periodic surveys of 

9 both individuals enrolled and individ10 uals previously enrolled with the orga11 nization to determine the degree of ac12 cess of such individuals to services pro13 vided by the organization and satisfac14 tion with the quality of such services. 

15 ‘‘(iii) The organization provides the 

16 Secretary with descriptive information re17 garding the plan, sufficient to permit the 

18 Secretary to determine whether the plan is 

19 in compliance with the requirements of this 

20 subparagraph. 

21 ‘‘(B) PHYSICIAN INCENTIVE PLAN DE22 FINED.—In this paragraph, the term ‘physician 

23 incentive plan’ means any compensation ar24 rangement between a MedicareAdvantage organi25 zation and a physician or physician group that 
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1 may directly or indirectly have the effect of re2 ducing or limiting services provided with respect 

3 to individuals enrolled with the organization 

4 under this part. 

5 ‘‘(5) LIMITATION ON PROVIDER INDEMNIFICA6 TION.—A MedicareAdvantage organization may not 

7 provide (directly or indirectly) for a health care pro8 fessional, provider of services, or other entity pro9 viding health care services (or group of such profes10 sionals, providers, or entities) to indemnify the orga11 nization against any liability resulting from a civil 

12 action brought for any damage caused to an enrollee 

13 with a MedicareAdvantage plan of the organization 

14 under this part by the organization’s denial of medi15 cally necessary care. 

16 ‘‘(6) SPECIAL RULES FOR MEDICAREADVANTAGE

17 PRIVATE FEE-FOR-SERVICE PLANS.—For purposes of 

18 applying this part (including subsection (k)(1)) and 

19 section 1866(a)(1)(O), a hospital (or other provider of 

20 services), a physician or other health care profes21 sional, or other entity furnishing health care services 

22 is treated as having an agreement or contract in effect 

23 with a MedicareAdvantage organization (with respect 

24 to an individual enrolled in a MedicareAdvantage 

25 private fee-for-service plan it offers), if—
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1 ‘‘(A) the provider, professional, or other en2 tity furnishes services that are covered under the 

3 plan to such an enrollee; and 

4 ‘‘(B) before providing such services, the pro5 vider, professional, or other entity —

6 ‘‘(i) has been informed of the individ7 ual’s enrollment under the plan; and 

8 ‘‘(ii) either—

9 ‘‘(I) has been informed of the 

10 terms and conditions of payment for 

11 such services under the plan; or 

12 ‘‘(II) is given a reasonable oppor13 tunity to obtain information con14 cerning such terms and conditions, 

15 in a manner reasonably designed to effect 

16 informed agreement by a provider. 

17 The previous sentence shall only apply in the absence 

18 of an explicit agreement between such a provider, pro19 fessional, or other entity and the MedicareAdvantage 

20 organization. 

21 ‘‘(k) TREATMENT OF SERVICES FURNISHED BY CER22 TAIN PROVIDERS.—

23 ‘‘(1) IN GENERAL.—Except as provided in para24 graph (2), a physician or other entity (other than a 

25 provider of services) that does not have a contract es-
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1 tablishing payment amounts for services furnished to 

2 an individual enrolled under this part with a 

3 MedicareAdvantage organization described in section 

4 1851(a)(2)(A) shall accept as payment in full for cov5 ered services under this title that are furnished to 

6 such an individual the amounts that the physician or 

7 other entity could collect if the individual were not so 

8 enrolled. Any penalty or other provision of law that 

9 applies to such a payment with respect to an indi10 vidual entitled to benefits under this title (but not en11 rolled with a MedicareAdvantage organization under 

12 this part) also applies with respect to an individual 

13 so enrolled. 

14 ‘‘(2) APPLICATION TO MEDICAREADVANTAGE PRI15 VATE FEE-FOR-SERVICE PLANS.—

16 ‘‘(A) BALANCE BILLING LIMITS UNDER

17 MEDICAREADVANTAGE PRIVATE FEE-FOR-SERVICE

18 PLANS IN CASE OF CONTRACT PROVIDERS.—

19 ‘‘(i) IN GENERAL.—In the case of an 

20 individual enrolled in a MedicareAdvantage 

21 private fee-for-service plan under this part, 

22 a physician, provider of services, or other 

23 entity that has a contract (including 

24 through the operation of subsection (j)(6)) 

25 establishing a payment rate for services fur-
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1 nished to the enrollee shall accept as pay2 ment in full for covered services under this 

3 title that are furnished to such an indi4 vidual an amount not to exceed (including 

5 any deductibles, coinsurance, copayments, 

6 or balance billing otherwise permitted under 

7 the plan) an amount equal to 115 percent 

8 of such payment rate. 

9 ‘‘(ii) PROCEDURES TO ENFORCE LIM10 ITS.—The MedicareAdvantage organization 

11 that offers such a plan shall establish proce12 dures, similar to the procedures described in 

13 section 1848(g)(1)(A), in order to carry out 

14 clause (i). 

15 ‘‘(iii) ASSURING ENFORCEMENT.—If 

16 the MedicareAdvantage organization fails to 

17 establish and enforce procedures required 

18 under clause (ii), the organization is subject 

19 to intermediate sanctions under section 

20 1857(g). 

21 ‘‘(B) ENROLLEE LIABILITY FOR NONCON22 TRACT PROVIDERS.—For provisions—

23 ‘‘(i) establishing a minimum payment 

24 rate in the case of noncontract providers 
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1 under a MedicareAdvantage private fee-for2 service plan, see section 1852(a)(2); or 

3 ‘‘(ii) limiting enrollee liability in the 

4 case of covered services furnished by such 

5 providers, see paragraph (1) and section 

6 1866(a)(1)(O). 

7 ‘‘(C) INFORMATION ON BENEFICIARY LIABIL8 ITY.—

9 ‘‘(i) IN GENERAL.—Each 

10 MedicareAdvantage organization that offers 

11 a MedicareAdvantage private fee-for-service 

12 plan shall provide that enrollees under the 

13 plan who are furnished services for which 

14 payment is sought under the plan are pro15 vided an appropriate explanation of bene16 fits (consistent with that provided under 

17 parts A, B, and D, and, if applicable, 

18 under medicare supplemental policies) that 

19 includes a clear statement of the amount of 

20 the enrollee’s liability (including any liabil21 ity for balance billing consistent with this 

22 subsection) with respect to payments for 

23 such services. 

24 ‘‘(ii) ADVANCE NOTICE BEFORE RE25 CEIPT OF INPATIENT HOSPITAL SERVICES
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1 AND CERTAIN OTHER SERVICES.—In addi2 tion, such organization shall, in its terms 

3 and conditions of payments to hospitals for 

4 inpatient hospital services and for other 

5 services identified by the Secretary for 

6 which the amount of the balance billing 

7 under subparagraph (A) could be substan8 tial, require the hospital to provide to the 

9 enrollee, before furnishing such services and 

10 if the hospital imposes balance billing under 

11 subparagraph (A)—

12 ‘‘(I) notice of the fact that balance 

13 billing is permitted under such sub14 paragraph for such services; and 

15 ‘‘(II) a good faith estimate of the 

16 likely amount of such balance billing 

17 (if any), with respect to such services, 

18 based upon the presenting condition of 

19 the enrollee. 

20 ‘‘(l) RETURN TO HOME SKILLED NURSING FACILITIES

21 FOR COVERED POST-HOSPITAL EXTENDED CARE SERV22 ICES.—

23 ‘‘(1) ENSURING RETURN TO HOME SNF.—

24 ‘‘(A) IN GENERAL.—In providing coverage 

25 of post-hospital extended care services, a
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1 MedicareAdvantage plan shall provide for such 

2 coverage through a home skilled nursing facility 

3 if the following conditions are met: 

4 ‘‘(i) ENROLLEE ELECTION.—The en5 rollee elects to receive such coverage through 

6 such facility. 

7 ‘‘(ii) SNF AGREEMENT.—The facility 

8 has a contract with the MedicareAdvantage 

9 organization for the provision of such serv10 ices, or the facility agrees to accept substan11 tially similar payment under the same 

12 terms and conditions that apply to simi13 larly situated skilled nursing facilities that 

14 are under contract with the 

15 MedicareAdvantage organization for the 

16 provision of such services and through 

17 which the enrollee would otherwise receive 

18 such services. 

19 ‘‘(B) MANNER OF PAYMENT TO HOME

20 SNF.—The organization shall provide payment 

21 to the home skilled nursing facility consistent 

22 with the contract or the agreement described in 

23 subparagraph (A)(ii), as the case may be. 

24 ‘‘(2) NO LESS FAVORABLE COVERAGE.—The cov25 erage provided under paragraph (1) (including scope 
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1 of services, cost-sharing, and other criteria of cov2 erage) shall be no less favorable to the enrollee than 

3 the coverage that would be provided to the enrollee 

4 with respect to a skilled nursing facility the post-hos5 pital extended care services of which are otherwise 

6 covered under the MedicareAdvantage plan. 

7 ‘‘(3) RULE OF CONSTRUCTION.—Nothing in this 

8 subsection shall be construed to do the following: 

9 ‘‘(A) To require coverage through a skilled 

10 nursing facility that is not otherwise qualified to 

11 provide benefits under part A for medicare bene12 ficiaries not enrolled in a MedicareAdvantage 

13 plan. 

14 ‘‘(B) To prevent a skilled nursing facility 

15 from refusing to accept, or imposing conditions 

16 upon the acceptance of, an enrollee for the receipt 

17 of post-hospital extended care services. 

18 ‘‘(4) DEFINITIONS.—In this subsection: 

19 ‘‘(A) HOME SKILLED NURSING FACILITY.—

20 The term ‘home skilled nursing facility’ means, 

21 with respect to an enrollee who is entitled to re22 ceive post-hospital extended care services under a 

23 MedicareAdvantage plan, any of the following 

24 skilled nursing facilities: 
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1 ‘‘(i) SNF RESIDENCE AT TIME OF AD2 MISSION.—The skilled nursing facility in 

3 which the enrollee resided at the time of ad4 mission to the hospital preceding the receipt 

5 of such post-hospital extended care services. 

6 ‘‘(ii) SNF IN CONTINUING CARE RE7 TIREMENT COMMUNITY.—A skilled nursing 

8 facility that is providing such services 

9 through a continuing care retirement com10 munity (as defined in subparagraph (B)) 

11 which provided residence to the enrollee at 

12 the time of such admission. 

13 ‘‘(iii) SNF RESIDENCE OF SPOUSE AT

14 TIME OF DISCHARGE.—The skilled nursing 

15 facility in which the spouse of the enrollee 

16 is residing at the time of discharge from 

17 such hospital. 

18 ‘‘(B) CONTINUING CARE RETIREMENT COM19 MUNITY.—The term ‘continuing care retirement 

20 community’ means, with respect to an enrollee in 

21 a MedicareAdvantage plan, an arrangement 

22 under which housing and health-related services 

23 are provided (or arranged) through an organiza24 tion for the enrollee under an agreement that is 
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1 effective for the life of the enrollee or for a speci2 fied period.’’. 

3 SEC. 203. PAYMENTS TO MEDICAREADVANTAGE ORGANIZA4 TIONS. 

5 Section 1853 (42 U.S.C. 1395w–23) is amended to 

6 read as follows: 

7 ‘‘PAYMENTS TO MEDICAREADVANTAGE ORGANIZATIONS

8 ‘‘SEC. 1853. (a) PAYMENTS TO ORGANIZATIONS.—

9 ‘‘(1) MONTHLY PAYMENTS.—

10 ‘‘(A) IN GENERAL.—Under a contract under 

11 section 1857 and subject to subsections (f), (h), 

12 and (j) and section 1859(e)(4), the Secretary 

13 shall make, to each MedicareAdvantage organiza14 tion, with respect to coverage of an individual 

15 for a month under this part in a 

16 MedicareAdvantage payment area, separate 

17 monthly payments with respect to— 

18 ‘‘(i) benefits under the original medi19 care fee-for-service program under parts A 

20 and B in accordance with subsection (d); 

21 and 

22 ‘‘(ii) benefits under the voluntary pre23 scription drug program under part D in 

24 accordance with section 1858A and the 

25 other provisions of this part.
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1 ‘‘(B) SPECIAL RULE FOR END-STAGE RENAL

2 DISEASE.—The Secretary shall establish separate 

3 rates of payment to a MedicareAdvantage orga4 nization with respect to classes of individuals de5 termined to have end-stage renal disease and en6 rolled in a MedicareAdvantage plan of the orga7 nization. Such rates of payment shall be actuari8 ally equivalent to rates paid to other enrollees in 

9 the MedicareAdvantage payment area (or such 

10 other area as specified by the Secretary). In ac11 cordance with regulations, the Secretary shall 

12 provide for the application of the seventh sen13 tence of section 1881(b)(7) to payments under 

14 this section covering the provision of renal dialy15 sis treatment in the same manner as such sen16 tence applies to composite rate payments de17 scribed in such sentence. In establishing such 

18 rates, the Secretary shall provide for appropriate 

19 adjustments to increase each rate to reflect the 

20 demonstration rate (including the risk adjust21 ment methodology associated with such rate) of 

22 the social health maintenance organization end23 stage renal disease capitation demonstrations 

24 (established by section 2355 of the Deficit Reduc25 tion Act of 1984, as amended by section 13567(b) 
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1 of the Omnibus Budget Reconciliation Act of 

2 1993), and shall compute such rates by taking 

3 into account such factors as renal treatment mo4 dality, age, and the underlying cause of the end5 stage renal disease. 

6 ‘‘(2) ADJUSTMENT TO REFLECT NUMBER OF EN7 ROLLEES.—

8 ‘‘(A) IN GENERAL.—The amount of pay9 ment under this subsection may be retroactively 

10 adjusted to take into account any difference be11 tween the actual number of individuals enrolled 

12 with an organization under this part and the 

13 number of such individuals estimated to be so 

14 enrolled in determining the amount of the ad15 vance payment. 

16 ‘‘(B) SPECIAL RULE FOR CERTAIN ENROLL17 EES.—

18 ‘‘(i) IN GENERAL.—Subject to clause 

19 (ii), the Secretary may make retroactive ad20 justments under subparagraph (A) to take 

21 into account individuals enrolled during the 

22 period beginning on the date on which the 

23 individual enrolls with a 

24 MedicareAdvantage organization under a 

25 plan operated, sponsored, or contributed to 
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1 by the individual’s employer or former em2 ployer (or the employer or former employer 

3 of the individual’s spouse) and ending on 

4 the date on which the individual is enrolled 

5 in the organization under this part, except 

6 that for purposes of making such retroactive 

7 adjustments under this subparagraph, such 

8 period may not exceed 90 days. 

9 ‘‘(ii) EXCEPTION.—No adjustment may 

10 be made under clause (i) with respect to 

11 any individual who does not certify that the 

12 organization provided the individual with 

13 the disclosure statement described in section 

14 1852(c) at the time the individual enrolled 

15 with the organization. 

16 ‘‘(C) EQUALIZATION OF FEDERAL CON17 TRIBUTION.—In applying subparagraph (A), the 

18 Secretary shall ensure that the payment to the 

19 MedicareAdvantage organization for each indi20 vidual enrolled with the organization shall equal 

21 the MedicareAdvantage benchmark amount for 

22 the payment area in which that individual re23 sides (as determined under paragraph (4)), as 

24 adjusted—
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1 ‘‘(i) by multiplying the benchmark 

2 amount for that payment area by the ratio 

3 of—

4 ‘‘(I) the payment amount deter5 mined under subsection (d)(4); to 

6 ‘‘(II) the weighted service area 

7 benchmark amount determined under 

8 subsection (d)(2); and 

9 ‘‘(ii) using such risk adjustment factor 

10 as specified by the Secretary under sub11 section (b)(1)(B). 

12 ‘‘(3) COMPREHENSIVE RISK ADJUSTMENT METH13 ODOLOGY.—

14 ‘‘(A) APPLICATION OF METHODOLOGY.—The 

15 Secretary shall apply the comprehensive risk ad16 justment methodology described in subparagraph 

17 (B) to 100 percent of the amount of payments to 

18 plans under subsection (d)(4)(B). 

19 ‘‘(B) COMPREHENSIVE RISK ADJUSTMENT

20 METHODOLOGY DESCRIBED.—The comprehensive 

21 risk adjustment methodology described in this 

22 subparagraph is the risk adjustment methodology 

23 that would apply with respect to 

24 MedicareAdvantage plans offered by 

25 MedicareAdvantage organizations in 2005, ex-
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1 cept that if such methodology does not apply to 

2 groups of beneficiaries who are aged or disabled 

3 and groups of beneficiaries who have end-stage 

4 renal disease, the Secretary shall revise such 

5 methodology to apply to such groups. 

6 ‘‘(C) UNIFORM APPLICATION TO ALL TYPES

7 OF PLANS.—Subject to section 1859(e)(4), the 

8 comprehensive risk adjustment methodology es9 tablished under this paragraph shall be applied 

10 uniformly without regard to the type of plan. 

11 ‘‘(D) DATA COLLECTION.—In order to carry 

12 out this paragraph, the Secretary shall require 

13 MedicareAdvantage organizations to submit such 

14 data and other information as the Secretary 

15 deems necessary. 

16 ‘‘(E) IMPROVEMENT OF PAYMENT ACCU17 RACY.—Notwithstanding any other provision of 

18 this paragraph, the Secretary may revise the 

19 comprehensive risk adjustment methodology de20 scribed in subparagraph (B) from time to time 

21 to improve payment accuracy. 

22 ‘‘(4) ANNUAL CALCULATION OF BENCHMARK

23 AMOUNTS.—For each year, the Secretary shall cal24 culate a benchmark amount for each 

25 MedicareAdvantage payment area for each month for
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1 such year with respect to coverage of the benefits 

2 available under the original medicare fee-for-service 

3 program option equal to the greater of the following 

4 amounts (adjusted as appropriate for the application 

5 of the risk adjustment methodology under paragraph 

6 (3)): 

‘‘(A) MINIMUM AMOUNT.—1 7 ⁄12 of the annual 

8 Medicare+Choice capitation rate determined 

9 under subsection (c)(1)(B) for the payment area 

10 for the year. 

11 ‘‘(B) LOCAL FEE-FOR-SERVICE RATE.—The 

12 local fee-for-service rate for such area for the 

13 year (as calculated under paragraph (5)). 

14 ‘‘(5) ANNUAL CALCULATION OF LOCAL FEE-FOR15 SERVICE RATES.—

16 ‘‘(A) IN GENERAL.—Subject to subpara17 graphs (B) and (C), the term ‘local fee-for-service 

18 rate’ means the amount of payment for a month 

19 in a MedicareAdvantage payment area for bene20 fits under this title and associated claims proc21 essing costs for an individual who has elected to 

22 receive benefits under the original medicare fee23 for-service program option and not enrolled in a 

24 MedicareAdvantage plan under this part. The 

25 Secretary shall annually calculate such amount 
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1 in a manner similar to the manner in which the 

2 Secretary calculated the adjusted average per 

3 capita cost under section 1876. 

4 ‘‘(B) REMOVAL OF MEDICAL EDUCATION

5 COSTS FROM CALCULATION OF LOCAL FEE-FOR6 SERVICE RATE.—

7 ‘‘(i) IN GENERAL.—In calculating the 

8 local fee-for-service rate under subparagraph 

9 (A) for a year, the amount of payment de10 scribed in such subparagraph shall be ad11 justed to exclude from such payment the 

12 payment adjustments described in clause 

13 (ii). 

14 ‘‘(ii) PAYMENT ADJUSTMENTS DE15 SCRIBED.—

16 ‘‘(I) IN GENERAL.—Subject to 

17 subclause (II), the payment adjust18 ments described in this subparagraph 

19 are payment adjustments which the 

20 Secretary estimates are payable during 

21 the year—

22 ‘‘(aa) for the indirect costs of 

23 medical education under section 

24 1886(d)(5)(B); and 
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1 ‘‘(bb) for direct graduate 

2 medical education costs under sec3 tion 1886(h). 

4 ‘‘(II) TREATMENT OF PAYMENTS

5 COVERED UNDER STATE HOSPITAL RE6 IMBURSEMENT SYSTEM.—To the extent 

7 that the Secretary estimates that the 

8 amount of the local fee-for-service rates 

9 reflects payments to hospitals reim10 bursed under section 1814(b)(3), the 

11 Secretary shall estimate a payment ad12 justment that is comparable to the 

13 payment adjustment that would have 

14 been made under clause (i) if the hos15 pitals had not been reimbursed under 

16 such section. 

17 ‘‘(b) ANNUAL ANNOUNCEMENT OF PAYMENT FAC18 TORS.—

19 ‘‘(1) ANNUAL ANNOUNCEMENT.—Beginning in 

20 2005, at the same time as the Secretary publishes the 

21 risk adjusters under section 1860D–11, the Secretary 

22 shall annually announce (in a manner intended to 

23 provide notice to interested parties) the following pay24 ment factors: 
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1 ‘‘(A) The benchmark amount for each 

2 MedicareAdvantage payment area (as calculated 

3 under subsection (a)(4)) for the year. 

4 ‘‘(B) The factors to be used for adjusting 

5 payments under the comprehensive risk adjust6 ment methodology described in subsection 

7 (a)(3)(B) with respect to each 

8 MedicareAdvantage payment area for the year. 

9 ‘‘(2) ADVANCE NOTICE OF METHODOLOGICAL

10 CHANGES.—At least 45 days before making the an11 nouncement under paragraph (1) for a year, the Sec12 retary shall—

13 ‘‘(A) provide for notice to 

14 MedicareAdvantage organizations of proposed 

15 changes to be made in the methodology from the 

16 methodology and assumptions used in the pre17 vious announcement; and 

18 ‘‘(B) provide such organizations with an 

19 opportunity to comment on such proposed 

20 changes. 

21 ‘‘(3) EXPLANATION OF ASSUMPTIONS.—In each 

22 announcement made under paragraph (1), the Sec23 retary shall include an explanation of the assump24 tions and changes in methodology used in the an25 nouncement in sufficient detail so that 
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1 MedicareAdvantage organizations can compute each 

2 payment factor described in paragraph (1). 

3 ‘‘(c) CALCULATION OF ANNUAL MEDICARE+CHOICE

4 CAPITATION RATES.—

5 ‘‘(1) IN GENERAL.—For purposes of making pay6 ments under this part for years before 2006 and for 

7 purposes of calculating the annual Medicare+Choice 

8 capitation rates under paragraph (7) beginning with 

9 such year, subject to paragraph (6)(C), each annual 

10 Medicare+Choice capitation rate, for a 

11 Medicare+Choice payment area before 2006 or a 

12 MedicareAdvantage payment area beginning with 

13 such year for a contract year consisting of a calendar 

14 year, is equal to the largest of the amounts specified 

15 in the following subparagraph (A), (B), or (C): 

16 ‘‘(A) BLENDED CAPITATION RATE.—The 

17 sum of—

18 ‘‘(i) the area-specific percentage (as 

19 specified under paragraph (2) for the year) 

20 of the annual area-specific 

21 Medicare+Choice capitation rate for the 

22 MedicareAdvantage payment area, as deter23 mined under paragraph (3) for the year; 

24 and
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1 ‘‘(ii) the national percentage (as speci2 fied under paragraph (2) for the year) of 

3 the input-price-adjusted annual national 

4 Medicare+Choice capitation rate, as deter5 mined under paragraph (4) for the year, 

6 multiplied by the budget neutrality adjustment 

7 factor determined under paragraph (5). 

8 ‘‘(B) MINIMUM AMOUNT.—12 multiplied by 

9 the following amount: 

10 ‘‘(i) For 1998, $367 (but not to exceed, 

11 in the case of an area outside the 50 States 

12 and the District of Columbia, 150 percent of 

13 the annual per capita rate of payment for 

14 1997 determined under section 

15 1876(a)(1)(C) for the area). 

16 ‘‘(ii) For 1999 and 2000, the min17 imum amount determined under clause (i) 

18 or this clause, respectively, for the preceding 

19 year, increased by the national per capita 

20 Medicare+Choice growth percentage de21 scribed in paragraph (6)(A) applicable to 

22 1999 or 2000, respectively. 

23 ‘‘(iii)(I) Subject to subclause (II), for 

24 2001, for any area in a Metropolitan Sta25 tistical Area with a population of more 
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1 than 250,000, $525, and for any other area 

2 $475. 

3 ‘‘(II) In the case of an area outside the 

4 50 States and the District of Columbia, the 

5 amount specified in this clause shall not ex6 ceed 120 percent of the amount determined 

7 under clause (ii) for such area for 2000. 

8 ‘‘(iv) For 2002 through 2013, the min9 imum amount specified in this clause (or 

10 clause (iii)) for the preceding year increased 

11 by the national per capita 

12 Medicare+Choice growth percentage, de13 scribed in paragraph (6)(A) for that suc14 ceeding year. 

15 ‘‘(v) For 2014 and each succeeding 

16 year, the minimum amount specified in this 

17 clause (or clause (iv)) for the preceding year 

18 increased by the percentage increase in the 

19 Consumer Price Index for all urban con20 sumers (U.S. urban average) for the 12-

21 month period ending with June of the pre22 vious year. 

23 ‘‘(C) MINIMUM PERCENTAGE INCREASE.—

24 ‘‘(i) For 1998, 102 percent of the an25 nual per capita rate of payment for 1997 
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1 determined under section 1876(a)(1)(C) for 

2 the Medicare+Choice payment area. 

3 ‘‘(ii) For 1999 and 2000, 102 percent 

4 of the annual Medicare+Choice capitation 

5 rate under this paragraph for the area for 

6 the previous year. 

7 ‘‘(iii) For 2001, 103 percent of the an8 nual Medicare+Choice capitation rate 

9 under this paragraph for the area for 2000. 

10 ‘‘(iv) For 2002 and each succeeding 

11 year, 102 percent of the annual 

12 Medicare+Choice capitation rate under this 

13 paragraph for the area for the previous 

14 year. 

15 ‘‘(2) AREA-SPECIFIC AND NATIONAL PERCENT16 AGES.—For purposes of paragraph (1)(A)—

17 ‘‘(A) for 1998, the ‘area-specific percentage’ 

18 is 90 percent and the ‘national percentage’ is 10 

19 percent; 

20 ‘‘(B) for 1999, the ‘area-specific percentage’ 

21 is 82 percent and the ‘national percentage’ is 18 

22 percent; 

23 ‘‘(C) for 2000, the ‘area-specific percentage’ 

24 is 74 percent and the ‘national percentage’ is 26 

25 percent; 
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1 ‘‘(D) for 2001, the ‘area-specific percentage’ 

2 is 66 percent and the ‘national percentage’ is 34 

3 percent; 

4 ‘‘(E) for 2002, the ‘area-specific percentage’ 

5 is 58 percent and the ‘national percentage’ is 42 

6 percent; and 

7 ‘‘(F) for a year after 2002, the ‘area-specific 

8 percentage’ is 50 percent and the ‘national per9 centage’ is 50 percent. 

10 ‘‘(3) ANNUAL AREA-SPECIFIC MEDICARE+CHOICE

11 CAPITATION RATE.—

12 ‘‘(A) IN GENERAL.—For purposes of para13 graph (1)(A), subject to subparagraph (B), the 

14 annual area-specific Medicare+Choice capita15 tion rate for a Medicare+Choice payment 

16 area—

17 ‘‘(i) for 1998 is, subject to subpara18 graph (D), the annual per capita rate of 

19 payment for 1997 determined under section 

20 1876(a)(1)(C) for the area, increased by the 

21 national per capita Medicare+Choice 

22 growth percentage for 1998 (described in 

23 paragraph (6)(A)); or 

24 ‘‘(ii) for a subsequent year is the an25 nual area-specific Medicare+Choice capita-
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1 tion rate for the previous year determined 

2 under this paragraph for the area, increased 

3 by the national per capita 

4 Medicare+Choice growth percentage for 

5 such subsequent year. 

6 ‘‘(B) REMOVAL OF MEDICAL EDUCATION

7 FROM CALCULATION OF ADJUSTED AVERAGE PER

8 CAPITA COST.—

9 ‘‘(i) IN GENERAL.—In determining the 

10 area-specific Medicare+Choice capitation 

11 rate under subparagraph (A) for a year (be12 ginning with 1998), the annual per capita 

13 rate of payment for 1997 determined under 

14 section 1876(a)(1)(C) shall be adjusted to 

15 exclude from the rate the applicable percent 

16 (specified in clause (ii)) of the payment ad17 justments described in subparagraph (C). 

18 ‘‘(ii) APPLICABLE PERCENT.—For pur19 poses of clause (i), the applicable percent 

20 for—

21 ‘‘(I) 1998 is 20 percent; 

22 ‘‘(II) 1999 is 40 percent; 

23 ‘‘(III) 2000 is 60 percent; 

24 ‘‘(IV) 2001 is 80 percent; and 
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1 ‘‘(V) a succeeding year is 100 per2 cent. 

3 ‘‘(C) PAYMENT ADJUSTMENT.—

4 ‘‘(i) IN GENERAL.—Subject to clause 

5 (ii), the payment adjustments described in 

6 this subparagraph are payment adjustments 

7 which the Secretary estimates were payable 

8 during 1997—

9 ‘‘(I) for the indirect costs of med10 ical education under section 

11 1886(d)(5)(B); and 

12 ‘‘(II) for direct graduate medical 

13 education costs under section 1886(h). 

14 ‘‘(ii) TREATMENT OF PAYMENTS COV15 ERED UNDER STATE HOSPITAL REIMBURSE16 MENT SYSTEM.—To the extent that the Sec17 retary estimates that an annual per capita 

18 rate of payment for 1997 described in clause 

19 (i) reflects payments to hospitals reimbursed 

20 under section 1814(b)(3), the Secretary shall 

21 estimate a payment adjustment that is com22 parable to the payment adjustment that 

23 would have been made under clause (i) if 

24 the hospitals had not been reimbursed under 

25 such section. 
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1 ‘‘(D) TREATMENT OF AREAS WITH HIGHLY

2 VARIABLE PAYMENT RATES.—In the case of a 

3 Medicare+Choice payment area for which the 

4 annual per capita rate of payment determined 

5 under section 1876(a)(1)(C) for 1997 varies by 

6 more than 20 percent from such rate for 1996, 

7 for purposes of this subsection the Secretary may 

8 substitute for such rate for 1997 a rate that is 

9 more representative of the costs of the enrollees in 

10 the area. 

11 ‘‘(4) INPUT-PRICE-ADJUSTED ANNUAL NATIONAL

12 MEDICARE+CHOICE CAPITATION RATE.—

13 ‘‘(A) IN GENERAL.—For purposes of para14 graph (1)(A), the input-price-adjusted annual 

15 national Medicare+Choice capitation rate for a 

16 Medicare+Choice payment area for a year is 

17 equal to the sum, for all the types of medicare 

18 services (as classified by the Secretary), of the 

19 product (for each such type of service) of—

20 ‘‘(i) the national standardized annual 

21 Medicare+Choice capitation rate (deter22 mined under subparagraph (B)) for the 

23 year; 
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1 ‘‘(ii) the proportion of such rate for the 

2 year which is attributable to such type of 

3 services; and 

4 ‘‘(iii) an index that reflects (for that 

5 year and that type of services) the relative 

6 input price of such services in the area com7 pared to the national average input price of 

8 such services. 

9 In applying clause (iii), the Secretary may, sub10 ject to subparagraph (C), apply those indices 

11 under this title that are used in applying (or up12 dating) national payment rates for specific areas 

13 and localities. 

14 ‘‘(B) NATIONAL STANDARDIZED ANNUAL

15 MEDICARE+CHOICE CAPITATION RATE.—In sub16 paragraph (A)(i), the ‘national standardized an17 nual Medicare+Choice capitation rate’ for a 

18 year is equal to—

19 ‘‘(i) the sum (for all Medicare+Choice 

20 payment areas) of the product of—

21 ‘‘(I) the annual area-specific 

22 Medicare+Choice capitation rate for 

23 that year for the area under paragraph 

24 (3); and 
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1 ‘‘(II) the average number of medi2 care beneficiaries residing in that area 

3 in the year, multiplied by the average 

4 of the risk factor weights used to adjust 

5 payments under subsection (a)(1)(A) 

6 for such beneficiaries in such area; di7 vided by 

8 ‘‘(ii) the sum of the products described 

9 in clause (i)(II) for all areas for that year. 

10 ‘‘(5) PAYMENT ADJUSTMENT BUDGET NEU11 TRALITY FACTOR.—For purposes of paragraph (1)(A), 

12 for each year, the Secretary shall determine a budget 

13 neutrality adjustment factor so that the aggregate of 

14 the payments under this part (other than those attrib15 utable to subsections (a)(3)(C)(iii) and (i)) shall 

16 equal the aggregate payments that would have been 

17 made under this part if payment were based entirely 

18 on area-specific capitation rates. 

19 ‘‘(6) NATIONAL PER CAPITA MEDICARE+CHOICE

20 GROWTH PERCENTAGE DEFINED.—

21 ‘‘(A) IN GENERAL.—In this part, the ‘na22 tional per capita Medicare+Choice growth per23 centage’ for a year is the percentage determined 

24 by the Secretary, by March 1st before the begin25 ning of the year involved, to reflect the Sec-
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1 retary’s estimate of the projected per capita rate 

2 of growth in expenditures under this title for an 

3 individual entitled to (or enrolled for) benefits 

4 under part A and enrolled under part B, reduced 

5 by the number of percentage points specified in 

6 subparagraph (B) for the year. Separate deter7 minations may be made for aged enrollees, dis8 abled enrollees, and enrollees with end-stage 

9 renal disease. 

10 ‘‘(B) ADJUSTMENT.—The number of per11 centage points specified in this subparagraph 

12 is—

13 ‘‘(i) for 1998, 0.8 percentage points; 

14 ‘‘(ii) for 1999, 0.5 percentage points; 

15 ‘‘(iii) for 2000, 0.5 percentage points; 

16 ‘‘(iv) for 2001, 0.5 percentage points; 

17 ‘‘(v) for 2002, 0.3 percentage points; 

18 and 

19 ‘‘(vi) for a year after 2002, 0 percent20 age points. 

21 ‘‘(C) ADJUSTMENT FOR OVER OR UNDER

22 PROJECTION OF NATIONAL PER CAPITA

23 MEDICARE+CHOICE GROWTH PERCENTAGE.—Be24 ginning with rates calculated for 1999, before 

25 computing rates for a year as described in para-
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1 graph (1), the Secretary shall adjust all area2 specific and national Medicare+Choice capita3 tion rates (and beginning in 2000, the minimum 

4 amount) for the previous year for the differences 

5 between the projections of the national per capita 

6 Medicare+Choice growth percentage for that 

7 year and previous years and the current estimate 

8 of such percentage for such years. 

9 ‘‘(7) TRANSITION TO MEDICAREADVANTAGE COM10 PETITION.—

11 ‘‘(A) IN GENERAL.—For each year (begin12 ning with 2006) payments to MedicareAdvantage 

13 plans shall not be computed under this sub14 section, but instead shall be based on the pay15 ment amount determined under subsection (d). 

16 ‘‘(B) CONTINUED CALCULATION OF CAPITA17 TION RATES.—For each year (beginning with 

18 2006) the Secretary shall calculate and publish 

19 the annual Medicare+Choice capitation rates 

20 under this subsection and shall use the annual 

21 Medicare+Choice capitation rate determined 

22 under subsection (c)(1) for purposes of deter23 mining the benchmark amount under subsection 

24 (a)(4).
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1 ‘‘(d) SECRETARY’S DETERMINATION OF PAYMENT

2 AMOUNT.—

3 ‘‘(1) REVIEW OF PLAN BIDS.—The Secretary 

4 shall review each plan bid submitted under section 

5 1854(a) for the coverage of benefits under the original 

6 medicare fee-for-service program option to ensure that 

7 such bids are consistent with the requirements under 

8 this part an are based on the assumptions described 

9 in section 1854(a)(2)(A)(iii). 

10 ‘‘(2) DETERMINATION OF WEIGHTED SERVICE

11 AREA BENCHMARK AMOUNTS.—The Secretary shall 

12 calculate a weighted service area benchmark amount 

13 for the benefits under the original medicare fee-for14 service program option for each plan equal to the 

15 weighted average of the benchmark amounts for bene16 fits under such original medicare fee-for-service pro17 gram option for the payment areas included in the 

18 service area of the plan using the assumptions de19 scribed in section 1854(a)(2)(A)(iii). 

20 ‘‘(3) COMPARISON TO BENCHMARK.—The Sec21 retary shall determine the difference between each 

22 plan bid (as adjusted under paragraph (1)) and the 

23 weighted service area benchmark amount (as deter24 mined under paragraph (2)) for purposes of deter25 mining—
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1 ‘‘(A) the payment amount under paragraph 

2 (4); and 

3 ‘‘(B) the additional benefits required and 

4 MedicareAdvantage monthly basic beneficiary 

5 premiums. 

6 ‘‘(4) DETERMINATION OF PAYMENT AMOUNT FOR

7 ORIGINAL MEDICARE FEE-FOR-SERVICE BENEFITS.—

8 ‘‘(A) IN GENERAL.—Subject to subpara9 graph (B), the Secretary shall determine the 

10 payment amount for MedicareAdvantage plans 

11 for the benefits under the original medicare fee12 for-service program option as follows: 

13 ‘‘(i) BIDS THAT EQUAL OR EXCEED

14 THE BENCHMARK.—In the case of a plan 

15 bid that equals or exceeds the weighted serv16 ice area benchmark amount, the amount of 

17 each monthly payment to a 

18 MedicareAdvantage organization with re19 spect to each individual enrolled in a plan 

20 shall be the weighted service area benchmark 

21 amount. 

22 ‘‘(ii) BIDS BELOW THE BENCHMARK.—

23 In the case of a plan bid that is less than 

24 the weighted service area benchmark 

25 amount, the amount of each monthly pay-
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1 ment to a MedicareAdvantage organization 

2 with respect to each individual enrolled in 

3 a plan shall be the weighted service area 

4 benchmark amount reduced by the amount 

5 of any premium reduction elected by the 

6 plan under section 1854(d)(1)(A)(i). 

7 ‘‘(B) APPLICATION OF COMPREHENSIVE

8 RISK ADJUSTMENT METHODOLOGY.—The Sec9 retary shall adjust the amounts determined 

10 under subparagraph (A) using the comprehensive 

11 risk adjustment methodology applicable under 

12 subsection (a)(3). 

13 ‘‘(6) ADJUSTMENT FOR NATIONAL COVERAGE DE14 TERMINATIONS AND LEGISLATIVE CHANGES IN BENE15 FITS.—If the Secretary makes a determination with 

16 respect to coverage under this title or there is a 

17 change in benefits required to be provided under this 

18 part that the Secretary projects will result in a sig19 nificant increase in the costs to MedicareAdvantage 

20 organizations of providing benefits under contracts 

21 under this part (for periods after any period de22 scribed in section 1852(a)(5)), the Secretary shall ap23 propriately adjust the benchmark amounts or pay24 ment amounts (as determined by the Secretary). Such 

25 projection and adjustment shall be based on an anal-
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1 ysis by the Secretary of the actuarial costs associated 

2 with the new benefits. 

3 ‘‘(7) BENEFITS UNDER THE ORIGINAL MEDICARE

4 FEE-FOR-SERVICE PROGRAM OPTION DEFINED.—For 

5 purposes of this part, the term ‘benefits under the 

6 original medicare fee-for-service program option’ 

7 means those items and services (other than hospice 

8 care) for which benefits are available under parts A 

9 and B to individuals entitled to, or enrolled for, bene10 fits under part A and enrolled under part B, with 

11 cost-sharing for those services as required under parts 

12 A and B or an actuarially equivalent level of cost13 sharing as determined in this part. 

14 ‘‘(e) MEDICAREADVANTAGE PAYMENT AREA DE15 FINED.—

16 ‘‘(1) IN GENERAL.—In this part, except as pro17 vided in paragraph (3), the term ‘MedicareAdvantage 

18 payment area’ means a county, or equivalent area 

19 specified by the Secretary. 

20 ‘‘(2) RULE FOR ESRD BENEFICIARIES.—In the 

21 case of individuals who are determined to have end 

22 stage renal disease, the MedicareAdvantage payment 

23 area shall be a State or such other payment area as 

24 the Secretary specifies. 

25 ‘‘(3) GEOGRAPHIC ADJUSTMENT.—
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1 ‘‘(A) IN GENERAL.—Upon written request of 

2 the chief executive officer of a State for a con3 tract year (beginning after 2005) made by not 

4 later than February 1 of the previous year, the 

5 Secretary shall make a geographic adjustment to 

6 a MedicareAdvantage payment area in the State 

7 otherwise determined under paragraph (1)—

8 ‘‘(i) to a single statewide 

9 MedicareAdvantage payment area; 

10 ‘‘(ii) to the metropolitan based system 

11 described in subparagraph (C); or 

12 ‘‘(iii) to consolidating into a single 

13 MedicareAdvantage payment area non14 contiguous counties (or equivalent areas de15 scribed in paragraph (1)) within a State. 

16 Such adjustment shall be effective for payments 

17 for months beginning with January of the year 

18 following the year in which the request is re19 ceived. 

20 ‘‘(B) BUDGET NEUTRALITY ADJUSTMENT.—

21 In the case of a State requesting an adjustment 

22 under this paragraph, the Secretary shall ini23 tially (and annually thereafter) adjust the pay24 ment rates otherwise established under this sec25 tion for MedicareAdvantage payment areas in 
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1 the State in a manner so that the aggregate of 

2 the payments under this section in the State 

3 shall not exceed the aggregate payments that 

4 would have been made under this section for 

5 MedicareAdvantage payment areas in the State 

6 in the absence of the adjustment under this para7 graph. 

8 ‘‘(C) METROPOLITAN BASED SYSTEM.—The 

9 metropolitan based system described in this sub10 paragraph is one in which—

11 ‘‘(i) all the portions of each metropoli12 tan statistical area in the State or in the 

13 case of a consolidated metropolitan statis14 tical area, all of the portions of each pri15 mary metropolitan statistical area within 

16 the consolidated area within the State, are 

17 treated as a single MedicareAdvantage pay18 ment area; and 

19 ‘‘(ii) all areas in the State that do not 

20 fall within a metropolitan statistical area 

21 are treated as a single MedicareAdvantage 

22 payment area. 

23 ‘‘(D) AREAS.—In subparagraph (C), the 

24 terms ‘metropolitan statistical area’, ‘consoli25 dated metropolitan statistical area’, and ‘pri-
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1 mary metropolitan statistical area’ mean any 

2 area designated as such by the Secretary of Com3 merce. 

4 ‘‘(f) SPECIAL RULES FOR INDIVIDUALS ELECTING

5 MSA PLANS.—

6 ‘‘(1) IN GENERAL.—If the amount of the 

7 MedicareAdvantage monthly MSA premium (as de8 fined in section 1854(b)(2)(D)) for an MSA plan for 

a year is less than 1 9 ⁄12 of the annual 

10 Medicare+Choice capitation rate applied under this 

11 section for the area and year involved, the Secretary 

12 shall deposit an amount equal to 100 percent of such 

13 difference in a MedicareAdvantage MSA established 

14 (and, if applicable, designated) by the individual 

15 under paragraph (2). 

16 ‘‘(2) ESTABLISHMENT AND DESIGNATION OF

17 MEDICAREADVANTAGE MEDICAL SAVINGS ACCOUNT AS

18 REQUIREMENT FOR PAYMENT OF CONTRIBUTION.—In 

19 the case of an individual who has elected coverage 

20 under an MSA plan, no payment shall be made under 

21 paragraph (1) on behalf of an individual for a month 

22 unless the individual—

23 ‘‘(A) has established before the beginning of 

24 the month (or by such other deadline as the Sec25 retary may specify) a MedicareAdvantage MSA 
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1 (as defined in section 138(b)(2) of the Internal 

2 Revenue Code of 1986); and 

3 ‘‘(B) if the individual has established more 

4 than 1 such MedicareAdvantage MSA, has des5 ignated 1 of such accounts as the individual’s 

6 MedicareAdvantage MSA for purposes of this 

7 part. 

8 Under rules under this section, such an individual 

9 may change the designation of such account under 

10 subparagraph (B) for purposes of this part. 

11 ‘‘(3) LUMP-SUM DEPOSIT OF MEDICAL SAVINGS

12 ACCOUNT CONTRIBUTION.—In the case of an indi13 vidual electing an MSA plan effective beginning with 

14 a month in a year, the amount of the contribution to 

15 the MedicareAdvantage MSA on behalf of the indi16 vidual for that month and all successive months in 

17 the year shall be deposited during that first month. In 

18 the case of a termination of such an election as of a 

19 month before the end of a year, the Secretary shall 

20 provide for a procedure for the recovery of deposits at21 tributable to the remaining months in the year. 

22 ‘‘(g) PAYMENTS FROM TRUST FUNDS.—Except as pro23 vided in section 1858A(c) (relating to payments for quali24 fied prescription drug coverage), the payment to a 

25 MedicareAdvantage organization under this section for in-
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1 dividuals enrolled under this part with the organization 

2 and payments to a MedicareAdvantage MSA under sub3 section (e)(1) shall be made from the Federal Hospital In4 surance Trust Fund and the Federal Supplementary Med5 ical Insurance Trust Fund in such proportion as the Sec6 retary determines reflects the relative weight that benefits 

7 under part A and under part B represents of the actuarial 

8 value of the total benefits under this title. Monthly pay9 ments otherwise payable under this section for October 2000 

10 shall be paid on the first business day of such month. 

11 Monthly payments otherwise payable under this section for 

12 October 2001 shall be paid on the last business day of Sep13 tember 2001. Monthly payments otherwise payable under 

14 this section for October 2006 shall be paid on the first busi15 ness day of October 2006. 

16 ‘‘(h) SPECIAL RULE FOR CERTAIN INPATIENT HOS17 PITAL STAYS.—In the case of an individual who is receiv18 ing inpatient hospital services from a subsection (d) hos19 pital (as defined in section 1886(d)(1)(B)) as of the effective 

20 date of the individual’s—

21 ‘‘(1) election under this part of a 

22 MedicareAdvantage plan offered by a 

23 MedicareAdvantage organization—

24 ‘‘(A) payment for such services until the 

25 date of the individual’s discharge shall be made 
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1 under this title through the MedicareAdvantage 

2 plan or the original medicare fee-for-service pro3 gram option (as the case may be) elected before 

4 the election with such organization, 

5 ‘‘(B) the elected organization shall not be fi6 nancially responsible for payment for such serv7 ices until the date after the date of the individ8 ual’s discharge; and 

9 ‘‘(C) the organization shall nonetheless be 

10 paid the full amount otherwise payable to the or11 ganization under this part; or 

12 ‘‘(2) termination of election with respect to a 

13 MedicareAdvantage organization under this part—

14 ‘‘(A) the organization shall be financially 

15 responsible for payment for such services after 

16 such date and until the date of the individual’s 

17 discharge; 

18 ‘‘(B) payment for such services during the 

19 stay shall not be made under section 1886(d) or 

20 by any succeeding MedicareAdvantage organiza21 tion; and 

22 ‘‘(C) the terminated organization shall not 

23 receive any payment with respect to the indi24 vidual under this part during the period the in25 dividual is not enrolled.
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1 ‘‘(i) SPECIAL RULE FOR HOSPICE CARE.—

2 ‘‘(1) INFORMATION.—A contract under this part 

3 shall require the MedicareAdvantage organization to 

4 inform each individual enrolled under this part with 

5 a MedicareAdvantage plan offered by the organization 

6 about the availability of hospice care if—

7 ‘‘(A) a hospice program participating under 

8 this title is located within the organization’s 

9 service area; or 

10 ‘‘(B) it is common practice to refer patients 

11 to hospice programs outside such service area. 

12 ‘‘(2) PAYMENT.—If an individual who is enrolled 

13 with a MedicareAdvantage organization under this 

14 part makes an election under section 1812(d)(1) to re15 ceive hospice care from a particular hospice pro16 gram—

17 ‘‘(A) payment for the hospice care furnished 

18 to the individual shall be made to the hospice 

19 program elected by the individual by the Sec20 retary; 

21 ‘‘(B) payment for other services for which 

22 the individual is eligible notwithstanding the in23 dividual’s election of hospice care under section 

24 1812(d)(1), including services not related to the 

25 individual’s terminal illness, shall be made by 
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1 the Secretary to the MedicareAdvantage organi2 zation or the provider or supplier of the service 

3 instead of payments calculated under subsection 

4 (a); and 

5 ‘‘(C) the Secretary shall continue to make 

6 monthly payments to the MedicareAdvantage or7 ganization in an amount equal to the value of 

8 the additional benefits required under section 

9 1854(f)(1)(A).’’. 

10 SEC. 204. SUBMISSION OF BIDS; PREMIUMS. 

11 Section 1854 (42 U.S.C. 1395w–24) is amended to 

12 read as follows: 

13 ‘‘SUBMISSION OF BIDS; PREMIUMS

14 ‘‘SEC. 1854. (a) SUBMISSION OF BIDS BY

15 MEDICAREADVANTAGE ORGANIZATIONS.—

16 ‘‘(1) IN GENERAL.—Not later than the second 

17 Monday in September and except as provided in 

18 paragraph (3), each MedicareAdvantage organization 

19 shall submit to the Secretary, in such form and man20 ner as the Secretary may specify, for each 

21 MedicareAdvantage plan that the organization in22 tends to offer in a service area in the following 

23 year—

24 ‘‘(A) notice of such intent and information 

25 on the service area of the plan; 

26 ‘‘(B) the plan type for each plan; 
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1 ‘‘(C) if the MedicareAdvantage plan is a co2 ordinated care plan (as described in section 

3 1851(a)(2)(A)) or a private fee-for-service plan 

4 (as described in section 1851(a)(2)(C)), the infor5 mation described in paragraph (2) with respect 

6 to each payment area; 

7 ‘‘(D) the enrollment capacity (if any) in re8 lation to the plan and each payment area; 

9 ‘‘(E) the expected mix, by health status, of 

10 enrolled individuals; and 

11 ‘‘(F) such other information as the Sec12 retary may specify. 

13 ‘‘(2) INFORMATION REQUIRED FOR COORDINATED

14 CARE PLANS AND PRIVATE FEE-FOR-SERVICE

15 PLANS.—For a MedicareAdvantage plan that is a co16 ordinated care plan (as described in section 

17 1851(a)(2)(A)) or a private fee-for-service plan (as 

18 described in section 1851(a)(2)(C)), the information 

19 described in this paragraph is as follows: 

20 ‘‘(A) INFORMATION REQUIRED WITH RE21 SPECT TO BENEFITS UNDER THE ORIGINAL

22 MEDICARE FEE-FOR-SERVICE PROGRAM OP23 TION.—Information relating to the coverage of 

24 benefits under the original medicare fee-for-serv25 ice program option as follows: 
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1 ‘‘(i) The plan bid, which shall consist 

2 of a dollar amount that represents the total 

3 amount that the plan is willing to accept 

4 (not taking into account the application of 

5 the comprehensive risk adjustment method6 ology under section 1853(a)(3)) for pro7 viding coverage of the benefits under the 

8 original medicare fee-for-service program 

9 option to an individual enrolled in the plan 

10 that resides in the service area of the plan 

11 for a month. 

12 ‘‘(ii) For the enhanced medical benefits 

13 package offered—

14 ‘‘(I) the adjusted community rate 

15 (as defined in subsection (g)(3)) of the 

16 package; 

17 ‘‘(II) the portion of the actuarial 

18 value of such benefits package (if any) 

19 that will be applied toward satisfying 

20 the requirement for additional benefits 

21 under subsection (g); 

22 ‘‘(III) the MedicareAdvantage 

23 monthly beneficiary premium for en24 hanced medical benefits (as defined in 

25 subsection (b)(2)(C));
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1 ‘‘(IV) a description of any cost2 sharing; 

3 ‘‘(V) a description of whether the 

4 amount of the unified deductible has 

5 been lowered or the maximum limita6 tions on out-of-pocket expenses have 

7 been decreased (relative to the levels 

8 used in calculating the plan bid); 

9 ‘‘(VI) such other information as 

10 the Secretary considers necessary. 

11 ‘‘(iii) The assumptions that the 

12 MedicareAdvantage organization used in 

13 preparing the plan bid with respect to num14 bers, in each payment area, of enrolled in15 dividuals and the mix, by health status, of 

16 such individuals. 

17 ‘‘(B) INFORMATION REQUIRED WITH RE18 SPECT TO PART D.—The information required to 

19 be submitted by an eligible entity under section 

20 1860D–12, including the monthly premiums for 

21 standard coverage and any other qualified pre22 scription drug coverage available to individuals 

23 enrolled under part D. 

24 ‘‘(C) DETERMINING PLAN COSTS INCLUDED

25 IN PLAN BID.—For purposes of submitting its 
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1 plan bid under subparagraph (A)(i) a 

2 MedicareAdvantage plan offered by a 

3 MedicareAdvantage organization satisfies sub4 paragraphs (A) and (C) of section 1852(a)(1) if 

5 the actuarial value of the deductibles, coinsur6 ance, and copayments applicable on average to 

7 individuals enrolled in such plan under this part 

8 with respect to benefits under the original medi9 care fee-for-service program option on which that 

10 bid is based (ignoring any reduction in cost11 sharing offered by such plan as enhanced med12 ical benefits under paragraph (2)(A)(ii) or re13 quired under clause (ii) or (iii) of subsection 

14 (g)(1)(C)) equals the amount specified in sub15 section (f)(1)(B). 

16 ‘‘(3) REQUIREMENTS FOR MSA PLANS.—For an 

17 MSA plan described in section 1851(a)(2)(B), the in18 formation described in this paragraph is the informa19 tion that such a plan would have been required to 

20 submit under this part if the Prescription Drug and 

21 Medicare Improvements Act of 2003 had not been en22 acted. 

23 ‘‘(4) REVIEW.—

24 ‘‘(A) IN GENERAL.—Subject to subpara25 graph (B), the Secretary shall review the ad-
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1 justed community rates (as defined in section 

2 1854(g)(3)), the amounts of the 

3 MedicareAdvantage monthly basic premium and 

4 the MedicareAdvantage monthly beneficiary pre5 mium for enhanced medical benefits filed under 

6 this subsection and shall approve or disapprove 

7 such rates and amounts so submitted. The Sec8 retary shall review the actuarial assumptions 

9 and data used by the MedicareAdvantage organi10 zation with respect to such rates and amounts so 

11 submitted to determine the appropriateness of 

12 such assumptions and data. 

13 ‘‘(B) MSA EXCEPTION.—The Secretary 

14 shall not review, approve, or disapprove the 

15 amounts submitted under paragraph (3). 

16 ‘‘(C) CLARIFICATION OF AUTHORITY RE17 GARDING DISAPPROVAL OF UNREASONABLE BEN18 EFICIARY COST-SHARING.—Under the authority 

19 under subparagraph (A), the Secretary may dis20 approve the bid if the Secretary determines that 

21 the deductibles, coinsurance, or copayments ap22 plicable under the plan discourage access to cov23 ered services or are likely to result in favorable 

24 selection of MedicareAdvantage eligible individ25 uals. 
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1 ‘‘(5) APPLICATION OF FEHBP STANDARD; PROHI2 BITION ON PRICE GOUGING.—Each bid amount sub3 mitted under paragraph (1) for a MedicareAdvantage 

4 plan must reasonably and equitably reflect the cost of 

5 benefits provided under that plan. 

6 ‘‘(b) MONTHLY PREMIUMS CHARGED.—

7 ‘‘(1) IN GENERAL.—

8 ‘‘(A) COORDINATED CARE AND PRIVATE

9 FEE-FOR-SERVICE PLANS.—The monthly amount 

10 of the premium charged to an individual en11 rolled in a MedicareAdvantage plan (other than 

12 an MSA plan) offered by a MedicareAdvantage 

13 organization shall be equal to the sum of the fol14 lowing: 

15 ‘‘(i) The MedicareAdvantage monthly 

16 basic beneficiary premium (if any). 

17 ‘‘(ii) The MedicareAdvantage monthly 

18 beneficiary premium for enhanced medical 

19 benefits (if any). 

20 ‘‘(iii) The MedicareAdvantage monthly 

21 obligation for qualified prescription drug 

22 coverage (if any). 

23 ‘‘(B) MSA PLANS.—The rules under this 

24 section that would have applied with respect to 

25 an MSA plan if the Prescription Drug and 
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1 Medicare Improvements Act of 2003 had not 

2 been enacted shall continue to apply to MSA 

3 plans after the date of enactment of such Act. 

4 ‘‘(2) PREMIUM TERMINOLOGY.—For purposes of 

5 this part: 

6 ‘‘(A) MEDICAREADVANTAGE MONTHLY BASIC

7 BENEFICIARY PREMIUM.—The term 

8 ‘MedicareAdvantage monthly basic beneficiary 

9 premium’ means, with respect to a 

10 MedicareAdvantage plan, the amount required to 

11 be charged under subsection (d)(2) for the plan. 

12 ‘‘(B) MEDICAREADVANTAGE MONTHLY BEN13 EFICIARY OBLIGATION FOR QUALIFIED PRESCRIP14 TION DRUG COVERAGE.—The term 

15 ‘MedicareAdvantage monthly beneficiary obliga16 tion for qualified prescription drug coverage’ 

17 means, with respect to a MedicareAdvantage 

18 plan, the amount determined under section 

19 1858A(d). 

20 ‘‘(C) MEDICAREADVANTAGE MONTHLY BEN21 EFICIARY PREMIUM FOR ENHANCED MEDICAL

22 BENEFITS.—The term ‘MedicareAdvantage 

23 monthly beneficiary premium for enhanced med24 ical benefits’ means, with respect to a 

25 MedicareAdvantage plan, the amount required to
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1 be charged under subsection (f)(2) for the plan, 

2 or, in the case of an MSA plan, the amount filed 

3 under subsection (a)(3). 

4 ‘‘(D) MEDICAREADVANTAGE MONTHLY MSA

5 PREMIUM.—The term ‘MedicareAdvantage 

6 monthly MSA premium’ means, with respect to 

7 a MedicareAdvantage plan, the amount of such 

8 premium filed under subsection (a)(3) for the 

9 plan. 

10 ‘‘(c) UNIFORM PREMIUM.—The MedicareAdvantage 

11 monthly basic beneficiary premium, the MedicareAdvantage 

12 monthly beneficiary obligation for qualified prescription 

13 drug coverage, the MedicareAdvantage monthly beneficiary 

14 premium for enhanced medical benefits, and the 

15 MedicareAdvantage monthly MSA premium charged under 

16 subsection (b) of a MedicareAdvantage organization under 

17 this part may not vary among individuals enrolled in the 

18 plan. 

19 ‘‘(d) DETERMINATION OF PREMIUM REDUCTIONS, RE20 DUCED COST-SHARING, ADDITIONAL BENEFITS, AND BENE21 FICIARY PREMIUMS.—

22 ‘‘(1) BIDS BELOW THE BENCHMARK.—If the Sec23 retary determines under section 1853(d)(3) that the 

24 weighted service area benchmark amount exceeds the 

25 plan bid, the Secretary shall require the plan to pro-
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1 vide additional benefits in accordance with subsection 

2 (g). 

3 ‘‘(2) BIDS ABOVE THE BENCHMARK.—If the Sec4 retary determines under section 1853(d)(3) that the 

5 plan bid exceeds the weighted service area benchmark 

6 amount (determined under section 1853(d)(2)), the 

7 amount of such excess shall be the MedicareAdvantage 

8 monthly basic beneficiary premium (as defined in 

9 section 1854(b)(2)(A)). 

10 ‘‘(e) TERMS AND CONDITIONS OF IMPOSING PRE11 MIUMS.—Each MedicareAdvantage organization shall per12 mit the payment of any MedicareAdvantage monthly basic 

13 premium, the MedicareAdvantage monthly beneficiary obli14 gation for qualified prescription drug coverage, and the 

15 MedicareAdvantage monthly beneficiary premium for en16 hanced medical benefits on a monthly basis, may terminate 

17 election of individuals for a MedicareAdvantage plan for 

18 failure to make premium payments only in accordance with 

19 section 1851(g)(3)(B)(i), and may not provide for cash or 

20 other monetary rebates as an inducement for enrollment or 

21 otherwise (other than as an additional benefit described in 

22 subsection (g)(1)(C)(i)). 

23 ‘‘(f) LIMITATION ON ENROLLEE LIABILITY.—
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1 ‘‘(1) FOR BENEFITS UNDER THE ORIGINAL MEDI2 CARE FEE-FOR-SERVICE PROGRAM OPTION.—The sum 

3 of—

4 ‘‘(A) the MedicareAdvantage monthly basic 

5 beneficiary premium (multiplied by 12) and the 

6 actuarial value of the deductibles, coinsurance, 

7 and copayments (determined on the same basis 

8 as used in determining the plan’s bid under 

9 paragraph (2)(C)) applicable on average to indi10 viduals enrolled under this part with a 

11 MedicareAdvantage plan described in subpara12 graph (A) or (C) of section 1851(a)(2) of an or13 ganization with respect to required benefits de14 scribed in section 1852(a)(1)(A); must equal 

15 ‘‘(B) the actuarial value of the deductibles, 

16 coinsurance, and copayments that would be ap17 plicable on average to individuals who have 

18 elected to receive benefits under the original 

19 medicare fee-for-service program option if such 

20 individuals were not members of a 

21 MedicareAdvantage organization for the year 

22 (adjusted as determined appropriate by the Sec23 retary to account for geographic differences and 

24 for plan cost and utilization differences). 
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1 ‘‘(2) FOR ENHANCED MEDICAL BENEFITS.—If the 

2 MedicareAdvantage organization provides to its mem3 bers enrolled under this part in a MedicareAdvantage 

4 plan described in subparagraph (A) or (C) of section 

5 1851(a)(2) with respect to enhanced medical benefits 

6 relating to benefits under the original medicare fee7 for-service program option, the sum of the 

8 MedicareAdvantage monthly beneficiary premium for 

9 enhanced medical benefits (multiplied by 12) charged 

10 and the actuarial value of its deductibles, coinsur11 ance, and copayments charged with respect to such 

12 benefits for a year must equal the adjusted commu13 nity rate (as defined in subsection (g)(3)) for such 

14 benefits for the year minus the actuarial value of any 

15 additional benefits pursuant to clause (ii), (iii), or 

16 (iv) of subsection (g)(2)(C) that the plan specified 

17 under subsection (a)(2)(i)(II). 

18 ‘‘(3) DETERMINATION ON OTHER BASIS.—If the 

19 Secretary determines that adequate data are not 

20 available to determine the actuarial value under 

21 paragraph (1)(A) or (2), the Secretary may determine 

22 such amount with respect to all individuals in the 

23 same geographic area, the State, or in the United 

24 States, eligible to enroll in the MedicareAdvantage 
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1 plan involved under this part or on the basis of other 

2 appropriate data. 

3 ‘‘(4) SPECIAL RULE FOR PRIVATE FEE-FOR-SERV4 ICE PLANS.—With respect to a MedicareAdvantage 

5 private fee-for-service plan (other than a plan that is 

6 an MSA plan), in no event may—

7 ‘‘(A) the actuarial value of the deductibles, 

8 coinsurance, and copayments applicable on aver9 age to individuals enrolled under this part with 

10 such a plan of an organization with respect to 

11 required benefits described in subparagraphs (A), 

12 (C), and (D) of section 1852(a)(1); exceed 

13 ‘‘(B) the actuarial value of the deductibles, 

14 coinsurance, and copayments that would be ap15 plicable on average to individuals entitled to (or 

16 enrolled for) benefits under part A and enrolled 

17 under part B if they were not members of a 

18 MedicareAdvantage organization for the year. 

19 ‘‘(g) REQUIREMENT FOR ADDITIONAL BENEFITS.—

20 ‘‘(1) REQUIREMENT.—

21 ‘‘(A) IN GENERAL.—Each 

22 MedicareAdvantage organization (in relation to 

23 a MedicareAdvantage plan, other than an MSA 

24 plan, it offers) shall provide that if there is an 

25 excess amount (as defined in subparagraph (B)) 
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1 for the plan for a contract year, subject to the 

2 succeeding provisions of this subsection, the orga3 nization shall provide to individuals such addi4 tional benefits described in subparagraph (C) as 

5 the organization may specify in a value which 

6 the Secretary determines is at least equal to the 

7 adjusted excess amount (as defined in subpara8 graph (D)). 

9 ‘‘(B) EXCESS AMOUNT.—For purposes of 

10 this paragraph, the term ‘excess amount’ means, 

11 for an organization for a plan, is 100 percent of 

12 the amount (if any) by which the weighted serv13 ice area benchmark amount (determined under 

14 section 1853(d)(2)) exceeds the plan bid (as ad15 justed under section 1853(d)(1)). 

16 ‘‘(C) ADDITIONAL BENEFITS DESCRIBED.—

17 The additional benefits described in this sub18 paragraph are as follows: 

19 ‘‘(i) Subject to subparagraph (F), a 

20 monthly part B premium reduction for in21 dividuals enrolled in the plan. 

22 ‘‘(ii) Lowering the amount of the uni23 fied deductible and decreasing the max24 imum limitations on out-of-pocket expenses 

25 for individuals enrolled in the plan.
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1 ‘‘(iii) A reduction in the actuarial 

2 value of plan cost-sharing for plan enrollees. 

3 ‘‘(iv) Subject to subparagraph (E), 

4 such additional benefits as the organization 

5 may specify. 

6 ‘‘(v) Contributing to the stabilization 

7 fund under paragraph (2). 

8 ‘‘(vi) Any combination of the reduc9 tions and benefits described in clauses (i) 

10 through (v). 

11 ‘‘(D) ADJUSTED EXCESS AMOUNT.—For 

12 purposes of this paragraph, the term ‘adjusted 

13 excess amount’ means, for an organization for a 

14 plan, is the excess amount reduced to reflect any 

15 amount withheld and reserved for the organiza16 tion for the year under paragraph (2). 

17 ‘‘(E) RULE FOR APPROVAL OF MEDICAL AND

18 PRESCRIPTION DRUG BENEFITS.—An organiza19 tion may not specify any additional benefit that 

20 provides for the coverage of any prescription 

21 drug (other than that relating to prescription 

22 drugs covered under the original medicare fee23 for-service program option). 

24 ‘‘(F) PREMIUM REDUCTIONS.—
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1 ‘‘(i) IN GENERAL.—Subject to clause 

2 (ii), as part of providing any additional 

3 benefits required under subparagraph (A), a 

4 MedicareAdvantage organization may elect 

5 a reduction in its payments under section 

6 1853(a)(1)(A)(i) with respect to a 

7 MedicareAdvantage plan and the Secretary 

8 shall apply such reduction to reduce the 

9 premium under section 1839 of each en10 rollee in such plan as provided in section 

11 1840(i). 

12 ‘‘(ii) AMOUNT OF REDUCTION.—The 

13 amount of the reduction under clause (i) 

14 with respect to any enrollee in a 

15 MedicareAdvantage plan—

16 ‘‘(I) may not exceed 125 percent 

17 of the premium described under section 

18 1839(a)(3); and 

19 ‘‘(II) shall apply uniformly to 

20 each enrollee of the MedicareAdvantage 

21 plan to which such reduction applies. 

22 ‘‘(G) UNIFORM APPLICATION.—This para23 graph shall be applied uniformly for all enrollees 

24 for a plan. 
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1 ‘‘(H) CONSTRUCTION.—Nothing in this sub2 section shall be construed as preventing a 

3 MedicareAdvantage organization from providing 

4 enhanced medical benefits (described in section 

5 1852(a)(3)) that are in addition to the health 

6 care benefits otherwise required to be provided 

7 under this paragraph and from imposing a pre8 mium for such enhanced medical benefits. 

9 ‘‘(2) STABILIZATION FUND.—A 

10 MedicareAdvantage organization may provide that a 

11 part of the value of an excess amount described in 

12 paragraph (1) be withheld and reserved in the Fed13 eral Hospital Insurance Trust Fund and in the Fed14 eral Supplementary Medical Insurance Trust Fund 

15 (in such proportions as the Secretary determines to be 

16 appropriate) by the Secretary for subsequent annual 

17 contract periods, to the extent required to prevent 

18 undue fluctuations in the additional benefits offered 

19 in those subsequent periods by the organization in ac20 cordance with such paragraph. Any of such value of 

21 the amount reserved which is not provided as addi22 tional benefits described in paragraph (1)(A) to indi23 viduals electing the MedicareAdvantage plan of the 

24 organization in accordance with such paragraph 
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1 prior to the end of such periods, shall revert for the 

2 use of such Trust Funds. 

3 ‘‘(3) ADJUSTED COMMUNITY RATE.—For pur4 poses of this subsection, subject to paragraph (4), the 

5 term ‘adjusted community rate’ for a service or serv6 ices means, at the election of a MedicareAdvantage or7 ganization, either—

8 ‘‘(A) the rate of payment for that service or 

9 services which the Secretary annually determines 

10 would apply to an individual electing a 

11 MedicareAdvantage plan under this part if the 

12 rate of payment were determined under a ‘com13 munity rating system’ (as defined in section 

14 1302(8) of the Public Health Service Act, other 

15 than subparagraph (C)); or 

16 ‘‘(B) such portion of the weighted aggregate 

17 premium, which the Secretary annually esti18 mates would apply to such an individual, as the 

19 Secretary annually estimates is attributable to 

20 that service or services, 

21 but adjusted for differences between the utilization 

22 characteristics of the individuals electing coverage 

23 under this part and the utilization characteristics of 

24 the other enrollees with the plan (or, if the Secretary 

25 finds that adequate data are not available to adjust 
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1 for those differences, the differences between the utili2 zation characteristics of individuals selecting other 

3 MedicareAdvantage coverage, or MedicareAdvantage 

4 eligible individuals in the area, in the State, or in the 

5 United States, eligible to elect MedicareAdvantage 

6 coverage under this part and the utilization charac7 teristics of the rest of the population in the area, in 

8 the State, or in the United States, respectively). 

9 ‘‘(4) DETERMINATION BASED ON INSUFFICIENT

10 DATA.—For purposes of this subsection, if the Sec11 retary finds that there is insufficient enrollment expe12 rience to determine the average amount of payments 

13 to be made under this part at the beginning of a con14 tract period or to determine (in the case of a newly 

15 operated provider-sponsored organization or other 

16 new organization) the adjusted community rate for 

17 the organization, the Secretary may determine such 

18 an average based on the enrollment experience of other 

19 contracts entered into under this part and may deter20 mine such a rate using data in the general commer21 cial marketplace. 

22 ‘‘(h) PROHIBITION OF STATE IMPOSITION OF PREMIUM

23 TAXES.—No State may impose a premium tax or similar 

24 tax with respect to payments to MedicareAdvantage organi25 zations under section 1853.
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1 ‘‘(i) PERMITTING USE OF SEGMENTS OF SERVICE

2 AREAS.—The Secretary shall permit a MedicareAdvantage 

3 organization to elect to apply the provisions of this section 

4 uniformly to separate segments of a service area (rather 

5 than uniformly to an entire service area) as long as such 

6 segments are composed of 1 or more MedicareAdvantage 

7 payment areas.’’. 

8 (b) STUDY AND REPORT ON CLARIFICATION OF AU9 THORITY REGARDING DISAPPROVAL OF UNREASONABLE

10 BENEFICIARY COST-SHARING.—

11 (1) STUDY.—The Secretary, in consultation with 

12 beneficiaries, consumer groups, employers, and 

13 Medicare+Choice organizations, shall conduct a study 

14 to determine the extent to which the cost-sharing 

15 structures under Medicare+Choice plans under part 

16 C of title XVIII of the Social Security Act discourage 

17 access to covered services or discriminate based on the 

18 health status of Medicare+Choice eligible individuals 

19 (as defined in section 1851(a)(3) of the Social Secu20 rity Act (42 U.S.C. 1395w–21(a)(3))). 

21 (2) REPORT.—Not later than December 31, 2004, 

22 the Secretary shall submit a report to Congress on the 

23 study conducted under paragraph (1) together with 

24 recommendations for such legislation and administra25 tive actions as the Secretary considers appropriate. 
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1 SEC. 205. SPECIAL RULES FOR PRESCRIPTION DRUG BENE2 FITS. 

3 Part C of title XVIII (42 U.S.C. 1395w–21 et seq.) 

4 is amended by inserting after section 1857 the following 

5 new section: 

6 ‘‘SPECIAL RULES FOR PRESCRIPTION DRUG BENEFITS

7 ‘‘SEC. 1858A. (a) AVAILABILITY.—

8 ‘‘(1) PLANS REQUIRED TO PROVIDE QUALIFIED

9 PRESCRIPTION DRUG COVERAGE TO ENROLLEES.—

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

11 subparagraph (B), on and after January 1, 

12 2006, a MedicareAdvantage organization offering 

13 a MedicareAdvantage plan (except for an MSA 

14 plan) shall make available qualified prescription 

15 drug coverage that meets the requirements for 

16 such coverage under this part and part D to each 

17 enrollee of the plan. 

18 ‘‘(B) PRIVATE FEE-FOR-SERVICE PLANS

19 MAY, BUT ARE NOT REQUIRED TO, PROVIDE

20 QUALIFIED PRESCRIPTION DRUG COVERAGE.—

21 Pursuant to section 1852(a)(2)(D), a private fee22 for-service plan may elect not to provide quali23 fied prescription drug coverage under part D to 

24 individuals residing in the area served by the 

25 plan. 
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1 ‘‘(2) REFERENCE TO PROVISION PERMITTING AD2 DITIONAL PRESCRIPTION DRUG COVERAGE.—For the 

3 provisions of part D, made applicable to this part 

4 pursuant to paragraph (1), that permit a plan to 

5 make available qualified prescription drug coverage 

6 that includes coverage of covered drugs that exceeds 

7 the coverage required under paragraph (1) of section 

8 1860D–6 in an area, but only if the 

9 MedicareAdvantage organization offering the plan 

10 also offers a MedicareAdvantage plan in the area that 

11 only provides the coverage that is required under such 

12 paragraph (1), see paragraph (2) of such section. 

13 ‘‘(3) RULE FOR APPROVAL OF MEDICAL AND PRE14 SCRIPTION DRUG BENEFITS.—Pursuant to sections 

15 1854(g)(1)(F) and 1852(a)(3)(D), a 

16 MedicareAdvantage organization offering a 

17 MedicareAdvantage plan that provides qualified pre18 scription drug coverage may not make available cov19 erage of any prescription drugs (other than that relat20 ing to prescription drugs covered under the original 

21 medicare fee-for-service program option) to an en22 rollee as an additional benefit or as an enhanced 

23 medical benefit. 

24 ‘‘(b) COMPLIANCE WITH ADDITIONAL BENEFICIARY

25 PROTECTIONS.—With respect to the offering of qualified 
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1 prescription drug coverage by a MedicareAdvantage organi2 zation under a MedicareAdvantage plan, the organization 

3 and plan shall meet the requirements of section 1860D–5, 

4 including requirements relating to information dissemina5 tion and grievance and appeals, and such other require6 ments under part D that the Secretary determines appro7 priate in the same manner as such requirements apply to 

8 an eligible entity and a Medicare Prescription Drug plan 

9 under part D. The Secretary shall waive such requirements 

10 to the extent the Secretary determines that such require11 ments duplicate requirements otherwise applicable to the or12 ganization or the plan under this part. 

13 ‘‘(c) PAYMENTS FOR PRESCRIPTION DRUGS.—

14 ‘‘(1) PAYMENT OF FULL AMOUNT OF PREMIUM TO

15 ORGANIZATIONS FOR QUALIFIED PRESCRIPTION DRUG

16 COVERAGE.—

17 ‘‘(A) IN GENERAL.—For each year (begin18 ning with 2006), the Secretary shall pay to each 

19 MedicareAdvantage organization offering a 

20 MedicareAdvantage plan that provides qualified 

21 prescription drug coverage, an amount equal to 

22 the full amount of the monthly premium sub23 mitted under section 1854(a)(2)(B) for the year, 

24 as adjusted using the risk adjusters that apply to 
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1 the standard prescription drug coverage pub2 lished under section 1860D–11. 

3 ‘‘(B) APPLICATION OF PART D RISK COR4 RIDOR, STABILIZATION RESERVE FUND, AND AD5 MINISTRATIVE EXPENSES PROVISIONS.—The pro6 visions of subsections (b), (c), and (d) of section 

7 1860D–16 shall apply to a MedicareAdvantage 

8 organization offering a MedicareAdvantage plan 

9 that provides qualified prescription drug cov10 erage and payments made to such organization 

11 under subparagraph (A) in the same manner as 

12 such provisions apply to an eligible entity offer13 ing a Medicare Prescription Drug plan and pay14 ments made to such entity under subsection (a) 

15 of section 1860D–16. 

16 ‘‘(2) PAYMENT FROM PRESCRIPTION DRUG AC17 COUNT.—Payment made to MedicareAdvantage orga18 nizations under this subsection shall be made from the 

19 Prescription Drug Account in the Federal Supple20 mentary Medical Insurance Trust Fund under section 

21 1841. 

22 ‘‘(d) COMPUTATION OF MEDICAREADVANTAGE MONTH23 LY BENEFICIARY OBLIGATION FOR QUALIFIED PRESCRIP24 TION DRUG COVERAGE.—In the case of a 

25 MedicareAdvantage eligible individual receiving qualified
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1 prescription drug coverage under a MedicareAdvantage 

2 plan during a year after 2005, the MedicareAdvantage 

3 monthly beneficiary obligation for qualified prescription 

4 drug coverage of such individual in the year shall be deter5 mined in the same manner as the monthly beneficiary obli6 gation is determined under section 1860D–17 for eligible 

7 beneficiaries enrolled in a Medicare Prescription Drug 

8 plan, except that, for purposes of this subparagraph, any 

9 reference to the monthly plan premium approved by the 

10 Secretary under section 1860D–13 shall be treated as a ref11 erence to the monthly premium for qualified prescription 

12 drug coverage submitted by the MedicareAdvantage organi13 zation offering the plan under section 1854(a)(2)(A) and 

14 approved by the Secretary. 

15 ‘‘(e) COLLECTION OF MEDICAREADVANTAGE MONTHLY

16 BENEFICIARY OBLIGATION FOR QUALIFIED PRESCRIPTION

17 DRUG COVERAGE.—The provisions of section 1860D–18, 

18 including subsection (b) of such section, shall apply to the 

19 amount of the MedicareAdvantage monthly beneficiary obli20 gation for qualified prescription drug coverage (as deter21 mined under subsection (d)) required to be paid by a 

22 MedicareAdvantage eligible individual enrolled in a 

23 MedicareAdvantage plan in the same manner as such provi24 sions apply to the amount of the monthly beneficiary obli25 gation required to be paid by an eligible beneficiary en-
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1 rolled in a Medicare Prescription Drug plan under part 

2 D. 

3 ‘‘(f) AVAILABILITY OF PREMIUM SUBSIDY AND COST4 SHARING REDUCTIONS FOR LOW-INCOME ENROLLEES AND

5 REINSURANCE PAYMENTS.—For provisions—

6 ‘‘(1) providing premium subsidies and cost-shar7 ing reductions for low-income individuals receiving 

8 qualified prescription drug coverage through a 

9 MedicareAdvantage plan, see section 1860D–19; and 

10 ‘‘(2) providing a MedicareAdvantage organiza11 tion with reinsurance payments for certain expenses 

12 incurred in providing qualified prescription drug cov13 erage through a MedicareAdvantage plan, see section 

14 1860D–20.’’. 

15 (b) TREATMENT OF REDUCTION FOR PURPOSES OF

16 DETERMINING GOVERNMENT CONTRIBUTION UNDER PART

17 B.—Section 1844(c) (42 U.S.C. 1395w) is amended by 

18 striking ‘‘section 1854(f)(1)(E)’’ and inserting ‘‘section 

19 1854(d)(1)(A)(i)’’. 

20 SEC. 206. FACILITATING EMPLOYER PARTICIPATION. 

21 Section 1858(h) (as added by section 211) is amended 

22 by inserting ‘‘(including subsection (i) of such section)’’ 

23 after ‘‘section 1857’’. 
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1 SEC. 207. ADMINISTRATION BY THE CENTER FOR MEDICARE 

2 CHOICES. 

3 On and after January 1, 2006, the MedicareAdvantage 

4 program under part C of title XVIII of the Social Security 

5 Act shall be administered by the Center for Medicare 

6 Choices established under section 1808 such title (as added 

7 by section 301), and each reference to the Secretary made 

8 in such part shall be deemed to be a reference to the Admin9 istrator of the Center for Medicare Choices. 

10 SEC. 208. CONFORMING AMENDMENTS. 

11 (a) ORGANIZATIONAL AND FINANCIAL REQUIREMENTS

12 FOR MEDICAREADVANTAGE ORGANIZATIONS; PROVIDER13 SPONSORED ORGANIZATIONS.—Section 1855 (42 U.S.C. 

14 1395w–25) is amended—

15 (1) in subsection (b), in the matter preceding 

16 paragraph (1), by inserting ‘‘subparagraphs (A), (B), 

17 and (D) of’’ before ‘‘section 1852(A)(1)’’; and 

18 (2) by striking ‘‘Medicare+Choice’’ and insert19 ing ‘‘MedicareAdvantage’’ each place it appears. 

20 (b) ESTABLISHMENT OF PSO STANDARDS.—Section 

21 1856 (42 U.S.C. 1395w–26) is amended by striking 

22 ‘‘Medicare+Choice’’ and inserting ‘‘MedicareAdvantage’’ 

23 each place it appears. 

24 (c) CONTRACTS WITH MEDICAREADVANTAGE ORGANI25 ZATIONS.—Section 1857 (42 U.S.C. 1395w–27) is amend26 ed—
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1 (1) in subsection (g)(1)—

2 (A) in subparagraph (B), by striking 

3 ‘‘amount of the Medicare+Choice monthly basic 

4 and supplemental beneficiary premiums’’ and 

5 inserting ‘‘amounts of the MedicareAdvantage 

6 monthly basic premium and MedicareAdvantage 

7 monthly beneficiary premium for enhanced med8 ical benefits’’; 

9 (B) in subparagraph (F), by striking ‘‘or’’ 

10 after the semicolon at the end; 

11 (C) in subparagraph (G), by adding ‘‘or’’ 

12 after the semicolon at the end; and 

13 (D) by inserting after subparagraph (G) the 

14 following new subparagraph: 

15 ‘‘(H)(i) charges any individual an amount 

16 in excess of the MedicareAdvantage monthly ben17 eficiary obligation for qualified prescription 

18 drug coverage under section 1858A(d); 

19 ‘‘(ii) provides coverage for prescription 

20 drugs that is not qualified prescription drug cov21 erage; 

22 ‘‘(iii) offers prescription drug coverage, but 

23 does not make standard prescription drug cov24 erage available; or
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1 ‘‘(iv) provides coverage for prescription 

2 drugs (other than that relating to prescription 

3 drugs covered under the original medicare fee4 for-service program option described in section 

5 1851(a)(1)(A)(i)) as an enhanced medical benefit 

6 under section 1852(a)(3)(D) or as an additional 

7 benefit under section 1854(g)(1)(F),’’; and 

8 (2) by striking ‘‘Medicare+Choice’’ and insert9 ing ‘‘MedicareAdvantage’’ each place it appears. 

10 (d) DEFINITIONS; MISCELLANEOUS PROVISIONS.—Sec11 tion 1859 (42 U.S.C. 1395w–28) is amended—

12 (1) by striking subsection (c) and inserting the 

13 following new subsection: 

14 ‘‘(c) OTHER REFERENCES TO OTHER TERMS.—

15 ‘‘(1) ENHANCED MEDICAL BENEFITS.—The term 

16 ‘enhanced medical benefits’ is defined in section 

17 1852(a)(3)(E). 

18 ‘‘(2) MEDICAREADVANTAGE ELIGIBLE INDI19 VIDUAL.—The term ‘MedicareAdvantage eligible indi20 vidual’ is defined in section 1851(a)(3). 

21 ‘‘(3) MEDICAREADVANTAGE PAYMENT AREA.—

22 The term ‘MedicareAdvantage payment area’ is de23 fined in section 1853(d). 

24 ‘‘(4) NATIONAL PER CAPITA MEDICARE+CHOICE

25 GROWTH PERCENTAGE.—The ‘national per capita 
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1 Medicare+Choice growth percentage’ is defined in sec2 tion 1853(c)(6). 

3 ‘‘(5) MEDICAREADVANTAGE MONTHLY BASIC BEN4 EFICIARY PREMIUM; MEDICAREADVANTAGE MONTHLY

5 BENEFICIARY OBLIGATION FOR QUALIFIED PRESCRIP6 TION DRUG COVERAGE; MEDICAREADVANTAGE MONTH7 LY BENEFICIARY PREMIUM FOR ENHANCED MEDICAL

8 BENEFITS.—The terms ‘MedicareAdvantage monthly 

9 basic beneficiary premium’, ‘MedicareAdvantage 

10 monthly beneficiary obligation for qualified prescrip11 tion drug coverage’, and ‘MedicareAdvantage monthly 

12 beneficiary premium for enhanced medical benefits’ 

13 are defined in section 1854(b)(2). 

14 ‘‘(6) QUALIFIED PRESCRIPTION DRUG COV15 ERAGE.—The term ‘qualified prescription drug cov16 erage’ has the meaning given such term in section 

17 1860D(9). 

18 ‘‘(7) STANDARD PRESCRIPTION DRUG COV19 ERAGE.—The term ‘standard prescription drug cov20 erage’ has the meaning given such term in section 

21 1860D(10).’’; and 

22 (2) by striking ‘‘Medicare+Choice’’ and insert23 ing ‘‘MedicareAdvantage’’ each place it appears. 

24 (e) CONFORMING AMENDMENTS EFFECTIVE BEFORE

25 2006.—
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1 (1) EXTENSION OF MSAS.—Section 1851(b)(4) 

2 (42 U.S.C. 1395w–21(b)(4)) is amended by striking 

3 ‘‘January 1, 2003’’ and inserting ‘‘January 1, 2004’’. 

4 (2) CONTINUOUS OPEN ENROLLMENT AND

5 DISENROLLMENT THROUGH 2005.—Section 1851(e) of 

6 the Social Security Act (42 U.S.C. 1395w–21(e)) is 

7 amended—

8 (A) in paragraph (2)(A), by striking 

9 ‘‘THROUGH 2004’’ and ‘‘December 31,2004’’ and 

10 inserting ‘‘THROUGH 2005’’ and ‘‘December 31, 

11 2005’’, respectively; 

12 (B) in the heading of paragraph (2)(B), by 

13 striking ‘‘DURING 2005’’ and inserting ‘‘DURING

14 2006’’; 

15 (C) in paragraphs (2)(B)(i) and (2)(C)(i), 

16 by striking ‘‘2005’’ and inserting ‘‘2006’’ each 

17 place it appears; 

18 (D) in paragraph (2)(D), by striking 

19 ‘‘2004’’ and inserting ‘‘2005’’; and 

20 (E) in paragraph (4), by striking ‘‘2005’’ 

21 and inserting ‘‘2006’’ each place it appears. 

22 (3) EFFECTIVE DATE.—The amendments made 

23 by this subsection shall take effect on the date of en24 actment of this Act. 

25 (e) OTHER CONFORMING AMENDMENTS.—
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1 (1) CONFORMING MEDICARE CROSS-REF2 ERENCES.—

3 (A) Section 1839(a)(2) (42 U.S.C. 

4 1395r(a)(2)) is amended by striking ‘‘section 

5 1854(f)(1)(E)’’ and inserting ‘‘section 

6 1854(g)(1)(C)(i)’’. 

7 (B) Section 1840(i) (42 U.S.C. 1395s(i)) is 

8 amended by striking ‘‘section 1854(f)(1)(E)’’ and 

9 inserting ‘‘section 1854(g)(1)(C)(i)’’. 

10 (C) Section 1844(c) (42 U.S.C. 1395w(c)) is 

11 amended by striking ‘‘section 1854(f)(1)(E)’’ and 

12 inserting ‘‘section 1854(g)(1)(C)(i)’’. 

13 (D) Section 1876(k)(3)(A) (42 U.S.C. 

14 1395mm(k)(3)(A)) is amended by inserting ‘‘(as 

15 in effect immediately before the enactment of the 

16 Prescription Drug and Medicare Improvements 

17 Act of 2003)’’ after section 1853(a). 

18 (F) Section 1876(k)(4) (42 U.S.C. 

19 1395mm(k)(4)(A)) is amended—

20 (i) in subparagraph (A), by striking 

21 ‘‘section 1853(a)(3)(B)’’ and inserting ‘‘sec22 tion 1853(a)(3)(D)’’; and 

23 (ii) in subparagraph (B), by striking 

24 ‘‘section 1854(g)’’ and inserting ‘‘section 

25 1854(h)’’.
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1 (G) Section 1876(k)(4)(C) (42 U.S.C. 

2 1395mm(k)(4)(C)) in amended by inserting ‘‘(as 

3 in effect immediately before the enactment of the 

4 Prescription Drug and Medicare Improvements 

5 Act of 2003)’’ after ‘‘section 1851(e)(6)’’. 

6 (H) Section 1894(d) (42 U.S.C. 1395eee(d)) 

7 is amended by adding at the end the following 

8 new paragraph: 

9 ‘‘(3) APPLICATION OF PROVISIONS.—For pur10 poses of paragraphs (1) and (2), the references to sec11 tion 1853 and subsection (a)(2) of such section in 

12 such paragraphs shall be deemed to be references to 

13 those provisions as in effect immediately before the 

14 enactment of the Prescription Drug and Medicare Im15 provements Act of 2003.’’. 

16 (2) CONFORMING MEDICARE TERMINOLOGY.—

17 Title XVIII (42 U.S.C. 1395 et seq.), except for part 

18 C of such title (42 U.S.C. 1395w–21 et seq.), and title 

19 XIX (42 U.S.C. 1396 et seq.) are each amended by 

20 striking ‘‘Medicare+Choice’’ and inserting 

21 ‘‘MedicareAdvantage’’ each place it appears. 

22 SEC. 209. EFFECTIVE DATE. 

23 (a) IN GENERAL.—Except as provided in section 

24 208(d)(3) and subsection (b), the amendments made by this 
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1 title shall apply with respect to plan years beginning on 

2 and after January 1, 2006. 

3 (b) MEDICAREADVANTAGE MSA PLANS.—Notwith4 standing any provision of this title, the Secretary shall 

5 apply the payment and other rules that apply with respect 

6 to an MSA plan described in section 1851(a)(2)(B) of the 

7 Social Security Act (42 U.S.C. 1395w–21(a)(2)(B)) as if 

8 this title had not been enacted. 

9 Subtitle B—Preferred Provider 

10 Organizations 

11 SEC. 211. ESTABLISHMENT OF MEDICAREADVANTAGE PRE12 FERRED PROVIDER PROGRAM OPTION. 

13 (a) ESTABLISHMENT OF PREFERRED PROVIDER PRO14 GRAM OPTION.—Section 1851(a)(2) is amended by adding 

15 at the end the following new subparagraph: 

16 ‘‘(D) PREFERRED PROVIDER ORGANIZATION

17 PLANS.—A MedicareAdvantage preferred pro18 vider organization plan under the program es19 tablished under section 1858.’’. 

20 (b) PROGRAM SPECIFICATIONS.—Part C of title XVIII 

21 (42 U.S.C. 1395w–21 et seq.) is amended by inserting after 

22 section 1857 the following new section: 

23 ‘‘PREFERRED PROVIDER ORGANIZATIONS

24 ‘‘SEC. 1858. (a) ESTABLISHMENT OF PROGRAM.—

25 ‘‘(1) IN GENERAL.—Beginning on January 1, 

26 2006, there is established a preferred provider pro-
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1 gram under which preferred provider organization 

2 plans offered by preferred provider organizations are 

3 offered to MedicareAdvantage eligible individuals in 

4 preferred provider regions. 

5 ‘‘(2) DEFINITIONS.—

6 ‘‘(A) PREFERRED PROVIDER ORGANIZA7 TION.—The term ‘preferred provider organiza8 tion’ means an entity with a contract under sec9 tion 1857 that meets the requirements of this sec10 tion applicable with respect to preferred provider 

11 organizations. 

12 ‘‘(B) PREFERRED PROVIDER ORGANIZATION

13 PLAN.—The term ‘preferred provider organiza14 tion plan’ means a MedicareAdvantage plan 

15 that—

16 ‘‘(i) has a network of providers that 

17 have agreed to a contractually specified re18 imbursement for covered benefits with the 

19 organization offering the plan; 

20 ‘‘(ii) provides for reimbursement for all 

21 covered benefits regardless of whether such 

22 benefits are provided within such network of 

23 providers; and 

24 ‘‘(iii) is offered by a preferred provider 

25 organization. 
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1 ‘‘(C) PREFERRED PROVIDER REGION.—The 

2 term ‘preferred provider region’ means—

3 ‘‘(i) a region established under para4 graph (3); and 

5 ‘‘(ii) a region that consists of the entire 

6 United States. 

7 ‘‘(3) PREFERRED PROVIDER REGIONS.—For pur8 poses of this part the Secretary shall establish pre9 ferred provider regions as follows: 

10 ‘‘(A) There shall be at least 10 regions. 

11 ‘‘(B) Each region must include at least 1 

12 State. 

13 ‘‘(C) The Secretary may not divide States 

14 so that portions of the State are in different re15 gions. 

16 ‘‘(D) To the extent possible, the Secretary 

17 shall include multistate metropolitan statistical 

18 areas in a single region. The Secretary may di19 vide metropolitan statistical areas where it is 

20 necessary to establish regions of such size and ge21 ography as to maximize the participation of pre22 ferred provider organization plans. 

23 ‘‘(E) The Secretary may conform the pre24 ferred provider regions to the service areas estab25 lished under section 1860D–10.
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1 ‘‘(b) ELIGIBILITY, ELECTION, AND ENROLLMENT; BEN2 EFITS AND BENEFICIARY PROTECTIONS.—

3 ‘‘(1) IN GENERAL.—Except as provided in the 

4 succeeding provisions of this subsection, the provisions 

5 of sections 1851 and 1852 that apply with respect to 

6 coordinated care plans shall apply to preferred pro7 vider organization plans offered by a preferred pro8 vider organization. 

9 ‘‘(2) SERVICE AREA.—The service area of a pre10 ferred provider organization plan shall be a preferred 

11 provider region. 

12 ‘‘(3) AVAILABILITY.—Each preferred provider or13 ganization plan must be offered to each 

14 MedicareAdvantage eligible individual who resides in 

15 the service area of the plan. 

16 ‘‘(4) AUTHORITY TO PROHIBIT RISK SELEC17 TION.—The provisions of section 1852(a)(6) shall 

18 apply to preferred provider organization plans. 

19 ‘‘(5) ASSURING ACCESS TO SERVICES IN PRE20 FERRED PROVIDER ORGANIZATION PLANS.—

21 ‘‘(A) IN GENERAL.—In addition to any 

22 other requirements under this section, in the case 

23 of a preferred provider organization plan, the or24 ganization offering the plan must demonstrate to 

25 the Secretary that the organization has sufficient 
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1 number and range of health care professionals 

2 and providers willing to provide services under 

3 the terms of the plan. 

4 ‘‘(B) DETERMINATION OF SUFFICIENT AC5 CESS.—The Secretary shall find that an organi6 zation has met the requirement under subpara7 graph (A) with respect to any category of health 

8 care professional or provider if, with respect to 

9 that category of provider the plan has contracts 

10 or agreements with a sufficient number and 

11 range of providers within such category to pro12 vide covered services under the terms of the plan. 

13 ‘‘(C) CONSTRUCTION.—Subparagraph (B) 

14 shall not be construed as restricting the persons 

15 from whom enrollees under such a plan may ob16 tain covered benefits. 

17 ‘‘(c) PAYMENTS TO PREFERRED PROVIDER ORGANIZA18 TIONS.—

19 ‘‘(1) PAYMENTS TO ORGANIZATIONS.—

20 ‘‘(A) MONTHLY PAYMENTS.—

21 ‘‘(i) IN GENERAL.—Under a contract 

22 under section 1857 and subject to para23 graph (5), subsection (e), and section 

24 1859(e)(4), the Secretary shall make, to 

25 each preferred provider organization, with 
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1 respect to coverage of an individual for a 

2 month under this part in a preferred pro3 vider region, separate monthly payments 

4 with respect to— 

5 ‘‘(I) benefits under the original 

6 medicare fee-for-service program under 

7 parts A and B in accordance with 

8 paragraph (4); and 

9 ‘‘(II) benefits under the voluntary 

10 prescription drug program under part 

11 D in accordance with section 1858A 

12 and the other provisions of this part. 

13 ‘‘(ii) SPECIAL RULE FOR END-STAGE

14 RENAL DISEASE.—The Secretary shall es15 tablish separate rates of payment applicable 

16 with respect to classes of individuals deter17 mined to have end-stage renal disease and 

18 enrolled in a preferred provider organiza19 tion plan under this clause that are similar 

20 to the separate rates of payment described 

21 in section 1853(a)(1)(B). 

22 ‘‘(B) ADJUSTMENT TO REFLECT NUMBER OF

23 ENROLLEES.—The Secretary may retroactively 

24 adjust the amount of payment under this para25 graph in a manner that is similar to the manner 
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1 in which payment amounts may be retroactively 

2 adjusted under section 1853(a)(2). 

3 ‘‘(C) COMPREHENSIVE RISK ADJUSTMENT

4 METHODOLOGY.—The Secretary shall apply the 

5 comprehensive risk adjustment methodology de6 scribed in section 1853(a)(3)(B) to 100 percent 

7 of the amount of payments to plans under para8 graph (4)(D)(ii). 

9 ‘‘(D) ADJUSTMENT FOR SPENDING VARI10 ATIONS WITHIN A REGION.—The Secretary shall 

11 establish a methodology for adjusting the amount 

12 of payments to plans under paragraph (4)(D)(ii) 

13 that achieves the same objective as the adjust14 ment described in paragraph 1853(a)(2)(C). 

15 ‘‘(2) ANNUAL CALCULATION OF BENCHMARK

16 AMOUNTS FOR PREFERRED PROVIDER REGIONS.—For 

17 each year (beginning in 2006), the Secretary shall 

18 calculate a benchmark amount for each preferred pro19 vider region for each month for such year with respect 

20 to coverage of the benefits available under the original 

21 medicare fee-for-service program option equal to the 

22 average of each benchmark amount calculated under 

23 section 1853(a)(4) for each MedicareAdvantage pay24 ment area for the year within such region, weighted 
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1 by the number of MedicareAdvantage eligible individ2 uals residing in each such payment area for the year. 

3 ‘‘(3) ANNUAL ANNOUNCEMENT OF PAYMENT FAC4 TORS.—

5 ‘‘(A) ANNUAL ANNOUNCEMENT.—Beginning 

6 in 2005, at the same time as the Secretary pub7 lishes the risk adjusters under section 1860D–11, 

8 the Secretary shall annually announce (in a 

9 manner intended to provide notice to interested 

10 parties) the following payment factors: 

11 ‘‘(i) The benchmark amount for each 

12 preferred provider region (as calculated 

13 under paragraph (2)(A)) for the year. 

14 ‘‘(ii) The factors to be used for adjust15 ing payments described under—

16 ‘‘(I) the comprehensive risk ad17 justment methodology described in 

18 paragraph (1)(C) with respect to each 

19 preferred provider region for the year; 

20 and 

21 ‘‘(II) the methodology used for ad22 justment for geographic variations 

23 within such region established under 

24 paragraph (1)(D).
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1 ‘‘(B) ADVANCE NOTICE OF METHODO2 LOGICAL CHANGES.—At least 45 days before 

3 making the announcement under subparagraph 

4 (A) for a year, the Secretary shall—

5 ‘‘(i) provide for notice to preferred pro6 vider organizations of proposed changes to 

7 be made in the methodology from the meth8 odology and assumptions used in the pre9 vious announcement; and 

10 ‘‘(ii) provide such organizations with 

11 an opportunity to comment on such pro12 posed changes. 

13 ‘‘(C) EXPLANATION OF ASSUMPTIONS.—In 

14 each announcement made under subparagraph 

15 (A), the Secretary shall include an explanation 

16 of the assumptions and changes in methodology 

17 used in the announcement in sufficient detail so 

18 that preferred provider organizations can com19 pute each payment factor described in such sub20 paragraph. 

21 ‘‘(4) SECRETARY’S DETERMINATION OF PAYMENT

22 AMOUNT FOR BENEFITS UNDER THE ORIGINAL MEDI23 CARE FEE-FOR-SERVICE PROGRAM.—The Secretary 

24 shall determine the payment amount for plans as fol25 lows: 
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1 ‘‘(A) REVIEW OF PLAN BIDS.—The Sec2 retary shall review each plan bid submitted 

3 under subsection (d)(1) for the coverage of bene4 fits under the original medicare fee-for-service 

5 program option to ensure that such bids are con6 sistent with the requirements under this part 

7 and are based on the assumptions described in 

8 section 1854(a)(2)(A)(iii) that the plan used 

9 with respect to numbers of enrolled individuals. 

10 ‘‘(B) DETERMINATION OF PREFERRED PRO11 VIDER REGIONAL BENCHMARK AMOUNTS.—The 

12 Secretary shall calculate a preferred provider re13 gional benchmark amount for that plan for the 

14 benefits under the original medicare fee-for-serv15 ice program option for each plan equal to the re16 gional benchmark adjusted by using the assump17 tions described in section 1854(a)(2)(A)(iii) that 

18 the plan used with respect to numbers of enrolled 

19 individuals. 

20 ‘‘(C) COMPARISON TO BENCHMARK.—The 

21 Secretary shall determine the difference between 

22 each plan bid (as adjusted under subparagraph 

23 (A)) and the preferred provider regional bench24 mark amount (as determined under subpara25 graph (B)) for purposes of determining—
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1 ‘‘(i) the payment amount under sub2 paragraph (D); and 

3 ‘‘(ii) the additional benefits required 

4 and MedicareAdvantage monthly basic ben5 eficiary premiums. 

6 ‘‘(D) DETERMINATION OF PAYMENT

7 AMOUNT.—

8 ‘‘(i) IN GENERAL.—Subject to clause 

9 (ii), the Secretary shall determine the pay10 ment amount to a preferred provider orga11 nization for a preferred provider organiza12 tion plan as follows: 

13 ‘‘(I) BIDS THAT EQUAL OR EX14 CEED THE BENCHMARK.—In the case 

15 of a plan bid that equals or exceeds the 

16 preferred provider regional benchmark 

17 amount, the amount of each monthly 

18 payment to the organization with re19 spect to each individual enrolled in a 

20 plan shall be the preferred provider re21 gional benchmark amount. 

22 ‘‘(II) BIDS BELOW THE BENCH23 MARK.—In the case of a plan bid that 

24 is less than the preferred provider re25 gional benchmark amount, the amount 
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1 of each monthly payment to the orga2 nization with respect to each indi3 vidual enrolled in a plan shall be the 

4 preferred provider regional benchmark 

5 amount reduced by the amount of any 

6 premium reduction elected by the plan 

7 under section 1854(d)(1)(A)(i). 

8 ‘‘(ii) APPLICATION OF ADJUSTMENT

9 METHODOLOGIES.—The Secretary shall ad10 just the amounts determined under subpara11 graph (A) using the factors described in 

12 paragraph (3)(A)(ii). 

13 ‘‘(E) FACTORS USED IN ADJUSTING BIDS

14 AND BENCHMARKS FOR PREFERRED PROVIDER

15 ORGANIZATIONS AND IN DETERMINING ENROLLEE

16 PREMIUMS.—Subject to subparagraph (F), in 

17 addition to the factors used to adjust payments 

18 to plans described in section 1853(d)(6), the Sec19 retary shall use the adjustment for geographic 

20 variation within the region established under 

21 paragraph (1)(D). 

22 ‘‘(F) ADJUSTMENT FOR NATIONAL COV23 ERAGE DETERMINATIONS AND LEGISLATIVE

24 CHANGES IN BENEFITS.—The Secretary shall 

25 provide for adjustments for national coverage de-
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1 terminations and legislative changes in benefits 

2 applicable with respect to preferred provider or3 ganizations in the same manner as the Secretary 

4 provides for adjustments under section 

5 1853(d)(7). 

6 ‘‘(5) PAYMENTS FROM TRUST FUND.—The pay7 ment to a preferred provider organization under this 

8 section shall be made from the Federal Hospital In9 surance Trust Fund and the Federal Supplementary 

10 Medical Insurance Trust Fund in a manner similar 

11 to the manner described in section 1853(g). 

12 ‘‘(6) SPECIAL RULE FOR CERTAIN INPATIENT

13 HOSPITAL STAYS.—Rules similar to the rules applica14 ble under section 1853(h) shall apply with respect 

15 preferred provider organizations. 

16 ‘‘(7) SPECIAL RULE FOR HOSPICE CARE.—Rules 

17 similar to the rules applicable under section 1853(i) 

18 shall apply with respect to preferred provider organi19 zations. 

20 ‘‘(d) SUBMISSION OF BIDS BY PPOS; PREMIUMS.—

21 ‘‘(1) SUBMISSION OF BIDS BY PREFERRED PRO22 VIDER ORGANIZATIONS.—

23 ‘‘(A) IN GENERAL.—For the requirements 

24 on submissions by MedicareAdvantage preferred
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1 provider organization plans, see section 

2 1854(a)(1). 

3 ‘‘(B) UNIFORM PREMIUMS.—Each bid 

4 amount submitted under subparagraph (A) for a 

5 preferred provider organization plan in a pre6 ferred provider region may not vary among 

7 MedicareAdvantage eligible individuals residing 

8 in such preferred provider region. 

9 ‘‘(C) APPLICATION OF FEHBP STANDARD; 

10 PROHIBITION ON PRICE GOUGING.—Each bid 

11 amount submitted under subparagraph (A) for a 

12 preferred provider organization plan must rea13 sonably and equitably reflect the cost of benefits 

14 provided under that plan. 

15 ‘‘(D) REVIEW.—The Secretary shall review 

16 the adjusted community rates (as defined in sec17 tion 1854(g)(3)), the amounts of the 

18 MedicareAdvantage monthly basic premium and 

19 the MedicareAdvantage monthly beneficiary pre20 mium for enhanced medical benefits filed under 

21 this paragraph and shall approve or disapprove 

22 such rates and amounts so submitted. The Sec23 retary shall review the actuarial assumptions 

24 and data used by the preferred provider organi25 zation with respect to such rates and amounts so 
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1 submitted to determine the appropriateness of 

2 such assumptions and data. 

3 ‘‘(E) AUTHORITY TO LIMIT NUMBER OF

4 PLANS IN A REGION.—If there are bids for more 

5 than 3 preferred provider organization plans in 

6 a preferred provider region, the Secretary shall 

7 accept only the 3 lowest-cost credible bids for 

8 that region that meet or exceed the quality and 

9 minimum standards applicable under this sec10 tion. 

11 ‘‘(2) MONTHLY PREMIUMS CHARGED.—The 

12 amount of the monthly premium charged to an indi13 vidual enrolled in a preferred provider organization 

14 plan offered by a preferred provider organization 

15 shall be equal to the sum of the following: 

16 ‘‘(A) The MedicareAdvantage monthly basic 

17 beneficiary premium, as defined in section 

18 1854(b)(2)(A) (if any). 

19 ‘‘(B) The MedicareAdvantage monthly bene20 ficiary premium for enhanced medical benefits, 

21 as defined in section 1854(b)(2)(C) (if any). 

22 ‘‘(C) The MedicareAdvantage monthly obli23 gation for qualified prescription drug coverage, 

24 as defined in section 1854(b)(2)(B) (if any). 
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1 ‘‘(3) DETERMINATION OF PREMIUM REDUCTIONS, 

2 REDUCED COST-SHARING, ADDITIONAL BENEFITS, AND

3 BENEFICIARY PREMIUMS.—The rules for determining 

4 premium reductions, reduced cost-sharing, additional 

5 benefits, and beneficiary premiums under section 

6 1854(d) shall apply with respect to preferred provider 

7 organizations. 

8 ‘‘(4) PROHIBITION OF SEGMENTING PREFERRED

9 PROVIDER REGIONS.—The Secretary may not permit 

10 a preferred provider organization to elect to apply the 

11 provisions of this section uniformly to separate seg12 ments of a preferred provider region (rather than uni13 formly to an entire preferred provider region). 

14 ‘‘(e) PORTION OF TOTAL PAYMENTS TO AN ORGANIZA15 TION SUBJECT TO RISK FOR 2 YEARS.—

16 ‘‘(1) NOTIFICATION OF SPENDING UNDER THE

17 PLAN.—

18 ‘‘(A) IN GENERAL.—For 2007 and 2008, the 

19 preferred provider organization offering a pre20 ferred provider organization plan shall notify the 

21 Secretary of the total amount of costs that the or22 ganization incurred in providing benefits covered 

23 under parts A and B of the original medicare 

24 fee-for-service program for all enrollees under the 

25 plan in the previous year. 
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1 ‘‘(B) CERTAIN EXPENSES NOT INCLUDED.—

2 The total amount of costs specified in subpara3 graph (A) may not include—

4 ‘‘(i) subject to subparagraph (C), ad5 ministrative expenses incurred in providing 

6 the benefits described in such subparagraph; 

7 or 

8 ‘‘(ii) amounts expended on providing 

9 enhanced medical benefits under section 

10 1852(a)(3)(D). 

11 ‘‘(C) ESTABLISHMENT OF ALLOWABLE AD12 MINISTRATIVE EXPENSES.—For purposes of ap13 plying subparagraph (B)(i), the administrative 

14 expenses incurred in providing benefits described 

15 in subparagraph (A) under a preferred provider 

16 organization plan may not exceed an amount de17 termined appropriate by the Administrator. 

18 ‘‘(2) ADJUSTMENT OF PAYMENT.—

19 ‘‘(A) NO ADJUSTMENT IF COSTS WITHIN

20 RISK CORRIDOR.—If the total amount of costs 

21 specified in paragraph (1)(A) for the plan for 

22 the year are not more than the first threshold 

23 upper limit of the risk corridor (specified in 

24 paragraph (3)(A)(iii)) and are not less than the 

25 first threshold lower limit of the risk corridor 
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1 (specified in paragraph (3)(A)(i)) for the plan 

2 for the year, then no additional payments shall 

3 be made by the Secretary and no reduced pay4 ments shall be made to the preferred provider or5 ganization offering the plan. 

6 ‘‘(B) INCREASE IN PAYMENT IF COSTS

7 ABOVE UPPER LIMIT OF RISK CORRIDOR.—

8 ‘‘(i) IN GENERAL.—If the total amount 

9 of costs specified in paragraph (1)(A) for 

10 the plan for the year are more than the first 

11 threshold upper limit of the risk corridor for 

12 the plan for the year, then the Secretary 

13 shall increase the total of the monthly pay14 ments made to the preferred provider orga15 nization offering the plan for the year 

16 under subsection (c)(1)(A) by an amount 

17 equal to the sum of—

18 ‘‘(I) 50 percent of the amount of 

19 such total costs which are more than 

20 such first threshold upper limit of the 

21 risk corridor and not more than the 

22 second threshold upper limit of the risk 

23 corridor for the plan for the year (as 

24 specified under paragraph (3)(A)(iv)); 

25 and
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1 ‘‘(II) 10 percent of the amount of 

2 such total costs which are more than 

3 such second threshold upper limit of 

4 the risk corridor. 

5 ‘‘(C) REDUCTION IN PAYMENT IF COSTS

6 BELOW LOWER LIMIT OF RISK CORRIDOR.—If the 

7 total amount of costs specified in paragraph 

8 (1)(A) for the plan for the year are less than the 

9 first threshold lower limit of the risk corridor for 

10 the plan for the year, then the Secretary shall re11 duce the total of the monthly payments made to 

12 the preferred provider organization offering the 

13 plan for the year under subsection (c)(1)(A) by 

14 an amount (or otherwise recover from the plan 

15 an amount) equal to—

16 ‘‘(i) 50 percent of the amount of such 

17 total costs which are less than such first 

18 threshold lower limit of the risk corridor 

19 and not less than the second threshold lower 

20 limit of the risk corridor for the plan for the 

21 year (as specified under paragraph 

22 (3)(A)(ii)); and 

23 ‘‘(ii) 10 percent of the amount of such 

24 total costs which are less than such second 

25 threshold lower limit of the risk corridor. 
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1 ‘‘(3) ESTABLISHMENT OF RISK CORRIDORS.—

2 ‘‘(A) IN GENERAL.—For 2006 and 2007, the 

3 Secretary shall establish a risk corridor for each 

4 preferred provider organization plan. The risk 

5 corridor for a plan for a year shall be equal to 

6 a range as follows: 

7 ‘‘(i) FIRST THRESHOLD LOWER

8 LIMIT.—The first threshold lower limit of 

9 such corridor shall be equal to—

10 ‘‘(I) the target amount described 

11 in subparagraph (B) for the plan; 

12 minus 

13 ‘‘(II) an amount equal to 5 per14 cent of such target amount. 

15 ‘‘(ii) SECOND THRESHOLD LOWER

16 LIMIT.—The second threshold lower limit of 

17 such corridor shall be equal to—

18 ‘‘(I) the target amount described 

19 in subparagraph (B) for the plan; 

20 minus 

21 ‘‘(II) an amount equal to 10 per22 cent of such target amount. 

23 ‘‘(iii) FIRST THRESHOLD UPPER

24 LIMIT.—The first threshold upper limit of 

25 such corridor shall be equal to the sum of—
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1 ‘‘(I) such target amount; and 

2 ‘‘(II) the amount described in 

3 clause (i)(II). 

4 ‘‘(iv) SECOND THRESHOLD UPPER

5 LIMIT.—The second threshold upper limit of 

6 such corridor shall be equal to the sum of—

7 ‘‘(I) such target amount; and 

8 ‘‘(II) the amount described in 

9 clause (ii)(II). 

10 ‘‘(B) TARGET AMOUNT DESCRIBED.—The 

11 target amount described in this paragraph is, 

12 with respect to a preferred provider organization 

13 plan offered by a preferred provider organization 

14 in a year, an amount equal to the sum of—

15 ‘‘(i) the total monthly payments made 

16 to the organization for enrollees in the plan 

17 for the year under subsection (c)(1)(A); and 

18 ‘‘(ii) the total MedicareAdvantage basic 

19 beneficiary premiums collected for such en20 rollees for the year under subsection 

21 (d)(2)(A). 

22 ‘‘(4) PLANS AT RISK FOR ENTIRE AMOUNT OF

23 ENHANCED MEDICAL BENEFITS.—A preferred provider 

24 organization that offers a preferred provider organi25 zation plan that provides enhanced medial benefits 
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1 under section 1852(a)(3)(D) shall be at full financial 

2 risk for the provision of such benefits. 

3 ‘‘(5) NO EFFECT ON ELIGIBLE BENEFICIARIES.—

4 No change in payments made by reason of this sub5 section shall affect the amount of the 

6 MedicareAdvantage basic beneficiary premium that a 

7 beneficiary is otherwise required to pay under the 

8 plan for the year under subsection (d)(2)(A). 

9 ‘‘(6) DISCLOSURE OF INFORMATION.—The provi10 sions of section 1860D–16(b)(7), including subpara11 graph (B) of such section, shall apply to a preferred 

12 provider organization and a preferred provider orga13 nization plan in the same manner as such provisions 

14 apply to an eligible entity and a Medicare Prescrip15 tion Drug plan under part D. 

16 ‘‘(f) ORGANIZATIONAL AND FINANCIAL REQUIREMENTS

17 FOR PREFERRED PROVIDER ORGANIZATIONS.—A preferred 

18 provider organization shall be organized and licensed under 

19 State law as a risk-bearing entity eligible to offer health 

20 insurance or health benefits coverage in each State within 

21 the preferred provider region in which it offers a preferred 

22 provider organization plan. 

23 ‘‘(g) INAPPLICABILITY OF PROVIDER-SPONSORED OR24 GANIZATION SOLVENCY STANDARDS.—The requirements of 
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1 section 1856 shall not apply with respect to preferred pro2 vider organizations. 

3 ‘‘(h) CONTRACTS WITH PREFERRED PROVIDER ORGA4 NIZATIONS.—The provisions of section 1857 shall apply to 

5 a preferred provider organization plan offered by a pre6 ferred provider organization under this section.’’. 

7 (c) PREFERRED PROVIDER TERMINOLOGY DE8 FINED.—Section 1859(a) is amended by adding at the end 

9 the following new paragraph: 

10 ‘‘(3) PREFERRED PROVIDER ORGANIZATION; PRE11 FERRED PROVIDER ORGANIZATION PLAN; PREFERRED

12 PROVIDER REGION.—The terms ‘preferred provider or13 ganization’, ‘preferred provider organization plan’, 

14 and ‘preferred provider region’ have the meaning 

15 given such terms in section 1858(a)(2).’’. 

16 Subtitle C—Other Managed Care 

17 Reforms 

18 SEC. 221. EXTENSION OF REASONABLE COST CONTRACTS. 

19 (a) FIVE-YEAR EXTENSION.—Section 1876(h)(5)(C) 

20 (42 U.S.C. 1395mm(h)(5)(C)) is amended by striking 

21 ‘‘2004’’ and inserting ‘‘2009’’. 

22 (b) APPLICATION OF CERTAIN MEDICARE+CHOICE

23 REQUIREMENTS TO COST CONTRACTS EXTENDED OR RE24 NEWED AFTER 2003.—Section 1876(h) (42 U.S.C. 
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1 1395mm(h)(5)), as amended by subsection (a), is amend2 ed—

3 (1) by redesignating paragraph (5) as para4 graph (6); and 

5 (2) by inserting after paragraph (4) the fol6 lowing new paragraph: 

7 ‘‘(5) Any reasonable cost reimbursement contract with 

8 an eligible organization under this subsection that is ex9 tended or renewed on or after the date of enactment of the 

10 Prescription Drug and Medicare Improvements Act of 2003 

11 for plan years beginning on or after January 1, 2004, shall 

12 provide that the following provisions of the 

13 Medicare+Choice program under part C (and, on and after 

14 January 1, 2006, the provisions of the MedicareAdvantage 

15 program under such part) shall apply to such organization 

16 and such contract in a substantially similar manner as 

17 such provisions apply to Medicare+Choice organizations 

18 and Medicare+Choice plans (or, on and after January 1, 

19 2006, MedicareAdvantage organizations and 

20 MedicareAdvantage plans, respectively) under such part: 

21 ‘‘(A) Paragraph (1) of section 1852(e) (relating 

22 to the requirement of having an ongoing quality as23 surance program) and paragraph (2)(B) of such sec24 tion (relating to the required elements for such a pro25 gram).
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1 ‘‘(B) Section 1852(j)(4) (relating to limitations 

2 on physician incentive plans). 

3 ‘‘(C) Section 1854(c) (relating to the requirement 

4 of uniform premiums among individuals enrolled in 

5 the plan). 

6 ‘‘(D) Section 1854(g), or, on and after January 

7 1, 2006, section 1854(h) (relating to restrictions on 

8 imposition of premium taxes with respect to pay9 ments to organizations). 

10 ‘‘(E) Section 1856(b) (regarding compliance 

11 with the standards established by regulation pursuant 

12 to such section, including the provisions of paragraph 

13 (3) of such section relating to relation to State laws). 

14 ‘‘(F) Section 1852(a)(3)(A) (regarding the au15 thority of organizations to include supplemental 

16 health care benefits and, on and after January 1, 

17 2006, enhanced medical benefits under the plan sub18 ject to the approval of the Secretary). 

19 ‘‘(G) The provisions of part C relating to 

20 timelines for benefit filings, contract renewal, and 

21 beneficiary notification. 

22 ‘‘(H) Section 1854(e), or, on and after January 

23 1, 2006, section 1854(f) (relating to proposed cost24 sharing under the contract being subject to review by 

25 the Secretary).’’. 
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1 (c) PERMITTING DEDICATED GROUP PRACTICE HEALTH

2 MAINTENANCE ORGANIZATIONS TO PARTICIPATE IN THE

3 MEDICARE COST CONTRACT PROGRAM.—Section 1876(h)(6) 

4 of the Social Security Act (42 U.S.C. 1395mm(h)(6)), as 

5 redesignated and amended by subsections (a) and (b), is 

6 amended—

7 (1) in subparagraph (A), by striking ‘‘After the 

8 date of the enactment’’ and inserting ‘‘Except as pro9 vided in subparagraph (C), after the date of the en10 actment’’; 

11 (2) in subparagraph (B), by striking ‘‘subpara12 graph (C)’’ and inserting ‘‘subparagraph (D)’’; 

13 (3) by redesignating subparagraph (C) as sub14 paragraph (D); and 

15 (4) by inserting after subparagraph (B), the fol16 lowing new subparagraph: 

17 ‘‘(C) Subject to paragraph (5) and subparagraph (D), 

18 the Secretary shall approve an application to enter into a 

19 reasonable cost contract under this section if—

20 ‘‘(i) the application is submitted to the Secretary 

21 by a health maintenance organization (as defined in 

22 section 1301(a) of the Public Health Service Act) 

23 that, as of January 1, 2004, and except as provided 

24 in section 1301(b)(3)(B) of such Act, provides at least 

25 85 percent of the services of a physician which are 
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1 provided as basic health services through a medical 

2 group (or groups), as defined in section 1302(4) of 

3 such Act; and 

4 ‘‘(ii) the Secretary determines that the organiza5 tion meets the requirements applicable to such organi6 zations and contracts under this section.’’. 

7 SEC. 222. SPECIALIZED MEDICARE+CHOICE PLANS FOR SPE8 CIAL NEEDS BENEFICIARIES. 

9 (a) TREATMENT AS COORDINATED CARE PLAN.—Sec10 tion 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is 

11 amended by adding at the end the following new sentence: 

12 ‘‘Specialized Medicare+Choice plans for special needs bene13 ficiaries (as defined in section 1859(b)(4)) may be any type 

14 of coordinated care plan.’’. 

15 (b) SPECIALIZED MEDICARE+CHOICE PLAN FOR SPE16 CIAL NEEDS BENEFICIARIES DEFINED.—Section 1859(b) 

17 (42 U.S.C. 1395w–28(b)) is amended by adding at the end 

18 the following new paragraph: 

19 ‘‘(4) SPECIALIZED MEDICARE+CHOICE PLANS

20 FOR SPECIAL NEEDS BENEFICIARIES.—

21 ‘‘(A) IN GENERAL.—The term ‘specialized 

22 Medicare+Choice plan for special needs bene23 ficiaries’ means a Medicare+Choice plan that 

24 exclusively serves special needs beneficiaries (as 

25 defined in subparagraph (B)). 
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1 ‘‘(B) SPECIAL NEEDS BENEFICIARY.—The 

2 term ‘special needs beneficiary’ means a 

3 Medicare+Choice eligible individual who—

4 ‘‘(i) is institutionalized (as defined by 

5 the Secretary); 

6 ‘‘(ii) is entitled to medical assistance 

7 under a State plan under title XIX; or 

8 ‘‘(iii) meets such requirements as the 

9 Secretary may determine would benefit 

10 from enrollment in such a specialized 

11 Medicare+Choice plan described in sub12 paragraph (A) for individuals with severe 

13 or disabling chronic conditions.’’. 

14 (c) RESTRICTION ON ENROLLMENT PERMITTED.—Sec15 tion 1859 (42 U.S.C. 1395w–28) is amended by adding at 

16 the end the following new subsection: 

17 ‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIALIZED

18 MEDICARE+CHOICE PLANS FOR SPECIAL NEEDS BENE19 FICIARIES.—In the case of a specialized Medicare+Choice 

20 plan (as defined in subsection (b)(4)), notwithstanding any 

21 other provision of this part and in accordance with regula22 tions of the Secretary and for periods before January 1, 

23 2008, the plan may restrict the enrollment of individuals 

24 under the plan to individuals who are within 1 or more 

25 classes of special needs beneficiaries.’’. 
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1 (d) REPORT TO CONGRESS.—Not later than December 

2 31, 2006, the Secretary shall submit to Congress a report 

3 that assesses the impact of specialized Medicare+Choice 

4 plans for special needs beneficiaries on the cost and quality 

5 of services provided to enrollees. Such report shall include 

6 an assessment of the costs and savings to the medicare pro7 gram as a result of amendments made by subsections (a), 

8 (b), and (c). 

9 (e) EFFECTIVE DATES.—

10 (1) IN GENERAL.—The amendments made by 

11 subsections (a), (b), and (c) shall take effect on the 

12 date of enactment of this Act. 

13 (2) DEADLINE FOR ISSUANCE OF REQUIREMENTS

14 FOR SPECIAL NEEDS BENEFICIARIES; TRANSITION.—

15 No later than 1 year after the date of enactment of 

16 this Act, the Secretary shall issue final regulations to 

17 establish requirements for special needs beneficiaries 

18 under section 1859(b)(4)(B)(iii) of the Social Secu19 rity Act, as added by subsection (b). 

20 SEC. 223. PAYMENT BY PACE PROVIDERS FOR MEDICARE 

21 AND MEDICAID SERVICES FURNISHED BY 

22 NONCONTRACT PROVIDERS. 

23 (a) MEDICARE SERVICES.—
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1 (1) MEDICARE SERVICES FURNISHED BY PRO2 VIDERS OF SERVICES.—Section 1866(a)(1)(O) (42 

3 U.S.C. 1395cc(a)(1)(O)) is amended—

4 (A) by striking ‘‘part C or’’ and inserting 

5 ‘‘part C, with a PACE provider under section 

6 1894 or 1934, or’’; 

7 (B) by striking ‘‘(i)’’; 

8 (C) by striking ‘‘and (ii)’’; and 

9 (D) by striking ‘‘members of the organiza10 tion’’ and inserting ‘‘members of the organiza11 tion or PACE program eligible individuals en12 rolled with the PACE provider,’’. 

13 (2) MEDICARE SERVICES FURNISHED BY PHYSI14 CIANS AND OTHER ENTITIES.—Section 1894(b) (42 

15 U.S.C. 1395eee(b)) is amended by adding at the end 

16 the following new paragraphs: 

17 ‘‘(3) TREATMENT OF MEDICARE SERVICES FUR18 NISHED BY NONCONTRACT PHYSICIANS AND OTHER

19 ENTITIES.—

20 ‘‘(A) APPLICATION OF MEDICARE+CHOICE

21 REQUIREMENT WITH RESPECT TO MEDICARE

22 SERVICES FURNISHED BY NONCONTRACT PHYSI23 CIANS AND OTHER ENTITIES.—Section 

24 1852(k)(1) (relating to limitations on balance 

25 billing against Medicare+Choice organizations 
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1 for noncontract physicians and other entities 

2 with respect to services covered under this title) 

3 shall apply to PACE providers, PACE program 

4 eligible individuals enrolled with such PACE 

5 providers, and physicians and other entities that 

6 do not have a contract establishing payment 

7 amounts for services furnished to such an indi8 vidual in the same manner as such section ap9 plies to Medicare+Choice organizations, individ10 uals enrolled with such organizations, and physi11 cians and other entities referred to in such sec12 tion. 

13 ‘‘(B) REFERENCE TO RELATED PROVISION

14 FOR NONCONTRACT PROVIDERS OF SERVICES.—

15 For the provision relating to limitations on bal16 ance billing against PACE providers for services 

17 covered under this title furnished by noncontract 

18 providers of services, see section 1866(a)(1)(O). 

19 ‘‘(4) REFERENCE TO RELATED PROVISION

20 FOR SERVICES COVERED UNDER TITLE XIX BUT

21 NOT UNDER THIS TITLE.—For provisions relat22 ing to limitations on payments to providers par23 ticipating under the State plan under title XIX 

24 that do not have a contract with a PACE pro25 vider establishing payment amounts for services 
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1 covered under such plan (but not under this 

2 title) when such services are furnished to enroll3 ees of that PACE provider, see section 

4 1902(a)(66).’’. 

5 (b) MEDICAID SERVICES.—

6 (1) REQUIREMENT UNDER STATE PLAN.—Section 

7 1902(a) (42 U.S.C. 1396a(a)) is amended—

8 (A) in paragraph (64), by striking ‘‘and’’ 

9 at the end; 

10 (B) in paragraph (65), by striking the pe11 riod at the end and inserting ‘‘; and’’; and 

12 (C) by inserting after paragraph (65) the 

13 following new paragraph: 

14 ‘‘(66) provide, with respect to services cov15 ered under the State plan (but not under title 

16 XVIII) that are furnished to a PACE program 

17 eligible individual enrolled with a PACE pro18 vider by a provider participating under the 

19 State plan that does not have a contract with the 

20 PACE provider that establishes payment 

21 amounts for such services, that such partici22 pating provider may not require the PACE pro23 vider to pay the participating provider an 

24 amount greater than the amount that would oth25 erwise be payable for the service to the partici-
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1 pating provider under the State plan for the 

2 State where the PACE provider is located (in ac3 cordance with regulations issued by the Sec4 retary).’’. 

5 (2) REFERENCE IN MEDICAID STATUTE.—Section 

6 1934(b) (42 U.S.C. 1396u–4(b)) is amended by add7 ing at the end the following new paragraphs: 

8 ‘‘(3) TREATMENT OF MEDICARE SERVICES FUR9 NISHED BY NONCONTRACT PHYSICIANS AND OTHER

10 ENTITIES.—

11 ‘‘(A) APPLICATION OF MEDICARE+CHOICE

12 REQUIREMENT WITH RESPECT TO MEDICARE

13 SERVICES FURNISHED BY NONCONTRACT PHYSI14 CIANS AND OTHER ENTITIES.—Section 

15 1852(k)(1) (relating to limitations on balance 

16 billing against Medicare+Choice organizations 

17 for noncontract physicians and other entities 

18 with respect to services covered under title 

19 XVIII) shall apply to PACE providers, PACE 

20 program eligible individuals enrolled with such 

21 PACE providers, and physicians and other enti22 ties that do not have a contract establishing pay23 ment amounts for services furnished to such an 

24 individual in the same manner as such section 

25 applies to Medicare+Choice organizations, indi-
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1 viduals enrolled with such organizations, and 

2 physicians and other entities referred to in such 

3 section. 

4 ‘‘(B) REFERENCE TO RELATED PROVISION

5 FOR NONCONTRACT PROVIDERS OF SERVICES.—

6 For the provision relating to limitations on bal7 ance billing against PACE providers for services 

8 covered under title XVIII furnished by noncon9 tract providers of services, see section 

10 1866(a)(1)(O). 

11 ‘‘(4) REFERENCE TO RELATED PROVISION

12 FOR SERVICES COVERED UNDER THIS TITLE BUT

13 NOT UNDER TITLE XVIII.—For provisions relat14 ing to limitations on payments to providers par15 ticipating under the State plan under this title 

16 that do not have a contract with a PACE pro17 vider establishing payment amounts for services 

18 covered under such plan (but not under title 

19 XVIII) when such services are furnished to en20 rollees of that PACE provider, see section 

21 1902(a)(66).’’. 

22 (c) EFFECTIVE DATE.—The amendments made by this 

23 section shall apply to services furnished on or after January 

24 1, 2004.
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1 SEC. 224. INSTITUTE OF MEDICINE EVALUATION AND RE2 PORT ON HEALTH CARE PERFORMANCE 

3 MEASURES. 

4 (a) EVALUATION.—

5 (1) IN GENERAL.—Not later than the date that 

6 is 2 months after the date of enactment of this Act, 

7 the Secretary of Health and Human Services shall 

8 enter into an arrangement under which the Institute 

9 of Medicine of the National Academy of Sciences (in 

10 this section referred to as the ‘‘Institute’’) shall con11 duct an evaluation of leading health care performance 

12 measures and options to implement policies that align 

13 performance with payment under the medicare pro14 gram under title XVIII of the Social Security Act (42 

15 U.S.C. 1395 et seq.). 

16 (2) SPECIFIC MATTERS EVALUATED.—In con17 ducting the evaluation under paragraph (1), the In18 stitute shall—

19 (A) catalogue, review, and evaluate the va20 lidity of leading health care performance meas21 ures; 

22 (B) catalogue and evaluate the success and 

23 utility of alternative performance incentive pro24 grams in public or private sector settings; and 

25 (C) identify and prioritize options to imple26 ment policies that align performance with pay-
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1 ment under the medicare program that indi2 cate— 

3 (i) the performance measurement set to 

4 be used and how that measurement set will 

5 be updated; 

6 (ii) the payment policy that will re7 ward performance; and 

8 (iii) the key implementation issues 

9 (such as data and information technology 

10 requirements) that must be addressed. 

11 (3) SCOPE OF HEALTH CARE PERFORMANCE

12 MEASURES.—The health care performance measures 

13 described in paragraph (2)(A) shall encompass a va14 riety of perspectives, including physicians, hospitals, 

15 health plans, purchasers, and consumers. 

16 (4) CONSULTATION WITH MEDPAC.—In evalu17 ating the matters described in paragraph (2)(C), the 

18 Institute shall consult with the Medicare Payment 

19 Advisory Commission established under section 1805 

20 of the Social Security Act (42 U.S.C. 1395b–6). 

21 (b) REPORT.—Not later than the date that is 18 

22 months after the date of enactment of this Act, the Institute 

23 shall submit to the Secretary of Health and Human Serv24 ices, the Committees on Ways and Means and Energy and 

25 Commerce of the House of Representatives, and the Com-
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1 mittee on Finance of the Senate a report on the evaluation 

2 conducted under subsection (a)(1) describing the findings 

3 of such evaluation and recommendations for an overall 

4 strategy and approach for aligning payment with perform5 ance in the original medicare fee-for-service program under 

6 parts A and B of title XVIII of the Social Security Act, 

7 the Medicare+Choice program under part C of such title, 

8 and any other programs under such title XVIII. 

9 (c) AUTHORIZATION OF APPROPRIATIONS.—There are 

10 authorized to be appropriated $1,000,000 for purposes of 

11 conducting the evaluation and preparing the report re12 quired by this section.

13 SEC. 225. EXPANDING THE WORK OF MEDICARE QUALITY 

14 IMPROVEMENT ORGANIZATIONS TO INCLUDE 

15 PARTS C AND D. 

16 (a) APPLICATION TO MEDICARE MANAGED CARE

17 AND PRESCRIPTION DRUG COVERAGE.—Section 

18 1154(a)(1) (42 U.S.C. 1320c–3(a)(1)) is amended by in19 serting ‘‘, Medicare+Choice organizations and 

20 MedicareAdvantage organizations under part C, and pre21 scription drug card sponsors and eligible entities under 

22 part D’’ after ‘‘under section 1876’’. 

23 (b) PRESCRIPTION DRUG THERAPY QUALITY IM24 PROVEMENT.—Section 1154(a) (42 U.S.C. 1320c–3(a)) is 
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1 amended by adding at the end the following new para2 graph: 

3 ‘‘(17) The organization shall execute its respon4 sibilities under subparagraphs (A) and (B) of para5 graph (1) by offering to providers, practitioners, pre6 scription drug card sponsors and eligible entities 

7 under part D, and Medicare+Choice and 

8 MedicareAdvantage plans under part C quality im9 provement assistance pertaining to prescription drug 

10 therapy. For purposes of this part and title XVIII, 

11 the functions described in this paragraph shall be 

12 treated as a review function.’’. 

13 (c) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply on and after January 1, 2004.

15 TITLE III—CENTER FOR 

16 MEDICARE CHOICES 

17 SEC. 301. ESTABLISHMENT OF THE CENTER FOR MEDICARE 

18 CHOICES. 

19 (a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et 

20 seq.), as amended by section 111, is amended by inserting 

21 after 1806 the following new section: 

22 ‘‘ESTABLISHMENT OF THE CENTER FOR MEDICARE

23 CHOICES

24 ‘‘SEC. 1808. (a) ESTABLISHMENT.—By not later than 

25 March 1, 2004, the Secretary shall establish within the De26 partment of Health and Human Services the Center for 
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1 Medicare Choices, which shall be separate from the Centers 

2 for Medicare & Medicaid Services. 

3 ‘‘(b) ADMINISTRATOR AND DEPUTY ADMINIS4 TRATOR.—

5 ‘‘(1) ADMINISTRATOR.—

6 ‘‘(A) IN GENERAL.—The Center for Medi7 care Choices shall be headed by an Adminis8 trator (in this section referred to as the ‘Admin9 istrator’) who shall be appointed by the Presi10 dent, by and with the advice and consent of the 

11 Senate. The Administrator shall report directly 

12 to the Secretary. 

13 ‘‘(B) COMPENSATION.—The Administrator 

14 shall be paid at the rate of basic pay payable for 

15 level III of the Executive Schedule under section 

16 5314 of title 5, United States Code. 

17 ‘‘(C) TERM OF OFFICE.—The Administrator 

18 shall be appointed for a term of 5 years. In any 

19 case in which a successor does not take office at 

20 the end of an Administrator’s term of office, that 

21 Administrator may continue in office until the 

22 entry upon office of such a successor. An Admin23 istrator appointed to a term of office after the 

24 commencement of such term may serve under 
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1 such appointment only for the remainder of such 

2 term. 

3 ‘‘(D) GENERAL AUTHORITY.—The Adminis4 trator shall be responsible for the exercise of all 

5 powers and the discharge of all duties of the Cen6 ter for Medicare Choices, and shall have author7 ity and control over all personnel and activities 

8 thereof. 

9 ‘‘(E) RULEMAKING AUTHORITY.—The Ad10 ministrator may prescribe such rules and regula11 tions as the Administrator determines necessary 

12 or appropriate to carry out the functions of the 

13 Center for Medicare Choices. The regulations pre14 scribed by the Administrator shall be subject to 

15 the rulemaking procedures established under sec16 tion 553 of title 5, United States Code. 

17 ‘‘(F) AUTHORITY TO ESTABLISH ORGANIZA18 TIONAL UNITS.—The Administrator may estab19 lish, alter, consolidate, or discontinue such orga20 nizational units or components within the Cen21 ter for Medicare Choices as the Administrator 

22 considers necessary or appropriate, except that 

23 this subparagraph shall not apply with respect 

24 to any unit, component, or provision provided 

25 for by this section.
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1 ‘‘(G) AUTHORITY TO DELEGATE.—The Ad2 ministrator may assign duties, and delegate, or 

3 authorize successive redelegations of, authority to 

4 act and to render decisions, to such officers and 

5 employees of the Center for Medicare Choices as 

6 the Administrator may find necessary. Within 

7 the limitations of such delegations, redelegations, 

8 or assignments, all official acts and decisions of 

9 such officers and employees shall have the same 

10 force and effect as though performed or rendered 

11 by the Administrator. 

12 ‘‘(2) DEPUTY ADMINISTRATOR.—

13 ‘‘(A) IN GENERAL.—There shall be a Dep14 uty Administrator of the Center for Medicare 

15 Choices who shall be appointed by the Adminis16 trator. 

17 ‘‘(B) COMPENSATION.—The Deputy Admin18 istrator shall be paid at the rate of basic pay 

19 payable for level IV of the Executive Schedule 

20 under section 5315 of title 5, United States Code. 

21 ‘‘(C) TERM OF OFFICE.—The Deputy Ad22 ministrator shall be appointed for a term of 5 

23 years. In any case in which a successor does not 

24 take office at the end of a Deputy Administra25 tor’s term of office, such Deputy Administrator 
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1 may continue in office until the entry upon of2 fice of such a successor. A Deputy Administrator 

3 appointed to a term of office after the commence4 ment of such term may serve under such ap5 pointment only for the remainder of such term. 

6 ‘‘(D) DUTIES.—The Deputy Administrator 

7 shall perform such duties and exercise such pow8 ers as the Administrator shall from time to time 

9 assign or delegate. The Deputy Administrator 

10 shall be the Acting Administrator of the Center 

11 for Medicare Choices during the absence or dis12 ability of the Administrator and, unless the 

13 President designates another officer of the Gov14 ernment as Acting Administrator, in the event of 

15 a vacancy in the office of the Administrator. 

16 ‘‘(3) SECRETARIAL COORDINATION OF PROGRAM

17 ADMINISTRATION.—The Secretary shall ensure appro18 priate coordination between the Administrator and 

19 the Administrator of the Centers for Medicare & Med20 icaid Services in carrying out the programs under 

21 this title. 

22 ‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—

23 ‘‘(1) DUTIES.—
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1 ‘‘(A) GENERAL DUTIES.—The Adminis2 trator shall carry out parts C and D, includ3 ing—

4 ‘‘(i) negotiating, entering into, and en5 forcing, contracts with plans for the offering 

6 of MedicareAdvantage plans under part C, 

7 including the offering of qualified prescrip8 tion drug coverage under such plans; and 

9 ‘‘(ii) negotiating, entering into, and 

10 enforcing, contracts with eligible entities for 

11 the offering of Medicare Prescription Drug 

12 plans under part D. 

13 ‘‘(B) OTHER DUTIES.—The Administrator 

14 shall carry out any duty provided for under part 

15 C or D, including duties relating to—

16 ‘‘(i) reasonable cost contracts with eli17 gible organizations under section 1876(h); 

18 and 

19 ‘‘(ii) demonstration projects carried 

20 out in part or in whole under such parts, 

21 including the demonstration project carried 

22 out through a MedicareAdvantage (formerly 

23 Medicare+Choice) project that demonstrates 

24 the application of capitation payment rates 

25 for frail elderly medicare beneficiaries 
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1 through the use of an interdisciplinary 

2 team and through the provision of primary 

3 care services to such beneficiaries by means 

4 of such a team at the nursing facility in5 volved. 

6 ‘‘(C) NONINTERFERENCE.—In order to pro7 mote competition under parts C and D, the Ad8 ministrator, in carrying out the duties required 

9 under this section, may not, to the extent pos10 sible, interfere in any way with negotiations be11 tween eligible entities, MedicareAdvantage orga12 nizations, hospitals, physicians, other entities or 

13 individuals furnishing items and services under 

14 this title (including contractors for such items 

15 and services), and drug manufacturers, whole16 salers, or other suppliers of covered drugs 

17 ‘‘(D) ANNUAL REPORTS.—Not later than 

18 March 31 of each year, the Administrator shall 

19 submit to Congress and the President a report on 

20 the administration of the voluntary prescription 

21 drug delivery program under this part during 

22 the previous fiscal year. 

23 ‘‘(2) MANAGEMENT STAFF.—

24 ‘‘(A) IN GENERAL.—The Administrator, 

25 with the approval of the Secretary, may employ, 
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1 such management staff as determined appro2 priate. Any such manager shall be required to 

3 have demonstrated, by their education and expe4 rience (either in the public or private sector), su5 perior expertise in the following areas: 

6 ‘‘(i) The review, negotiation, and ad7 ministration of health care contracts. 

8 ‘‘(ii) The design of health care benefit 

9 plans. 

10 ‘‘(iii) Actuarial sciences. 

11 ‘‘(iv) Compliance with health plan con12 tracts. 

13 ‘‘(v) Consumer education and decision 

14 making. 

15 ‘‘(B) COMPENSATION.—

16 ‘‘(i) IN GENERAL.—Subject to clause 

17 (ii), the Administrator shall establish the 

18 rate of pay for an individual employed 

19 under subparagraph (A). 

20 ‘‘(ii) MAXIMUM RATE.—In no case 

21 may the rate of compensation determined 

22 under clause (i) exceed the highest rate of 

23 basic pay for the Senior Executive Service 

24 under section 5382(b) of title 5, United 

25 States Code.
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1 ‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS OF

2 THE CENTERS FOR MEDICARE & MEDICAID SERV3 ICES.—

4 ‘‘(A) IN GENERAL.—The Secretary, the Ad5 ministrator of the Center for Medicare Choices, 

6 and the Administrator of the Centers for Medi7 care & Medicaid Services shall establish an ap8 propriate transition of responsibility in order to 

9 redelegate the administration of part C from the 

10 Secretary and the Administrator of the Centers 

11 for Medicare & Medicaid Services to the Admin12 istrator of the Center for Medicare Choices as is 

13 appropriate to carry out the purposes of this sec14 tion. 

15 ‘‘(B) TRANSFER OF DATA AND INFORMA16 TION.—The Secretary shall ensure that the Ad17 ministrator of the Centers for Medicare & Med18 icaid Services transfers to the Administrator 

19 such information and data in the possession of 

20 the Administrator of the Centers for Medicare & 

21 Medicaid Services as the Administrator requires 

22 to carry out the duties described in paragraph 

23 (1). 

24 ‘‘(C) CONSTRUCTION.—Insofar as a respon25 sibility of the Secretary or the Administrator of 
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1 the Centers for Medicare & Medicaid Services is 

2 redelegated to the Administrator under this sec3 tion, any reference to the Secretary or the Ad4 ministrator of the Centers for Medicare & Med5 icaid Services in this title or title XI with re6 spect to such responsibility is deemed to be a ref7 erence to the Administrator. 

8 ‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—

9 ‘‘(1) ESTABLISHMENT.—The Secretary shall es10 tablish within the Center for Medicare Choices an Of11 fice of Beneficiary Assistance to carry out functions 

12 relating to medicare beneficiaries under this title, in13 cluding making determinations of eligibility of indi14 viduals for benefits under this title, providing for en15 rollment of medicare beneficiaries under this title, 

16 and the functions described in paragraph (2). The Of17 fice shall be a separate operating division within the 

18 Center for Medicare Choices. 

19 ‘‘(2) DISSEMINATION OF INFORMATION ON BENE20 FITS AND APPEALS RIGHTS.—

21 ‘‘(A) DISSEMINATION OF BENEFITS INFOR22 MATION.—The Office of Beneficiary Assistance 

23 shall disseminate to medicare beneficiaries, by 

24 mail, by posting on the Internet site of the Cen25 ter for Medicare Choices, and through the toll-
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1 free telephone number provided for under section 

2 1804(b), information with respect to the fol3 lowing: 

4 ‘‘(i) Benefits, and limitations on pay5 ment (including cost-sharing, stop-loss pro6 visions, and formulary restrictions) under 

7 parts C and D. 

8 ‘‘(ii) Benefits, and limitations on pay9 ment under parts A, and B, including in10 formation on medicare supplemental poli11 cies under section 1882. 

12 ‘‘(iii) Other areas determined to be ap13 propriate by the Administrator. 

14 Such information shall be presented in a manner 

15 so that medicare beneficiaries may compare ben16 efits under parts A, B, and D, and medicare 

17 supplemental policies with benefits under 

18 MedicareAdvantage plans under part C. 

19 ‘‘(B) DISSEMINATION OF APPEALS RIGHTS

20 INFORMATION.—The Office of Beneficiary Assist21 ance shall disseminate to medicare beneficiaries 

22 in the manner provided under subparagraph (A) 

23 a description of procedural rights (including 

24 grievance and appeals procedures) of bene25 ficiaries under the original medicare fee-for-serv-
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1 ice program under parts A and B, the 

2 MedicareAdvantage program under part C, and 

3 the voluntary prescription drug delivery pro4 gram under part D. 

5 ‘‘(3) MEDICARE OMBUDSMAN.—

6 ‘‘(A) IN GENERAL.—Within the Office of 

7 Beneficiary Assistance, there shall be a Medicare 

8 Ombudsman, appointed by the Secretary from 

9 among individuals with expertise and experience 

10 in the fields of health care and advocacy, to 

11 carry out the duties described in subparagraph 

12 (B). 

13 ‘‘(B) DUTIES.—The Medicare Ombudsman 

14 shall—

15 ‘‘(i) receive complaints, grievances, and 

16 requests for information submitted by a 

17 medicare beneficiary, with respect to any 

18 aspect of the medicare program; 

19 ‘‘(ii) provide assistance with respect to 

20 complaints, grievances, and requests re21 ferred to in clause (i), including—

22 ‘‘(I) assistance in collecting rel23 evant information for such bene24 ficiaries, to seek an appeal of a deci25 sion or determination made by a fiscal 
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1 intermediary, carrier, 

2 MedicareAdvantage organization, an 

3 eligible entity under part D, or the 

4 Secretary; and 

5 ‘‘(II) assistance to such bene6 ficiaries with any problems arising 

7 from disenrollment from a 

8 MedicareAdvantage plan under part C 

9 or a prescription drug plan under part 

10 D; and 

11 ‘‘(iii) submit annual reports to Con12 gress, the Secretary, and the Medicare Com13 petitive Policy Advisory Board describing 

14 the activities of the Office, and including 

15 such recommendations for improvement in 

16 the administration of this title as the Om17 budsman determines appropriate. 

18 ‘‘(C) COORDINATION WITH STATE OMBUDS19 MAN PROGRAMS AND CONSUMER ORGANIZA20 TIONS.—The Medicare Ombudsman shall, to the 

21 extent appropriate, coordinate with State med22 ical Ombudsman programs, and with State- and 

23 community-based consumer organizations, to—

24 ‘‘(i) provide information about the 

25 medicare program; and
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1 ‘‘(ii) conduct outreach to educate medi2 care beneficiaries with respect to manners 

3 in which problems under the medicare pro4 gram may be resolved or avoided. 

5 ‘‘(e) MEDICARE COMPETITIVE POLICY ADVISORY

6 BOARD.—

7 ‘‘(1) ESTABLISHMENT.—There is established 

8 within the Center for Medicare Choices the Medicare 

9 Competitive Policy Advisory Board (in this section 

10 referred to as the ‘Board’). The Board shall advise, 

11 consult with, and make recommendations to the Ad12 ministrator with respect to the administration of 

13 parts C and D, including the review of payment poli14 cies under such parts. 

15 ‘‘(2) REPORTS.—

16 ‘‘(A) IN GENERAL.—With respect to matters 

17 of the administration of parts C and D, the 

18 Board shall submit to Congress and to the Ad19 ministrator such reports as the Board determines 

20 appropriate. Each such report may contain such 

21 recommendations as the Board determines ap22 propriate for legislative or administrative 

23 changes to improve the administration of such 

24 parts, including the stability and solvency of the 

25 programs under such parts and the topics de-
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1 scribed in subparagraph (B). Each such report 

2 shall be published in the Federal Register. 

3 ‘‘(B) TOPICS DESCRIBED.—Reports required 

4 under subparagraph (A) may include the fol5 lowing topics: 

6 ‘‘(i) FOSTERING COMPETITION.—Rec7 ommendations or proposals to increase com8 petition under parts C and D for services 

9 furnished to medicare beneficiaries. 

10 ‘‘(ii) EDUCATION AND ENROLLMENT.—

11 Recommendations for the improvement of 

12 efforts to provide medicare beneficiaries in13 formation and education on the program 

14 under this title, and specifically parts C 

15 and D, and the program for enrollment 

16 under the title. 

17 ‘‘(iii) QUALITY.—Recommendations on 

18 ways to improve the quality of benefits pro19 vided under plans under parts C and D. 

20 ‘‘(iv) DISEASE MANAGEMENT PRO21 GRAMS.—Recommendations on the incorpo22 ration of disease management programs 

23 under parts C and D. 
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1 ‘‘(v) RURAL ACCESS.—Recommenda2 tions to improve competition and access to 

3 plans under parts C and D in rural areas. 

4 ‘‘(C) MAINTAINING INDEPENDENCE OF

5 BOARD.—The Board shall directly submit to 

6 Congress reports required under subparagraph 

7 (A). No officer or agency of the United States 

8 may require the Board to submit to any officer 

9 or agency of the United States for approval, 

10 comments, or review, prior to the submission to 

11 Congress of such reports. 

12 ‘‘(3) DUTY OF ADMINISTRATOR.—With respect to 

13 any report submitted by the Board under paragraph 

14 (2)(A), not later than 90 days after the report is sub15 mitted, the Administrator shall submit to Congress 

16 and the President an analysis of recommendations 

17 made by the Board in such report. Each such anal18 ysis shall be published in the Federal Register. 

19 ‘‘(4) MEMBERSHIP.—

20 ‘‘(A) APPOINTMENT.—Subject to the suc21 ceeding provisions of this paragraph, the Board 

22 shall consist of 7 members to be appointed as fol23 lows: 

24 ‘‘(i) Three members shall be appointed 

25 by the President. 
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1 ‘‘(ii) Two members shall be appointed 

2 by the Speaker of the House of Representa3 tives, with the advice of the chairman and 

4 the ranking minority member of the Com5 mittees on Ways and Means and on Energy 

6 and Commerce of the House of Representa7 tives. 

8 ‘‘(iii) Two members shall be appointed 

9 by the President pro tempore of the Senate 

10 with the advice of the chairman and the 

11 ranking minority member of the Committee 

12 on Finance of the Senate. 

13 ‘‘(B) QUALIFICATIONS.—The members shall 

14 be chosen on the basis of their integrity, impar15 tiality, and good judgment, and shall be individ16 uals who are, by reason of their education and 

17 experience in health care benefits management, 

18 exceptionally qualified to perform the duties of 

19 members of the Board. 

20 ‘‘(C) PROHIBITION ON INCLUSION OF FED21 ERAL EMPLOYEES.—No officer or employee of the 

22 United States may serve as a member of the 

23 Board. 

24 ‘‘(5) COMPENSATION.—Members of the Board 

25 shall receive, for each day (including travel time) they 
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1 are engaged in the performance of the functions of the 

2 Board, compensation at rates not to exceed the daily 

3 equivalent to the annual rate in effect for level IV of 

4 the Executive Schedule under section 5315 of title 5, 

5 United States Code. 

6 ‘‘(6) TERMS OF OFFICE.—

7 ‘‘(A) IN GENERAL.—The term of office of 

8 members of the Board shall be 3 years. 

9 ‘‘(B) TERMS OF INITIAL APPOINTEES.—As 

10 designated by the President at the time of ap11 pointment, of the members first appointed—

12 ‘‘(i) one shall be appointed for a term 

13 of 1 year; 

14 ‘‘(ii) three shall be appointed for terms 

15 of 2 years; and 

16 ‘‘(iii) three shall be appointed for 

17 terms of 3 years. 

18 ‘‘(C) REAPPOINTMENTS.—Any person ap19 pointed as a member of the Board may not serve 

20 for more than 8 years. 

21 ‘‘(D) VACANCY.—Any member appointed to 

22 fill a vacancy occurring before the expiration of 

23 the term for which the member’s predecessor was 

24 appointed shall be appointed only for the re25 mainder of that term. A member may serve after
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1 the expiration of that member’s term until a suc2 cessor has taken office. A vacancy in the Board 

3 shall be filled in the manner in which the origi4 nal appointment was made. 

5 ‘‘(7) CHAIR.—The Chair of the Board shall be 

6 elected by the members. The term of office of the Chair 

7 shall be 3 years. 

8 ‘‘(8) MEETINGS.—The Board shall meet at the 

9 call of the Chair, but in no event less than 3 times 

10 during each fiscal year. 

11 ‘‘(9) DIRECTOR AND STAFF.—

12 ‘‘(A) APPOINTMENT OF DIRECTOR.—The 

13 Board shall have a Director who shall be ap14 pointed by the Chair. 

15 ‘‘(B) IN GENERAL.—With the approval of 

16 the Board, the Director may appoint such addi17 tional personnel as the Director considers appro18 priate. 

19 ‘‘(C) ASSISTANCE FROM THE ADMINIS20 TRATOR.—The Administrator shall make avail21 able to the Board such information and other as22 sistance as it may require to carry out its func23 tions. 

24 ‘‘(10) CONTRACT AUTHORITY.—The Board may 

25 contract with and compensate government and pri-
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1 vate agencies or persons to carry out its duties under 

2 this subsection, without regard to section 3709 of the 

3 Revised Statutes (41 U.S.C. 5). 

4 ‘‘(f) FUNDING.—There is authorized to be appro5 priated, in appropriate part from the Federal Hospital In6 surance Trust Fund and from the Federal Supplementary 

7 Medical Insurance Trust Fund (including the Prescription 

8 Drug Account), such sums as are necessary to carry out 

9 this section.’’. 

10 (b) USE OF CENTRAL, TOLL-FREE NUMBER (1–800–

11 MEDICARE).—Section 1804(b) (42 U.S.C. 1395b–2(b)) is 

12 amended by adding at the end the following: ‘‘By not later 

13 than 1 year after the date of the enactment of the Prescrip14 tion Drug and Medicare Improvement Act of 2003, the Sec15 retary shall provide, through the toll-free number 1–800–

16 MEDICARE, for a means by which individuals seeking in17 formation about, or assistance with, such programs who 

18 phone such toll-free number are transferred (without 

19 charge) to appropriate entities for the provision of such in20 formation or assistance. Such toll-free number shall be the 

21 toll-free number listed for general information and assist22 ance in the annual notice under subsection (a) instead of 

23 the listing of numbers of individual contractors.’’. 
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1 SEC. 302. MISCELLANEOUS ADMINISTRATIVE PROVISIONS. 

2 (a) ADMINISTRATOR AS MEMBER AND CO-SECRETARY

3 OF THE BOARD OF TRUSTEES OF THE MEDICARE TRUST

4 FUNDS.—The fifth sentence of sections 1817(b) and 1841(b) 

5 (42 U.S.C. 1395i(b), 1395t(b)) are each amended by strik6 ing ‘‘shall serve as the Secretary’’ and inserting ‘‘and the 

7 Administrator of the Center for Medicare Choices shall serve 

8 as the Co-Secretaries’’. 

9 (b) INCREASE IN GRADE TO EXECUTIVE LEVEL III 

10 FOR THE ADMINISTRATOR OF THE CENTERS FOR MEDI11 CARE & MEDICAID SERVICES.—

12 (1) IN GENERAL.—Section 5314 of title 5, 

13 United States Code, is amended by adding at the end 

14 the following: 

15 ‘‘Administrator of the Centers for Medicare & 

16 Medicaid Services.’’. 

17 (2) CONFORMING AMENDMENT.—Section 5315 of 

18 such title is amended by striking ‘‘Administrator of 

19 the Health Care Financing Administration.’’. 

20 (3) EFFECTIVE DATE.—The amendments made 

21 by this subsection take effect on March 1, 2004.
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1 TITLE IV—MEDICARE FEE-FOR2 SERVICE IMPROVEMENTS 

3 Subtitle A—Provisions Relating to 

4 Part A 

5 SEC. 401. EQUALIZING URBAN AND RURAL STANDARDIZED 

6 PAYMENT AMOUNTS UNDER THE MEDICARE 

7 INPATIENT HOSPITAL PROSPECTIVE PAY8 MENT SYSTEM. 

9 (a) IN GENERAL.—Section 1886(d)(3)(A)(iv) (42 

10 U.S.C. 1395ww(d)(3)(A)(iv)) is amended—

11 (1) by striking ‘‘(iv) For discharges’’ and insert12 ing ‘‘(iv)(I) Subject to the succeeding provisions of 

13 this clause, for discharges’’; and 

14 (2) by adding at the end the following new sub15 clauses: 

16 ‘‘(II) For discharges occurring during the last 3 

17 quarters of fiscal year 2004, the operating standard18 ized amount for hospitals located other than in a 

large urban area shall be increased by 1 19 ⁄2 of the dif20 ference between the operating standardized amount 

21 determined under subclause (I) for hospitals located 

22 in large urban areas for such fiscal year and such 

23 amount determined (without regard to this subclause) 

24 for other hospitals for such fiscal year. 
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1 ‘‘(III) For discharges occurring in a fiscal year 

2 beginning with fiscal year 2005, the Secretary shall 

3 compute an operating standardized amount for hos4 pitals located in any area within the United States 

5 and within each region equal to the operating stand6 ardized amount computed for the previous fiscal year 

7 under this subparagraph for hospitals located in a 

8 large urban area (or, beginning with fiscal year 2006, 

9 applicable for all hospitals in the previous fiscal year) 

10 increased by the applicable percentage increase under 

11 subsection (b)(3)(B)(i) for the fiscal year involved.’’. 

12 (b) CONFORMING AMENDMENTS.—

13 (1) COMPUTING DRG-SPECIFIC RATES.—Section 

14 1886(d)(3)(D) (42 U.S.C. 1395ww(d)(3)(D)) is 

15 amended—

16 (A) in the heading, by striking ‘‘IN DIF17 FERENT AREAS’’; 

18 (B) in the matter preceding clause (i), by 

19 striking ‘‘each of which is’’; 

20 (C) in clause (i)—

21 (i) in the matter preceding subclause 

22 (I), by inserting ‘‘for fiscal years before fis23 cal year 2005,’’ before ‘‘for hospitals’’; and 

24 (ii) in subclause (II), by striking 

25 ‘‘and’’ after the semicolon at the end;
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1 (D) in clause (ii)—

2 (i) in the matter preceding subclause 

3 (I), by inserting ‘‘for fiscal years before fis4 cal year 2005,’’ before ‘‘for hospitals’’; and 

5 (ii) in subclause (II), by striking the 

6 period at the end and inserting ‘‘; and’’; 

7 and 

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

9 clause: 

10 ‘‘(iii) for a fiscal year beginning after fiscal 

11 year 2004, for hospitals located in all areas, to 

12 the product of—

13 ‘‘(I) the applicable operating standard14 ized amount (computed under subparagraph 

15 (A)), reduced under subparagraph (B), and 

16 adjusted or reduced under subparagraph (C) 

17 for the fiscal year; and 

18 ‘‘(II) the weighting factor (determined 

19 under paragraph (4)(B)) for that diagnosis20 related group.’’. 

21 (2) TECHNICAL CONFORMING SUNSET.—Section 

22 1886(d)(3) (42 U.S.C. 1395ww(d)(3)) is amended—

23 (A) in the matter preceding subparagraph 

24 (A), by inserting ‘‘, for fiscal years before fiscal 
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1 year 1997,’’ before ‘‘a regional adjusted DRG 

2 prospective payment rate’’; and 

3 (B) in subparagraph (D), in the matter 

4 preceding clause (i), by inserting ‘‘, for fiscal 

5 years before fiscal year 1997,’’ before ‘‘a regional 

6 DRG prospective payment rate for each region,’’. 

7 SEC. 402. ADJUSTMENT TO THE MEDICARE INPATIENT HOS8 PITAL PPS WAGE INDEX TO REVISE THE 

9 LABOR-RELATED SHARE OF SUCH INDEX. 

10 (a) IN GENERAL.—Section 1886(d)(3)(E) (42 U.S.C. 

11 1395ww(d)(3)(E)) is amended—

12 (1) by striking ‘‘WAGE LEVELS.—The Secretary’’ 

13 and inserting ‘‘WAGE LEVELS.—

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

15 clause (ii), the Secretary’’; and 

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

17 clause: 

18 ‘‘(ii) ALTERNATIVE PROPORTION TO BE AD19 JUSTED BEGINNING IN FISCAL YEAR 2005.—

20 ‘‘(I) IN GENERAL.—Except as provided 

21 in subclause (II), for discharges occurring 

22 on or after October 1, 2004, the Secretary 

23 shall substitute the ‘68 percent’ for the pro24 portion described in the first sentence of 

25 clause (i). 
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1 ‘‘(II) HOLD HARMLESS FOR CERTAIN

2 HOSPITALS.—If the application of subclause 

3 (I) would result in lower payments to a hos4 pital than would otherwise be made, then 

5 this subparagraph shall be applied as if this 

6 clause had not been enacted.’’. 

7 (b) WAIVING BUDGET NEUTRALITY.—Section 

8 1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)), as amended 

9 by subsection (a), is amended by adding at the end of clause 

10 (i) the following new sentence: ‘‘The Secretary shall apply 

11 the previous sentence for any period as if the amendments 

12 made by section 402(a) of the Prescription Drug and Medi13 care Improvement Act of 2003 had not been enacted.’’. 

14 SEC. 403. MEDICARE INPATIENT HOSPITAL PAYMENT AD15 JUSTMENT FOR LOW-VOLUME HOSPITALS. 

16 Section 1886(d) (42 U.S.C. 1395ww(d)) is amended by 

17 adding at the end the following new paragraph: 

18 ‘‘(12) PAYMENT ADJUSTMENT FOR LOW-VOLUME

19 HOSPITALS.—

20 ‘‘(A) PAYMENT ADJUSTMENT.—

21 ‘‘(i) IN GENERAL.—Notwithstanding 

22 any other provision of this section, for each 

23 cost reporting period (beginning with the 

24 cost reporting period that begins in fiscal 

25 year 2005), the Secretary shall provide for 
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1 an additional payment amount to each low2 volume hospital (as defined in clause (iii)) 

3 for discharges occurring during that cost re4 porting period which is equal to the appli5 cable percentage increase (determined under 

6 clause (ii)) in the amount paid to such hos7 pital under this section for such discharges. 

8 ‘‘(ii) APPLICABLE PERCENTAGE IN9 CREASE.—The Secretary shall determine a 

10 percentage increase applicable under this 

11 paragraph that ensures that—

12 ‘‘(I) no percentage increase in 

13 payments under this paragraph ex14 ceeds 25 percent of the amount of pay15 ment that would (but for this para16 graph) otherwise be made to a low-vol17 ume hospital under this section for 

18 each discharge ; 

19 ‘‘(II) low-volume hospitals that 

20 have the lowest number of discharges 

21 during a cost reporting period receive 

22 the highest percentage increases in 

23 payments due to the application of this 

24 paragraph; and
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1 ‘‘(III) the percentage increase in 

2 payments to any low-volume hospital 

3 due to the application of this para4 graph is reduced as the number of dis5 charges per cost reporting period in6 creases. 

7 ‘‘(iii) LOW-VOLUME HOSPITAL DE8 FINED.—For purposes of this paragraph, 

9 the term ‘low-volume hospital’ means, for a 

10 cost reporting period, a subsection (d) hos11 pital (as defined in paragraph (1)(B)) other 

12 than a critical access hospital (as defined in 

13 section 1861(mm)(1)) that— 

14 ‘‘(I) the Secretary determines had 

15 an average of less than 2,000 dis16 charges (determined with respect to all 

17 patients and not just individuals re18 ceiving benefits under this title) during 

19 the 3 most recent cost reporting periods 

20 for which data are available that pre21 cede the cost reporting period to which 

22 this paragraph applies; and 

23 ‘‘(II) is located at least 15 miles 

24 from a like hospital (or is deemed by 

25 the Secretary to be so located by reason 
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1 of such factors as the Secretary deter2 mines appropriate, including the time 

3 required for an individual to travel to 

4 the nearest alternative source of appro5 priate inpatient care (after taking into 

6 account the location of such alternative 

7 source of inpatient care and any 

8 weather or travel conditions that may 

9 affect such travel time). 

10 ‘‘(B) PROHIBITING CERTAIN REDUCTIONS.—

11 Notwithstanding subsection (e), the Secretary 

12 shall not reduce the payment amounts under this 

13 section to offset the increase in payments result14 ing from the application of subparagraph (A).’’. 

15 SEC. 404. FAIRNESS IN THE MEDICARE DISPROPORTIONATE 

16 SHARE HOSPITAL (DSH) ADJUSTMENT FOR 

17 RURAL HOSPITALS. 

18 (a) EQUALIZING DSH PAYMENT AMOUNTS.—

19 (1) IN GENERAL.—Section 1886(d)(5)(F)(vii) 

20 (42 U.S.C. 1395ww(d)(5)(F)(vii)) is amended by in21 serting ‘‘, and, after October 1, 2004, for any other 

22 hospital described in clause (iv),’’ after ‘‘clause 

23 (iv)(I)’’ in the matter preceding subclause (I). 
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1 (2) CONFORMING AMENDMENTS.—Section 

2 1886(d)(5)(F) (42 U.S.C. 1395ww(d)(5)(F)) is 

3 amended—

4 (A) in clause (iv)—

5 (i) in subclause (II)—

6 (I) by inserting ‘‘and before Octo7 ber 1, 2004,’’ after ‘‘April 1, 2001,’’; 

8 and 

9 (II) by inserting ‘‘or, for dis10 charges occurring on or after October 

11 1, 2004, is equal to the percent deter12 mined in accordance with the applica13 ble formula described in clause (vii)’’ 

14 after ‘‘clause (xiii)’’; 

15 (ii) in subclause (III)—

16 (I) by inserting ‘‘and before Octo17 ber 1, 2004,’’ after ‘‘April 1, 2001,’’; 

18 and 

19 (II) by inserting ‘‘or, for dis20 charges occurring on or after October 

21 1, 2004, is equal to the percent deter22 mined in accordance with the applica23 ble formula described in clause (vii)’’ 

24 after ‘‘clause (xii)’’; 

25 (iii) in subclause (IV)—
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1 (I) by inserting ‘‘and before Octo2 ber 1, 2004,’’ after ‘‘April 1, 2001,’’; 

3 and 

4 (II) by inserting ‘‘or, for dis5 charges occurring on or after October 

6 1, 2004, is equal to the percent deter7 mined in accordance with the applica8 ble formula described in clause (vii)’’ 

9 after ‘‘clause (x) or (xi)’’; 

10 (iv) in subclause (V)—

11 (I) by inserting ‘‘and before Octo12 ber 1, 2004,’’ after ‘‘April 1, 2001,’’; 

13 and 

14 (II) by inserting ‘‘or, for dis15 charges occurring on or after October 

16 1, 2004, is equal to the percent deter17 mined in accordance with the applica18 ble formula described in clause (vii)’’ 

19 after ‘‘clause (xi)’’; and 

20 (v) in subclause (VI)— 

21 (I) by inserting ‘‘and before Octo22 ber 1, 2004,’’ after ‘‘April 1, 2001,’’; 

23 and 

24 (II) by inserting ‘‘or, for dis25 charges occurring on or after October 
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1 1, 2004, is equal to the percent deter2 mined in accordance with the applica3 ble formula described in clause (vii)’’ 

4 after ‘‘clause (x)’’; 

5 (B) in clause (viii), by striking ‘‘The for6 mula’’ and inserting ‘‘For discharges occurring 

7 before October 1, 2004, the formula’’; and 

8 (C) in each of clauses (x), (xi), (xii), and 

9 (xiii), by striking ‘‘For purposes’’ and inserting 

10 ‘‘With respect to discharges occurring before Oc11 tober 1, 2004, for purposes’’. 

12 (b) EFFECTIVE DATE.—The amendments made by this 

13 section shall apply to discharges occurring on or after Octo14 ber 1, 2004. 

15 SEC. 405. CRITICAL ACCESS HOSPITAL (CAH) IMPROVE16 MENTS. 

17 (a) PERMITTING CAHS TO ALLOCATE SWING BEDS

18 AND ACUTE CARE INPATIENT BEDS SUBJECT TO A TOTAL

19 LIMIT OF 25 BEDS.—

20 (1) IN GENERAL.—Section 1820(c)(2)(B)(iii) (42 

21 U.S.C. 1395i–4(c)(2)(B)(iii)) is amended to read as 

22 follows: 

23 ‘‘(iii) provides not more than a total of 

24 25 extended care service beds (pursuant to 

25 an agreement under subsection (f)) and 
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1 acute care inpatient beds (meeting such 

2 standards as the Secretary may establish) 

3 for providing inpatient care for a period 

4 that does not exceed, as determined on an 

5 annual, average basis, 96 hours per pa6 tient;’’. 

7 (2) CONFORMING AMENDMENT.—Section 1820(f) 

8 (42 U.S.C. 1395i–4(f)) is amended by striking ‘‘and 

9 the number of beds used at any time for acute care 

10 inpatient services does not exceed 15 beds’’. 

11 (3) EFFECTIVE DATE.—The amendments made 

12 by this subsection shall with respect to designations 

13 made on or after October 1, 2004. 

14 (b) ELIMINATION OF THE ISOLATION TEST FOR COST15 BASED CAH AMBULANCE SERVICES.—

16 (1) ELIMINATION.—

17 (A) IN GENERAL.—Section 1834(l)(8) (42 

18 U.S.C. 1395m(l)(8)), as added by section 205(a) 

19 of BIPA (114 Stat. 2763A–482), is amended by 

20 striking the comma at the end of subparagraph 

21 (B) and all that follows and inserting a period. 

22 (B) EFFECTIVE DATE.—The amendment 

23 made by subparagraph (A) shall apply to serv24 ices furnished on or after January 1, 2005. 
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1 (2) TECHNICAL CORRECTION.—Section 1834(l) 

2 (42 U.S.C. 1395m(l)) is amended by redesignating 

3 paragraph (8), as added by section 221(a) of BIPA 

4 (114 Stat. 2763A–486), as paragraph (9). 

5 (c) COVERAGE OF COSTS FOR CERTAIN EMERGENCY

6 ROOM ON-CALL PROVIDERS.—

7 (1) IN GENERAL.—Section 1834(g)(5) (42 U.S.C. 

8 1395m(g)(5)) is amended—

9 (A) in the heading—

10 (i) by inserting ‘‘CERTAIN’’ before 

11 ‘‘EMERGENCY’’; and 

12 (ii) by striking ‘‘PHYSICIANS’’ and in13 serting ‘‘PROVIDERS’’; 

14 (B) by striking ‘‘emergency room physicians 

15 who are on-call (as defined by the Secretary)’’ 

16 and inserting ‘‘physicians, physician assistants, 

17 nurse practitioners, and clinical nurse specialists 

18 who are on-call (as defined by the Secretary) to 

19 provide emergency services’’; and 

20 (C) by striking ‘‘physicians’ services’’ and 

21 inserting ‘‘services covered under this title’’. 

22 (2) EFFECTIVE DATE.—The amendments made 

23 by paragraph (1) shall apply to costs incurred for 

24 services provided on or after January 1, 2005. 
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1 (d) AUTHORIZATION OF PERIODIC INTERIM PAYMENT

2 (PIP).—

3 (1) IN GENERAL.—Section 1815(e)(2) (42 U.S.C. 

4 1395g(e)(2)) is amended—

5 (A) in subparagraph (C), by striking ‘‘and’’ 

6 after the semicolon at the end; 

7 (B) in subparagraph (D), by adding ‘‘and’’ 

8 after the semicolon at the end; and 

9 (C) by inserting after subparagraph (D) the 

10 following new subparagraph: 

11 ‘‘(E) inpatient critical access hospital services;’’. 

12 (2) EFFECTIVE DATE.—The amendments made 

13 by paragraph (1) shall apply to payments for inpa14 tient critical access facility services furnished on or 

15 after January 1, 2005. 

16 (e) EXCLUSION OF NEW CAHS FROM PPS HOSPITAL

17 WAGE INDEX CALCULATION.—Section 1886(d)(3)(E)(i) (42 

18 U.S.C. 1395ww(d)(3)(E)(i)), as amended by section 402, is 

19 amended by inserting after the first sentence the following 

20 new sentence: ‘‘In calculating the hospital wage levels under 

21 the preceding sentence applicable with respect to cost report22 ing periods beginning on or after January 1, 2004, the Sec23 retary shall exclude the wage levels of any facility that be24 came a critical access hospital prior to the cost reporting 

25 period for which such hospital wage levels are calculated.’’.
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1 (f) PROVISIONS RELATED TO CERTAIN RURAL

2 GRANTS.—

3 (1) SMALL RURAL HOSPITAL IMPROVEMENT PRO4 GRAM.—Section 1820(g) (42 U.S.C. 1395i–4(g)) is 

5 amended—

6 (A) by redesignating paragraph (3)(F) as 

7 paragraph (5) and redesignating and indenting 

8 appropriately; and 

9 (B) by inserting after paragraph (3) the fol10 lowing new paragraph: 

11 ‘‘(4) SMALL RURAL HOSPITAL IMPROVEMENT

12 PROGRAM.—

13 ‘‘(A) GRANTS TO HOSPITALS.—The Sec14 retary may award grants to hospitals that have 

15 submitted applications in accordance with sub16 paragraph (B) to assist eligible small rural hos17 pitals (as defined in paragraph (3)(B)) in meet18 ing the costs of reducing medical errors, increas19 ing patient safety, protecting patient privacy, 

20 and improving hospital quality and perform21 ance. 

22 ‘‘(B) APPLICATION.—A hospital seeking a 

23 grant under this paragraph shall submit an ap24 plication to the Secretary on or before such date 
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1 and in such form and manner as the Secretary 

2 specifies. 

3 ‘‘(C) AMOUNT OF GRANT.—A grant to a 

4 hospital under this paragraph may not exceed 

5 $50,000. 

6 ‘‘(D) USE OF FUNDS.—A hospital receiving 

7 a grant under this paragraph may use the funds 

8 for the purchase of computer software and hard9 ware, the education and training of hospital 

10 staff, and obtaining technical assistance.’’. 

11 (2) AUTHORIZATION FOR APPROPRIATIONS.—

12 Section 1820(j) (42 U.S.C. 1395i–4(j)) is amended to 

13 read as follows: 

14 ‘‘(j) AUTHORIZATION OF APPROPRIATIONS.—

15 ‘‘(1) HI TRUST FUND.—There are authorized to 

16 be appropriated from the Federal Hospital Insurance 

17 Trust Fund for making grants to all States under—

18 ‘‘(A) subsection (g), $25,000,000 in each of 

19 the fiscal years 1998 through 2002; and 

20 ‘‘(B) paragraphs (1) and (2) of subsection 

21 (g), $40,000,000 in each of the fiscal years 2004 

22 through 2008. 

23 ‘‘(2) GENERAL REVENUES.—There are authorized 

24 to be appropriated from amounts in the Treasury not 

25 otherwise appropriated for making grants to all 
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1 States under subsection (g)(4), $25,000,000 in each of 

2 the fiscal years 2004 through 2008.’’. 

3 (3) REQUIREMENT THAT STATES AWARDED

4 GRANTS CONSULT WITH THE STATE HOSPITAL ASSO5 CIATION AND RURAL HOSPITALS ON THE MOST APPRO6 PRIATE WAYS TO USE SUCH GRANTS.—

7 (A) IN GENERAL.—Section 1820(g) (42 

8 U.S.C. 1395i–4(g)), as amended by paragraph 

9 (1), is amended by adding at the end the fol10 lowing new paragraph: 

11 ‘‘(6) REQUIRED CONSULTATION FOR STATES

12 AWARDED GRANTS.—A State awarded a grant under 

13 paragraph (1) or (2) shall consult with the hospital 

14 association of such State and rural hospitals located 

15 in such State on the most appropriate ways to use the 

16 funds under such grant.’’. 

17 (B) EFFECTIVE DATE AND APPLICATION.—

18 The amendment made by subparagraph (A) shall 

19 take effect on the date of enactment of this Act 

20 and shall apply to grants awarded on or after 

21 such date and to grants awarded prior to such 

22 date to the extent that funds under such grants 

23 have not been obligated as of such date. 
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1 SEC. 406. AUTHORIZING USE OF ARRANGEMENTS TO PRO2 VIDE CORE HOSPICE SERVICES IN CERTAIN 

3 CIRCUMSTANCES. 

4 (a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 

5 1395x(dd)(5)) is amended by adding at the end the fol6 lowing: 

7 ‘‘(D) In extraordinary, exigent, or other non-routine 

8 circumstances, such as unanticipated periods of high pa9 tient loads, staffing shortages due to illness or other events, 

10 or temporary travel of a patient outside a hospice pro11 gram’s service area, a hospice program may enter into ar12 rangements with another hospice program for the provision 

13 by that other program of services described in paragraph 

14 (2)(A)(ii)(I). The provisions of paragraph (2)(A)(ii)(II) 

15 shall apply with respect to the services provided under such 

16 arrangements. 

17 ‘‘(E) A hospice program may provide services de18 scribed in paragraph (1)(A) other than directly by the pro19 gram if the services are highly specialized services of a reg20 istered professional nurse and are provided non-routinely 

21 and so infrequently so that the provision of such services 

22 directly would be impracticable and prohibitively expen23 sive.’’. 

24 (b) CONFORMING PAYMENT PROVISION.—Section 

25 1814(i) (42 U.S.C. 1395f(i)) is amended by adding at the 

26 end the following new paragraph:
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1 ‘‘(4) In the case of hospice care provided by a hospice 

2 program under arrangements under section 1861(dd)(5)(D) 

3 made by another hospice program, the hospice program that 

4 made the arrangements shall bill and be paid for the hospice 

5 care.’’. 

6 (c) EFFECTIVE DATE.—The amendments made by this 

7 section shall apply to hospice care provided on or after Oc8 tober 1, 2004. 

9 SEC. 407. SERVICES PROVIDED TO HOSPICE PATIENTS BY 

10 NURSE PRACTITIONERS, CLINICAL NURSE 

11 SPECIALISTS, AND PHYSICIAN ASSISTANTS. 

12 (a) IN GENERAL.—Section 1812(d)(2)(A) (42 U.S.C. 

13 1395d(d)(2)(A) in the matter following clause (i)(II), is 

14 amended—

15 (1) by inserting ‘‘or services described in section 

16 1861(s)(2)(K)’’ after ‘‘except that clause (i) shall not 

17 apply to physicians’ services’’; and 

18 (2) by inserting ‘‘, or by a physician assistant, 

19 nurse practitioner, or clinical nurse specialist whom 

20 is not an employee of the hospice program, and who 

21 the individual identifies as the health care provider 

22 having the most significant role in the determination 

23 and delivery of medical care to the individual at the 

24 time the individual makes an election to receive hos-
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1 pice care,’’ after the ‘‘(if not an employee of the hos2 pice program)’’. 

3 (b) EFFECTIVE DATE.—The amendments made by sub4 section (a) shall apply to hospice care furnished on or after 

5 October 1, 2004. 

6 SEC. 408. AUTHORITY TO INCLUDE COSTS OF TRAINING OF 

7 PSYCHOLOGISTS IN PAYMENTS TO HOS8 PITALS UNDER MEDICARE. 

9 Effective for cost reporting periods beginning on or 

10 after October 1, 2004, for purposes of payments to hospitals 

11 under the medicare program under title XVIII of the Social 

12 Security Act for costs of approved educational activities (as 

13 defined in section 413.85 of title 42 of the Code of Federal 

14 Regulations), such approved educational activities shall in15 clude professional educational training programs, recog16 nized by the Secretary, for psychologists. 

17 SEC. 409. REVISION OF FEDERAL RATE FOR HOSPITALS IN 

18 PUERTO RICO. 

19 Section 1886(d)(9) (42 U.S.C. 1395ww(d)(9)) is 

20 amended—

21 (1) in subparagraph (A)—

22 (A) in clause (i), by striking ‘‘for discharges 

23 beginning on or after October 1, 1997, 50 percent 

24 (and for discharges between October 1, 1987, and 

25 September 30, 1997, 75 percent)’’ and inserting 
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1 ‘‘the applicable Puerto Rico percentage (specified 

2 in subparagraph (E))’’; and 

3 (B) in clause (ii), by striking ‘‘for dis4 charges beginning in a fiscal year beginning on 

5 or after October 1, 1997, 50 percent (and for dis6 charges between October 1, 1987, and September 

7 30, 1997, 25 percent)’’ and inserting ‘‘the appli8 cable Federal percentage (specified in subpara9 graph (E))’’; and 

10 (2) by adding at the end the following new sub11 paragraph: 

12 ‘‘(E) For purposes of subparagraph (A), for discharges 

13 occurring—

14 ‘‘(i) between October 1, 1987, and September 30, 

15 1997, the applicable Puerto Rico percentage is 75 per16 cent and the applicable Federal percentage is 25 per17 cent; 

18 ‘‘(ii) on or after October 1, 1997, and before Oc19 tober 1, 2004, the applicable Puerto Rico percentage 

20 is 50 percent and the applicable Federal percentage is 

21 50 percent; 

22 ‘‘(iii) on or after October 1, 2004, and before Oc23 tober 1, 2009, the applicable Puerto Rico percentage 

24 is 0 percent and the applicable Federal percentage is 

25 100 percent; and 
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1 ‘‘(iv) on or after October 1, 2009, the applicable 

2 Puerto Rico percentage is 50 percent and the applica3 ble Federal percentage is 50 percent.’’. 

4 SEC. 410. AUTHORITY REGARDING GERIATRIC FELLOW5 SHIPS. 

6 The Secretary shall have the authority to clarify that 

7 geriatric training programs are eligible for 2 years of fel8 lowship support for purposes of making payments for direct 

9 graduate medical education under subsection (h) of section 

10 1886 of the Social Security Act (42 U.S.C. 1395ww) and 

11 indirect medical education under subsection (d)(5)(B) of 

12 such section on or after October 1, 2004. 

13 SEC. 411. CLARIFICATION OF CONGRESSIONAL INTENT RE14 GARDING THE COUNTING OF RESIDENTS IN A 

15 NONPROVIDER SETTING AND A TECHNICAL 

16 AMENDMENT REGARDING THE 3-YEAR ROLL17 ING AVERAGE AND THE IME RATIO. 

18 (a) CLARIFICATION OF REQUIREMENTS FOR COUNTING

19 RESIDENTS TRAINING IN NONPROVIDER SETTING.—

20 (1) D-GME.—Section 1886(h)(4)(E) (42 U.S.C. 

21 1395ww(h)(4)(E)) is amended by adding at the end 

22 the following new sentence: For purposes of the pre23 ceding sentence time shall only be counted from the ef24 fective date of a written agreement between the hos25 pital and the entity owning or operating a nonpro-
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1 vider setting. The effective date of such written agree2 ment shall be determined in accordance with gen3 erally accepted accounting principles. All, or substan4 tially all, of the costs for the training program in 

5 that setting shall be defined as the residents’ stipends 

6 and benefits and other costs, if any, as determined by 

7 the parties.’’. 

8 (2) IME.—Section 1886(d)(5)(B)(iv) (42 U.S.C. 

9 1395ww(d)(5)(B)(iv)) is amended by adding at the 

10 end the following new sentence: For purposes of the 

11 preceding sentence time shall only be counted from the 

12 effective date of a written agreement between the hos13 pital and the entity owning or operating a nonpro14 vider setting. The effective date of such written agree15 ment shall be determined in accordance with gen16 erally accepted accounting principles. All, or substan17 tially all, of the costs for the training program in 

18 that setting shall be defined as the residents’ stipends 

19 and benefits and other costs, if any, as determined by 

20 the parties.’’. 

21 (b) LIMITING ONE-YEAR LAG IN THE INDIRECT MED22 ICAL EDUCATION (IME) RATIO AND THREE-YEAR ROLLING

23 AVERAGE IN RESIDENT COUNT FOR IME AND FOR DIRECT

24 GRADUATE MEDICAL EDUCATION (D-GME) TO MEDICAL

25 RESIDENCY PROGRAMS.—
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1 (1) IME RATIO AND IME ROLLING AVERAGE.—

2 Section 1886(d)(5)(B)(vi) of the Social Security Act 

3 (42 U.S.C. 1395ww(d)(5)(B)(vi)) is amended by add4 ing at the end the following new sentence: ‘‘For cost 

5 reporting periods beginning during fiscal years begin6 ning on or after October 1, 2004, subclauses (I) and 

7 (II) shall be applied only with respect to a hospital’s 

8 approved medical residency training programs in the 

9 fields of allopathic and osteopathic medicine.’’. 

10 (2) D-GME ROLLING AVERAGE.—Section 

11 1886(h)(4)(G) of the Social Security Act (42 U.S.C. 

12 1395ww(h)(4)(G)) is amended by adding at the end 

13 the following new clause: 

14 ‘‘(iv) APPLICATION FOR FISCAL YEAR

15 2004 AND SUBSEQUENT YEARS.—For cost 

16 reporting periods beginning during fiscal 

17 years beginning on or after October 1, 2004, 

18 clauses (i) through (iii) shall be applied 

19 only with respect to a hospital’s approved 

20 medical residency training program in the 

21 fields of allopathic and osteopathic medi22 cine.’’. 
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1 SEC. 412. LIMITATION ON CHARGES FOR INPATIENT HOS2 PITAL CONTRACT HEALTH SERVICES PRO3 VIDED TO INDIANS BY MEDICARE PARTICI4 PATING HOSPITALS. 

5 (a) IN GENERAL.—Section 1866(a)(1) (42 U.S.C. 

6 1395cc(a)(1)) is amended—

7 (1) in subparagraph (R), by striking ‘‘and’’ at 

8 the end; 

9 (2) in subparagraph (S), by striking the period 

10 and inserting ‘‘, and’’; and 

11 (3) by adding at the end the following new sub12 paragraph: 

13 ‘‘(T) in the case of hospitals which furnish 

14 inpatient hospital services for which payment 

15 may be made under this title, to be a partici16 pating provider of medical care—

17 ‘‘(i) under the contract health services 

18 program funded by the Indian Health Serv19 ice and operated by the Indian Health 

20 Service, an Indian tribe, or tribal organiza21 tion (as those terms are defined in section 

22 4 of the Indian Health Care Improvement 

23 Act), with respect to items and services that 

24 are covered under such program and fur25 nished to an individual eligible for such 

26 items and services under such program; and 
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1 ‘‘(ii) under a program funded by the 

2 Indian Health Service and operated by an 

3 urban Indian organization with respect to 

4 the purchase of items and services for an el5 igible urban Indian (as those terms are de6 fined in such section 4), 

7 in accordance with regulations promulgated by 

8 the Secretary regarding admission practices, 

9 payment methodology, and rates of payment (in10 cluding the acceptance of no more than such 

11 payment rate as payment in full for such items 

12 and services).’’. 

13 (b) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply as of a date specified by the Secretary 

15 of Health and Human Services (but in no case later than 

16 6 months after the date of enactment of this Act) to medi17 care participation agreements in effect (or entered into) on 

18 or after such date. 

19 SEC. 413. GAO STUDY AND REPORT ON APPROPRIATENESS 

20 OF PAYMENTS UNDER THE PROSPECTIVE 

21 PAYMENT SYSTEM FOR INPATIENT HOSPITAL 

22 SERVICES. 

23 (a) STUDY.—The Comptroller General of the United 

24 States, using the most current data available, shall conduct 

25 a study to determine—
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1 (1) the appropriate level and distribution of pay2 ments in relation to costs under the prospective pay3 ment system under section 1886 of the Social Security 

4 Act (42 U.S.C. 1395ww) for inpatient hospital serv5 ices furnished by subsection (d) hospitals (as defined 

6 in subsection (d)(1)(B) of such section); and 

7 (2) whether there is a need to adjust such pay8 ments under such system to reflect legitimate dif9 ferences in costs across different geographic areas, 

10 kinds of hospitals, and types of cases. 

11 (b) REPORT.—Not later than 24 months after the date 

12 of enactment of this Act, the Comptroller General of the 

13 United States shall submit to Congress a report on the study 

14 conducted under subsection (a) together with such rec15 ommendations for legislative and administrative action as 

16 the Comptroller General determines appropriate. 

17 Subtitle B—Provisions Relating to 

18 Part B 

19 SEC. 421. ESTABLISHMENT OF FLOOR ON GEOGRAPHIC AD20 JUSTMENTS OF PAYMENTS FOR PHYSICIANS’

21 SERVICES. 

22 Section 1848(e)(1) (42 U.S.C. 1395w–4(e)(1)) is 

23 amended—
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1 (1) in subparagraph (A), by striking ‘‘subpara2 graphs (B) and (C)’’ and inserting ‘‘subparagraphs 

3 (B), (C), (E), and (F)’’; and 

4 (2) by adding at the end the following new sub5 paragraphs: 

6 ‘‘(E) FLOOR FOR WORK GEOGRAPHIC INDI7 CES.—

8 ‘‘(i) IN GENERAL.—For purposes of 

9 payment for services furnished on or after 

10 January 1, 2004, and before January 1, 

11 2008, after calculating the work geographic 

12 indices in subparagraph (A)(iii), the Sec13 retary shall increase the work geographic 

14 index to the work floor index for any local15 ity for which such geographic index is less 

16 than the work floor index. 

17 ‘‘(ii) WORK FLOOR INDEX.—For pur18 poses of clause (i), the term ‘applicable floor 

19 index’ means—

20 ‘‘(I) 0.980 with respect to services 

21 furnished during 2004; and 

22 ‘‘(II) 1.000 for services furnished 

23 during 2005, 2006, and 2007. 

24 ‘‘(F) FLOOR FOR PRACTICE EXPENSE AND

25 MALPRACTICE GEOGRAPHIC INDICES.—For pur-
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1 poses of payment for services furnished on or 

2 after January 1, 2005, and before January 1, 

3 2008, after calculating the practice expense and 

4 malpractice indices in clauses (i) and (ii) of sub5 paragraph (A) and in subparagraph (B), the 

6 Secretary shall increase any such index to 1.00 

7 for any locality for which such index is less than 

8 1.00. 

9 SEC. 422. MEDICARE INCENTIVE PAYMENT PROGRAM IM10 PROVEMENTS. 

11 (a) PROCEDURES FOR SECRETARY, AND NOT PHYSI12 CIANS, TO DETERMINE WHEN BONUS PAYMENTS UNDER

13 MEDICARE INCENTIVE PAYMENT PROGRAM SHOULD BE

14 MADE.—Section 1833(m) (42 U.S.C. 1395l(m)) is amend15 ed—

16 (1) by inserting ‘‘(1)’’ after ‘‘(m)’’; and 

17 (2) by adding at the end the following new para18 graph: 

19 ‘‘(2) The Secretary shall establish procedures under 

20 which the Secretary, and not the physician furnishing the 

21 service, is responsible for determining when a payment is 

22 required to be made under paragraph (1).’’. 

23 (b) EDUCATIONAL PROGRAM REGARDING THE MEDI24 CARE INCENTIVE PAYMENT PROGRAM.—The Secretary shall 

25 establish and implement an ongoing educational program 
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1 to provide education to physicians under the medicare pro2 gram on the medicare incentive payment program under 

3 section 1833(m) of the Social Security Act (42 U.S.C. 

4 1395l(m)). 

5 (c) ONGOING GAO STUDY AND ANNUAL REPORT ON

6 THE MEDICARE INCENTIVE PAYMENT PROGRAM.—

7 (1) ONGOING STUDY.—The Comptroller General 

8 of the United States shall conduct an ongoing study 

9 on the medicare incentive payment program under 

10 section 1833(m) of the Social Security Act (42 U.S.C. 

11 1395l(m)). Such study shall focus on whether such 

12 program increases the access of medicare beneficiaries 

13 who reside in an area that is designated (under sec14 tion 332(a)(1)(A) of the Public Health Service Act 

15 (42 U.S.C. 254e(a)(1)(A))) as a health professional 

16 shortage area to physicians’ services under the medi17 care program. 

18 (2) ANNUAL REPORTS.—Not later than 1 year 

19 after the date of enactment of this Act, and annually 

20 thereafter, the Comptroller General of the United 

21 States shall submit to Congress a report on the study 

22 conducted under paragraph (1), together with rec23 ommendations as the Comptroller General considers 

24 appropriate.
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1 SEC. 423. INCREASE IN RENAL DIALYSIS COMPOSITE RATE. 

2 Notwithstanding any other provision of law, with re3 spect to payment under part B of title XVIII of the Social 

4 Security Act for renal dialysis services furnished in 2005 

5 and 2006, the composite rate for such services shall be in6 creased by 1.6 percent under section 1881(b)(12) of such 

7 Act (42 U.S.C. 1395rr(b)(7)), as added by section 433(b)(5). 

8 SEC. 424. EXTENSION OF HOLD HARMLESS PROVISIONS 

9 FOR SMALL RURAL HOSPITALS AND TREAT10 MENT OF CERTAIN SOLE COMMUNITY HOS11 PITALS TO LIMIT DECLINE IN PAYMENT 

12 UNDER THE OPD PPS. 

13 (a) SMALL RURAL HOSPITALS.—Section 

14 1833(t)(7)(D)(i) (42 U.S.C. 1395l(t)(7)(D)(i)) is amended 

15 by inserting ‘‘and during 2006’’ after ‘‘2004,’’. 

16 (b) SOLE COMMUNITY HOSPITALS.—Section 

17 1833(t)(7)(D) (42 U.S.C. 1395l(t)(7)(D)) is amended by 

18 adding at the end the following: 

19 ‘‘(i) TEMPORARY TREATMENT FOR

20 SOLE COMMUNITY HOSPITALS .—In the case 

21 of a sole community hospital (as defined in 

22 section 1886(d)(5)(D)(iii)) located in a 

23 rural area, for covered OPD services fur24 nished in 2006, for which the PPS amount 

25 is less than the pre-BBA amount, the 

26 amount of payment under this subsection 
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1 shall be increased by the amount of such 

2 difference.’’. 

3 SEC. 425. INCREASE IN PAYMENTS FOR CERTAIN SERVICES 

4 FURNISHED BY SMALL RURAL AND SOLE 

5 COMMUNITY HOSPITALS UNDER MEDICARE 

6 PROSPECTIVE PAYMENT SYSTEM FOR HOS7 PITAL OUTPATIENT DEPARTMENT SERVICES. 

8 (a) INCREASE.—

9 (1) IN GENERAL.—In the case of an applicable 

10 covered OPD service (as defined in paragraph (2)) 

11 that is furnished by a hospital described in clause (i) 

12 or (iii) of paragraph (7)(D) of section 1833(t) of the 

13 Social Security Act (42 U.S.C. 1395l(t)), as amended 

14 by section 424, on or after January 1, 2005, and be15 fore January 1, 2008, the Secretary shall increase the 

16 medicare OPD fee schedule amount (as determined 

17 under paragraph (4)(A) of such section) that is appli18 cable for such service in that year (determined with19 out regard to any increase under this section in a 

20 previous year) by 5 percent. 

21 (2) APPLICABLE COVERED OPD SERVICES DE22 FINED.—For purposes of this section, the term ‘‘appli23 cable covered OPD service’’ means a covered clinic or 

24 emergency room visit that is classified within the 

25 groups of covered OPD services (as defined in para-
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1 graph (1)(B) of section 1833(t) of the Social Security 

2 Act (42 U.S.C. 1395l(t))) established under paragraph 

3 (2)(B) of such section. 

4 (b) NO EFFECT ON COPAYMENT AMOUNT.—The Sec5 retary shall compute the copayment amount for applicable 

6 covered OPD services under section 1833(t)(8)(A) of the So7 cial Security Act (42 U.S.C. 1395l(t)(8)(A)) as if this sec8 tion had not been enacted. 

9 (c) NO EFFECT ON INCREASE UNDER HOLD HARM10 LESS OR OUTLIER PROVISIONS.—The Secretary shall apply 

11 the temporary hold harmless provision under clause (i) and 

12 (iii) of paragraph (7)(D) of section 1833(t) of the Social 

13 Security Act (42 U.S.C. 1395l(t)) and the outlier provision 

14 under paragraph (5) of such section as if this section had 

15 not been enacted. 

16 (d) WAIVING BUDGET NEUTRALITY AND NO REVISION

17 OR ADJUSTMENTS.—The Secretary shall not make any revi18 sion or adjustment under subparagraph (A), (B), or (C) 

19 of section 1833(t)(9) of the Social Security Act (42 U.S.C. 

20 1395l(t)(9)) because of the application of subsection (a)(1). 

21 (e) NO EFFECT ON PAYMENTS AFTER INCREASE PE22 RIOD ENDS.—The Secretary shall not take into account any 

23 payment increase provided under subsection (a)(1) in deter24 mining payments for covered OPD services (as defined in 

25 paragraph (1)(B) of section 1833(t) of the Social Security 
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1 Act (42 U.S.C. 1395l(t))) under such section that are fur2 nished after January 1, 2007. 

3 (f) TECHNICAL AMENDMENT.—Section 1833(t)(2)(B) 

4 (42 U.S.C. 1395l(t)(2)(B)) is amended by inserting ‘‘(and 

5 periodically revise such groups pursuant to paragraph 

6 (9)(A))’’ after ‘‘establish groups’’. 

7 SEC. 426. INCREASE FOR GROUND AMBULANCE SERVICES 

8 FURNISHED IN A RURAL AREA. 

9 Section 1834(l) (42 U.S.C. 1395m(l)), as amended by 

10 section 405(b)(2), is amended by adding at the end the fol11 lowing new paragraph: 

12 ‘‘(10) TEMPORARY INCREASE FOR GROUND AM13 BULANCE SERVICES FURNISHED IN A RURAL AREA.—

14 ‘‘(A) IN GENERAL.—Notwithstanding any 

15 other provision of this subsection, in the case of 

16 ground ambulance services furnished on or after 

17 January 1, 2005, and before January 1, 2008, 

18 for which the transportation originates in a 

19 rural area described in paragraph (9) or in a 

20 rural census tract described in such paragraph, 

21 the fee schedule established under this section, 

22 with respect to both the payment rate for service 

23 and the payment rate for mileage, shall provide 

24 that such rates otherwise established, after appli-
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1 cation of any increase under such paragraph, 

2 shall be increased by 5 percent. 

3 ‘‘(B) APPLICATION OF INCREASED PAY4 MENTS AFTER 2007.—The increased payments 

5 under subparagraph (A) shall not be taken into 

6 account in calculating payments for services fur7 nished on or after the period specified in such 

8 subparagraph.’’. 

9 SEC. 427. ENSURING APPROPRIATE COVERAGE OF AIR AM10 BULANCE SERVICES UNDER AMBULANCE FEE 

11 SCHEDULE. 

12 (a) COVERAGE.—Section 1834(l) (42 U.S.C. 

13 1395m(l)), as amended by section 426, is amended by add14 ing at the end the following new paragraph: 

15 ‘‘(11) ENSURING APPROPRIATE COVERAGE OF

16 AIR AMBULANCE SERVICES.—

17 ‘‘(A) IN GENERAL.—The regulations de18 scribed in section 1861(s)(7) shall ensure that 

19 air ambulance services (as defined in subpara20 graph (C)) are reimbursed under this subsection 

21 at the air ambulance rate if the air ambulance 

22 service— 

23 ‘‘(i) is medically necessary based on 

24 the health condition of the individual being
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1 transported at or immediately prior to the 

2 time of the transport; and 

3 ‘‘(ii) complies with equipment and 

4 crew requirements established by the Sec5 retary. 

6 ‘‘(B) MEDICALLY NECESSARY.—An air am7 bulance service shall be considered to be medi8 cally necessary for purposes of subparagraph 

9 (A)(i) if such service is requested—

10 ‘‘(i) by a physician or a hospital in 

11 accordance with the physician’s or hos12 pital’s responsibilities under section 1867 

13 (commonly known as the Emergency Med14 ical Treatment and Active Labor Act); 

15 ‘‘(ii) as a result of a protocol estab16 lished by a State or regional emergency 

17 medical service (EMS) agency; 

18 ‘‘(iii) by a physician, nurse practi19 tioner, physician assistant, registered nurse, 

20 or emergency medical responder who rea21 sonably determines or certifies that the pa22 tient’s condition is such that the time need23 ed to transport the individual by land or 

24 the lack of an appropriate ground ambu-
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1 lance, significantly increases the medical 

2 risks for the individual; or 

3 ‘‘(iv) by a Federal or State agency to 

4 relocate patients following a natural dis5 aster, an act of war, or a terrorist attack. 

6 ‘‘(C) AIR AMBULANCE SERVICES DE7 FINED.—For purposes of this paragraph, the 

8 term ‘air ambulance service’ means fixed wing 

9 and rotary wing air ambulance services.’’. 

10 (b) CONFORMING AMENDMENT.—Section 1861(s)(7) 

11 (42 U.S.C. 1395x(s)(7)) is amended by inserting ‘‘, subject 

12 to section 1834(l)(11),’’ after ‘‘but’’. 

13 (c) EFFECTIVE DATE.—The amendments made by this 

14 section shall apply to services furnished on or after January 

15 1, 2005. 

16 SEC. 428. TREATMENT OF CERTAIN CLINICAL DIAGNOSTIC 

17 LABORATORY TESTS FURNISHED BY A SOLE 

18 COMMUNITY HOSPITAL. 

19 Notwithstanding subsections (a), (b), and (h) of section 

20 1833 of the Social Security Act (42 U.S.C. 1395l) and sec21 tion 1834(d)(1) of such Act (42 U.S.C. 1395m(d)(1)), in 

22 the case of a clinical diagnostic laboratory test covered 

23 under part B of title XVIII of such Act that is furnished 

24 in 2005 or 2006 by a sole community hospital (as defined 

25 in section 1886(d)(5)(D)(iii) of such Act (42 U.S.C. 
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1 1395ww(d)(5)(D)(iii))) as part of services furnished to pa2 tients of the hospital, the following rules shall apply: 

3 (1) PAYMENT BASED ON REASONABLE COSTS.—

4 The amount of payment for such test shall be 100 per5 cent of the reasonable costs of the hospital in fur6 nishing such test. 

7 (2) NO BENEFICIARY COST-SHARING.—Notwith8 standing section 432, no coinsurance, deductible, co9 payment, or other cost-sharing otherwise applicable 

10 under such part B shall apply with respect to such 

11 test. 

12 SEC. 429. IMPROVEMENT IN RURAL HEALTH CLINIC REIM13 BURSEMENT. 

14 Section 1833(f) (42 U.S.C. 1395l(f)) is amended—

15 (1) in paragraph (1), by striking ‘‘, and’’ at the 

16 end and inserting a semicolon; 

17 (2) in paragraph (2)—

18 (A) by striking ‘‘in a subsequent year’’ and 

19 inserting ‘‘in 1989 through 2004’’; and 

20 (B) by striking the period at the end and 

21 inserting a semicolon; and 

22 (3) by adding at the end the following new para23 graphs: 

24 ‘‘(3) in 2005, at $80 per visit; and 
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1 ‘‘(4) in a subsequent year, at the limit estab2 lished under this subsection for the previous year in3 creased by the percentage increase in the MEI (as so 

4 defined) applicable to primary care services (as so de5 fined) furnished as of the first day of that year.’’. 

6 SEC. 430. ELIMINATION OF CONSOLIDATED BILLING FOR 

7 CERTAIN SERVICES UNDER THE MEDICARE 

8 PPS FOR SKILLED NURSING FACILITY SERV9 ICES. 

10 (a) CERTAIN RURAL HEALTH CLINIC AND FEDERALLY

11 QUALIFIED HEALTH CENTER SERVICES.—Section 1888(e) 

12 (42 U.S.C. 1395yy(e)) is amended—

13 (1) in paragraph (2)(A)(i)(II), by striking 

14 ‘‘clauses (ii) and (iii)’’ and inserting ‘‘clauses (ii), 

15 (iii), and (iv)’’; and 

16 (2) by adding at the end of paragraph (2)(A) the 

17 following new clause: 

18 ‘‘(iv) EXCLUSION OF CERTAIN RURAL

19 HEALTH CLINIC AND FEDERALLY QUALIFIED

20 HEALTH CENTER SERVICES.—Services de21 scribed in this clause are—

22 ‘‘(I) rural health clinic services 

23 (as defined in paragraph (1) of section 

24 1861(aa)); and 
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1 ‘‘(II) Federally qualified health 

2 center services (as defined in para3 graph (3) of such section); 

4 that would be described in clause (ii) if such 

5 services were furnished by a physician or 

6 practitioner not affiliated with a rural 

7 health clinic or a Federally qualified health 

8 center.’’. 

9 (b) CERTAIN SERVICES FURNISHED BY AN ENTITY

10 JOINTLY OWNED BY HOSPITALS AND CRITICAL ACCESS

11 HOSPITALS.—For purposes of applying section 411.15(p)–

12 (3)(iii) of title 42 of the Code of Federal Regulations, the 

13 Secretary shall treat an entity that is 100 percent owned 

14 as a joint venture by 2 Medicare-participating hospitals or 

15 critical access hospitals as a Medicare-participating hos16 pital or a critical access hospital. 

17 (c) TECHNICAL AMENDMENT.—Sections 1842(b)(6)(E) 

18 and 1866(a)(1)(H)(ii) (42 U.S.C. 1395u(b)(6)(E); 

19 1395cc(a)(1)(H)(ii)) are each amended by striking ‘‘section 

20 1888(e)(2)(A)(ii)’’ and inserting ‘‘clauses (ii), (iii), and 

21 (iv) of section 1888(e)(2)(A)’’. 

22 (d) EFFECTIVE DATE.—The amendments made by this 

23 section and the provision of subsection (b) shall apply to 

24 services furnished on or after January 1, 2005.
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1 SEC. 431. FREEZE IN PAYMENTS FOR CERTAIN ITEMS OF 

2 DURABLE MEDICAL EQUIPMENT AND CER3 TAIN ORTHOTICS; ESTABLISHMENT OF QUAL4 ITY STANDARDS AND ACCREDITATION RE5 QUIREMENTS FOR DME PROVIDERS. 

6 (a) FREEZE FOR DME.—Section 1834(a)(14) (42 

7 U.S.C. 1395m(a)(14)) is amended—

8 (1) in subparagraph (E), by striking ‘‘and’’ at 

9 the end; 

10 (2) in subparagraph (F)—

11 (A) by striking ‘‘a subsequent year’’ and in12 serting ‘‘2003’’; and 

13 (B) by striking ‘‘the previous year.’’ and in14 serting ‘‘2002;’’; and 

15 (3) by adding at the end the following new sub16 paragraphs: 

17 ‘‘(G) for each of the years 2004 through 

18 2010—

19 ‘‘(i) in the case of class III medical de20 vices described in section 513(a)(1)(C) of 

21 the Federal Food, Drug, and Cosmetic Act 

22 (21 U.S.C. 360(c)(1)(C)), the percentage in23 crease described in subparagraph (B) for 

24 the year involved; and 
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1 ‘‘(ii) in the case of covered items not 

2 described in clause (i), 0 percentage points; 

3 and 

4 ‘‘(H) for a subsequent year, the percentage 

5 increase described in subparagraph (B) for the 

6 year involved.’’. 

7 (b) FREEZE FOR OFF-THE-SHELF ORTHOTICS.—Sec8 tion 1834(h)(4)(A) of the Social Security Act (42 U.S.C. 

9 1395m(h)(4)(A)) is amended—

10 (1) in clause (vii), by striking ‘‘and’’ at the end; 

11 (2) in clause (viii), by striking ‘‘a subsequent 

12 year’’ and inserting ‘‘2003’’; and 

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

14 clauses: 

15 ‘‘(ix) for each of the years 2004 

16 through 2010—

17 ‘‘(I) in the case of orthotics that 

18 have not been custom-fabricated, 0 per19 cent; and 

20 ‘‘(II) in the case of prosthetics, 

21 prosthetic devices, and custom-fab22 ricated orthotics, the percentage in23 crease described in clause (viii) for the 

24 year involved; and 
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1 ‘‘(x) for 2011 and each subsequent 

2 year, the percentage increase described in 

3 clause (viii) for the year involved;’’. 

4 (c) ESTABLISHMENT OF QUALITY STANDARDS AND AC5 CREDITATION REQUIREMENTS FOR DURABLE MEDICAL

6 EQUIPMENT PROVIDERS.—Section 1834(a) (42 U.S.C. 

7 1395m(a)) is amended—

8 (1) by redesignating paragraph (17), as added 

9 by section 4551(c)(1) of the Balanced Budget Act of 

10 1997 (111 Stat. 458), as paragraph (19); and 

11 (2) by adding at the end the following new para12 graph: 

13 ‘‘(20) IDENTIFICATION OF QUALITY STAND14 ARDS.—

15 ‘‘(A) IN GENERAL.—Subject to subpara16 graph (C), the Secretary shall establish and im17 plement quality standards for providers of dura18 ble medical equipment throughout the United 

19 States that are developed by recognized inde20 pendent accreditation organizations (as des21 ignated under subparagraph (B)(i)) and with 

22 which such providers shall be required to comply 

23 in order to—

24 ‘‘(i) participate in the program under 

25 this title; 
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1 ‘‘(ii) furnish any item or service de2 scribed in subparagraph (D) for which pay3 ment is made under this part; and 

4 ‘‘(iii) receive or retain a provider or 

5 supplier number used to submit claims for 

6 reimbursement for any item or service de7 scribed in subparagraph (D) for which pay8 ment may be made under this title. 

9 ‘‘(B) DESIGNATION OF INDEPENDENT AC10 CREDITATION ORGANIZATIONS.—

11 ‘‘(i) IN GENERAL.—Not later that the 

12 date that is 6 months after the date of en13 actment of the Prescription Drug and Medi14 care Improvement Act of 2003, the Sec15 retary shall designate independent accredi16 tation organizations for purposes of sub17 paragraph (A). 

18 ‘‘(ii) CONSULTATION.—In determining 

19 which independent accreditation organiza20 tions to designate under clause (i), the Sec21 retary shall consult with an expert outside 

22 advisory panel composed of an appropriate 

23 selection of representatives of physicians, 

24 practitioners, suppliers, and manufacturers 

25 to review (and advise the Secretary con-
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1 cerning) selection of accrediting organiza2 tions and the quality standards of such or3 ganizations. 

4 ‘‘(C) QUALITY STANDARDS.—The quality 

5 standards described in subparagraph (A) may 

6 not be less stringent than the quality standards 

7 that would otherwise apply if this paragraph did 

8 not apply and shall include consumer services 

9 standards. 

10 ‘‘(D) ITEMS AND SERVICES DESCRIBED.—

11 The items and services described in this subpara12 graph are covered items (as defined in para13 graph (13)) for which payment may otherwise be 

14 made under this subsection, other than items 

15 used in infusion, and inhalation drugs used in 

16 conjunction with durable medical equipment. 

17 ‘‘(E) PHASED-IN IMPLEMENTATION.—The 

18 application of the quality standards described in 

19 subparagraph (A) shall be phased-in over a pe20 riod that does not exceed 3 years.’’. 

21 SEC. 432. APPLICATION OF COINSURANCE AND DEDUCT22 IBLE FOR CLINICAL DIAGNOSTIC LABORA23 TORY TESTS. 

24 (a) COINSURANCE.—
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1 (1) IN GENERAL.—Section 1833(a) (42 U.S.C. 

2 1395l(a)) is amended—

3 (A) in paragraph (1)(D)(i), by striking ‘‘(or 

4 100 percent, in the case of such tests for which 

5 payment is made on an assignment-related 

6 basis)’’; and 

7 (B) in paragraph (2)(D)(i), by striking 

8 ‘‘(or 100 percent, in the case of such tests for 

9 which payment is made on an assignment-re10 lated basis or to a provider having an agreement 

11 under section 1866)’’. 

12 (2) CONFORMING AMENDMENT.—The third sen13 tence of section 1866(a)(2)(A) of the Social Security 

14 Act (42 U.S.C. 1395cc(a)(2)(A) is amended by strik15 ing ‘‘and with respect to clinical diagnostic labora16 tory tests for which payment is made under part B’’. 

17 (b) DEDUCTIBLE.—Section 1833(b) of the Social Secu18 rity Act (42 U.S.C. 1395l(b)) is amended—

19 (1) by striking paragraph (3); and 

20 (2) by redesignating paragraphs (4), (5), and (6) 

21 as paragraphs (3), (4), and (5), respectively. 

22 (c) EFFECTIVE DATE.—The amendments made by this 

23 section shall apply to tests furnished on or after January 

24 1, 2004. 
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1 SEC. 433. BASING MEDICARE PAYMENTS FOR COVERED 

2 OUTPATIENT DRUGS ON MARKET PRICES. 

3 (a) MEDICARE MARKET BASED PAYMENT AMOUNT.—

4 Section 1842(o) (42 U.S.C. 1395u(o)) is amended—

5 (1) in paragraph (1), by striking ‘‘equal to 95 

6 percent of the average wholesale price.’’ and inserting 

7 ‘‘equal to—

8 ‘‘(A) in the case of a drug or biological furnished 

9 prior to January 1, 2004, 95 percent of the average 

10 wholesale price; and 

11 ‘‘(B) in the case of a drug or biological furnished 

12 on or after January 1, 2004, the payment amount 

13 specified in—

14 ‘‘(i) in the case of such a drug or biological 

15 that is first available for payment under this 

16 part on or before April 1, 2003, paragraph (4); 

17 and 

18 ‘‘(ii) in the case of such a drug or biological 

19 that is first available for payment under this 

20 part after such date, paragraph (5).’’; and 

21 (2) by adding at the end the following new para22 graphs: 

23 ‘‘(4)(A) Subject to subparagraph (C), the payment 

24 amount specified in this paragraph for a year for a drug 

25 or biological is an amount equal to the lesser of—
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1 ‘‘(i) the average wholesale price for the drug or 

2 biological; or 

3 ‘‘(ii) the amount determined under subpara4 graph (B) 

5 ‘‘(B)(i) Subject to clause (ii), the amount determined 

6 under this subparagraph is an amount equal to—

7 ‘‘(I) in the case of a drug or biological furnished 

8 in 2004, 85 percent of the average wholesale price for 

9 the drug or biological (determined as of April 1, 

10 2003); and 

11 ‘‘(II) in the case of a drug or biological furnished 

12 in 2005 or a subsequent year, the amount determined 

13 under this subparagraph for the previous year in14 creased by the percentage increase in the consumer 

15 price index for medical care for the 12-month period 

16 ending with June of the previous year. 

17 ‘‘(ii) In the case of a vaccine described in subpara18 graph (A) or (B) of section 1861(s)(10), the amount deter19 mined under this subparagraph is an amount equal to the 

20 average wholesale price for the drug or biological. 

21 ‘‘(C)(i) The Secretary shall establish a process under 

22 which the Secretary determines, for such drugs or 

23 biologicals as the Secretary determines appropriate, wheth24 er the widely available market price to physicians or sup25 pliers for the drug or biological furnished in a year is dif-
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1 ferent from the payment amount established under subpara2 graph (B) for the year. Such determination shall be based 

3 on the information described in clause (ii) as the Secretary 

4 determines appropriate. 

5 ‘‘(ii) The information described in this clause is the 

6 following information: 

7 ‘‘(I) Any report on drug or biological market 

8 prices by the Inspector General of the Department of 

9 Health and Human Services or the Comptroller Gen10 eral of the United States that is made available after 

11 December 31, 1999. 

12 ‘‘(II) A review of drug or biological market 

13 prices by the Secretary, which may include informa14 tion on such market prices from insurers, private 

15 health plans, manufacturers, wholesalers, distributors, 

16 physician supply houses, specialty pharmacies, group 

17 purchasing arrangements, physicians, suppliers, or 

18 any other source the Secretary determines appro19 priate. 

20 ‘‘(III) Data and information submitted by the 

21 manufacturer of the drug or biological or by another 

22 entity. 

23 ‘‘(IV) Other data and information as determined 

24 appropriate by the Secretary.
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1 ‘‘(iii) If the Secretary makes a determination under 

2 clause (i) with respect to the widely available market price 

3 for a drug or biological for a year, the following provisions 

4 shall apply: 

5 ‘‘(I) Subject to clause (iv), the amount deter6 mined under this subparagraph shall be substituted 

7 for the amount determined under subparagraph (B) 

8 for purposes of applying subparagraph (A)(ii)(I) for 

9 the year and all subsequent years. 

10 ‘‘(II) The Secretary may make subsequent deter11 minations under clause (i) with respect to the widely 

12 available market price for the drug or biological. 

13 ‘‘(III) If the Secretary does not make a subse14 quent determination under clause (i) with respect to 

15 the widely available market price for the drug or bio16 logical for a year, the amount determined under this 

17 subparagraph shall be an amount equal to the 

18 amount determined under this subparagraph for the 

19 previous year increased by the percentage increase de20 scribed in subparagraph (B)(i)(II) for the year in21 volved. 

22 ‘‘(iv) If the first determination made under clause (i) 

23 with respect to the widely available market price for a drug 

24 or biological would result in a payment amount in a year 

25 that is more than 15 percent less than the amount deter-
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1 mined under subparagraph (B) for the drug or biological 

2 for the previous year (or, for 2004, the payment amount 

3 determined under paragraph (1)(A), determined as of April 

4 1, 2003), the Secretary shall provide for a transition to the 

5 amount determined under clause (i) so that the payment 

6 amount is reduced in annual increments equal to 15 per7 cent of the payment amount in such previous year until 

8 the payment amount is equal to the amount determined 

9 under clause (i), as increased each year by the percentage 

10 increase described in subparagraph (B)(i)(II) for the year. 

11 The preceding sentence shall not apply to a drug or biologi12 cal where a generic version of the drug or biological first 

13 enters the market on or after January 1, 2004 (even if the 

14 generic version of the drug or biological is not marketed 

15 under the chemical name of such drug or biological). 

16 ‘‘(5) In the case of a drug or biological that is first 

17 available for payment under this part after April 1, 2003, 

18 the following rules shall apply: 

19 ‘‘(A) As a condition of obtaining a code to report 

20 such new drug or biological and to receive payment 

21 under this part, a manufacturer shall provide the 

22 Secretary (in a time, manner, and form approved by 

23 the Secretary) with data and information on prices 

24 at which the manufacturer estimates physicians and 

25 suppliers will be able to routinely obtain the drug or 
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1 biological in the market during the first year that the 

2 drug or biological is available for payment under this 

3 part and such additional information that the manu4 facturer determines appropriate. 

5 ‘‘(B) During the year that the drug or biological 

6 is first available for payment under this part, the 

7 manufacturer of the drug or biological shall provide 

8 the Secretary (in a time, manner, and form approved 

9 by the Secretary) with updated information on the 

10 actual market prices paid by such physicians or sup11 pliers for the drug or biological in the year. 

12 ‘‘(C) The amount specified in this paragraph for 

13 a drug or biological for the year described in subpara14 graph (B) is equal to an amount determined by the 

15 Secretary based on the information provided under 

16 subparagraph (A) and other information that the Sec17 retary determines appropriate. 

18 ‘‘(D) The amount specified in this paragraph for 

19 a drug or biological for the year after the year de20 scribed in subparagraph (B) is equal to an amount 

21 determined by the Secretary based on the information 

22 provided under subparagraph (B) and other informa23 tion that the Secretary determines appropriate. 

24 ‘‘(E) The amount specified in this paragraph for 

25 a drug or biological for the year beginning after the 
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1 year described in subparagraph (D) and each subse2 quent year is equal to the lesser of—

3 ‘‘(i) the average wholesale price for the drug 

4 or biological; or 

5 ‘‘(ii) the amount determined—

6 ‘‘(I) by the Secretary under paragraph 

7 (4)(C)(i) with respect to the widely avail8 able market price for the drug or biological 

9 for the year, if such paragraph was applied 

10 by substituting ‘the payment determined 

11 under paragraph (5)(E)(ii)(II) for the year’ 

12 for ‘established under subparagraph (B) for 

13 the year’; and 

14 ‘‘(II) if no determination described in 

15 subclause (I) is made for the drug or bio16 logical for the year, under this subpara17 graph with respect to the drug or biological 

18 for the previous year increased by the per19 centage increase described in paragraph 

20 (4)(B)(i)(II) for the year involved.’’. 

21 (b) ADJUSTMENTS TO PAYMENT AMOUNTS FOR ADMIN22 ISTRATION OF DRUGS AND BIOLOGICALS.—

23 (1) ADJUSTMENT IN PHYSICIAN PRACTICE EX24 PENSE RELATIVE VALUE UNITS.—Section 1848(c)(2) 

25 (42 U.S.C. 1395w–4(c)(2)) is amended—
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1 (A) in subparagraph (B)—

2 (i) in clause (ii)(II), by striking ‘‘The 

3 adjustments’’ and inserting ‘‘Subject to 

4 clause (iv), the adjustments’’; and 

5 (ii) by adding at the end the following 

6 new clause: 

7 ‘‘(iv) EXEMPTION FROM BUDGET NEU8 TRALITY IN 2004.—Any additional expendi9 tures under this part that are attributable 

10 to subparagraph (H) shall not be taken into 

11 account in applying clause (ii)(II) for 

12 2004.’’; and 

13 (B) by adding at the end the following new 

14 subparagraph: 

15 ‘‘(H) ADJUSTMENTS IN PRACTICE EXPENSE

16 RELATIVE VALUE UNITS FOR DRUG ADMINISTRA17 TION SERVICES FOR 2004.—In establishing the 

18 physician fee schedule under subsection (b) with 

19 respect to payments for services furnished in 

20 2004, the Secretary shall, in determining prac21 tice expense relative value units under this sub22 section, utilize a survey submitted to the Sec23 retary as of January 1, 2003, by a physician 

24 specialty organization pursuant to section 212 of 
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1 the Medicare, Medicaid, and SCHIP Balanced 

2 Budget Refinement Act of 1999 if the survey—

3 ‘‘(i) covers practice expenses for oncol4 ogy administration services; and 

5 ‘‘(ii) meets criteria established by the 

6 Secretary for acceptance of such surveys.’’. 

7 (2) PAYMENT FOR MULTIPLE CHEMOTHERAPY

8 AGENTS FURNISHED ON A SINGLE DAY THROUGH THE

9 PUSH TECHNIQUE.—

10 (A) REVIEW OF POLICY.—The Secretary 

11 shall review the policy, as in effect on the date 

12 of enactment of this Act, with respect to payment 

13 under section 1848 of the Social Security Act (42 

14 U.S.C. 1395w–4) for the administration of more 

15 than 1 anticancer chemotherapeutic agent to an 

16 individual on a single day through the push 

17 technique. 

18 (B) MODIFICATION OF POLICY.—After con19 ducting the review under subparagraph (A), the 

20 Secretary shall modify such payment policy if 

21 the Secretary determines such modification to be 

22 appropriate. 

23 (C) EXEMPTION FROM BUDGET NEUTRALITY

24 UNDER PHYSICIAN FEE SCHEDULE.—If the Sec25 retary modifies such payment policy pursuant to 
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1 subparagraph (B), any increased expenditures 

2 under title XVIII of the Social Security Act re3 sulting from such modification shall be treated 

4 as additional expenditures attributable to sub5 paragraph (H) of section 1848(c)(2) of the Social 

6 Security Act (42 U.S.C. 1395w–4(c)(2)), as 

7 added by paragraph (1)(B), for purposes of ap8 plying the exemption to budget neutrality under 

9 subparagraph (B)(iv) of such section, as added 

10 by paragraph (1)(A). 

11 (3) TREATMENT OF OTHER SERVICES CUR12 RENTLY IN THE NONPHYSICIAN WORK POOL.—The 

13 Secretary shall make adjustments to the nonphysician 

14 work pool methodology (as such term is used in the 

15 final rule promulgated by the Secretary in the Fed16 eral Register on December 31, 2002 (67 Fed. Reg. 

17 251)), for the determination of practice expense rel18 ative value units under the physician fee schedule 

19 under section 1848(c)(2)(C)(ii) of the Social Security 

20 Act (42 U.S.C. 1395w–4(c)(2)(C)(ii)), so that the 

21 practice expense relative value units for services deter22 mined under such methodology are not disproportion23 ately reduced relative to the practice expense relative 

24 value units of services not determined under such 
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1 methodology, as a result of the amendments to such 

2 Act made by paragraph (1). 

3 (4) ADMINISTRATION OF BLOOD CLOTTING FAC4 TORS.—Section 1842(o) (42 U.S.C. 1395u(o)), as 

5 amended by subsection (a)(2), is amended by adding 

6 at the end the following new paragraph: 

7 ‘‘(6)(A) Subject to subparagraph (B), in the case of 

8 clotting factors furnished on or after January 1, 2004, the 

9 Secretary shall, after reviewing the January 2003 report 

10 to Congress by the Comptroller General of the United States 

11 entitled ‘Payment for Blood Clotting Factor Exceeds Pro12 viders Acquisition Cost’ (GAO–03–184), provide for a sepa13 rate payment for the administration of such blood clotting 

14 factors in an amount that the Secretary determines to be 

15 appropriate. 

16 ‘‘(B) In determining the separate payment amount 

17 under subparagraph (A) for blood clotting factors furnished 

18 in 2004, the Secretary shall ensure that the total amount 

19 of payments under this part (as estimated by the Secretary) 

20 for such factors under paragraphs (4) and (5) and such sep21 arate payments for such factors does not exceed the total 

22 amount of payments that would have been made for such 

23 factors under this part (as estimated by the Secretary) if 

24 the amendments made by section 433 of the Prescription 
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1 Drug and Medicare Improvement Act of 2003 had not been 

2 enacted. 

3 ‘‘(C) The separate payment amount under this sub4 paragraph for blood clotting factors furnished in 2005 or 

5 a subsequent year shall be equal to the separate payment 

6 amount determined under this paragraph for the previous 

7 year increased by the percentage increase described in para8 graph (4)(B)(i)(II) for the year involved.’’. 

9 (5) INCREASE IN COMPOSITE RATE FOR END

10 STAGE RENAL DISEASE FACILITIES.—Section 1881(b) 

11 (42 U.S.C. 1395rr(b) is amended—

12 (A) in paragraph (7), by adding at the end 

13 the following new sentence: ‘‘In the case of dialy14 sis services furnished in 2004 or a subsequent 

15 year, the composite rate for such services shall be 

16 determined under paragraph (12).’’; and 

17 (B) by adding at the end the following new 

18 paragraph: 

19 ‘‘(12)(A) In the case of dialysis services furnished dur20 ing 2004, the composite rate for such services shall be the 

21 composite rate that would otherwise apply under paragraph 

22 (7) for the year increased by an amount to ensure (as esti23 mated by the Secretary) that—

24 ‘‘(i) the sum of the total amount of—
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1 ‘‘(I) the composite rate payments for such 

2 services for the year, as increased under this 

3 paragraph; and 

4 ‘‘(II) the payments for drugs and biologicals 

5 (other than erythropoetin) furnished in connec6 tion with the furnishing of renal dialysis services 

7 and separately billed by renal dialysis facilities 

8 under paragraphs (4) and (5) of section 1842(o) 

9 for the year; is equal to 

10 ‘‘(ii) the sum of the total amount of the com11 posite rate payments under paragraph (7) for the 

12 year and the payments for the separately billed drugs 

13 and biologicals described in clause (i)(II) that would 

14 have been made if the amendments made by section 

15 433 of the Prescription Drug and Medicare Improve16 ment Act of 2003 had not been enacted. 

17 ‘‘(B) Subject to subparagraph (E), in the case of dialy18 sis services furnished in 2005, the composite rate for such 

19 services shall be an amount equal to the composite rate es20 tablished under subparagraph (A), increased by 0.05 per21 cent and further increased pursuant to section 423 of the 

22 Prescription Drug and Medicare Improvement Act of 2003. 

23 ‘‘(C) Subject to subparagraph (E), in the case of dialy24 sis services furnished in 2006, the composite rate for such 

25 services shall be an amount equal to the composite rate es-
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1 tablished under subparagraph (B), increased by 0.05 per2 cent. 

3 ‘‘(D) Subject to subparagraph (E), in the case of dialy4 sis services furnished in 2007 or a subsequent year, the com5 posite rate for such services shall be an amount equal to 

6 the composite rate established under this paragraph for the 

7 previous year (determined as if such section 423 had not 

8 been enacted), increased by 0.05 percent. 

9 ‘‘(E) If the Secretary implements a reduction in 

10 the payment amount under paragraph (4)(C) or (5) 

11 for a drug or biological described in subparagraph 

12 (A)(i)(II) for a year after 2004, the Secretary shall, 

13 as estimated by the Secretary—

14 ‘‘(i) increase the composite rate for dialysis 

15 services furnished in such year in the same man16 ner that the composite rate for such services for 

17 2004 was increased under subparagraph (A); 

18 and 

19 ‘‘(ii) increase the percentage increase under 

20 subparagraph (C) or (D) (as applicable) for 

21 years after the year described in clause (i) to en22 sure that such increased percentage would result 

23 in expenditures equal to the sum of the total 

24 composite rate payments for such services for 

25 such years and the total payments for drugs and 
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1 biologicals described in subparagraph (A)(i)(II) 

2 is equal to the sum of the total amount of the 

3 composite rate payments under this paragraph 

4 for such years and the payments for the drugs 

5 and biologicals described in subparagraph 

6 (A)(i)(II) that would have been made if the re7 duction in payment amount described in sub8 paragraph had not been made. 

9 ‘‘(F) There shall be no administrative or judicial re10 view under section 1869, section 1878, or otherwise, of de11 terminations of payment amounts, methods, or adjustments 

12 under this paragraph.’’. 

13 (6) HOME INFUSION DRUGS.—Section 1842(o) 

14 (42 U.S.C. 1395u(o)), as amended by subsection 

15 (a)(2) and paragraph (4), is amended by adding at 

16 the end the following new paragraph: 

17 ‘‘(7)(A) Subject to subparagraph (B), in the case of 

18 infusion drugs and biologicals furnished through an item 

19 of durable medical equipment covered under section 1861(n) 

20 on or after January 1, 2004, the Secretary may make sepa21 rate payments for furnishing such drugs and biologicals in 

22 an amount determined by the Secretary if the Secretary de23 termines such separate payment to be appropriate. 

24 ‘‘(B) In determining the amount of any separate pay25 ment under subparagraph (A) for a year, the Secretary 
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1 shall ensure that the total amount of payments under this 

2 part for such infusion drugs and biologicals for the year 

3 and such separate payments for the year does not exceed 

4 the total amount of payments that would have been made 

5 under this part for the year for such infusion drugs and 

6 biologicals if section 433 of the Prescription Drug and 

7 Medicare Improvement Act of 2003 had not been enacted.’’. 

8 (7) INHALATION DRUGS.—Section 1842(o) (42 

9 U.S.C. 1395u(o)), as amended by subsection (a)(2) 

10 and paragraphs (4) and (6), is amended by adding 

11 at the end the following new paragraph: 

12 ‘‘(8)(A) Subject to subparagraph (B), in the case of 

13 inhalation drugs and biologicals furnished through durable 

14 medical equipment covered under section 1861(n) on or 

15 after January 1, 2004, the Secretary may increase pay16 ments for such equipment under section 1834(a) and may 

17 make separate payments for furnishing such drugs and 

18 biologicals if the Secretary determines such increased or 

19 separate payments are necessary to appropriately furnish 

20 such equipment and drugs and biologicals to beneficiaries. 

21 ‘‘(B) The total amount of any increased payments and 

22 separate payments under subparagraph (A) for a year may 

23 not exceed an amount equal to 10 percent of the amount 

24 (as estimated by the Secretary) by which—
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1 ‘‘(i) the total amount of payments that would 

2 have been made for such drugs and biologicals for the 

3 year if section 433 of the Prescription Drug and 

4 Medicare Improvement Act of 2003 had not been en5 acted; exceeds 

6 ‘‘(ii) the total amount of payments for such 

7 drugs and biologicals under paragraphs (4) and (5).’’. 

8 (8) PHARMACY DISPENSING FEE FOR CERTAIN

9 DRUGS AND BIOLOGICALS.—Section 1842(o)(2) (42 

10 U.S.C. 1395u(o)(2)) is amended to read as follows: 

11 ‘‘(2) If payment for a drug or biological is made to 

12 a licensed pharmacy approved to dispense drugs or 

13 biologicals under this part, the Secretary—

14 ‘‘(A) in the case of an immunosuppressive drug 

15 described in subparagraph (J) of section 1861(s)(2) 

16 and an oral drug described in subparagraph (Q) or 

17 (T) of such section, shall pay a dispensing fee deter18 mined appropriate by the Secretary (less the applica19 ble deductible and coinsurance amounts) to the phar20 macy; and 

21 ‘‘(B) in the case of a drug or biological not de22 scribed in subparagraph (A), may pay a dispensing 

23 fee determined appropriate by the Secretary (less the 

24 applicable deductible and coinsurance amounts) to the 

25 pharmacy.’’.
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1 (9) PAYMENT FOR CHEMOTHERAPY DRUGS PUR2 CHASED BUT NOT ADMINISTERED BY PHYSICIANS.—

3 Section 1842(o) (42 U.S.C. 1395u(o)), as amended by 

4 subsection (a)(2) and paragraphs (4), (6) and (7), is 

5 amended by adding at the end the following new 

6 paragraph: 

7 ‘‘(9)(A) Subject to subparagraph (B), the Sec8 retary may increase (in an amount determined ap9 propriate) the amount of payments to physicians for 

10 anticancer chemotherapeutic drugs or biologicals that 

11 would otherwise be made under this part in order to 

12 compensate such physicians for anticancer 

13 chemotherapeutic drugs or biologicals that are pur14 chased by physicians with a reasonable intent to ad15 minister to an individual enrolled under this part but 

16 which cannot be administered to such individual de17 spite the reasonable efforts of the physician. 

18 (B) The total amount of increased payments 

19 made under subparagraph (A) in a year (as esti20 mated by the Secretary) may not exceed an amount 

21 equal to 1 percent of the total amount of payments 

22 made under paragraphs (4) and (5) for such 

23 anticancer chemotherapeutic drugs or biologicals fur24 nished by physicians in such year (as estimated by 

25 the Secretary).’’. 
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1 (c) LINKAGE OF REVISED DRUG PAYMENTS AND IN2 CREASES FOR DRUG ADMINISTRATION.—The Secretary 

3 shall not implement the revisions in payment amounts for 

4 a category of drug or biological as a result of the amend5 ments made by subsection (a) unless the Secretary concur6 rently implements the adjustments to payment amounts for 

7 administration of such category of drug or biological for 

8 which the Secretary is required to make an adjustment, as 

9 specified in the amendments made by, and provisions of, 

10 subsection (b). 

11 (d) PROHIBITION OF ADMINISTRATIVE AND JUDICIAL

12 REVIEW.—

13 (1) DRUGS.—Section 1842(o) (42 U.S.C. 

14 1395u(o)), as amended by subsection (a)(2) and para15 graphs (4), (6), (7), and (9) of subsection (b), is 

16 amended by adding at the end the following new 

17 paragraph: 

18 ‘‘(10) There shall be no administrative or judicial re19 view under section 1869, section 1878, or otherwise, of de20 terminations of payment amounts, methods, or adjustments 

21 under paragraph (2) or paragraphs (4) through (9).’’. 

22 (2) PHYSICIAN FEE SCHEDULE.—Section 

23 1848(i)(1) (42 U.S.C. 1395w–4(i)(1)) is amended—

24 (A) in subparagraph (D), by striking ‘‘and’’ 

25 at the end; 
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1 (B) in subparagraph (E), by striking the 

2 period at the end and inserting ‘‘, and’’; and 

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

4 subparagraph: 

5 ‘‘(F) adjustments in practice expense rel6 ative value units under subsection (c)(2)(H).’’. 

7 (3) MULTIPLE CHEMOTHERAPY AGENTS AND

8 OTHER SERVICES CURRENTLY ON THE NON-PHYSICIAN

9 WORK POOL.—There shall be no administrative or ju10 dicial review under section 1869, section 1878, or oth11 erwise, of determinations of payment amounts, meth12 ods, or adjustments under paragraphs (2) and (3) of 

13 subsection (b). 

14 (e) STUDIES AND REPORTS.—

15 (1) GAO STUDY AND REPORT ON BENEFICIARY

16 ACCESS TO DRUGS AND BIOLOGICALS.—

17 (A) STUDY.—The Comptroller General of 

18 the United States shall conduct a study that ex19 amines the impact the provisions of, and the 

20 amendments made by, this section have on access 

21 by medicare beneficiaries to drugs and 

22 biologicals covered under the medicare program. 

23 (B) REPORT.—Not later than January 1, 

24 2006, the Comptroller General shall submit a re25 port to Congress on the study conducted under 
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1 subparagraph (A) together with such rec2 ommendations as the Comptroller General deter3 mines to be appropriate. 

4 (2) STUDY AND REPORT BY THE HHS INSPECTOR

5 GENERAL ON MARKET PRICES OF DRUGS AND

6 BIOLOGICALS.—

7 (A) STUDY.—The Inspector General of the 

8 Department of Health and Human Services shall 

9 conduct 1 or more studies that—

10 (i) examine the market prices that 

11 drugs and biologicals covered under the 

12 medicare program are widely available to 

13 physicians and suppliers; and 

14 (ii) compare such widely available 

15 market prices to the payment amount for 

16 such drugs and biologicals under section 

17 1842(o) of the Social Security Act (42 

18 U.S.C. 1395u(o). 

19 (B) REQUIREMENT.—In conducting the 

20 study under subparagraph (A), the Inspector 

21 General shall focus on those drugs and 

22 biologicals that represent the largest portions of 

23 expenditures under the medicare program for 

24 drugs and biologicals.
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1 (C) REPORT.—The Inspector General shall 

2 prepare a report on any study conducted under 

3 subparagraph (A). 

4 SEC. 434. INDEXING PART B DEDUCTIBLE TO INFLATION. 

5 The first sentence of section 1833(b) (42 U.S.C. 

6 1395l(b)) is amended by striking ‘‘and $100 for 1991 and 

7 subsequent years’’ and inserting the following: ‘‘, $100 for 

8 1991 through 2005, $125 for 2006, and for 2007 and there9 after, the amount in effect for the previous year, increase 

10 by the percentage increase in the consumer price index for 

11 all urban consumers (U.S. city average) for the 12-month 

12 period ending with June of the previous year, rounded to 

13 the nearest dollar’’. 

14 SEC. 435. REVISIONS TO REASSIGNMENT PROVISIONS. 

15 (a) IN GENERAL.—Section 1842(b)(6)(A)(ii) (42 

16 U.S.C. 1395u(b)(6)(A)(ii)) is amended to read as follows: 

17 ‘‘(ii) where the service was provided under a contractual 

18 arrangement between such physician or other person and 

19 an entity (as defined by the Secretary), to the entity if 

20 under such arrangement such entity submits the bill for 

21 such service and such arrangement meets such program in22 tegrity and other safeguards as the Secretary may deter23 mine to be appropriate,’’. 

24 (b) CONFORMING AMENDMENT.—The second sentence 

25 of section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended 
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1 by striking ‘‘except to an employer or facility as described 

2 in clause (A)’’ and inserting ‘‘except to an employer or enti3 ty as described in subparagraph (A)’’. 

4 (c) EFFECTIVE DATE.—The amendments made by this 

5 section shall apply to payments made on or after the date 

6 that is 30 days after the Secretary publishes a final rule 

7 with respect to the amendments made by this section. 

8 SEC. 436. EXTENSION OF TREATMENT OF CERTAIN PHYSI9 CIAN PATHOLOGY SERVICES UNDER MEDI10 CARE. 

11 Section 542(c) of BIPA (114 Stat. 2763A–551) is 

12 amended by inserting ‘‘, and for services furnished during 

13 2005’’ before the period at the end. 

14 SEC. 437. TREATMENT OF PASS-THROUGH DRUGS AND THE 

15 PROSPECTIVE PAYMENT SYSTEM FOR HOS16 PITAL OUTPATIENT DEPARTMENT SERVICES. 

17 (a) EXEMPTION FROM AWP MODIFICATIONS FOR OPD 

18 PASS-THROUGH DRUGS AND BIOLOGICALS.—For purposes 

19 of applying section 1833(t)(6)(D)(i) of the Social Security 

20 Act (42 U.S.C. 1395l(t)(6)(D)(i)) for 2004, the Secretary 

21 of Health and Human Services shall treat the amount that 

22 would have been determined under section 1842(o) of such 

23 Act (42 U.S.C. 1395u(o)) for 2005 as if the amendments 

24 made by section 423 of the Prescription Drug and Medicare 

25 Improvement Act of 2003 had not been enacted. 
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1 (b) GAO STUDY AND REPORT.—

2 (1) STUDY.—The Comptroller General of the 

3 United States shall conduct a study of the appro4 priateness of the payment amount included in pay5 ments made to hospital outpatient departments under 

6 section 1833(t) of the Social Security Act (42 U.S.C. 

7 1395l(t)) for 2005 for drugs and biologicals for which 

8 payment is no longer made under the pass-through 

9 provision under section 1833(t)(6) of such Act (42 

10 U.S.C. 1395l(t)(6)). In conducting such study, the 

11 Comptroller General shall consider the appropriate12 ness of payments for handling and acquisition made 

13 to hospital outpatient departments for such drugs and 

14 biologicals. 

15 (2) REPORT.—Not later than July 1, 2004, the 

16 Comptroller General shall submit to Congress a report 

17 on the study conducted under paragraph (1) together 

18 with such recommendations for legislation and ad19 ministrative action as the Comptroller General deter20 mines to be appropriate. 

21 SEC. 438. LIMITATION OF APPLICATION OF FUNCTIONAL 

22 EQUIVALENCE STANDARD. 

23 Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) is amended 

24 by adding at the end the following new subparagraph: 
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1 ‘‘(F) LIMITATION OF APPLICATION OF FUNC2 TIONAL EQUIVALENCE STANDARD.—

3 ‘‘(i) IN GENERAL.—The Secretary may 

4 not publish regulations that apply a func5 tional equivalence standard to a drug or bi6 ological under this paragraph. 

7 ‘‘(ii) APPLICATION.—Paragraph (1) 

8 shall apply to the application of a func9 tional equivalence standard to a drug or bi10 ological on or after the date of enactment of 

11 the Prescription Drug and Medicare Im12 provement Act of 2003 unless such applica13 tion was being made to such drug or bio14 logical prior to such date of enactment.’’. 

15 SEC. 439. MEDICARE COVERAGE OF ROUTINE COSTS ASSO16 CIATED WITH CERTAIN CLINICAL TRIALS. 

17 (a) IN GENERAL.—With respect to the coverage of rou18 tine costs of care for beneficiaries participating in a quali19 fying clinical trial, as set forth on the date of the enactment 

20 of this Act in National Coverage Determination 30-1 of the 

21 Medicare Coverage Issues Manual, the Secretary shall deem 

22 clinical trials conducted in accordance with an investiga23 tional device exemption approved under section 520(g) of 

24 the Federal Food, Drug, and Cosmetic Act (42 U.S.C. 

25 360j(g)) to be automatically qualified for such coverage.
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1 (b) RULE OF CONSTRUCTION.—Nothing in this section 

2 shall be construed as authorizing or requiring the Secretary 

3 to modify the regulations set forth on the date of the enact4 ment of this Act at subpart B of part 405 of title 42, Code 

5 of Federal Regulations, or subpart A of part 411 of such 

6 title, relating to coverage of, and payment for, a medical 

7 device that is the subject of an investigational device exemp8 tion by the Food and Drug Administration (except as may 

9 be necessary to implement subsection (a)). 

10 (c) EFFECTIVE DATE.—This section shall apply to 

11 clinical trials begun before, on, or after January 1, 2005. 

12 SEC. 440. WAIVER OF PART B LATE ENROLLMENT PENALTY 

13 FOR CERTAIN MILITARY RETIREES; SPECIAL 

14 ENROLLMENT PERIOD. 

15 (a) WAIVER OF PENALTY.—

16 (1) IN GENERAL.—Section 1839(b) (42 U.S.C. 

17 1395r(b)) is amended by adding at the end the fol18 lowing new sentence: ‘‘No increase in the premium 

19 shall be effected for a month in the case of an indi20 vidual who is 65 years of age or older, who enrolls 

21 under this part during 2002, 2003, 2004, or 2005 and 

22 who demonstrates to the Secretary before December 

23 31, 2005, that the individual is a covered beneficiary 

24 (as defined in section 1072(5) of title 10, United 

25 States Code). The Secretary shall consult with the 
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1 Secretary of Defense in identifying individuals de2 scribed in the previous sentence.’’. 

3 (2) EFFECTIVE DATE.—The amendment made by 

4 paragraph (1) shall apply to premiums for months 

5 beginning with January 2005. The Secretary shall es6 tablish a method for providing rebates of premium 

7 penalties paid for months on or after January 2005 

8 for which a penalty does not apply under such 

9 amendment but for which a penalty was previously 

10 collected. 

11 (b) MEDICARE PART B SPECIAL ENROLLMENT PE12 RIOD.—

13 (1) IN GENERAL.—In the case of any individual 

14 who, as of the date of enactment of this Act, is 65 

15 years of age or older, is eligible to enroll but is not 

16 enrolled under part B of title XVIII of the Social Se17 curity Act, and is a covered beneficiary (as defined 

18 in section 1072(5) of title 10, United States Code), the 

19 Secretary shall provide for a special enrollment pe20 riod during which the individual may enroll under 

21 such part. Such period shall begin 1 year after the 

22 date of the enactment of this Act and shall end on De23 cember 31, 2005. 

24 (2) COVERAGE PERIOD.—In the case of an indi25 vidual who enrolls during the special enrollment pe-
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1 riod provided under paragraph (1), the coverage pe2 riod under part B of title XVIII of the Social Secu3 rity Act shall begin on the first day of the month fol4 lowing the month in which the individual enrolls. 

5 SEC. 441. DEMONSTRATION OF COVERAGE OF CHIRO6 PRACTIC SERVICES UNDER MEDICARE. 

7 (a) DEFINITIONS.—In this section: 

8 (1) CHIROPRACTIC SERVICES.—The term ‘‘chiro9 practic services’’ has the meaning given that term by 

10 the Secretary for purposes of the demonstration 

11 projects, but shall include, at a minimum—

12 (A) care for neuromusculoskeletal conditions 

13 typical among eligible beneficiaries; and 

14 (B) diagnostic and other services that a chi15 ropractor is legally authorized to perform by the 

16 State or jurisdiction in which such treatment is 

17 provided. 

18 (2) DEMONSTRATION PROJECT.—The term ‘‘dem19 onstration project’’ means a demonstration project es20 tablished by the Secretary under subsection (b)(1). 

21 (3) ELIGIBLE BENEFICIARY.—The term ‘‘eligible 

22 beneficiary’’ means an individual who is enrolled 

23 under part B of the medicare program. 

24 (4) MEDICARE PROGRAM.—The term ‘‘medicare 

25 program’’ means the health benefits program under 
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1 title XVIII of the Social Security Act (42 U.S.C. 1395 

2 et seq.). 

3 (b) DEMONSTRATION OF COVERAGE OF CHIROPRACTIC

4 SERVICES UNDER MEDICARE.—

5 (1) ESTABLISHMENT.—The Secretary shall estab6 lish demonstration projects in accordance with the 

7 provisions of this section for the purpose of evaluating 

8 the feasibility and advisability of covering chiro9 practic services under the medicare program (in addi10 tion to the coverage provided for services consisting of 

11 treatment by means of manual manipulation of the 

12 spine to correct a subluxation described in section 

13 1861(r)(5) of the Social Security Act (42 U.S.C. 

14 1395x(r)(5))). 

15 (2) NO PHYSICIAN APPROVAL REQUIRED.—In es16 tablishing the demonstration projects, the Secretary 

17 shall ensure that an eligible beneficiary who partici18 pates in a demonstration project, including an eligi19 ble beneficiary who is enrolled for coverage under a 

20 Medicare+Choice plan (or, on and after January 1, 

21 2006, under a MedicareAdvantage plan), is not re22 quired to receive approval from a physician or other 

23 health care provider in order to receive a chiropractic 

24 service under a demonstration project. 
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1 (3) CONSULTATION.—In establishing the dem2 onstration projects, the Secretary shall consult with 

3 chiropractors, organizations representing chiroprac4 tors, eligible beneficiaries, and organizations rep5 resenting eligible beneficiaries. 

6 (4) PARTICIPATION.—Any eligible beneficiary 

7 may participate in the demonstration projects on a 

8 voluntary basis. 

9 (c) CONDUCT OF DEMONSTRATION PROJECTS.—

10 (1) DEMONSTRATION SITES.—

11 (A) SELECTION OF DEMONSTRATION

12 SITES.—The Secretary shall conduct demonstra13 tion projects at 6 demonstration sites. 

14 (B) GEOGRAPHIC DIVERSITY.—Of the sites 

15 described in subparagraph (A)—

16 (i) 3 shall be in rural areas; and 

17 (ii) 3 shall be in urban areas. 

18 (C) SITES LOCATED IN HPSAS.—At least 1 

19 site described in clause (i) of subparagraph (B) 

20 and at least 1 site described in clause (ii) of such 

21 subparagraph shall be located in an area that is 

22 designated under section 332(a)(1)(A) of the 

23 Public Health Service Act (42 U.S.C. 

24 254e(a)(1)(A)) as a health professional shortage 

25 area.
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1 (2) IMPLEMENTATION; DURATION.—

2 (A) IMPLEMENTATION.—The Secretary shall 

3 not implement the demonstration projects before 

4 October 1, 2004. 

5 (B) DURATION.—The Secretary shall com6 plete the demonstration projects by the date that 

7 is 3 years after the date on which the first dem8 onstration project is implemented. 

9 (d) EVALUATION AND REPORT.—

10 (1) EVALUATION.—The Secretary shall conduct 

11 an evaluation of the demonstration projects—

12 (A) to determine whether eligible bene13 ficiaries who use chiropractic services use a less14 er overall amount of items and services for which 

15 payment is made under the medicare program 

16 than eligible beneficiaries who do not use such 

17 services; 

18 (B) to determine the cost of providing pay19 ment for chiropractic services under the medicare 

20 program; 

21 (C) to determine the satisfaction of eligible 

22 beneficiaries participating in the demonstration 

23 projects and the quality of care received by such 

24 beneficiaries; and 
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1 (D) to evaluate such other matters as the 

2 Secretary determines is appropriate. 

3 (2) REPORT.—Not later than the date that is 1 

4 year after the date on which the demonstration 

5 projects conclude, the Secretary shall submit to Con6 gress a report on the evaluation conducted under 

7 paragraph (1) together with such recommendations 

8 for legislation or administrative action as the Sec9 retary determines is appropriate. 

10 (e) WAIVER OF MEDICARE REQUIREMENTS.—The Sec11 retary shall waive compliance with such requirements of the 

12 medicare program to the extent and for the period the Sec13 retary finds necessary to conduct the demonstration 

14 projects. 

15 (f) FUNDING.—

16 (1) DEMONSTRATION PROJECTS.—

17 (A) IN GENERAL.—Subject to subparagraph 

18 (B) and paragraph (2), the Secretary shall pro19 vide for the transfer from the Federal Supple20 mentary Insurance Trust Fund under section 

21 1841 of the Social Security Act (42 U.S.C. 

22 1395t) of such funds as are necessary for the 

23 costs of carrying out the demonstration projects 

24 under this section. 
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1 (B) LIMITATION.—In conducting the dem2 onstration projects under this section, the Sec3 retary shall ensure that the aggregate payments 

4 made by the Secretary under the medicare pro5 gram do not exceed the amount which the Sec6 retary would have paid under the medicare pro7 gram if the demonstration projects under this 

8 section were not implemented. 

9 (2) EVALUATION AND REPORT.—There are au10 thorized to be appropriated such sums as are nec11 essary for the purpose of developing and submitting 

12 the report to Congress under subsection (d). 

13 SEC. 442. MEDICARE HEALTH CARE QUALITY DEMONSTRA14 TION PROGRAMS. 

15 Title XVIII (42 U.S.C. 1395 et seq.) is amended by 

16 inserting after section 1866B the following new section: 

17 ‘‘HEALTH CARE QUALITY DEMONSTRATION PROGRAM

18 ‘‘SEC. 1866C. (a) DEFINITIONS.—In this section: 

19 ‘‘(1) BENEFICIARY.—The term ‘beneficiary’ 

20 means a beneficiary who is enrolled in the original 

21 medicare fee-for-service program under parts A and B 

22 or a beneficiary in a staff model or dedicated group 

23 model health maintenance organization under the 

24 Medicare+Choice program (or, on and after January 

25 1, 2006, under the MedicareAdvantage program) 

26 under part C. 
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1 ‘‘(2) HEALTH CARE GROUP.—

2 ‘‘(A) IN GENERAL.—The term ‘health care 

3 group’ means—

4 ‘‘(i) a group of physicians that is orga5 nized at least in part for the purpose of 

6 providing physician’s services under this 

7 title; 

8 ‘‘(ii) an integrated health care delivery 

9 system that delivers care through coordi10 nated hospitals, clinics, home health agen11 cies, ambulatory surgery centers, skilled 

12 nursing facilities, rehabilitation facilities 

13 and clinics, and employed, independent, or 

14 contracted physicians; or 

15 ‘‘(iii) an organization representing re16 gional coalitions of groups or systems de17 scribed in clause (i) or (ii). 

18 ‘‘(B) INCLUSION.—As the Secretary deter19 mines appropriate, a health care group may in20 clude a hospital or any other individual or enti21 ty furnishing items or services for which pay22 ment may be made under this title that is affili23 ated with the health care group under an ar24 rangement structured so that such hospital, indi-
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1 vidual, or entity participates in a demonstration 

2 project under this section. 

3 ‘‘(3) PHYSICIAN.—Except as otherwise provided 

4 for by the Secretary, the term ‘physician’ means any 

5 individual who furnishes services that may be paid 

6 for as physicians’ services under this title. 

7 ‘‘(b) DEMONSTRATION PROJECTS.—The Secretary 

8 shall establish a 5-year demonstration program under 

9 which the Secretary shall approve demonstration projects 

10 that examine health delivery factors that encourage the de11 livery of improved quality in patient care, including—

12 ‘‘(1) the provision of incentives to improve the 

13 safety of care provided to beneficiaries; 

14 ‘‘(2) the appropriate use of best practice guide15 lines by providers and services by beneficiaries; 

16 ‘‘(3) reduced scientific uncertainty in the deliv17 ery of care through the examination of variations in 

18 the utilization and allocation of services, and out19 comes measurement and research; 

20 ‘‘(4) encourage shared decision making between 

21 providers and patients; 

22 ‘‘(5) the provision of incentives for improving the 

23 quality and safety of care and achieving the efficient 

24 allocation of resources;
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1 ‘‘(6) the appropriate use of culturally and eth2 nically sensitive health care delivery; and 

3 ‘‘(7) the financial effects on the health care mar4 ketplace of altering the incentives for care delivery 

5 and changing the allocation of resources. 

6 ‘‘(c) ADMINISTRATION BY CONTRACT.—

7 ‘‘(1) IN GENERAL.—Except as otherwise provided 

8 in this section, the Secretary may administer the 

9 demonstration program established under this section 

10 in a manner that is similar to the manner in which 

11 the demonstration program established under section 

12 1866A is administered in accordance with section 

13 1866B. 

14 ‘‘(2) ALTERNATIVE PAYMENT SYSTEMS.—A 

15 health care group that receives assistance under this 

16 section may, with respect to the demonstration project 

17 to be carried out with such assistance, include pro18 posals for the use of alternative payment systems for 

19 items and services provided to beneficiaries by the 

20 group that are designed to—

21 ‘‘(A) encourage the delivery of high quality 

22 care while accomplishing the objectives described 

23 in subsection (b); and 
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1 ‘‘(B) streamline documentation and report2 ing requirements otherwise required under this 

3 title. 

4 ‘‘(3) BENEFITS.—A health care group that re5 ceives assistance under this section may, with respect 

6 to the demonstration project to be carried out with 

7 such assistance, include modifications to the package 

8 of benefits available under the traditional fee-for-serv9 ice program under parts A and B or the package of 

10 benefits available through a staff model or a dedicated 

11 group model health maintenance organization under 

12 part C. The criteria employed under the demonstra13 tion program under this section to evaluate outcomes 

14 and determine best practice guidelines and incentives 

15 shall not be used as a basis for the denial of medicare 

16 benefits under the demonstration program to patients 

17 against their wishes (or if the patient is incompetent, 

18 against the wishes of the patient’s surrogate) on the 

19 basis of the patient’s age or expected length of life or 

20 of the patient’s present or predicted disability, degree 

21 of medical dependency, or quality of life. 

22 ‘‘(d) ELIGIBILITY CRITERIA.—To be eligible to receive 

23 assistance under this section, an entity shall—

24 ‘‘(1) be a health care group; 
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1 ‘‘(2) meet quality standards established by the 

2 Secretary, including—

3 ‘‘(A) the implementation of continuous 

4 quality improvement mechanisms that are aimed 

5 at integrating community-based support services, 

6 primary care, and referral care; 

7 ‘‘(B) the implementation of activities to in8 crease the delivery of effective care to bene9 ficiaries; 

10 ‘‘(C) encouraging patient participation in 

11 preference-based decisions; 

12 ‘‘(D) the implementation of activities to en13 courage the coordination and integration of med14 ical service delivery; and 

15 ‘‘(E) the implementation of activities to 

16 measure and document the financial impact on 

17 the health care marketplace of altering the incen18 tives of health care delivery and changing the al19 location of resources; and 

20 ‘‘(3) meet such other requirements as the Sec21 retary may establish. 

22 ‘‘(e) WAIVER AUTHORITY.—The Secretary may waive 

23 such requirements of titles XI and XVIII as may be nec24 essary to carry out the purposes of the demonstration pro25 gram established under this section. 
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1 ‘‘(f) BUDGET NEUTRALITY.—With respect to the 5-year 

2 period of the demonstration program under subsection (b), 

3 the aggregate expenditures under this title for such period 

4 shall not exceed the aggregate expenditures that would have 

5 been expended under this title if the program established 

6 under this section had not been implemented. 

7 ‘‘(g) NOTICE REQUIREMENTS.—In the case of an indi8 vidual that receives health care items or services under a 

9 demonstration program carried out under this section, the 

10 Secretary shall ensure that such individual is notified of 

11 any waivers of coverage or payment rules that are applica12 ble to such individual under this title as a result of the 

13 participation of the individual in such program. 

14 ‘‘(h) PARTICIPATION AND SUPPORT BY FEDERAL

15 AGENCIES.—In carrying out the demonstration program 

16 under this section, the Secretary may direct—

17 ‘‘(1) the Director of the National Institutes of 

18 Health to expand the efforts of the Institutes to evalu19 ate current medical technologies and improve the 

20 foundation for evidence-based practice; 

21 ‘‘(2) the Administrator of the Agency for 

22 Healthcare Research and Quality to, where possible 

23 and appropriate, use the program under this section 

24 as a laboratory for the study of quality improvement 
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1 strategies and to evaluate, monitor, and disseminate 

2 information relevant to such program; and 

3 ‘‘(3) the Administrator of the Centers for Medi4 care & Medicaid Services and the Administrator of 

5 the Center for Medicare Choices to support linkages of 

6 relevant medicare data to registry information from 

7 participating health care groups for the beneficiary 

8 populations served by the participating groups, for 

9 analysis supporting the purposes of the demonstration 

10 program, consistent with the applicable provisions of 

11 the Health Insurance Portability and Accountability 

12 Act of 1996. 

13 ‘‘(i) IMPLEMENTATION.—The Secretary shall not im14 plement the demonstration program before October 1, 

15 2004.’’. 

16 SEC. 443. MEDICARE COMPLEX CLINICAL CARE MANAGE17 MENT PAYMENT DEMONSTRATION. 

18 (a) ESTABLISHMENT.—

19 (1) IN GENERAL.—The Secretary shall establish 

20 a demonstration program to make the medicare pro21 gram more responsive to needs of eligible beneficiaries 

22 by promoting continuity of care, helping stabilize 

23 medical conditions, preventing or minimizing acute 

24 exacerbations of chronic conditions, and reducing ad-
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1 verse health outcomes, such as adverse drug inter2 actions related to polypharmacy. 

3 (2) SITES.—The Secretary shall designate 6 sites 

4 at which to conduct the demonstration program under 

5 this section, of which at least 3 shall be in an urban 

6 area and at least 1 shall be in a rural area. One of 

7 the sites shall be located in the State of Arkansas. 

8 (3) DURATION.—The Secretary shall conduct the 

9 demonstration program under this section for a 3-

10 year period. 

11 (4) IMPLEMENTATION.—The Secretary shall not 

12 implement the demonstration program before October 

13 1, 2004. 

14 (b) PARTICIPANTS.—Any eligible beneficiary who re15 sides in an area designated by the Secretary as a dem16 onstration site under subsection (a)(2) may participate in 

17 the demonstration program under this section if such bene18 ficiary identifies a principal care physician who agrees to 

19 manage the complex clinical care of the eligible beneficiary 

20 under the demonstration program. 

21 (c) PRINCIPAL CARE PHYSICIAN RESPONSIBILITIES.—

22 The Secretary shall enter into an agreement with each prin23 cipal care physician who agrees to manage the complex 

24 clinical care of an eligible beneficiary under subsection (b) 

25 under which the principal care physician shall—
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1 (1) serve as the primary contact of the eligible 

2 beneficiary in accessing items and services for which 

3 payment may be made under the medicare program; 

4 (2) maintain medical information related to care 

5 provided by other health care providers who provide 

6 health care items and services to the eligible bene7 ficiary, including clinical reports, medication and 

8 treatments prescribed by other physicians, hospital 

9 and hospital outpatient services, skilled nursing home 

10 care, home health care, and medical equipment serv11 ices; 

12 (3) monitor and advocate for the continuity of 

13 care of the eligible beneficiary and the use of evidence14 based guidelines; 

15 (4) promote self-care and family caregiver in16 volvement where appropriate; 

17 (5) have appropriate staffing arrangements to 

18 conduct patient self-management and other care co19 ordination activities as specified by the Secretary; 

20 (6) refer the eligible beneficiary to community 

21 services organizations and coordinate the services of 

22 such organizations with the care provided by health 

23 care providers; and 

24 (7) meet such other complex care management 

25 requirements as the Secretary may specify. 
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1 (d) COMPLEX CLINICAL CARE MANAGEMENT FEE.—

2 (1) PAYMENT.—Under an agreement entered into 

3 under subsection (c), the Secretary shall pay to each 

4 principal care physician, on behalf of each eligible 

5 beneficiary under the care of that physician, the com6 plex clinical care management fee developed by the 

7 Secretary under paragraph (2). 

8 (2) DEVELOPMENT OF FEE.—The Secretary shall 

9 develop a complex care management fee under this 

10 paragraph that is paid on a monthly basis and which 

11 shall be payment in full for all the functions per12 formed by the principal care physician under the 

13 demonstration program, including any functions per14 formed by other qualified practitioners acting on be15 half of the physician, appropriate staff under the su16 pervision of the physician, and any other person 

17 under a contract with the physician, including any 

18 person who conducts patient self-management and 

19 caregiver education under subsection (c)(4). 

20 (e) FUNDING.—

21 (1) IN GENERAL.—The Secretary shall provide 

22 for the transfer from the Federal Supplementary In23 surance Trust Fund established under section 1841 of 

24 the Social Security Act (42 U.S.C. 1395t) of such 
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1 funds as are necessary for the costs of carrying out 

2 the demonstration program under this section. 

3 (2) BUDGET NEUTRALITY.—In conducting the 

4 demonstration program under this section, the Sec5 retary shall ensure that the aggregate payments made 

6 by the Secretary do not exceed the amount which the 

7 Secretary would have paid if the demonstration pro8 gram under this section was not implemented. 

9 (f) WAIVER AUTHORITY.—The Secretary may waive 

10 such requirements of titles XI and XVIII of the Social Secu11 rity Act (42 U.S.C. 1301 et seq.; 1395 et seq.) as may be 

12 necessary for the purpose of carrying out the demonstration 

13 program under this section. 

14 (g) REPORT.—Not later than 6 months after the com15 pletion of the demonstration program under this section, 

16 the Secretary shall submit to Congress a report on such pro17 gram, together with recommendations for such legislation 

18 and administrative action as the Secretary determines to 

19 be appropriate. 

20 (h) DEFINITIONS.—In this section: 

21 (1) ACTIVITY OF DAILY LIVING.—The term ‘‘ac22 tivity of daily living’’ means eating, toiling, transfer23 ring, bathing, dressing, and continence. 

24 (2) CHRONIC CONDITION.—The term ‘‘chronic 

25 condition’’ means a biological, physical, or mental 
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1 condition that is likely to last a year or more, for 

2 which there is no known cure, for which there is a 

3 need for ongoing medical care, and which may affect 

4 an individual’s ability to carry out activities of daily 

5 living or instrumental activities of daily living, or 

6 both. 

7 (3) ELIGIBLE BENEFICIARY.—The term ‘‘eligible 

8 beneficiary’’ means any individual who—

9 (A) is enrolled for benefits under part B of 

10 the medicare program; 

11 (B) has at least 4 complex medical condi12 tions (one of which may be cognitive impair13 ment); and 

14 (C) has—

15 (i) an inability to self-manage their 

16 care; or 

17 (ii) a functional limitation defined as 

18 an impairment in 1 or more activity of 

19 daily living or instrumental activity of 

20 daily living. 

21 (4) INSTRUMENTAL ACTIVITY OF DAILY LIVING.—

22 The term ‘‘instrumental activity of daily living’’ 

23 means meal preparation, shopping, housekeeping, 

24 laundry, money management, telephone use, and 

25 transportation use.
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1 (5) MEDICARE PROGRAM.—The term ‘‘medicare 

2 program’’ means the health care program under title 

3 XVIII of the Social Security Act (42 U.S.C. 1395 et 

4 seq.). 

5 (6) PRINCIPAL CARE PHYSICIAN.—The term 

6 ‘‘principal care physician’’ means the physician with 

7 primary responsibility for overall coordination of the 

8 care of an eligible beneficiary (as specified in a writ9 ten plan of care) who may be a primary care physi10 cian or a specialist. 

11 SEC. 444. MEDICARE FEE-FOR-SERVICE CARE COORDINA12 TION DEMONSTRATION PROGRAM. 

13 (a) ESTABLISHMENT.—

14 (1) IN GENERAL.—The Secretary shall establish 

15 a demonstration program to contract with qualified 

16 care management organizations to provide health risk 

17 assessment and care management services to eligible 

18 beneficiaries who receive care under the original 

19 medicare fee-for-service program under parts A and B 

20 of title XVIII of the Social Security Act to eligible 

21 beneficiaries. 

22 (2) SITES.—The Secretary shall designate 6 sites 

23 at which to conduct the demonstration program under 

24 this section. In selecting sites under this paragraph, 
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1 the Secretary shall give preference to sites located in 

2 rural areas. 

3 (3) DURATION.—The Secretary shall conduct the 

4 demonstration program under this section for a 5-

5 year period. 

6 (4) IMPLEMENTATION.—The Secretary shall not 

7 implement the demonstration program before October 

8 1, 2004. 

9 (b) PARTICIPANTS.—Any eligible beneficiary who re10 sides in an area designated by the Secretary as a dem11 onstration site under subsection (a)(2) may participate in 

12 the demonstration program under this section if such bene13 ficiary identifies a care management organization who 

14 agrees to furnish care management services to the eligible 

15 beneficiary under the demonstration program. 

16 (c) CONTRACTS WITH CMOS.—

17 (1) IN GENERAL.—The Secretary shall enter into 

18 a contract with care management organizations to 

19 provide care management services to eligible bene20 ficiaries residing in the area served by the care man21 agement organization. 

22 (2) CANCELLATION.—The Secretary may cancel 

23 a contract entered into under paragraph (1) if the 

24 care management organization does not meet nego-
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1 tiated savings or quality outcomes targets for the 

2 year. 

3 (3) NUMBER OF CMOS.—The Secretary may con4 tract with more than 1 care management organiza5 tion in a geographic area. 

6 (d) PAYMENT TO CMOS.—

7 (1) PAYMENT.—Under an contract entered into 

8 under subsection (c), the Secretary shall pay care 

9 management organizations a fee for which the care 

10 management organization is partially at risk based 

11 on bids submitted by care management organizations. 

12 (2) PORTION OF PAYMENT AT RISK.—The Sec13 retary shall establish a benchmark for quality and 

14 cost against which the results of the care management 

15 organization are to be measured. The Secretary may 

16 not pay a care management organization the portion 

17 of the fee described in paragraph (1) that is at risk 

18 unless the Secretary determines that the care manage19 ment organization has met the agreed upon savings 

20 and outcomes targets for the year. 

21 (e) FUNDING.—

22 (1) IN GENERAL.—The Secretary shall provide 

23 for the transfer from the Federal Hospital Insurance 

24 Trust Fund under section 1817 of the Social Security 

25 Act (42 U.S.C. 1395i) and the Federal Supple-
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1 mentary Insurance Trust Fund established under sec2 tion 1841 of such Act (42 U.S.C. 1395t), in such pro3 portion as the Secretary determines to be appropriate, 

4 of such funds as are necessary for the costs of car5 rying out the demonstration program under this sec6 tion. 

7 (2) BUDGET NEUTRALITY.—In conducting the 

8 demonstration program under this section, the Sec9 retary shall ensure that the aggregate payments made 

10 by the Secretary do not exceed the amount which the 

11 Secretary would have paid if the demonstration pro12 gram under this section was not implemented. 

13 (f) WAIVER AUTHORITY.—

14 (1) IN GENERAL.—The Secretary may waive 

15 such requirements of titles XI and XVIII of the Social 

16 Security Act (42 U.S.C. 1301 et seq.; 1395 et seq.) as 

17 may be necessary for the purpose of carrying out the 

18 demonstration program under this section. 

19 (2) WAIVER OF MEDIGAP PREEMPTIONS.—The 

20 Secretary shall waive any provision of section 1882 

21 of the Social Security Act that would prevent an in22 surance carrier described in subsection (h)(3)(D) from 

23 participating in the demonstration program under 

24 this section.
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1 (g) REPORT.—Not later than 6 months after the com2 pletion of the demonstration program under this section, 

3 the Secretary shall submit to Congress a report on such pro4 gram, together with recommendations for such legislation 

5 and administrative action as the Secretary determines to 

6 be appropriate. 

7 (h) DEFINITIONS.—In this section: 

8 (1) CARE MANAGEMENT SERVICES.—The term 

9 ‘‘care management services’’ means services that are 

10 furnished to an eligible beneficiary (as defined in 

11 paragraph (2)) by a care management organization 

12 (as defined in paragraph (3)) in accordance with 

13 guidelines established by the Secretary that are con14 sistent with guidelines established by the American 

15 Geriatrics Society. 

16 (2) ELIGIBLE BENEFICIARY.—The term ‘‘eligible 

17 beneficiary’’ means an individual who is—

18 (A) entitled to (or enrolled for) benefits 

19 under part A and enrolled for benefits under 

20 part B of the Social Security Act (42 U.S.C. 

21 1395c et seq.; 1395j et seq.); 

22 (B) not enrolled with a Medicare+Choice 

23 plan or a MedicareAdvantage plan under part 

24 C; and 
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1 (C) at high-risk (as defined by the Sec2 retary, but including eligible beneficiaries with 

3 multiple sclerosis or another disabling chronic 

4 condition, eligible beneficiaries residing in a 

5 nursing home or at risk for nursing home place6 ment, or eligible beneficiaries eligible for assist7 ance under a State plan under title XIX). 

8 (3) CARE MANAGEMENT ORGANIZATION.—The 

9 term ‘‘care management organization’’ means an or10 ganization that meets such qualifications as the Sec11 retary may specify and includes any of the following: 

12 (A) A physician group practice, hospital, 

13 home health agency, or hospice program. 

14 (B) A disease management organization. 

15 (C) A Medicare+Choice or 

16 MedicareAdvantage organization. 

17 (D) Insurance carriers offering medicare 

18 supplemental policies under section 1882 of the 

19 Social Security Act (42 U.S.C. 1395ss). 

20 (E) Such other entity as the Secretary de21 termines to be appropriate. 

22 SEC. 445. GAO STUDY OF GEOGRAPHIC DIFFERENCES IN 

23 PAYMENTS FOR PHYSICIANS’ SERVICES. 

24 (a) STUDY.—The Comptroller General of the United 

25 States shall conduct a study of differences in payment 
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1 amounts under the physician fee schedule under section 

2 1848 of the Social Security Act (42 U.S.C. 1395w–4) for 

3 physicians’ services in different geographic areas. Such 

4 study shall include—

5 (1) an assessment of the validity of the geo6 graphic adjustment factors used for each component of 

7 the fee schedule; 

8 (2) an evaluation of the measures used for such 

9 adjustment, including the frequency of revisions; 

10 (3) an evaluation of the methods used to deter11 mine professional liability insurance costs used in 

12 computing the malpractice component, including a 

13 review of increases in professional liability insurance 

14 premiums and variation in such increases by State 

15 and physician specialty and methods used to update 

16 the geographic cost of practice index and relative 

17 weights for the malpractice component; 

18 (4) an evaluation of whether there is a sound 

19 economic basis for the implementation of the adjust20 ment under subparagraphs (E) and (F) of section 

21 1848(e)(1) of the Social Security Act (42 U.S.C. 

22 1395w–4(e)(1)), as added by section 421, in those 

23 areas in which the adjustment applies; 
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1 (5) an evaluation of the effect of such adjustment 

2 on physician location and retention in areas affected 

3 by such adjustment, taking into account—

4 (A) differences in recruitment costs and re5 tention rates for physicians, including special6 ists, between large urban areas and other areas; 

7 and 

8 (B) the mobility of physicians, including 

9 specialists, over the last decade; and 

10 (6) an evaluation of appropriateness of extend11 ing such adjustment or making such adjustment per12 manent. 

13 (b) REPORT.—Not later than 1 year after the date of 

14 enactment of this Act, the Comptroller General of the United 

15 States shall submit to Congress a report on the study con16 ducted under subsection (a). The report shall include rec17 ommendations regarding the use of more current data in 

18 computing geographic cost of practice indices as well as the 

19 use of data directly representative of physicians’ costs (rath20 er than proxy measures of such costs).
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1 Subtitle C—Provisions Relating to 

2 Parts A and B 

3 SEC. 451. INCREASE FOR HOME HEALTH SERVICES FUR4 NISHED IN A RURAL AREA. 

5 (a) IN GENERAL.—In the case of home health services 

6 furnished in a rural area (as defined in section 

7 1886(d)(2)(D) of the Social Security Act (42 U.S.C. 

8 1395ww(d)(2)(D))) on or after October 1, 2004, and before 

9 October 1, 2006, the Secretary shall increase the payment 

10 amount otherwise made under section 1895 of such Act (42 

11 U.S.C. 1395fff ) for such services by 5 percent. 

12 (b) WAIVING BUDGET NEUTRALITY.—The Secretary 

13 shall not reduce the standard prospective payment amount 

14 (or amounts) under section 1895 of the Social Security Act 

15 (42 U.S.C. 1395fff ) applicable to home health services fur16 nished during a period to offset the increase in payments 

17 resulting from the application of subsection (a). 

18 (c) NO EFFECT ON SUBSEQUENT PERIODS.—The pay19 ment increase provided under subsection (a) for a period 

20 under such subsection—

21 (1) shall not apply to episodes and visits ending 

22 after such period; and 

23 (2) shall not be taken into account in calculating 

24 the payment amounts applicable for episodes and vis25 its occurring after such period. 
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1 SEC. 452. LIMITATION ON REDUCTION IN AREA WAGE AD2 JUSTMENT FACTORS UNDER THE PROSPEC3 TIVE PAYMENT SYSTEM FOR HOME HEALTH 

4 SERVICES. 

5 Section 1895(b)(4)(C) (42 U.S.C. 1395fff(b)(4)(C)) is 

6 amended—

7 (1) by striking ‘‘FACTORS.—The Secretary’’ and 

8 inserting FACTORS.—

9 ‘‘(i) IN GENERAL.—Subject to clause 

10 (ii), the Secretary’’; and 

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

12 clause: 

13 ‘‘(ii) LIMITATION ON REDUCTION IN

14 FISCAL YEAR 2005 AND 2006.—For fiscal 

15 years 2005 and 2006, the area wage adjust16 ment factor applicable to home health serv17 ices furnished in an area in the fiscal year 

18 may not be more that 3 percent less than 

19 the area wage adjustment factor applicable 

20 to home health services for the area for the 

21 previous year.’’. 
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1 SEC. 453. EXCEPTION TO PHYSICIAN REFERRAL LIMITA2 TION FOR CERTAIN TRANSFERS FROM SPE3 CIALTY HOSPITALS TO GENERAL HOSPITALS. 

4 (a) EXCEPTIONS TO BOTH OWNERSHIP AND COM5 PENSATION ARRANGEMENT PROHIBITIONS.—Section 

6 1877(d) (42 U.S.C. 1395nn(d)) is amended—

7 (1) in paragraph (2), by inserting ‘‘and such in8 dividuals would not otherwise have access to such 

9 services’’ before the period at the end; 

10 (2) by striking paragraph (3) and inserting the 

11 following new paragraph: 

12 ‘‘(3) HOSPITAL OWNERSHIP.—

13 ‘‘(A) WHOLE HOSPITAL EXCEPTION.—Sub14 ject to subparagraph (B), in the case of des15 ignated health services provided by a hospital 

16 (other than a hospital described in paragraph 

17 (1) or a hospital designated by the Secretary 

18 that is primarily or exclusively devoted to car19 diac, orthopedic, surgical, or another specialty) 

20 if—

21 ‘‘(i) the referring physician is author22 ized to perform services at the hospital; and 

23 ‘‘(ii) the ownership or investment in24 terest is in the hospital itself (and not mere25 ly in a subdivision of the hospital). 
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1 ‘‘(B) INAPPLICABILITY OF EXCEPTION TO

2 SPECIALTY HOSPITALS.—The Secretary shall 

3 promulgate a regulation establishing guidelines 

4 for the designation of hospitals under subpara5 graph (A) that permit a physician to have a fi6 nancial relationship with a hospital, but such 

7 regulation shall only apply to such a hospital 

8 if—

9 ‘‘(i) the comprehensive spectrum of in10 patient and outpatient services are provided 

11 by the hospital; and 

12 ‘‘(ii) the specialty and self-referrals of 

13 such a physician are insignificant in rela14 tion to the overall scope of services provided 

15 by the hospital.’’. 

16 (b) EFFECTIVE DATE.—The amendments made by sub17 section (a) apply to transfers occurring on or after January 

18 1, 2004, except in such circumstances as the Secretary de19 termines that such hospital was substantially completed be20 fore June 12, 2003. 

21 SEC. 454. DEMONSTRATION PROGRAM FOR SUBSTITUTE 

22 ADULT DAY SERVICES. 

23 (a) ESTABLISHMENT.—The Secretary shall establish a 

24 demonstration program (in this section referred to as the 

25 ‘‘demonstration program’’) under which the Secretary pro-
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1 vides eligible medicare beneficiaries with coverage under the 

2 medicare program of substitute adult day services furnished 

3 by an adult day services facility. 

4 (b) PAYMENT RATE FOR SUBSTITUTE ADULT DAY

5 SERVICES.—

6 (1) PAYMENT RATE.—For purposes of making 

7 payments to an adult day services facility for sub8 stitute adult day services under the demonstration 

9 program, the following rules shall apply: 

10 (A) ESTIMATION OF PAYMENT AMOUNT.—

11 The Secretary shall estimate the amount that 

12 would otherwise be payable to a home health 

13 agency under section 1895 of the Social Security 

14 Act (42 U.S.C. 1395fff) for all home health serv15 ices described in subsection (i)(4)(B)(i) under the 

16 plan of care. 

17 (B) AMOUNT OF PAYMENT.—Subject to 

18 paragraph (3)(B), the total amount payable for 

19 substitute adult day services under the plan of 

20 care is equal to 95 percent of the amount esti21 mated to be payable under subparagraph (A). 

22 (2) LIMITATION ON BALANCE BILLING.—Under 

23 the demonstration program, an adult day services fa24 cility shall accept as payment in full for substitute 

25 adult day services (including those services described 
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1 in clauses (ii) through (iv) of subsection (i)(4)(B)) 

2 furnished by the facility to an eligible medicare bene3 ficiary the amount of payment provided under the 

4 demonstration program for home health services con5 sisting of substitute adult services. 

6 (3) ADJUSTMENT IN CASE OF OVERUTILIZATION

7 OF SUBSTITUTE ADULT DAY SERVICES TO ENSURE

8 BUDGET NEUTRALITY.—The Secretary shall monitor 

9 the expenditures under the demonstration program 

10 and under title XVIII of the Social Security Act for 

11 home health services. If the Secretary estimates that 

12 the total expenditures under the demonstration pro13 gram and under such title XVIII for home health 

14 services for a period determined by the Secretary ex15 ceed expenditures that would have been made under 

16 such title XVIII for home health services for such pe17 riod if the demonstration program had not been con18 ducted, the Secretary shall adjust the rate of payment 

19 to adult day services facilities under paragraph 

20 (1)(B) in order to eliminate such excess. 

21 (c) DEMONSTRATION PROGRAM SITES.—The dem22 onstration program shall be conducted in not more than 

23 3 sites selected by the Secretary. 

24 (d) DURATION; IMPLEMENTATION.—
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1 (1) DURATION.—The Secretary shall conduct the 

2 demonstration program for a period of 3 years. 

3 (2) IMPLEMENTATION.—The Secretary may not 

4 implement the demonstration program before October 

5 1, 2004. 

6 (e) VOLUNTARY PARTICIPATION.—Participation of eli7 gible medicare beneficiaries in the demonstration program 

8 shall be voluntary. 

9 (f) WAIVER AUTHORITY.—

10 (1) IN GENERAL.—Except as provided in para11 graph (2), the Secretary may waive such require12 ments of titles XI and XVIII of the Social Security 

13 Act (42 U.S.C. 1301 et seq.; 1395 et seq.) as may be 

14 necessary for the purposes of carrying out the dem15 onstration program. 

16 (2) MAY NOT WAIVE ELIGIBILITY REQUIREMENTS

17 FOR HOME HEALTH SERVICES.—The Secretary may 

18 not waive the beneficiary eligibility requirements for 

19 home health services under title XVIII of the Social 

20 Security Act. 

21 (g) EVALUATION AND REPORT.—

22 (1) EVALUATION.—The Secretary shall conduct 

23 an evaluation of the clinical and cost effectiveness of 

24 the demonstration program. 
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1 (2) REPORT.—Not later than 30 months after the 

2 commencement of the demonstration program, the 

3 Secretary shall submit to Congress a report on the 

4 evaluation conducted under paragraph (1) and shall 

5 include in the report the following: 

6 (A) An analysis of the patient outcomes and 

7 costs of furnishing care to the eligible medicare 

8 beneficiaries participating in the demonstration 

9 program as compared to such outcomes and costs 

10 to such beneficiaries receiving only home health 

11 services under title XVIII of the Social Security 

12 Act for the same health conditions. 

13 (B) Such recommendations regarding the 

14 extension, expansion, or termination of the pro15 gram as the Secretary determines appropriate. 

16 (i) DEFINITIONS.—In this section: 

17 (1) ADULT DAY SERVICES FACILITY.—

18 (A) IN GENERAL.—Except as provided in 

19 subparagraphs (B) and (C), the term ‘‘adult day 

20 services facility’’ means a public agency or pri21 vate organization, or a subdivision of such an 

22 agency or organization, that—

23 (i) is engaged in providing skilled 

24 nursing services and other therapeutic serv-
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1 ices directly or under arrangement with a 

2 home health agency; 

3 (ii) provides the items and services de4 scribed in paragraph (4)(B); and 

5 (iii) meets the requirements of para6 graphs (2) through (8) of subsection (o). 

7 (B) INCLUSION.—Notwithstanding subpara8 graph (A), the term ‘‘adult day services facility’’ 

9 shall include a home health agency in which the 

10 items and services described in clauses (ii) 

11 through (iv) of paragraph (4)(B) are provided—

12 (i) by an adult day services program 

13 that is licensed or certified by a State, or 

14 accredited, to furnish such items and serv15 ices in the State; and 

16 (ii) under arrangements with that pro17 gram made by such agency. 

18 (C) WAIVER OF SURETY BOND.—The Sec19 retary may waive the requirement of a surety 

20 bond under section 1861(o)(7) of the Social Secu21 rity Act (42 U.S.C. 1395x(o)(7)) in the case of 

22 an agency or organization that provides a com23 parable surety bond under State law. 

24 (2) ELIGIBLE MEDICARE BENEFICIARY.—The 

25 term ‘‘eligible medicare beneficiary’’ means an indi-
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1 vidual eligible for home health services under title 

2 XVIII of the Social Security Act. 

3 (3) HOME HEALTH AGENCY.—The term ‘‘home 

4 health agency’’ has the meaning given such term in 

5 section 1861(o) of the Social Security Act (42 U.S.C. 

6 1395x(o)). 

7 (4) SUBSTITUTE ADULT DAY SERVICES.—

8 (A) IN GENERAL.—The term ‘‘substitute 

9 adult day services’’ means the items and services 

10 described in subparagraph (B) that are fur11 nished to an individual by an adult day services 

12 facility as a part of a plan under section 

13 1861(m) of the Social Security Act (42 U.S.C. 

14 1395x(m)) that substitutes such services for some 

15 or all of the items and services described in sub16 paragraph (B)(i) furnished by a home health 

17 agency under the plan, as determined by the 

18 physician establishing the plan. 

19 (B) ITEMS AND SERVICES DESCRIBED.—The 

20 items and services described in this subparagraph are 

21 the following items and services: 

22 (i) Items and services described in 

23 paragraphs (1) through (7) of such section 

24 1861(m). 

25 (ii) Meals. 
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1 (iii) A program of supervised activities 

2 designed to promote physical and mental 

3 health and furnished to the individual by 

4 the adult day services facility in a group 

5 setting for a period of not fewer than 4 and 

6 not greater than 12 hours per day. 

7 (iv) A medication management pro8 gram (as defined in subparagraph (C)). 

9 (C) MEDICATION MANAGEMENT PROGRAM.—For 

10 purposes of subparagraph (B)(iv), the term ‘‘medica11 tion management program’’ means a program of serv12 ices, including medicine screening and patient and 

13 health care provider education programs, that pro14 vides services to minimize—

15 (i) unnecessary or inappropriate use of 

16 prescription drugs; and 

17 (ii) adverse events due to unintended 

18 prescription drug-to-drug interactions.
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1 TITLE V—MEDICARE APPEALS, 

2 REGULATORY, AND CON3 TRACTING IMPROVEMENTS 

4 Subtitle A—Regulatory Reform 

5 SEC. 501. RULES FOR THE PUBLICATION OF A FINAL REGU6 LATION BASED ON THE PREVIOUS PUBLICA7 TION OF AN INTERIM FINAL REGULATION. 

8 (a) IN GENERAL.—Section 1871(a) (42 U.S.C. 

9 1395hh(a)) is amended by adding at the end the following 

10 new paragraph: 

11 ‘‘(3)(A) With respect to the publication of a final regu12 lation based on the previous publication of an interim final 

13 regulation—

14 ‘‘(i) subject to subparagraph (B), the Secretary 

15 shall publish the final regulation within the 12-month 

16 period that begins on the date of publication of the 

17 interim final regulation; 

18 ‘‘(ii) if a final regulation is not published by the 

19 deadline established under this paragraph, the in20 terim final regulation shall not continue in effect un21 less the Secretary publishes a notice described in sub22 paragraph (B) by such deadline; and 

23 ‘‘(iii) the final regulation shall include responses 

24 to comments submitted in response to the interim 

25 final regulation. 
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1 ‘‘(B) If the Secretary determines before the deadline 

2 otherwise established in this paragraph that there is good 

3 cause, specified in a notice published before such deadline, 

4 for delaying the deadline otherwise applicable under this 

5 paragraph, the deadline otherwise established under this 

6 paragraph shall be extended for such period (not to exceed 

7 12 months) as the Secretary specifies in such notice.’’. 

8 (b) EFFECTIVE DATE.—The amendment made by sub9 section (a) shall take effect on the date of enactment of this 

10 Act and shall apply to interim final regulations published 

11 on or after such date. 

12 (c) STATUS OF PENDING INTERIM FINAL REGULA13 TIONS.—Not later than 6 months after the date of enactment 

14 of this Act, the Secretary shall publish a notice in the Fed15 eral Register that provides the status of each interim final 

16 regulation that was published on or before the date of enact17 ment of this Act and for which no final regulation has been 

18 published. Such notice shall include the date by which the 

19 Secretary plans to publish the final regulation that is based 

20 on the interim final regulation. 

21 SEC. 502. COMPLIANCE WITH CHANGES IN REGULATIONS 

22 AND POLICIES. 

23 (a) NO RETROACTIVE APPLICATION OF SUBSTANTIVE

24 CHANGES.—
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1 (1) IN GENERAL.—Section 1871 (42 U.S.C. 

2 1395hh) is amended by adding at the end the fol3 lowing new subsection: 

4 ‘‘(d)(1)(A) A substantive change in regulations, man5 ual instructions, interpretative rules, statements of policy, 

6 or guidelines of general applicability under this title shall 

7 not be applied (by extrapolation or otherwise) retroactively 

8 to items and services furnished before the effective date of 

9 the change, unless the Secretary determines that—

10 ‘‘(i) such retroactive application is necessary to 

11 comply with statutory requirements; or 

12 ‘‘(ii) failure to apply the change retroactively 

13 would be contrary to the public interest.’’. 

14 (2) EFFECTIVE DATE.—The amendment made by 

15 paragraph (1) shall apply to substantive changes 

16 issued on or after the date of enactment of this Act. 

17 (b) TIMELINE FOR COMPLIANCE WITH SUBSTANTIVE

18 CHANGES AFTER NOTICE.—

19 (1) IN GENERAL.—Section 1871(d)(1), as added 

20 by subsection (a), is amended by adding at the end 

21 the following: 

22 ‘‘(B) A compliance action may be made against a pro23 vider of services, physician, practitioner, or other supplier 

24 with respect to noncompliance with such a substantive 
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1 change only for items and services furnished on or after 

2 the effective date of the change. 

3 ‘‘(C)(i) Except as provided in clause (ii), a substantive 

4 change may not take effect before the date that is the end 

5 of the 30-day period that begins on the date that the Sec6 retary has issued or published, as the case may be, the sub7 stantive change. 

8 ‘‘(ii) The Secretary may provide for a substantive 

9 change to take effect on a date that precedes the end of the 

10 30-day period under clause (i) if the Secretary finds that 

11 waiver of such 30-day period is necessary to comply with 

12 statutory requirements or that the application of such 30-

13 day period is contrary to the public interest. If the Sec14 retary provides for an earlier effective date pursuant to this 

15 clause, the Secretary shall include in the issuance or publi16 cation of the substantive change a finding described in the 

17 first sentence, and a brief statement of the reasons for such 

18 finding.’’. 

19 (2) EFFECTIVE DATE.—The amendment made by 

20 paragraph (1) shall apply to compliance actions un21 dertaken on or after the date of enactment of this Act. 
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1 SEC. 503. REPORT ON LEGAL AND REGULATORY INCONSIST2 ENCIES. 

3 Section 1871 (42 U.S.C. 1395hh), as amended by sec4 tion 502(a)(1), is amended by adding at the end the fol5 lowing new subsection: 

6 ‘‘(e)(1) Not later than 2 years after the date of enact7 ment of this subsection, and every 3 years thereafter, the 

8 Secretary shall submit to Congress a report with respect 

9 to the administration of this title and areas of inconsistency 

10 or conflict among the various provisions under law and reg11 ulation. 

12 ‘‘(2) In preparing a report under paragraph (1), the 

13 Secretary shall collect—

14 ‘‘(A) information from beneficiaries, providers of 

15 services, physicians, practitioners, and other suppliers 

16 with respect to such areas of inconsistency and con17 flict; and 

18 ‘‘(B) information from medicare contractors that 

19 tracks the nature of all communications and cor20 respondence. 

21 ‘‘(3) A report under paragraph (1) shall include a de22 scription of efforts by the Secretary to reduce such inconsist23 ency or conflicts, and recommendations for legislation or 

24 administrative action that the Secretary determines appro25 priate to further reduce such inconsistency or conflicts.’’.
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1 Subtitle B—Appeals Process Reform 

2 SEC. 511. SUBMISSION OF PLAN FOR TRANSFER OF RE3 SPONSIBILITY FOR MEDICARE APPEALS. 

4 (a) SUBMISSION OF TRANSITION PLAN.—

5 (1) IN GENERAL.—Not later than April 1, 2004, 

6 the Commissioner of Social Security and the Sec7 retary shall develop and transmit to Congress and the 

8 Comptroller General of the United States a plan 

9 under which the functions of administrative law 

10 judges responsible for hearing cases under title XVIII 

11 of the Social Security Act (and related provisions in 

12 title XI of such Act) are transferred from the responsi13 bility of the Commissioner and the Social Security 

14 Administration to the Secretary and the Department 

15 of Health and Human Services. 

16 (2) CONTENTS.—The plan shall include informa17 tion on the following: 

18 (A) WORKLOAD.—The number of such ad19 ministrative law judges and support staff re20 quired now and in the future to hear and decide 

21 such cases in a timely manner, taking into ac22 count the current and anticipated claims volume, 

23 appeals, number of beneficiaries, and statutory 

24 changes. 
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1 (B) COST PROJECTIONS AND FINANCING.—

2 Funding levels required for fiscal year 2005 and 

3 subsequent fiscal years to carry out the functions 

4 transferred under the plan and how such transfer 

5 should be financed. 

6 (C) TRANSITION TIMETABLE.—A timetable 

7 for the transition. 

8 (D) REGULATIONS.—The establishment of 

9 specific regulations to govern the appeals process. 

10 (E) CASE TRACKING.—The development of a 

11 unified case tracking system that will facilitate 

12 the maintenance and transfer of case specific 

13 data across both the fee-for-service and managed 

14 care components of the medicare program. 

15 (F) FEASIBILITY OF PRECEDENTIAL AU16 THORITY.—The feasibility of developing a proc17 ess to give decisions of the Departmental Appeals 

18 Board in the Department of Health and Human 

19 Services addressing broad legal issues binding, 

20 precedential authority. 

21 (G) ACCESS TO ADMINISTRATIVE LAW

22 JUDGES.—The feasibility of—

23 (i) filing appeals with administrative 

24 law judges electronically; and 
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1 (ii) conducting hearings using tele- or 

2 video-conference technologies. 

3 (H) INDEPENDENCE OF ADMINISTRATIVE

4 LAW JUDGES.—The steps that should be taken to 

5 ensure the independence of administrative law 

6 judges, including ensuring that such judges are 

7 in an office that is functionally and operation8 ally separate from the Centers for Medicare & 

9 Medicaid Services and the Center for Medicare 

10 Choices. 

11 (I) GEOGRAPHIC DISTRIBUTION.—The steps 

12 that should be taken to provide for an appro13 priate geographic distribution of administrative 

14 law judges throughout the United States to en15 sure timely access to such judges. 

16 (J) HIRING.—The steps that should be taken 

17 to hire administrative law judges (and support 

18 staff). 

19 (K) PERFORMANCE STANDARDS.—The es20 tablishment of performance standards for admin21 istrative law judges with respect to timelines for 

22 decisions in cases under title XVIII of the Social 

23 Security Act. 

24 (L) SHARED RESOURCES.—The feasibility 

25 of the Secretary entering into such arrangements 
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1 with the Commissioner of Social Security as 

2 may be appropriate with respect to transferred 

3 functions under the plan to share office space, 

4 support staff, and other resources, with appro5 priate reimbursement. 

6 (M) TRAINING.—The training that should 

7 be provided to administrative law judges with 

8 respect to laws and regulations under title XVIII 

9 of the Social Security Act. 

10 (3) ADDITIONAL INFORMATION.—The plan may 

11 also include recommendations for further congres12 sional action, including modifications to the require13 ments and deadlines established under section 1869 of 

14 the Social Security Act (as amended by sections 521 

15 and 522 of BIPA (114 Stat. 2763A–534) and this 

16 Act). 

17 (b) GAO EVALUATION.—The Comptroller General of 

18 the United States shall—

19 (1) evaluate the plan submitted under subsection 

20 (a); and 

21 (2) not later than 6 months after such submis22 sion, submit to Congress, the Commissioner of Social 

23 Security, and the Secretary a report on such evalua24 tion.
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1 (c) SUBMISSION OF GAO REPORT REQUIRED BEFORE

2 PLAN IMPLEMENTATION.—The Commissioner of Social Se3 curity and the Secretary may not implement the plan devel4 oped under subsection (a) before the date that is 6 months 

5 after the date the report required under subsection (b)(2) 

6 is submitted to the Commissioner and the Secretary. 

7 SEC. 512. EXPEDITED ACCESS TO JUDICIAL REVIEW. 

8 (a) IN GENERAL.—Section 1869(b) (42 U.S.C. 

9 1395ff(b)) is amended—

10 (1) in paragraph (1)(A), by inserting ‘‘, subject 

11 to paragraph (2),’’ before ‘‘to judicial review of the 

12 Secretary’s final decision’’; and 

13 (2) by adding at the end the following new para14 graph: 

15 ‘‘(2) EXPEDITED ACCESS TO JUDICIAL RE16 VIEW.—

17 ‘‘(A) IN GENERAL.—The Secretary shall es18 tablish a process under which a provider of serv19 ices or supplier that furnishes an item or service 

20 or a beneficiary who has filed an appeal under 

21 paragraph (1) (other than an appeal filed under 

22 paragraph (1)(F)(i)) may obtain access to judi23 cial review when a review entity (described in 

24 subparagraph (D)), on its own motion or at the 

25 request of the appellant, determines that the De-
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1 partmental Appeals Board does not have the au2 thority to decide the question of law or regula3 tion relevant to the matters in controversy and 

4 that there is no material issue of fact in dispute. 

5 The appellant may make such request only once 

6 with respect to a question of law or regulation 

7 for a specific matter in dispute in a case of an 

8 appeal. 

9 ‘‘(B) PROMPT DETERMINATIONS.—If, after 

10 or coincident with appropriately filing a request 

11 for an administrative hearing, the appellant re12 quests a determination by the appropriate review 

13 entity that the Departmental Appeals Board does 

14 not have the authority to decide the question of 

15 law or regulations relevant to the matters in con16 troversy and that there is no material issue of 

17 fact in dispute, and if such request is accom18 panied by the documents and materials as the 

19 appropriate review entity shall require for pur20 poses of making such determination, such review 

21 entity shall make a determination on the request 

22 in writing within 60 days after the date such re23 view entity receives the request and such accom24 panying documents and materials. Such a deter25 mination by such review entity shall be consid-
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1 ered a final decision and not subject to review by 

2 the Secretary. 

3 ‘‘(C) ACCESS TO JUDICIAL REVIEW.—

4 ‘‘(i) IN GENERAL.—If the appropriate 

5 review entity—

6 ‘‘(I) determines that there are no 

7 material issues of fact in dispute and 

8 that the only issues to be adjudicated 

9 are ones of law or regulation that the 

10 Departmental Appeals Board does not 

11 have authority to decide; or 

12 ‘‘(II) fails to make such deter13 mination within the period provided 

14 under subparagraph (B); 

15 then the appellant may bring a civil action 

16 as described in this subparagraph. 

17 ‘‘(ii) DEADLINE FOR FILING.—Such 

18 action shall be filed, in the case described 

19 in—

20 ‘‘(I) clause (i)(I), within 60 days 

21 of the date of the determination de22 scribed in such clause; or 

23 ‘‘(II) clause (i)(II), within 60 

24 days of the end of the period provided 
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1 under subparagraph (B) for the deter2 mination. 

3 ‘‘(iii) VENUE.—Such action shall be 

4 brought in the district court of the United 

5 States for the judicial district in which the 

6 appellant is located (or, in the case of an 

7 action brought jointly by more than 1 ap8 plicant, the judicial district in which the 

9 greatest number of applicants are located) 

10 or in the District Court for the District of 

11 Columbia. 

12 ‘‘(iv) INTEREST ON ANY AMOUNTS IN

13 CONTROVERSY.—Where a provider of serv14 ices or supplier is granted judicial review 

15 pursuant to this paragraph, the amount in 

16 controversy (if any) shall be subject to an17 nual interest beginning on the first day of 

18 the first month beginning after the 60-day 

19 period as determined pursuant to clause (ii) 

20 and equal to the rate of interest on obliga21 tions issued for purchase by the Federal 

22 Supplementary Medical Insurance Trust 

23 Fund for the month in which the civil ac24 tion authorized under this paragraph is 

25 commenced, to be awarded by the reviewing 
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1 court in favor of the prevailing party. No 

2 interest awarded pursuant to the preceding 

3 sentence shall be deemed income or cost for 

4 the purposes of determining reimbursement 

5 due providers of services, physicians, practi6 tioners, and other suppliers under this Act. 

7 ‘‘(D) REVIEW ENTITY DEFINED.—For pur8 poses of this subsection, a ‘review entity’ is a 

9 panel of no more than 3 members from the De10 partmental Appeals Board, selected for the pur11 pose of making determinations under this para12 graph.’’. 

13 (b) APPLICATION TO PROVIDER AGREEMENT DETER14 MINATIONS.—Section 1866(h)(1) (42 U.S.C. 1395cc(h)(1)) 

15 is amended—

16 (1) by inserting ‘‘(A)’’ after ‘‘(h)(1)’’; and 

17 (2) by adding at the end the following new sub18 paragraph: 

19 ‘‘(B) An institution or agency described in subpara20 graph (A) that has filed for a hearing under subparagraph 

21 (A) shall have expedited access to judicial review under this 

22 subparagraph in the same manner as providers of services, 

23 suppliers, and beneficiaries may obtain expedited access to 

24 judicial review under the process established under section 

25 1869(b)(2). Nothing in this subparagraph shall be construed 
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1 to affect the application of any remedy imposed under sec2 tion 1819 during the pendency of an appeal under this sub3 paragraph.’’. 

4 (c) GAO STUDY AND REPORT ON ACCESS TO JUDICIAL

5 REVIEW.—

6 (1) STUDY.—The Comptroller General of the 

7 United States shall conduct a study on the access of 

8 medicare beneficiaries and health care providers to 

9 judicial review of actions of the Secretary and the De10 partment of Health and Human Services with respect 

11 to items and services under title XVIII of the Social 

12 Security Act subsequent to February 29, 2000, the 

13 date of the decision of Shalala, Secretary of Health 

14 and Human Services, et al. v. Illinois Council on 

15 Long Term Care, Inc. (529 U.S. 1 (2000)). 

16 (2) REPORT.—Not later than 1 year after the 

17 date of enactment of this Act, the Comptroller General 

18 shall submit to Congress a report on the study con19 ducted under paragraph (1) together with such rec20 ommendations as the Comptroller General determines 

21 to be appropriate. 

22 (d) CONFORMING AMENDMENT.—Section 

23 1869(b)(1)(F)(ii) (42 U.S.C. 1395ff(b)(1)(F)(ii)) is amend24 ed to read as follows:
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1 ‘‘(ii) REFERENCE TO EXPEDITED AC2 CESS TO JUDICIAL REVIEW.—For the provi3 sion relating to expedited access to judicial 

4 review, see paragraph (2).’’. 

5 (e) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to appeals filed on or after October 1, 

7 2004. 

8 SEC. 513. EXPEDITED REVIEW OF CERTAIN PROVIDER 

9 AGREEMENT DETERMINATIONS. 

10 (a) TERMINATION AND CERTAIN OTHER IMMEDIATE

11 REMEDIES.—

12 (1) IN GENERAL.—The Secretary shall develop 

13 and implement a process to expedite proceedings 

14 under sections 1866(h) of the Social Security Act (42 

15 U.S.C. 1395cc(h)) in which—

16 (A) the remedy of termination of participa17 tion has been imposed; 

18 (B) a sanction described in clause (i) or 

19 (iii) of section 1819(h)(2)(B) of such Act (42 

20 U.S.C. 1395i–3(h)(2)(B)) has been imposed, but 

21 only if such sanction has been imposed on an 

22 immediate basis; or 

23 (C) the Secretary has required a skilled 

24 nursing facility to suspend operations of a nurse 

25 aide training program. 
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1 (2) PRIORITY FOR CASES OF TERMINATION.—

2 Under the process described in paragraph (1), pri3 ority shall be provided in cases of termination de4 scribed in subparagraph (A) of such paragraph. 

5 (b) INCREASED FINANCIAL SUPPORT.—In addition to 

6 any amounts otherwise appropriated, to reduce by 50 per7 cent the average time for administrative determinations on 

8 appeals under section 1866(h) of the Social Security Act 

9 (42 U.S.C. 1395cc(h)), there are authorized to be appro10 priated (in appropriate part from the Federal Hospital In11 surance Trust Fund and the Federal Supplementary Med12 ical Insurance Trust Fund) to the Secretary such sums for 

13 fiscal year 2004 and each subsequent fiscal year as may 

14 be necessary to increase the number of administrative law 

15 judges (and their staffs) at the Departmental Appeals Board 

16 of the Department of Health and Human Services and to 

17 educate such judges and staff on long-term care issues. 

18 SEC. 514. REVISIONS TO MEDICARE APPEALS PROCESS. 

19 (a) TIMEFRAMES FOR THE COMPLETION OF THE

20 RECORD.—Section 1869(b) (42 U.S.C. 1395ff(b)), as 

21 amended by section 512(a)(2), is amended by adding at the 

22 end the following new paragraph: 

23 ‘‘(3) TIMELY COMPLETION OF THE RECORD.—

24 ‘‘(A) DEADLINE.—Subject to subparagraph 

25 (B), the deadline to complete the record in a 
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1 hearing before an administrative law judge or a 

2 review by the Departmental Appeals Board is 90 

3 days after the date the request for the review or 

4 hearing is filed. 

5 ‘‘(B) EXTENSIONS FOR GOOD CAUSE.—The 

6 person filing a request under subparagraph (A) 

7 may request an extension of such deadline for 

8 good cause. The administrative law judge, in the 

9 case of a hearing, and the Departmental Appeals 

10 Board, in the case of a review, may extend such 

11 deadline based upon a finding of good cause to 

12 a date specified by the judge or Board, as the 

13 case may be. 

14 ‘‘(C) DELAY IN DECISION DEADLINES UNTIL

15 COMPLETION OF RECORD.—Notwithstanding any 

16 other provision of this section, the deadlines oth17 erwise established under subsection (d) for the 

18 making of determinations in hearings or review 

19 under this section are 90 days after the date on 

20 which the record is complete. 

21 ‘‘(D) COMPLETE RECORD DESCRIBED.—For 

22 purposes of this paragraph, a record is complete 

23 when the administrative law judge, in the case 

24 of a hearing, or the Departmental Appeals 

25 Board, in the case of a review, has received—
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1 ‘‘(i) written or testimonial evidence, or 

2 both, submitted by the person filing the re3 quest, 

4 ‘‘(ii) written or oral argument, or both, 

5 ‘‘(iii) the decision of, and the record 

6 for, the prior level of appeal, and 

7 ‘‘(iv) such other evidence as such judge 

8 or Board, as the case may be, determines is 

9 required to make a determination on the re10 quest.’’. 

11 (b) USE OF PATIENTS’ MEDICAL RECORDS.—Section 

12 1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)) is amended 

13 by inserting ‘‘(including the medical records of the indi14 vidual involved)’’ after ‘‘clinical experience’’. 

15 (c) NOTICE REQUIREMENTS FOR MEDICARE AP16 PEALS.— 

17 (1) INITIAL DETERMINATIONS AND REDETER18 MINATIONS.—Section 1869(a) (42 U.S.C. 1395ff(a)) is 

19 amended by adding at the end the following new 

20 paragraph: 

21 ‘‘(4) REQUIREMENTS OF NOTICE OF DETERMINA22 TIONS AND REDETERMINATIONS.—A written notice of 

23 a determination on an initial determination or on a 

24 redetermination, insofar as such determination or re25 determination results in a denial of a claim for bene-
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1 fits, shall be provided in printed form and written in 

2 a manner to be understood by the beneficiary and 

3 shall include—

4 ‘‘(A) the reasons for the determination, in5 cluding, as appropriate—

6 ‘‘(i) upon request in the case of an ini7 tial determination, the provision of the pol8 icy, manual, or regulation that resulted in 

9 the denial; and 

10 ‘‘(ii) in the case of a redetermination, 

11 a summary of the clinical or scientific evi12 dence used in making the determination (as 

13 appropriate); 

14 ‘‘(B) the procedures for obtaining addi15 tional information concerning the determination 

16 or redetermination; and 

17 ‘‘(C) notification of the right to seek a rede18 termination or otherwise appeal the determina19 tion and instructions on how to initiate such a 

20 redetermination or appeal under this section.’’. 

21 (2) RECONSIDERATIONS.—Section 1869(c)(3)(E) 

22 (42 U.S.C. 1395ff(c)(3)(E)) is amended to read as fol23 lows: 

24 ‘‘(E) EXPLANATION OF DECISION.—Any de25 cision with respect to a reconsideration of a 
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1 qualified independent contractor shall be in 

2 writing in a manner to be understood by the 

3 beneficiary and shall include—

4 ‘‘(i) to the extent appropriate, a de5 tailed explanation of the decision as well as 

6 a discussion of the pertinent facts and ap7 plicable regulations applied in making such 

8 decision; 

9 ‘‘(ii) a notification of the right to ap10 peal such determination and instructions on 

11 how to initiate such appeal under this sec12 tion; and 

13 ‘‘(iii) in the case of a determination of 

14 whether an item or service is reasonable and 

15 necessary for the diagnosis or treatment of 

16 illness or injury (under section 

17 1862(a)(1)(A)) an explanation of the med18 ical or scientific rationale for the decision.’’. 

19 (3) APPEALS.—Section 1869(d) (42 U.S.C. 

20 1395ff(d)) is amended—

21 (A) in the heading, by inserting ‘‘; NOTICE’’ 

22 after ‘‘SECRETARY’’; and 

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

24 paragraph:
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1 ‘‘(4) NOTICE.—Notice of the decision of an ad2 ministrative law judge shall be in writing in a man3 ner to be understood by the beneficiary and shall in4 clude—

5 ‘‘(A) the specific reasons for the determina6 tion (including, to the extent appropriate, a 

7 summary of the clinical or scientific evidence 

8 used in making the determination); 

9 ‘‘(B) the procedures for obtaining addi10 tional information concerning the decision; and 

11 ‘‘(C) notification of the right to appeal the 

12 decision and instructions on how to initiate such 

13 an appeal under this section.’’. 

14 (4) PREPARATION OF RECORD FOR APPEAL.—

15 Section 1869(c)(3)(J) (42 U.S.C. 1395ff(c)(3)(J)) is 

16 amended by striking ‘‘such information as is required 

17 for an appeal’’ and inserting ‘‘the record for the ap18 peal’’. 

19 (d) QUALIFIED INDEPENDENT CONTRACTORS.—

20 (1) ELIGIBILITY REQUIREMENTS OF QUALIFIED

21 INDEPENDENT CONTRACTORS.—Section 1869(c) (42 

22 U.S.C. 1395ff(c)) is amended—

23 (A) in paragraph (2)—

24 (i) by inserting ‘‘(except in the case of 

25 a utilization and quality control peer re-
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1 view organization, as defined in section 

2 1152)’’ after ‘‘means an entity or organiza3 tion that’’; and 

4 (ii) by striking the period at the end 

5 and inserting the following: ‘‘and meets the 

6 following requirements: 

7 ‘‘(A) GENERAL REQUIREMENTS.—

8 ‘‘(i) The entity or organization has 

9 (directly or through contracts or other ar10 rangements) sufficient medical, legal, and 

11 other expertise (including knowledge of the 

12 program under this title) and sufficient 

13 staffing to carry out duties of a qualified 

14 independent contractor under this section 

15 on a timely basis. 

16 ‘‘(ii) The entity or organization has 

17 provided assurances that it will conduct ac18 tivities consistent with the applicable re19 quirements of this section, including that it 

20 will not conduct any activities in a case 

21 unless the independence requirements of 

22 subparagraph (B) are met with respect to 

23 the case. 
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1 ‘‘(iii) The entity or organization meets 

2 such other requirements as the Secretary 

3 provides by regulation. 

4 ‘‘(B) INDEPENDENCE REQUIREMENTS.—

5 ‘‘(i) IN GENERAL.—Subject to clause 

6 (ii), an entity or organization meets the 

7 independence requirements of this subpara8 graph with respect to any case if the enti9 ty—

10 ‘‘(I) is not a related party (as de11 fined in subsection (g)(5)); 

12 ‘‘(II) does not have a material fa13 milial, financial, or professional rela14 tionship with such a party in relation 

15 to such case; and 

16 ‘‘(III) does not otherwise have a 

17 conflict of interest with such a party 

18 (as determined under regulations). 

19 ‘‘(ii) EXCEPTION FOR COMPENSA20 TION.—Nothing in clause (i) shall be con21 strued to prohibit receipt by a qualified 

22 independent contractor of compensation 

23 from the Secretary for the conduct of activi24 ties under this section if the compensation 

25 is provided consistent with clause (iii). 
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1 ‘‘(iii) LIMITATIONS ON ENTITY COM2 PENSATION.—Compensation provided by the 

3 Secretary to a qualified independent con4 tractor in connection with reviews under 

5 this section shall not be contingent on any 

6 decision rendered by the contractor or by 

7 any reviewing professional.’’; and 

8 (B) in paragraph (3)(A), by striking ‘‘, and 

9 shall have sufficient training and expertise in 

10 medical science and legal matters to make recon11 siderations under this subsection’’. 

12 (2) ELIGIBILITY REQUIREMENTS FOR REVIEW13 ERS.—Section 1869 (42 U.S.C. 1395ff) is amended—

14 (A) by amending subsection (c)(3)(D) to 

15 read as follows: 

16 ‘‘(D) QUALIFICATIONS OF REVIEWERS.—The 

17 requirements of subsection (g) shall be met (relat18 ing to qualifications of reviewing profes19 sionals).’’; and 

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

21 subsection: 

22 ‘‘(g) QUALIFICATIONS OF REVIEWERS.—

23 ‘‘(1) IN GENERAL.—In reviewing determinations 

24 under this section, a qualified independent contractor 

25 shall assure that—
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1 ‘‘(A) each individual conducting a review 

2 shall meet the qualifications of paragraph (2); 

3 ‘‘(B) compensation provided by the con4 tractor to each such reviewer is consistent with 

5 paragraph (3); and 

6 ‘‘(C) in the case of a review by a panel de7 scribed in subsection (c)(3)(B) composed of phy8 sicians or other health care professionals (each in 

9 this subsection referred to as a ‘reviewing profes10 sional’), each reviewing professional meets the 

11 qualifications described in paragraph (4). 

12 ‘‘(2) INDEPENDENCE.—

13 ‘‘(A) IN GENERAL.—Subject to subpara14 graph (B), each individual conducting a review 

15 in a case shall—

16 ‘‘(i) not be a related party (as defined 

17 in paragraph (5)); 

18 ‘‘(ii) not have a material familial, fi19 nancial, or professional relationship with 

20 such a party in the case under review; and 

21 ‘‘(iii) not otherwise have a conflict of 

22 interest with such a party (as determined 

23 under regulations). 

24 ‘‘(B) EXCEPTION.—Nothing in subpara25 graph (A) shall be construed to—
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1 ‘‘(i) prohibit an individual, solely on 

2 the basis of affiliation with a fiscal inter3 mediary, carrier, or other contractor, from 

4 serving as a reviewing professional if—

5 ‘‘(I) a nonaffiliated individual is 

6 not reasonably available; 

7 ‘‘(II) the affiliated individual is 

8 not involved in the provision of items 

9 or services in the case under review; 

10 ‘‘(III) the fact of such an affili11 ation is disclosed to the Secretary and 

12 the beneficiary (or authorized rep13 resentative) and neither party objects; 

14 and 

15 ‘‘(IV) the affiliated individual is 

16 not an employee of the intermediary, 

17 carrier, or contractor and does not pro18 vide services exclusively or primarily 

19 to or on behalf of such intermediary, 

20 carrier, or contractor; 

21 ‘‘(ii) prohibit an individual who has 

22 staff privileges at the institution where the 

23 treatment involved takes place from serving 

24 as a reviewer merely on the basis of such af25 filiation if the affiliation is disclosed to the 
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1 Secretary and the beneficiary (or authorized 

2 representative), and neither party objects; or 

3 ‘‘(iii) prohibit receipt of compensation 

4 by a reviewing professional from a con5 tractor if the compensation is provided con6 sistent with paragraph (3). 

7 ‘‘(3) LIMITATIONS ON REVIEWER COMPENSA8 TION.—Compensation provided by a qualified inde9 pendent contractor to a reviewer in connection with 

10 a review under this section shall not be contingent on 

11 the decision rendered by the reviewer. 

12 ‘‘(4) LICENSURE AND EXPERTISE.—Each review13 ing professional shall be a physician (allopathic or 

14 osteopathic) or health care professional who—

15 ‘‘(A) is appropriately credentialed or li16 censed in 1 or more States to deliver health care 

17 services; and 

18 ‘‘(B) has medical expertise in the field of 

19 practice that is appropriate for the items or serv20 ices at issue. 

21 ‘‘(5) RELATED PARTY DEFINED.—For purposes 

22 of this section, the term ‘related party’ means, with 

23 respect to a case under this title involving an indi24 vidual beneficiary, any of the following: 
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1 ‘‘(A) The Secretary, the medicare adminis2 trative contractor involved, or any fiduciary, of3 ficer, director, or employee of the Department of 

4 Health and Human Services, or of such con5 tractor. 

6 ‘‘(B) The individual (or authorized rep7 resentative). 

8 ‘‘(C) The health care professional that pro9 vides the items or services involved in the case. 

10 ‘‘(D) The institution at which the items or 

11 services (or treatment) involved in the case are 

12 provided. 

13 ‘‘(E) The manufacturer of any drug or 

14 other item that is included in the items or serv15 ices involved in the case. 

16 ‘‘(F) Any other party determined under any 

17 regulations to have a substantial interest in the 

18 case involved.’’. 

19 (3) NUMBER OF QUALIFIED INDEPENDENT CON20 TRACTORS.—Section 1869(c)(4) (42 U.S.C. 

21 1395ff(c)(4)) is amended by striking ‘‘12’’ and insert22 ing ‘‘4’’. 

23 (e) IMPLEMENTATION OF CERTAIN BIPA REFORMS.—
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1 (1) DELAY IN CERTAIN BIPA REFORMS.—Section 

2 521(d) of BIPA (114 Stat. 2763A–543) is amended to 

3 read as follows: 

4 ‘‘(d) EFFECTIVE DATE.—

5 ‘‘(1) IN GENERAL.—Except as specified in para6 graph (2), the amendments made by this section shall 

7 apply with respect to initial determinations made on 

8 or after December 1, 2004. 

9 ‘‘(2) EXPEDITED PROCEEDINGS AND RECONSID10 ERATION REQUIREMENTS.—For the following provi11 sions, the amendments made by subsection (a) shall 

12 apply with respect to initial determinations made on 

13 or after October 1, 2003: 

14 ‘‘(A) Subsection (b)(1)(F)(i) of section 1869 

15 of the Social Security Act. 

16 ‘‘(B) Subsection (c)(3)(C)(iii) of such sec17 tion. 

18 ‘‘(C) Subsection (c)(3)(C)(iv) of such section 

19 to the extent that it applies to expedited recon20 siderations under subsection (c)(3)(C)(iii) of 

21 such section. 

22 ‘‘(3) TRANSITIONAL USE OF PEER REVIEW ORGA23 NIZATIONS TO CONDUCT EXPEDITED RECONSIDER24 ATIONS UNTIL QICS ARE OPERATIONAL.—Expedited 

25 reconsiderations of initial determinations under sec-
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1 tion 1869(c)(3)(C)(iii) of the Social Security Act 

2 shall be made by peer review organizations until 

3 qualified independent contractors are available for 

4 such expedited reconsiderations.’’. 

5 (2) CONFORMING AMENDMENTS.—Section 521(c) 

6 of BIPA (114 Stat. 2763A–543) and section 

7 1869(c)(3)(C)(iii)(III) of the Social Security Act (42 

8 U.S.C. 1395ff(c)(3)(C)(iii)(III)), as added by section 

9 521 of BIPA, are repealed. 

10 (f) EFFECTIVE DATE.—The amendments made by this 

11 section shall be effective as if included in the enactment of 

12 the respective provisions of subtitle C of title V of BIPA, 

13 114 Stat. 2763A–534. 

14 (g) TRANSITION.—In applying section 1869(g) of the 

15 Social Security Act (as added by subsection (d)(2)), any 

16 reference to a medicare administrative contractor shall be 

17 deemed to include a reference to a fiscal intermediary under 

18 section 1816 of the Social Security Act (42 U.S.C. 1395h) 

19 and a carrier under section 1842 of such Act (42 U.S.C. 

20 1395u).
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1 SEC. 515. HEARING RIGHTS RELATED TO DECISIONS BY 

2 THE SECRETARY TO DENY OR NOT RENEW A 

3 MEDICARE ENROLLMENT AGREEMENT; CON4 SULTATION BEFORE CHANGING PROVIDER 

5 ENROLLMENT FORMS. 

6 (a) HEARING RIGHTS.—

7 (1) IN GENERAL.—Section 1866 (42 U.S.C. 

8 1395cc) is amended by adding at the end the fol9 lowing new subsection: 

10 ‘‘(j) HEARING RIGHTS IN CASES OF DENIAL OR NON11 RENEWAL.—The Secretary shall establish by regulation pro12 cedures under which—

13 ‘‘(1) there are deadlines for actions on applica14 tions for enrollment (and, if applicable, renewal of 

15 enrollment); and 

16 ‘‘(2) providers of services, physicians, practi17 tioners, and suppliers whose application to enroll (or, 

18 if applicable, to renew enrollment) are denied are 

19 provided a mechanism to appeal such denial and a 

20 deadline for consideration of such appeals.’’. 

21 (2) EFFECTIVE DATE.—The Secretary shall pro22 vide for the establishment of the procedures under the 

23 amendment made by paragraph (1) within 18 months 

24 after the date of enactment of this Act. 

25 (b) CONSULTATION BEFORE CHANGING PROVIDER EN26 ROLLMENT FORMS.—Section 1871 (42 U.S.C. 1395hh), as 
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1 amended by sections 502 and 503, is amended by adding 

2 at the end the following new subsection: 

3 ‘‘(f) The Secretary shall consult with providers of serv4 ices, physicians, practitioners, and suppliers before making 

5 changes in the provider enrollment forms required of such 

6 providers, physicians, practitioners, and suppliers to be eli7 gible to submit claims for which payment may be made 

8 under this title.’’. 

9 SEC. 516. APPEALS BY PROVIDERS WHEN THERE IS NO 

10 OTHER PARTY AVAILABLE. 

11 (a) IN GENERAL.—Section 1870 (42 U.S.C. 1395gg) 

12 is amended by adding at the end the following new sub13 section: 

14 ‘‘(h) Notwithstanding subsection (f) or any other pro15 vision of law, the Secretary shall permit a provider of serv16 ices, physician, practitioner, or other supplier to appeal 

17 any determination of the Secretary under this title relating 

18 to services rendered under this title to an individual who 

19 subsequently dies if there is no other party available to ap20 peal such determination.’’. 

21 (b) EFFECTIVE DATE.—The amendment made by sub22 section (a) shall take effect on the date of enactment of this 

23 Act and shall apply to items and services furnished on or 

24 after such date. 
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1 SEC. 517. PROVIDER ACCESS TO REVIEW OF LOCAL COV2 ERAGE DETERMINATIONS. 

3 (a) PROVIDER ACCESS TO REVIEW OF LOCAL COV4 ERAGE DETERMINATIONS.—Section 1869(f)(5) (42 U.S.C. 

5 1395ff(f)(5)) is amended to read as follows: 

6 ‘‘(5) AGGRIEVED PARTY DEFINED.—In this sec7 tion, the term ‘aggrieved party’ means—

8 ‘‘(A) with respect to a national coverage de9 termination, an individual entitled to benefits 

10 under part A, or enrolled under part B, or both, 

11 who is in need of the items or services that are 

12 the subject of the coverage determination; and 

13 ‘‘(B) with respect to a local coverage deter14 mination—

15 ‘‘(i) an individual who is entitled to 

16 benefits under part A, or enrolled under 

17 part B, or both, who is adversely affected by 

18 such a determination; or 

19 ‘‘(ii) a provider of services, physician, 

20 practitioner, or supplier that is adversely 

21 affected by such a determination.’’. 

22 (b) CLARIFICATION OF LOCAL COVERAGE DETERMINA23 TION DEFINITION.—Section 1869(f)(2)(B) (42 U.S.C. 

24 1395ff(f)(2)(B)) is amended by inserting ‘‘, including, 

25 where appropriate, the specific requirements and clinical 
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1 indications relating to the medical necessity of an item or 

2 service’’ before the period at the end. 

3 (c) REQUEST FOR LOCAL COVERAGE DETERMINATIONS

4 BY PROVIDERS.—Section 1869 (42 U.S.C. 1395ff), as 

5 amended by section 514(d)(2)(B), is amended by adding at 

6 the end the following new subsection: 

7 ‘‘(h) REQUEST FOR LOCAL COVERAGE DETERMINA8 TIONS BY PROVIDERS.—

9 ‘‘(1) ESTABLISHMENT OF PROCESS.—The Sec10 retary shall establish a process under which a pro11 vider of services, physician, practitioner, or supplier 

12 who certifies that they meet the requirements estab13 lished in paragraph (3) may request a local coverage 

14 determination in accordance with the succeeding pro15 visions of this subsection. 

16 ‘‘(2) PROVIDER LOCAL COVERAGE DETERMINA17 TION REQUEST DEFINED.—In this subsection, the 

18 term ‘provider local coverage determination request’ 

19 means a request, filed with the Secretary, at such 

20 time and in such form and manner as the Secretary 

21 may specify, that the Secretary, pursuant to para22 graph (4)(A), require a fiscal intermediary, carrier, 

23 or program safeguard contractor to make or revise a 

24 local coverage determination under this section with 

25 respect to an item or service. 
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1 ‘‘(3) REQUEST REQUIREMENTS.—Under the 

2 process established under paragraph (1), by not later 

3 than 30 days after the date on which a provider local 

4 coverage determination request is filed under para5 graph (1), the Secretary shall determine whether such 

6 request establishes that—

7 ‘‘(A) there have been at least 5 reversals of 

8 redeterminations made by a fiscal intermediary 

9 or carrier after a hearing before an administra10 tive law judge on claims submitted by the pro11 vider in at least 2 different cases before an ad12 ministrative law judge; 

13 ‘‘(B) each reversal described in subpara14 graph (A) involves substantially similar mate15 rial facts; 

16 ‘‘(C) each reversal described in subpara17 graph (A) involves the same medical necessity 

18 issue; and 

19 ‘‘(D) at least 50 percent of the total number 

20 of claims submitted by such provider within the 

21 past year involving the substantially similar 

22 material facts described in subparagraph (B) 

23 and the same medical necessity issue described in 

24 subparagraph (C) have been denied and have 

25 been reversed by an administrative law judge.
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1 ‘‘(4) APPROVAL OR REJECTION OF REQUEST.—

2 ‘‘(A) APPROVAL OF REQUEST.—If the Sec3 retary determines that subparagraphs (A) 

4 through (D) of paragraph (3) have been satisfied, 

5 the Secretary shall require the fiscal inter6 mediary, carrier, or program safeguard con7 tractor identified in the provider local coverage 

8 determination request, to make or revise a local 

9 coverage determination with respect to the item 

10 or service that is the subject of the request not 

11 later than the date that is 210 days after the 

12 date on which the Secretary makes the deter13 mination. Such fiscal intermediary, carrier, or 

14 program safeguard contractor shall retain the 

15 discretion to determine whether or not, and/or 

16 the circumstances under which, to cover the item 

17 or service for which a local coverage determina18 tion is requested. Nothing in this subsection shall 

19 be construed to require a fiscal intermediary, 

20 carrier or program safeguard contractor to de21 velop a local coverage determination that is in22 consistent with any national coverage determina23 tion, or any coverage provision in this title or in 

24 regulation, manual, or interpretive guidance of 

25 the Secretary. 
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1 ‘‘(B) REJECTION OF REQUEST.—If the Sec2 retary determines that subparagraphs (A) 

3 through (D) of paragraph (3) have not been sat4 isfied, the Secretary shall reject the provider 

5 local coverage determination request and shall 

6 notify the provider of services, physician, practi7 tioner, or supplier that filed the request of the 

8 reason for such rejection and no further pro9 ceedings in relation to such request shall be con10 ducted.’’. 

11 (d) STUDY AND REPORT ON THE USE OF CONTRAC12 TORS TO MONITOR MEDICARE APPEALS.—

13 (1) STUDY.—The Secretary shall conduct a study 

14 on the feasibility and advisability of requiring fiscal 

15 intermediaries and carriers to monitor and track—

16 (A) the subject matter and status of claims 

17 denied by the fiscal intermediary or carrier (as 

18 applicable) that are appealed under section 1869 

19 of the Social Security Act (42 U.S.C. 1395ff), as 

20 added by section 522 of BIPA (114 Stat. 2763A–

21 543) and amended by this Act; and 

22 (B) any final determination made with re23 spect to such claims. 

24 (2) REPORT.—Not later than the date that is 1 

25 year after the date of enactment of this Act, the Sec-
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1 retary shall submit to Congress a report on the study 

2 conducted under paragraph (1) together with such 

3 recommendations for legislation and administrative 

4 action as the Commission determines appropriate. 

5 (e) AUTHORIZATION OF APPROPRIATIONS.—There are 

6 authorized to be appropriated such sums as are necessary 

7 to carry out the amendments made by subsections (a), (b), 

8 and (c). 

9 (f) EFFECTIVE DATES.—

10 (1) PROVIDER ACCESS TO REVIEW OF LOCAL

11 COVERAGE DETERMINATIONS.—The amendments 

12 made by subsections (a) and (b) shall apply to—

13 (A) any review of any local coverage deter14 mination filed on or after October 1, 2003; 

15 (B) any request to make such a determina16 tion made on or after such date; or 

17 (C) any local coverage determination made 

18 on or after such date. 

19 (2) PROVIDER LOCAL COVERAGE DETERMINATION

20 REQUESTS.—The amendment made by subsection (c) 

21 shall apply with respect to provider local coverage de22 termination requests (as defined in section 1869(h)(2) 

23 of the Social Security Act, as added by subsection (c)) 

24 filed on or after the date of enactment of this Act. 
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1 Subtitle C—Contracting Reform 

2 SEC. 521. INCREASED FLEXIBILITY IN MEDICARE ADMINIS3 TRATION. 

4 (a) CONSOLIDATION AND FLEXIBILITY IN MEDICARE

5 ADMINISTRATION.—

6 (1) IN GENERAL.—Title XVIII is amended by in7 serting after section 1874 the following new section: 

8 ‘‘CONTRACTS WITH MEDICARE ADMINISTRATIVE

9 CONTRACTORS

10 ‘‘SEC. 1874A. (a) AUTHORITY.—

11 ‘‘(1) AUTHORITY TO ENTER INTO CONTRACTS.—

12 The Secretary may enter into contracts with any eli13 gible entity to serve as a medicare administrative 

14 contractor with respect to the performance of any or 

15 all of the functions described in paragraph (4) or 

16 parts of those functions (or, to the extent provided in 

17 a contract, to secure performance thereof by other en18 tities). 

19 ‘‘(2) ELIGIBILITY OF ENTITIES.—An entity is el20 igible to enter into a contract with respect to the per21 formance of a particular function described in para22 graph (4) only if—

23 ‘‘(A) the entity has demonstrated capability 

24 to carry out such function;
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1 ‘‘(B) the entity complies with such conflict 

2 of interest standards as are generally applicable 

3 to Federal acquisition and procurement; 

4 ‘‘(C) the entity has sufficient assets to fi5 nancially support the performance of such func6 tion; and 

7 ‘‘(D) the entity meets such other require8 ments as the Secretary may impose. 

9 ‘‘(3) MEDICARE ADMINISTRATIVE CONTRACTOR

10 DEFINED.—For purposes of this title and title XI—

11 ‘‘(A) IN GENERAL.—The term ‘medicare ad12 ministrative contractor’ means an agency, orga13 nization, or other person with a contract under 

14 this section. 

15 ‘‘(B) APPROPRIATE MEDICARE ADMINISTRA16 TIVE CONTRACTOR.—With respect to the perform17 ance of a particular function in relation to an 

18 individual entitled to benefits under part A or 

19 enrolled under part B, or both, a specific pro20 vider of services, physician, practitioner, facility, 

21 or supplier (or class of such providers of services, 

22 physicians, practitioners, facilities, or suppliers), 

23 the ‘appropriate’ medicare administrative con24 tractor is the medicare administrative contractor 

25 that has a contract under this section with re-
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1 spect to the performance of that function in rela2 tion to that individual, provider of services, phy3 sician, practitioner, facility, or supplier or class 

4 of provider of services, physician, practitioner, 

5 facility, or supplier. 

6 ‘‘(4) FUNCTIONS DESCRIBED.—The functions re7 ferred to in paragraphs (1) and (2) are payment 

8 functions (including the function of developing local 

9 coverage determinations, as defined in section 

10 1869(f)(2)(B)), provider services functions, and bene11 ficiary services functions as follows: 

12 ‘‘(A) DETERMINATION OF PAYMENT

13 AMOUNTS.—Determining (subject to the provi14 sions of section 1878 and to such review by the 

15 Secretary as may be provided for by the con16 tracts) the amount of the payments required pur17 suant to this title to be made to providers of 

18 services, physicians, practitioners, facilities, sup19 pliers, and individuals. 

20 ‘‘(B) MAKING PAYMENTS.—Making pay21 ments described in subparagraph (A) (including 

22 receipt, disbursement, and accounting for funds 

23 in making such payments). 

24 ‘‘(C) BENEFICIARY EDUCATION AND ASSIST25 ANCE.—Serving as a center for, and commu-
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1 nicating to individuals entitled to benefits under 

2 part A or enrolled under part B, or both, with 

3 respect to education and outreach for those indi4 viduals, and assistance with specific issues, con5 cerns, or problems of those individuals. 

6 ‘‘(D) PROVIDER CONSULTATIVE SERV7 ICES.—Providing consultative services to institu8 tions, agencies, and other persons to enable them 

9 to establish and maintain fiscal records nec10 essary for purposes of this title and otherwise to 

11 qualify as providers of services, physicians, prac12 titioners, facilities, or suppliers. 

13 ‘‘(E) COMMUNICATION WITH PROVIDERS.—

14 Serving as a center for, and communicating to 

15 providers of services, physicians, practitioners, 

16 facilities, and suppliers, any information or in17 structions furnished to the medicare administra18 tive contractor by the Secretary, and serving as 

19 a channel of communication from such pro20 viders, physicians, practitioners, facilities, and 

21 suppliers to the Secretary. 

22 ‘‘(F) PROVIDER EDUCATION AND TECHNICAL

23 ASSISTANCE.—Performing the functions de24 scribed in subsections (e) and (f), relating to 

25 education, training, and technical assistance to 
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1 providers of services, physicians, practitioners, 

2 facilities, and suppliers. 

3 ‘‘(G) ADDITIONAL FUNCTIONS.—Performing 

4 such other functions, including (subject to para5 graph (5)) functions under the Medicare Integ6 rity Program under section 1893, as are nec7 essary to carry out the purposes of this title. 

8 ‘‘(5) RELATIONSHIP TO MIP CONTRACTS.—

9 ‘‘(A) NONDUPLICATION OF ACTIVITIES.—In 

10 entering into contracts under this section, the 

11 Secretary shall assure that activities of medicare 

12 administrative contractors do not duplicate ac13 tivities carried out under contracts entered into 

14 under the Medicare Integrity Program under sec15 tion 1893. The previous sentence shall not apply 

16 with respect to the activity described in section 

17 1893(b)(5) (relating to prior authorization of 

18 certain items of durable medical equipment 

19 under section 1834(a)(15)). 

20 ‘‘(B) CONSTRUCTION.—An entity shall not 

21 be treated as a medicare administrative con22 tractor merely by reason of having entered into 

23 a contract with the Secretary under section 

24 1893.
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1 ‘‘(6) APPLICATION OF FEDERAL ACQUISITION

2 REGULATION.—Except to the extent inconsistent with 

3 a specific requirement of this title, the Federal Acqui4 sition Regulation applies to contracts under this title. 

5 ‘‘(b) CONTRACTING REQUIREMENTS.—

6 ‘‘(1) USE OF COMPETITIVE PROCEDURES.—

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

8 laws with general applicability to Federal acqui9 sition and procurement, the Federal Acquisition 

10 Regulation, or in subparagraph (B), the Sec11 retary shall use competitive procedures when en12 tering into contracts with medicare administra13 tive contractors under this section. 

14 ‘‘(B) RENEWAL OF CONTRACTS.—The Sec15 retary may renew a contract with a medicare 

16 administrative contractor under this section 

17 from term to term without regard to section 5 of 

18 title 41, United States Code, or any other provi19 sion of law requiring competition, if the medi20 care administrative contractor has met or ex21 ceeded the performance requirements applicable 

22 with respect to the contract and contractor, ex23 cept that the Secretary shall provide for the ap24 plication of competitive procedures under such a 
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1 contract not less frequently than once every 6 

2 years. 

3 ‘‘(C) TRANSFER OF FUNCTIONS.—The Sec4 retary may transfer functions among medicare 

5 administrative contractors without regard to any 

6 provision of law requiring competition. The Sec7 retary shall ensure that performance quality is 

8 considered in such transfers. The Secretary shall 

9 provide notice (whether in the Federal Register 

10 or otherwise) of any such transfer (including a 

11 description of the functions so transferred and 

12 contact information for the contractors involved) 

13 to providers of services, physicians, practitioners, 

14 facilities, and suppliers affected by the transfer. 

15 ‘‘(D) INCENTIVES FOR QUALITY.—The Sec16 retary may provide incentives for medicare ad17 ministrative contractors to provide quality serv18 ice and to promote efficiency. 

19 ‘‘(2) COMPLIANCE WITH REQUIREMENTS.—No 

20 contract under this section shall be entered into with 

21 any medicare administrative contractor unless the 

22 Secretary finds that such medicare administrative 

23 contractor will perform its obligations under the con24 tract efficiently and effectively and will meet such re25 quirements as to financial responsibility, legal au-
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1 thority, and other matters as the Secretary finds per2 tinent. 

3 ‘‘(3) PERFORMANCE REQUIREMENTS.—

4 ‘‘(A) DEVELOPMENT OF SPECIFIC PERFORM5 ANCE REQUIREMENTS.—The Secretary shall de6 velop contract performance requirements to carry 

7 out the specific requirements applicable under 

8 this title to a function described in subsection 

9 (a)(4) and shall develop standards for measuring 

10 the extent to which a contractor has met such re11 quirements. In developing such performance re12 quirements and standards for measurement, the 

13 Secretary shall consult with providers of services, 

14 organizations representative of beneficiaries 

15 under this title, and organizations and agencies 

16 performing functions necessary to carry out the 

17 purposes of this section with respect to such per18 formance requirements. The Secretary shall make 

19 such performance requirements and measurement 

20 standards available to the public. 

21 ‘‘(B) CONSIDERATIONS.—The Secretary 

22 shall include, as 1 of the standards, provider and 

23 beneficiary satisfaction levels. 

24 ‘‘(C) INCLUSION IN CONTRACTS.—All con25 tractor performance requirements shall be set 
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1 forth in the contract between the Secretary and 

2 the appropriate medicare administrative con3 tractor. Such performance requirements—

4 ‘‘(i) shall reflect the performance re5 quirements published under subparagraph 

6 (A), but may include additional perform7 ance requirements; 

8 ‘‘(ii) shall be used for evaluating con9 tractor performance under the contract; and 

10 ‘‘(iii) shall be consistent with the writ11 ten statement of work provided under the 

12 contract. 

13 ‘‘(4) INFORMATION REQUIREMENTS.—The Sec14 retary shall not enter into a contract with a medicare 

15 administrative contractor under this section unless 

16 the contractor agrees—

17 ‘‘(A) to furnish to the Secretary such timely 

18 information and reports as the Secretary may 

19 find necessary in performing his functions under 

20 this title; and 

21 ‘‘(B) to maintain such records and afford 

22 such access thereto as the Secretary finds nec23 essary to assure the correctness and verification 

24 of the information and reports under subpara-
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1 graph (A) and otherwise to carry out the pur2 poses of this title. 

3 ‘‘(5) SURETY BOND.—A contract with a medi4 care administrative contractor under this section may 

5 require the medicare administrative contractor, and 

6 any of its officers or employees certifying payments or 

7 disbursing funds pursuant to the contract, or other8 wise participating in carrying out the contract, to 

9 give surety bond to the United States in such amount 

10 as the Secretary may deem appropriate. 

11 ‘‘(6) RETAINING DIVERSITY OF LOCAL COVERAGE

12 DETERMINATIONS.—A contract with a medicare ad13 ministrative contractor under this section to perform 

14 the function of developing local coverage determina15 tions (as defined in section 1869(f)(2)(B)) shall pro16 vide that the contractor shall—

17 ‘‘(A) designate at least 1 different indi18 vidual to serve as medical director for each State 

19 for which such contract performs such function; 

20 ‘‘(B) utilize such medical director in the 

21 performance of such function; and 

22 ‘‘(C) appoint a contractor advisory com23 mittee with respect to each such State to provide 

24 a formal mechanism for physicians in the State 

25 to be informed of, and participate in, the devel-
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1 opment of a local coverage determination in an 

2 advisory capacity. 

3 ‘‘(c) TERMS AND CONDITIONS.—

4 ‘‘(1) IN GENERAL.—Subject to subsection (a)(6), 

5 a contract with any medicare administrative con6 tractor under this section may contain such terms 

7 and conditions as the Secretary finds necessary or ap8 propriate and may provide for advances of funds to 

9 the medicare administrative contractor for the mak10 ing of payments by it under subsection (a)(4)(B). 

11 ‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN

12 DATA COLLECTION.—The Secretary may not require, 

13 as a condition of entering into, or renewing, a con14 tract under this section, that the medicare adminis15 trative contractor match data obtained other than in 

16 its activities under this title with data used in the ad17 ministration of this title for purposes of identifying 

18 situations in which the provisions of section 1862(b) 

19 may apply. 

20 ‘‘(d) LIMITATION ON LIABILITY OF MEDICARE ADMIN21 ISTRATIVE CONTRACTORS AND CERTAIN OFFICERS.—

22 ‘‘(1) CERTIFYING OFFICER.—No individual des23 ignated pursuant to a contract under this section as 

24 a certifying officer shall, in the absence of the reckless 

25 disregard of the individual’s obligations or the intent
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1 by that individual to defraud the United States, be 

2 liable with respect to any payments certified by the 

3 individual under this section. 

4 ‘‘(2) DISBURSING OFFICER.—No disbursing offi5 cer shall, in the absence of the reckless disregard of the 

6 officer’s obligations or the intent by that officer to de7 fraud the United States, be liable with respect to any 

8 payment by such officer under this section if it was 

9 based upon an authorization (which meets the appli10 cable requirements for such internal controls estab11 lished by the Comptroller General) of a certifying offi12 cer designated as provided in paragraph (1) of this 

13 subsection. 

14 ‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE

15 CONTRACTOR.—No medicare administrative con16 tractor shall be liable to the United States for a pay17 ment by a certifying or disbursing officer unless, in 

18 connection with such a payment, the medicare ad19 ministrative contractor acted with reckless disregard 

20 of its obligations under its medicare administrative 

21 contract or with intent to defraud the United States. 

22 ‘‘(4) RELATIONSHIP TO FALSE CLAIMS ACT.—

23 Nothing in this subsection shall be construed to limit 

24 liability for conduct that would constitute a violation 

25 of sections 3729 through 3731 of title 31, United 
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1 States Code (commonly known as the ‘‘False Claims 

2 Act’’). 

3 ‘‘(5) INDEMNIFICATION BY SECRETARY.—

4 ‘‘(A) IN GENERAL.—Notwithstanding any 

5 other provision of law and subject to the suc6 ceeding provisions of this paragraph, in the case 

7 of a medicare administrative contractor (or a 

8 person who is a director, officer, or employee of 

9 such a contractor or who is engaged by the con10 tractor to participate directly in the claims ad11 ministration process) who is made a party to 

12 any judicial or administrative proceeding aris13 ing from, or relating directly to, the claims ad14 ministration process under this title, the Sec15 retary may, to the extent specified in the con16 tract with the contractor, indemnify the con17 tractor (and such persons). 

18 ‘‘(B) CONDITIONS.—The Secretary may not 

19 provide indemnification under subparagraph (A) 

20 insofar as the liability for such costs arises di21 rectly from conduct that is determined by the 

22 Secretary to be criminal in nature, fraudulent, 

23 or grossly negligent. 

24 ‘‘(C) SCOPE OF INDEMNIFICATION.—Indem25 nification by the Secretary under subparagraph 
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1 (A) may include payment of judgments, settle2 ments (subject to subparagraph (D)), awards, 

3 and costs (including reasonable legal expenses). 

4 ‘‘(D) WRITTEN APPROVAL FOR SETTLE5 MENTS.—A contractor or other person described 

6 in subparagraph (A) may not propose to nego7 tiate a settlement or compromise of a proceeding 

8 described in such subparagraph without the 

9 prior written approval of the Secretary to nego10 tiate a settlement. Any indemnification under 

11 subparagraph (A) with respect to amounts paid 

12 under a settlement are conditioned upon the Sec13 retary’s prior written approval of the final set14 tlement. 

15 ‘‘(E) CONSTRUCTION.—Nothing in this 

16 paragraph shall be construed—

17 ‘‘(i) to change any common law immu18 nity that may be available to a medicare 

19 administrative contractor or person de20 scribed in subparagraph (A); or 

21 ‘‘(ii) to permit the payment of costs 

22 not otherwise allowable, reasonable, or allo23 cable under the Federal Acquisition Regula24 tions.’’. 
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1 (2) CONSIDERATION OF INCORPORATION OF CUR2 RENT LAW STANDARDS.—In developing contract per3 formance requirements under section 1874A(b) of the 

4 Social Security Act (as added by paragraph (1)) the 

5 Secretary shall consider inclusion of the performance 

6 standards described in sections 1816(f)(2) of such Act 

7 (relating to timely processing of reconsiderations and 

8 applications for exemptions) and section 

9 1842(b)(2)(B) of such Act (relating to timely review 

10 of determinations and fair hearing requests), as such 

11 sections were in effect before the date of enactment of 

12 this Act. 

13 (b) CONFORMING AMENDMENTS TO SECTION 1816 (RE14 LATING TO FISCAL INTERMEDIARIES).—Section 1816 (42 

15 U.S.C. 1395h) is amended as follows: 

16 (1) The heading is amended to read as follows: 

17 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF PART

18 A’’. 

19 (2) Subsection (a) is amended to read as follows: 

20 ‘‘(a) The administration of this part shall be conducted 

21 through contracts with medicare administrative contractors 

22 under section 1874A.’’. 

23 (3) Subsection (b) is repealed. 

24 (4) Subsection (c) is amended—

25 (A) by striking paragraph (1); and 
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1 (B) in each of paragraphs (2)(A) and 

2 (3)(A), by striking ‘‘agreement under this sec3 tion’’ and inserting ‘‘contract under section 

4 1874A that provides for making payments under 

5 this part’’. 

6 (5) Subsections (d) through (i) are repealed. 

7 (6) Subsections (j) and (k) are each amended—

8 (A) by striking ‘‘An agreement with an 

9 agency or organization under this section’’ and 

10 inserting ‘‘A contract with a medicare adminis11 trative contractor under section 1874A with re12 spect to the administration of this part’’; and 

13 (B) by striking ‘‘such agency or organiza14 tion’’ and inserting ‘‘such medicare administra15 tive contractor’’ each place it appears. 

16 (7) Subsection (l) is repealed. 

17 (c) CONFORMING AMENDMENTS TO SECTION 1842 (RE18 LATING TO CARRIERS).—Section 1842 (42 U.S.C. 1395u) 

19 is amended as follows: 

20 (1) The heading is amended to read as follows: 

21 ‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF PART

22 B’’. 

23 (2) Subsection (a) is amended to read as follows: 

24 ‘‘(a) The administration of this part shall be conducted 

25 through contracts with medicare administrative contractors 

26 under section 1874A.’’.
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1 (3) Subsection (b) is amended—

2 (A) by striking paragraph (1); 

3 (B) in paragraph (2)—

4 (i) by striking subparagraphs (A) and 

5 (B); 

6 (ii) in subparagraph (C), by striking 

7 ‘‘carriers’’ and inserting ‘‘medicare admin8 istrative contractors’’; and 

9 (iii) by striking subparagraphs (D) 

10 and (E); 

11 (C) in paragraph (3)—

12 (i) in the matter before subparagraph 

13 (A), by striking ‘‘Each such contract shall 

14 provide that the carrier’’ and inserting 

15 ‘‘The Secretary’’; 

16 (ii) by striking ‘‘will’’ the first place it 

17 appears in each of subparagraphs (A), (B), 

18 (F), (G), (H), and (L) and inserting 

19 ‘‘shall’’; 

20 (iii) in subparagraph (B), in the mat21 ter before clause (i), by striking ‘‘to the pol22 icyholders and subscribers of the carrier’’ 

23 and inserting ‘‘to the policyholders and sub24 scribers of the medicare administrative con25 tractor’’; 
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1 (iv) by striking subparagraphs (C), 

2 (D), and (E); 

3 (v) in subparagraph (H)—

4 (I) by striking ‘‘if it makes deter5 minations or payments with respect to 

6 physicians’ services,’’; and 

7 (II) by striking ‘‘carrier’’ and in8 serting ‘‘medicare administrative con9 tractor’’; 

10 (vi) by striking subparagraph (I); 

11 (vii) in subparagraph (L), by striking 

12 the semicolon and inserting a period; 

13 (viii) in the first sentence, after sub14 paragraph (L), by striking ‘‘and shall con15 tain’’ and all that follows through the pe16 riod; and 

17 (ix) in the seventh sentence, by insert18 ing ‘‘medicare administrative contractor,’’ 

19 after ‘‘carrier,’’; 

20 (D) by striking paragraph (5); 

21 (E) in paragraph (6)(D)(iv), by striking 

22 ‘‘carrier’’ and inserting ‘‘medicare administra23 tive contractor’’; and 
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1 (F) in paragraph (7), by striking ‘‘the car2 rier’’ and inserting ‘‘the Secretary’’ each place it 

3 appears. 

4 (4) Subsection (c) is amended—

5 (A) by striking paragraph (1); 

6 (B) in paragraph (2), by striking ‘‘contract 

7 under this section which provides for the dis8 bursement of funds, as described in subsection 

9 (a)(1)(B),’’ and inserting ‘‘contract under section 

10 1874A that provides for making payments under 

11 this part’’; 

12 (C) in paragraph (3)(A), by striking ‘‘sub13 section (a)(1)(B)’’ and inserting ‘‘section 

14 1874A(a)(3)(B)’’; 

15 (D) in paragraph (4), by striking ‘‘carrier’’ 

16 and inserting ‘‘medicare administrative con17 tractor’’; 

18 (E) in paragraph (5), by striking ‘‘contract 

19 under this section which provides for the dis20 bursement of funds, as described in subsection 

21 (a)(1)(B), shall require the carrier’’ and ‘‘carrier 

22 responses’’ and inserting ‘‘contract under section 

23 1874A that provides for making payments under 

24 this part shall require the medicare administra-
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1 tive contractor’’ and ‘‘contractor responses’’, re2 spectively; and 

3 (F) by striking paragraph (6). 

4 (5) Subsections (d), (e), and (f) are repealed. 

5 (6) Subsection (g) is amended by striking ‘‘car6 rier or carriers’’ and inserting ‘‘medicare administra7 tive contractor or contractors’’. 

8 (7) Subsection (h) is amended—

9 (A) in paragraph (2)—

10 (i) by striking ‘‘Each carrier having 

11 an agreement with the Secretary under sub12 section (a)’’ and inserting ‘‘The Secretary’’; 

13 and 

14 (ii) by striking ‘‘Each such carrier’’ 

15 and inserting ‘‘The Secretary’’; 

16 (B) in paragraph (3)(A)—

17 (i) by striking ‘‘a carrier having an 

18 agreement with the Secretary under sub19 section (a)’’ and inserting ‘‘medicare ad20 ministrative contractor having a contract 

21 under section 1874A that provides for mak22 ing payments under this part’’; and 

23 (ii) by striking ‘‘such carrier’’ and in24 serting ‘‘such contractor’’; 

25 (C) in paragraph (3)(B)—
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1 (i) by striking ‘‘a carrier’’ and insert2 ing ‘‘a medicare administrative contractor’’ 

3 each place it appears; and 

4 (ii) by striking ‘‘the carrier’’ and in5 serting ‘‘the contractor’’ each place it ap6 pears; and 

7 (D) in paragraphs (5)(A) and (5)(B)(iii), 

8 by striking ‘‘carriers’’ and inserting ‘‘medicare 

9 administrative contractors’’ each place it ap10 pears. 

11 (8) Subsection (l) is amended—

12 (A) in paragraph (1)(A)(iii), by striking 

13 ‘‘carrier’’ and inserting ‘‘medicare administra14 tive contractor’’; and 

15 (B) in paragraph (2), by striking ‘‘carrier’’ 

16 and inserting ‘‘medicare administrative con17 tractor’’. 

18 (9) Subsection (p)(3)(A) is amended by striking 

19 ‘‘carrier’’ and inserting ‘‘medicare administrative 

20 contractor’’. 

21 (10) Subsection (q)(1)(A) is amended by striking 

22 ‘‘carrier’’. 

23 (d) EFFECTIVE DATE; TRANSITION RULE.—

24 (1) EFFECTIVE DATE.—
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1 (A) IN GENERAL.—Except as otherwise pro2 vided in this subsection, the amendments made 

3 by this section shall take effect on October 1, 

4 2005, and the Secretary is authorized to take 

5 such steps before such date as may be necessary 

6 to implement such amendments on a timely 

7 basis. 

8 (B) CONSTRUCTION FOR CURRENT CON9 TRACTS.—Such amendments shall not apply to 

10 contracts in effect before the date specified under 

11 subparagraph (A) that continue to retain the 

12 terms and conditions in effect on such date (ex13 cept as otherwise provided under this title, other 

14 than under this section) until such date as the 

15 contract is let out for competitive bidding under 

16 such amendments. 

17 (C) DEADLINE FOR COMPETITIVE BID18 DING.—The Secretary shall provide for the let19 ting by competitive bidding of all contracts for 

20 functions of medicare administrative contractors 

21 for annual contract periods that begin on or 

22 after October 1, 2011. 

23 (2) GENERAL TRANSITION RULES.—

24 (A) AUTHORITY TO CONTINUE TO ENTER

25 INTO NEW AGREEMENTS AND CONTRACTS AND
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1 WAIVER OF PROVIDER NOMINATION PROVISIONS

2 DURING TRANSITION.—Prior to the date specified 

3 in paragraph (1)(A), the Secretary may, con4 sistent with subparagraph (B), continue to enter 

5 into agreements under section 1816 and con6 tracts under section 1842 of the Social Security 

7 Act (42 U.S.C. 1395h, 1395u). The Secretary 

8 may enter into new agreements under section 

9 1816 during the time period without regard to 

10 any of the provider nomination provisions of 

11 such section. 

12 (B) APPROPRIATE TRANSITION.—The Sec13 retary shall take such steps as are necessary to 

14 provide for an appropriate transition from 

15 agreements under section 1816 and contracts 

16 under section 1842 of the Social Security Act (42 

17 U.S.C. 1395h, 1395u) to contracts under section 

18 1874A, as added by subsection (a)(1). 

19 (3) AUTHORIZING CONTINUATION OF MIP ACTIVI20 TIES UNDER CURRENT CONTRACTS AND AGREEMENTS

21 AND UNDER TRANSITION CONTRACTS.—The provisions 

22 contained in the exception in section 1893(d)(2) of the 

23 Social Security Act (42 U.S.C. 1395ddd(d)(2)) shall 

24 continue to apply notwithstanding the amendments 

25 made by this section, and any reference in such provi-
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1 sions to an agreement or contract shall be deemed to 

2 include agreements and contracts entered into pursu3 ant to paragraph (2)(A). 

4 (e) REFERENCES.—On and after the effective date pro5 vided under subsection (d)(1), any reference to a fiscal 

6 intermediary or carrier under title XI or XVIII of the So7 cial Security Act (or any regulation, manual instruction, 

8 interpretative rule, statement of policy, or guideline issued 

9 to carry out such titles) shall be deemed a reference to an 

10 appropriate medicare administrative contractor (as pro11 vided under section 1874A of the Social Security Act). 

12 (f) SECRETARIAL SUBMISSION OF LEGISLATIVE PRO13 POSAL.—Not later than 6 months after the date of enact14 ment of this Act, the Secretary shall submit to the appro15 priate committees of Congress a legislative proposal pro16 viding for such technical and conforming amendments in 

17 the law as are required by the provisions of this section. 

18 (g) REPORTS ON IMPLEMENTATION.—

19 (1) PROPOSAL FOR IMPLEMENTATION.—At least 

20 1 year before the date specified in subsection 

21 (d)(1)(A), the Secretary shall submit a report to Con22 gress and the Comptroller General of the United 

23 States that describes a plan for an appropriate tran24 sition. The Comptroller General shall conduct an 

25 evaluation of such plan and shall submit to Congress, 
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1 not later than 6 months after the date the report is 

2 received, a report on such evaluation and shall in3 clude in such report such recommendations as the 

4 Comptroller General deems appropriate. 

5 (2) STATUS OF IMPLEMENTATION.—The Sec6 retary shall submit a report to Congress not later 

7 than October 1, 2008, that describes the status of im8 plementation of such amendments and that includes 

9 a description of the following: 

10 (A) The number of contracts that have been 

11 competitively bid as of such date. 

12 (B) The distribution of functions among 

13 contracts and contractors. 

14 (C) A timeline for complete transition to 

15 full competition. 

16 (D) A detailed description of how the Sec17 retary has modified oversight and management 

18 of medicare contractors to adapt to full competi19 tion. 

20 Subtitle D—Education and 

21 Outreach Improvements 

22 SEC. 531. PROVIDER EDUCATION AND TECHNICAL ASSIST23 ANCE. 

24 (a) COORDINATION OF EDUCATION FUNDING.—
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1 (1) IN GENERAL.—The Social Security Act is 

2 amended by inserting after section 1888 the following 

3 new section: 

4 ‘‘PROVIDER EDUCATION AND TECHNICAL ASSISTANCE

5 ‘‘SEC. 1889. (a) COORDINATION OF EDUCATION FUND6 ING.—The Secretary shall coordinate the educational activi7 ties provided through medicare contractors (as defined in 

8 subsection (e), including under section 1893) in order to 

9 maximize the effectiveness of Federal education efforts for 

10 providers of services, physicians, practitioners, and sup11 pliers.’’. 

12 (2) EFFECTIVE DATE.—The amendment made by 

13 paragraph (1) shall take effect on the date of enact14 ment of this Act. 

15 (3) REPORT.—Not later than October 1, 2004, 

16 the Secretary shall submit to Congress a report that 

17 includes a description and evaluation of the steps 

18 taken to coordinate the funding of provider education 

19 under section 1889(a) of the Social Security Act, as 

20 added by paragraph (1). 

21 (b) INCENTIVES TO IMPROVE CONTRACTOR PERFORM22 ANCE.—

23 (1) IN GENERAL.—Section 1874A, as added by 

24 section 521(a)(1), is amended by adding at the end 

25 the following new subsection:
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1 ‘‘(e) INCENTIVES TO IMPROVE CONTRACTOR PERFORM2 ANCE IN PROVIDER EDUCATION AND OUTREACH.—

3 ‘‘(1) METHODOLOGY TO MEASURE CONTRACTOR

4 ERROR RATES.—In order to give medicare contractors 

5 (as defined in paragraph (3)) an incentive to imple6 ment effective education and outreach programs for 

7 providers of services, physicians, practitioners, and 

8 suppliers, the Secretary shall develop and implement 

9 by October 1, 2004, a methodology to measure the spe10 cific claims payment error rates of such contractors 

11 in the processing or reviewing of medicare claims. 

12 ‘‘(2) GAO REVIEW OF METHODOLOGY.—The 

13 Comptroller General of the United States shall review, 

14 and make recommendations to the Secretary, regard15 ing the adequacy of such methodology. 

16 ‘‘(3) MEDICARE CONTRACTOR DEFINED.—For 

17 purposes of this subsection, the term ‘medicare con18 tractor’ includes a medicare administrative con19 tractor, a fiscal intermediary with a contract under 

20 section 1816, and a carrier with a contract under sec21 tion 1842.’’. 

22 (2) REPORT.—The Secretary shall submit to 

23 Congress a report that describes how the Secretary in24 tends to use the methodology developed under section 

25 1874A(e)(1) of the Social Security Act, as added by 
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1 paragraph (1), in assessing medicare contractor per2 formance in implementing effective education and 

3 outreach programs, including whether to use such 

4 methodology as a basis for performance bonuses. 

5 (c) IMPROVED PROVIDER EDUCATION AND TRAIN6 ING.—

7 (1) INCREASED FUNDING FOR ENHANCED EDU8 CATION AND TRAINING THROUGH MEDICARE INTEG9 RITY PROGRAM.—Section 1817(k)(4) (42 U.S.C. 

10 1395i(k)(4)) is amended—

11 (A) in subparagraph (A), by striking ‘‘sub12 paragraph (B)’’ and inserting ‘‘subparagraphs 

13 (B) and (C)’’; 

14 (B) in subparagraph (B), by striking ‘‘The 

15 amount appropriated’’ and inserting ‘‘Subject to 

16 subparagraph (C), the amount appropriated’’; 

17 and 

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

19 subparagraph: 

20 ‘‘(C) ENHANCED PROVIDER EDUCATION AND

21 TRAINING.—

22 ‘‘(i) IN GENERAL.—In addition to the 

23 amount appropriated under subparagraph 

24 (B), the amount appropriated under sub25 paragraph (A) for a fiscal year (beginning 
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1 with fiscal year 2004) is increased by 

2 $35,000,000. 

3 ‘‘(ii) USE.—The funds made available 

4 under this subparagraph shall be used only 

5 to increase the conduct by medicare contrac6 tors of education and training of providers 

7 of services, physicians, practitioners, and 

8 suppliers regarding billing, coding, and 

9 other appropriate items and may also be 

10 used to improve the accuracy, consistency, 

11 and timeliness of contractor responses to 

12 written and phone inquiries from providers 

13 of services, physicians, practitioners, and 

14 suppliers.’’. 

15 (2) TAILORING EDUCATION AND TRAINING FOR

16 SMALL PROVIDERS OR SUPPLIERS.—

17 (A) IN GENERAL.—Section 1889, as added 

18 by subsection (a), is amended by adding at the 

19 end the following new subsection: 

20 ‘‘(b) TAILORING EDUCATION AND TRAINING ACTIVI21 TIES FOR SMALL PROVIDERS OR SUPPLIERS.—

22 ‘‘(1) IN GENERAL.—Insofar as a medicare con23 tractor conducts education and training activities, it 

24 shall take into consideration the special needs of small 

25 providers of services or suppliers (as defined in para-
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1 graph (2)). Such education and training activities for 

2 small providers of services and suppliers may include 

3 the provision of technical assistance (such as review 

4 of billing systems and internal controls to determine 

5 program compliance and to suggest more efficient and 

6 effective means of achieving such compliance). 

7 ‘‘(2) SMALL PROVIDER OF SERVICES OR SUP8 PLIER.—In this subsection, the term ‘small provider 

9 of services or supplier’ means—

10 ‘‘(A) an institutional provider of services 

11 with fewer than 25 full-time-equivalent employ12 ees; or 

13 ‘‘(B) a physician, practitioner, or supplier 

14 with fewer than 10 full-time-equivalent employ15 ees.’’. 

16 (B) EFFECTIVE DATE.—The amendment 

17 made by subparagraph (A) shall take effect on 

18 January 1, 2004. 

19 (d) ADDITIONAL PROVIDER EDUCATION PROVI20 SIONS.—

21 (1) IN GENERAL.—Section 1889, as added by 

22 subsection (a) and as amended by subsection (c)(2), 

23 is amended by adding at the end the following new 

24 subsections: 
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1 ‘‘(c) ENCOURAGEMENT OF PARTICIPATION IN EDU2 CATION PROGRAM ACTIVITIES.—A medicare contractor 

3 may not use a record of attendance at (or failure to attend) 

4 educational activities or other information gathered during 

5 an educational program conducted under this section or 

6 otherwise by the Secretary to select or track providers of 

7 services, physicians, practitioners, or suppliers for the pur8 pose of conducting any type of audit or prepayment review. 

9 ‘‘(d) CONSTRUCTION.—Nothing in this section or sec10 tion 1893(g) shall be construed as providing for disclosure 

11 by a medicare contractor—

12 ‘‘(1) of the screens used for identifying claims 

13 that will be subject to medical review; or 

14 ‘‘(2) of information that would compromise 

15 pending law enforcement activities or reveal findings 

16 of law enforcement-related audits. 

17 ‘‘(e) DEFINITIONS.—For purposes of this section and 

18 section 1817(k)(4)(C), the term ‘medicare contractor’ in19 cludes the following: 

20 ‘‘(1) A medicare administrative contractor with 

21 a contract under section 1874A, a fiscal intermediary 

22 with a contract under section 1816, and a carrier 

23 with a contract under section 1842. 

24 ‘‘(2) An eligible entity with a contract under sec25 tion 1893.
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1 Such term does not include, with respect to activities of a 

2 specific provider of services, physician, practitioner, or sup3 plier an entity that has no authority under this title or 

4 title XI with respect to such activities and such provider 

5 of services, physician, practitioner, or supplier.’’. 

6 (2) EFFECTIVE DATE.—The amendment made by 

7 paragraph (1) shall take effect on the date of enact8 ment of this Act. 

9 SEC. 532. ACCESS TO AND PROMPT RESPONSES FROM MEDI10 CARE CONTRACTORS. 

11 (a) IN GENERAL.—Section 1874A, as added by section 

12 521(a)(1) and as amended by section 531(b)(1), is amended 

13 by adding at the end the following new subsection: 

14 ‘‘(f) COMMUNICATING WITH BENEFICIARIES AND PRO15 VIDERS.—

16 ‘‘(1) COMMUNICATION PROCESS.—The Secretary 

17 shall develop a process for medicare contractors to 

18 communicate with beneficiaries and with providers of 

19 services, physicians, practitioners, and suppliers 

20 under this title. 

21 ‘‘(2) RESPONSE TO WRITTEN INQUIRIES.—Each 

22 medicare contractor (as defined in paragraph (5)) 

23 shall provide general written responses (which may be 

24 through electronic transmission) in a clear, concise, 

25 and accurate manner to inquiries by beneficiaries, 
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1 providers of services, physicians, practitioners, and 

2 suppliers concerning the programs under this title 

3 within 45 business days of the date of receipt of such 

4 inquiries. 

5 ‘‘(3) RESPONSE TO TOLL-FREE LINES.—The Sec6 retary shall ensure that medicare contractors provide 

7 a toll-free telephone number at which beneficiaries, 

8 providers, physicians, practitioners, and suppliers 

9 may obtain information regarding billing, coding, 

10 claims, coverage, and other appropriate information 

11 under this title. 

12 ‘‘(4) MONITORING OF CONTRACTOR RE13 SPONSES.—

14 ‘‘(A) IN GENERAL.—Each medicare con15 tractor shall, consistent with standards developed 

16 by the Secretary under subparagraph (B)—

17 ‘‘(i) maintain a system for identifying 

18 who provides the information referred to in 

19 paragraphs (2) and (3); and 

20 ‘‘(ii) monitor the accuracy, consist21 ency, and timeliness of the information so 

22 provided. 

23 ‘‘(B) DEVELOPMENT OF STANDARDS.—

24 ‘‘(i) IN GENERAL.—The Secretary shall 

25 establish (and publish in the Federal Reg-
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1 ister) standards regarding the accuracy, 

2 consistency, and timeliness of the informa3 tion provided in response to inquiries under 

4 this subsection. Such standards shall be con5 sistent with the performance requirements 

6 established under subsection (b)(3). 

7 ‘‘(ii) EVALUATION.—In conducting 

8 evaluations of individual medicare contrac9 tors, the Secretary shall consider the results 

10 of the monitoring conducted under subpara11 graph (A) taking into account as perform12 ance requirements the standards established 

13 under clause (i). The Secretary shall, in 

14 consultation with organizations rep15 resenting providers of services, suppliers, 

16 and individuals entitled to benefits under 

17 part A or enrolled under part B, or both, es18 tablish standards relating to the accuracy, 

19 consistency, and timeliness of the informa20 tion so provided. 

21 ‘‘(C) DIRECT MONITORING.—Nothing in this 

22 paragraph shall be construed as preventing the 

23 Secretary from directly monitoring the accuracy, 

24 consistency, and timeliness of the information so 

25 provided. 
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1 ‘‘(5) MEDICARE CONTRACTOR DEFINED.—For 

2 purposes of this subsection, the term ‘medicare con3 tractor’ has the meaning given such term in sub4 section (e)(3).’’. 

5 (b) EFFECTIVE DATE.—The amendment made by sub6 section (a) shall take effect October 1, 2004. 

7 SEC. 533. RELIANCE ON GUIDANCE. 

8 (a) IN GENERAL.—Section 1871(d), as added by sec9 tion 502(a), is amended by adding at the end the following 

10 new paragraph: 

11 ‘‘(2) If—

12 ‘‘(A) a provider of services, physician, practi13 tioner, or other supplier follows written guidance pro14 vided—

15 ‘‘(i) by the Secretary; or 

16 ‘‘(ii) by a medicare contractor (as defined 

17 in section 1889(e) and whether in the form of a 

18 written response to a written inquiry under sec19 tion 1874A(f)(1) or otherwise) acting within the 

20 scope of the contractor’s contract authority, 

21 in response to a written inquiry with respect to the 

22 furnishing of items or services or the submission of a 

23 claim for benefits for such items or services; 

24 ‘‘(B) the Secretary determines that—
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1 ‘‘(i) the provider of services, physician, 

2 practitioner, or supplier has accurately presented 

3 the circumstances relating to such items, services, 

4 and claim to the Secretary or the contractor in 

5 the written guidance; and 

6 ‘‘(ii) there is no indication of fraud or 

7 abuse committed by the provider of services, phy8 sician, practitioner, or supplier against the pro9 gram under this title; and 

10 ‘‘(C) the guidance was in error; 

11 the provider of services, physician, practitioner, or supplier 

12 shall not be subject to any penalty or interest under this 

13 title (or the provisions of title XI insofar as they relate to 

14 this title) relating to the provision of such items or service 

15 or such claim if the provider of services, physician, practi16 tioner, or supplier reasonably relied on such guidance. In 

17 applying this paragraph with respect to guidance in the 

18 form of general responses to frequently asked questions, the 

19 Secretary retains authority to determine the extent to which 

20 such general responses apply to the particular cir21 cumstances of individual claims.’’. 

22 (b) EFFECTIVE DATE.—The amendment made by sub23 section (a) shall apply to penalties imposed on or after the 

24 date of enactment of this Act.
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1 SEC. 534. MEDICARE PROVIDER OMBUDSMAN. 

2 (a) MEDICARE PROVIDER OMBUDSMAN.—Section 1868 

3 (42 U.S.C. 1395ee) is amended—

4 (1) by adding at the end of the heading the fol5 lowing: ‘‘; MEDICARE PROVIDER OMBUDSMAN’’; 

6 (2) by inserting ‘‘PRACTICING PHYSICIANS ADVI7 SORY COUNCIL.—(1)’’ after ‘‘(a)’’; 

8 (3) in paragraph (1), as so redesignated under 

9 paragraph (2), by striking ‘‘in this section’’ and in10 serting ‘‘in this subsection’’; 

11 (4) by redesignating subsections (b) and (c) as 

12 paragraphs (2) and (3), respectively; and 

13 (5) by adding at the end the following new sub14 section: 

15 ‘‘(b) MEDICARE PROVIDER OMBUDSMAN.—

16 ‘‘(1) IN GENERAL.—By not later than 1 year 

17 after the date of enactment of the Prescription Drug 

18 and Medicare Improvement Act of 2003, the Secretary 

19 shall appoint a Medicare Provider Ombudsman. 

20 ‘‘(2) DUTIES.—The Medicare Provider Ombuds21 man shall—

22 ‘‘(A) provide assistance, on a confidential 

23 basis, to entities and individuals providing items 

24 and services, including covered drugs under part 

25 D, under this title with respect to complaints, 

26 grievances, and requests for information con-
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1 cerning the programs under this title (including 

2 provisions of title XI insofar as they relate to 

3 this title and are not administered by the Office 

4 of the Inspector General of the Department of 

5 Health and Human Services) and in the resolu6 tion of unclear or conflicting guidance given by 

7 the Secretary and medicare contractors to such 

8 providers of services and suppliers regarding 

9 such programs and provisions and requirements 

10 under this title and such provisions; and 

11 ‘‘(B) submit recommendations to the Sec12 retary for improvement in the administration of 

13 this title and such provisions, including—

14 ‘‘(i) recommendations to respond to re15 curring patterns of confusion in this title 

16 and such provisions (including rec17 ommendations regarding suspending impo18 sition of sanctions where there is wide19 spread confusion in program administra20 tion), and 

21 ‘‘(ii) recommendations to provide for 

22 an appropriate and consistent response (in23 cluding not providing for audits) in cases of 

24 self-identified overpayments by providers of 

25 services and suppliers. 
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1 ‘‘(3) STAFF.—The Secretary shall provide the 

2 Medicare Provider Ombudsman with appropriate 

3 staff.’’. 

4 (b) FUNDING.—There are authorized to be appro5 priated to the Secretary (in appropriate part from the Fed6 eral Hospital Insurance Trust Fund and the Federal Sup7 plementary Medical Insurance Trust Fund (including the 

8 Prescription Drug Account)) to carry out the provisions of 

9 subsection (b) of section 1868 of the Social Security Act 

10 (42 U.S.C. 1395ee) (relating to the Medicare Provider Om11 budsman), as added by subsection (a)(5), such sums as are 

12 necessary for fiscal year 2004 and each succeeding fiscal 

13 year. 

14 SEC. 535. BENEFICIARY OUTREACH DEMONSTRATION PRO15 GRAMS. 

16 (a) DEMONSTRATION ON THE PROVISION OF ADVICE

17 AND ASSISTANCE TO MEDICARE BENEFICIARIES AT LOCAL

18 OFFICES OF THE SOCIAL SECURITY ADMINISTRATION.—

19 (1) ESTABLISHMENT.—The Secretary shall estab20 lish a demonstration program (in this subsection re21 ferred to as the ‘‘demonstration program’’) under 

22 which medicare specialists employed by the Depart23 ment of Health and Human Services provide advice 

24 and assistance to medicare beneficiaries at the loca-
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1 tion of existing local offices of the Social Security Ad2 ministration. 

3 (2) LOCATIONS.—

4 (A) IN GENERAL.—The demonstration pro5 gram shall be conducted in at least 6 offices or 

6 areas. Subject to subparagraph (B), in selecting 

7 such offices and areas, the Secretary shall pro8 vide preference for offices with a high volume of 

9 visits by medicare beneficiaries. 

10 (B) ASSISTANCE FOR RURAL BENE11 FICIARIES.—The Secretary shall provide for the 

12 selection of at least 2 rural areas to participate 

13 in the demonstration program. In conducting the 

14 demonstration program in such rural areas, the 

15 Secretary shall provide for medicare specialists 

16 to travel among local offices in a rural area on 

17 a scheduled basis. 

18 (3) DURATION.—The demonstration program 

19 shall be conducted over a 3-year period. 

20 (4) EVALUATION AND REPORT.—

21 (A) EVALUATION.—The Secretary shall pro22 vide for an evaluation of the demonstration pro23 gram. Such evaluation shall include an analysis 

24 of—
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1 (i) utilization of, and beneficiary satis2 faction with, the assistance provided under 

3 the program; and 

4 (ii) the cost-effectiveness of providing 

5 beneficiary assistance through out-sta6 tioning medicare specialists at local social 

7 security offices. 

8 (B) REPORT.—The Secretary shall submit 

9 to Congress a report on such evaluation and 

10 shall include in such report recommendations re11 garding the feasibility of permanently out-sta12 tioning Medicare specialists at local social secu13 rity offices. 

14 (b) DEMONSTRATION ON PROVIDING PRIOR DETER15 MINATIONS.—

16 (1) ESTABLISHMENT.—By not later than 1 year 

17 after the date of enactment of this Act, the Secretary 

18 shall establish a demonstration project to test the ad19 ministrative feasibility of providing a process for 

20 medicare beneficiaries and entities and individuals 

21 furnishing such beneficiaries with items and services 

22 under title XVIII of the Social Security Act program 

23 to make a request for, and receive, a determination 

24 (after an advance beneficiary notice is issued with re25 spect to the item or service involved but before such 
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1 item or service is furnished to the beneficiary) as to 

2 whether the item or service is covered under such title 

3 consistent with the applicable requirements of section 

4 1862(a)(1)(A) of such Act (42 U.S.C. 1395y(a)(1)(A)) 

5 (relating to medical necessity). 

6 (2) EVALUATION AND REPORT.—

7 (A) EVALUATION.—The Secretary shall provide 

8 for an evaluation of the demonstration program con9 ducted under paragraph (1). 

10 (B) REPORT.—By not later than January 1, 

11 2006, the Secretary shall submit to Congress a report 

12 on such evaluation together with recommendations for 

13 such legislation and administrative actions as the 

14 Secretary considers appropriate. 

15 Subtitle E—Review, Recovery, and 

16 Enforcement Reform 

17 SEC. 541. PREPAYMENT REVIEW. 

18 (a) IN GENERAL.—Section 1874A, as added by section 

19 521(a)(1) and as amended by sections 531(b)(1) and 

20 532(a), is amended by adding at the end the following new 

21 subsection: 

22 ‘‘(g) CONDUCT OF PREPAYMENT REVIEW.—

23 ‘‘(1) STANDARDIZATION OF RANDOM PREPAY24 MENT REVIEW.—A medicare administrative con25 tractor shall conduct random prepayment review only 
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1 in accordance with a standard protocol for random 

2 prepayment audits developed by the Secretary. 

3 ‘‘(2) LIMITATIONS ON INITIATION OF NONRANDOM

4 PREPAYMENT REVIEW.—A medicare administrative 

5 contractor may not initiate nonrandom prepayment 

6 review of a provider of services, physician, practi7 tioner, or supplier based on the initial identification 

8 by that provider of services, physician, practitioner, 

9 or supplier of an improper billing practice unless 

10 there is a likelihood of sustained or high level of pay11 ment error (as defined by the Secretary). 

12 ‘‘(3) TERMINATION OF NONRANDOM PREPAYMENT

13 REVIEW.—The Secretary shall establish protocols or 

14 standards relating to the termination, including ter15 mination dates, of nonrandom prepayment review. 

16 Such regulations may vary such a termination date 

17 based upon the differences in the circumstances trig18 gering prepayment review. 

19 ‘‘(4) CONSTRUCTION.—Nothing in this subsection 

20 shall be construed as preventing the denial of pay21 ments for claims actually reviewed under a random 

22 prepayment review. In the case of a provider of serv23 ices, physician, practitioner, or supplier with respect 

24 to which amounts were previously overpaid, nothing 

25 in this subsection shall be construed as limiting the 
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1 ability of a medicare administrative contractor to re2 quest the periodic production of records or supporting 

3 documentation for a limited sample of submitted 

4 claims to ensure that the previous practice is not con5 tinuing. 

6 ‘‘(5) RANDOM PREPAYMENT REVIEW DEFINED.—

7 For purposes of this subsection, the term ‘random pre8 payment review’ means a demand for the production 

9 of records or documentation absent cause with respect 

10 to a claim.’’. 

11 (b) EFFECTIVE DATE.—

12 (1) IN GENERAL.—Except as provided in this 

13 subsection, the amendment made by subsection (a) 

14 shall take effect on the date of enactment of this Act. 

15 (2) DEADLINE FOR PROMULGATION OF CERTAIN

16 REGULATIONS.—The Secretary shall first issue regula17 tions under section 1874A(g) of the Social Security 

18 Act, as added by subsection (a), by not later than 1 

19 year after the date of enactment of this Act. 

20 (3) APPLICATION OF STANDARD PROTOCOLS FOR

21 RANDOM PREPAYMENT REVIEW.—Section 1874A(g)(1) 

22 of the Social Security Act, as added by subsection (a), 

23 shall apply to random prepayment reviews conducted 

24 on or after such date (not later than 1 year after the 

25 date of enactment of this Act) as the Secretary shall 
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1 specify. The Secretary shall develop and publish the 

2 standard protocol under such section by not later 

3 than 1 year after the date of enactment of this Act. 

4 SEC. 542. RECOVERY OF OVERPAYMENTS. 

5 (a) IN GENERAL.—Section 1874A, as added by section 

6 521(a)(1) and as amended by sections 531(b)(1), 532(a), 

7 and 541(a), is amended by adding at the end the following 

8 new subsection: 

9 ‘‘(h) RECOVERY OF OVERPAYMENTS.—

10 ‘‘(1) USE OF REPAYMENT PLANS.—

11 ‘‘(A) IN GENERAL.—If the repayment, with12 in the period otherwise permitted by a provider 

13 of services, physician, practitioner, or other sup14 plier, of an overpayment under this title meets 

15 the standards developed under subparagraph (B), 

16 subject to subparagraph (C), and the provider, 

17 physician, practitioner, or supplier requests the 

18 Secretary to enter into a repayment plan with 

19 respect to such overpayment, the Secretary shall 

20 enter into a plan with the provider, physician, 

21 practitioner, or supplier for the offset or repay22 ment (at the election of the provider, physician, 

23 practitioner, or supplier) of such overpayment 

24 over a period of at least 1 year, but not longer 

25 than 3 years. Interest shall accrue on the balance 
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1 through the period of repayment. The repayment 

2 plan shall meet terms and conditions determined 

3 to be appropriate by the Secretary. 

4 ‘‘(B) DEVELOPMENT OF STANDARDS.—The 

5 Secretary shall develop standards for the recov6 ery of overpayments. Such standards shall—

7 ‘‘(i) include a requirement that the 

8 Secretary take into account (and weigh in 

9 favor of the use of a repayment plan) the 

10 reliance (as described in section 1871(d)(2)) 

11 by a provider of services, physician, practi12 tioner, and supplier on guidance when de13 termining whether a repayment plan should 

14 be offered; and 

15 ‘‘(ii) provide for consideration of the 

16 financial hardship imposed on a provider of 

17 services, physician, practitioner, or supplier 

18 in considering such a repayment plan. 

19 In developing standards with regard to financial 

20 hardship with respect to a provider of services, 

21 physician, practitioner, or supplier, the Sec22 retary shall take into account the amount of the 

23 proposed recovery as a proportion of payments 

24 made to that provider, physician, practitioner, 

25 or supplier.
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1 ‘‘(C) EXCEPTIONS.—Subparagraph (A) 

2 shall not apply if—

3 ‘‘(i) the Secretary has reason to suspect 

4 that the provider of services, physician, 

5 practitioner, or supplier may file for bank6 ruptcy or otherwise cease to do business or 

7 discontinue participation in the program 

8 under this title; or 

9 ‘‘(ii) there is an indication of fraud or 

10 abuse committed against the program. 

11 ‘‘(D) IMMEDIATE COLLECTION IF VIOLATION

12 OF REPAYMENT PLAN.—If a provider of services, 

13 physician, practitioner, or supplier fails to make 

14 a payment in accordance with a repayment plan 

15 under this paragraph, the Secretary may imme16 diately seek to offset or otherwise recover the total 

17 balance outstanding (including applicable inter18 est) under the repayment plan. 

19 ‘‘(E) RELATION TO NO FAULT PROVISION.—

20 Nothing in this paragraph shall be construed as 

21 affecting the application of section 1870(c) (re22 lating to no adjustment in the cases of certain 

23 overpayments). 

24 ‘‘(2) LIMITATION ON RECOUPMENT.—
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1 ‘‘(A) NO RECOUPMENT UNTIL RECONSIDER2 ATION EXERCISED.—In the case of a provider of 

3 services, physician, practitioner, or supplier that 

4 is determined to have received an overpayment 

5 under this title and that seeks a reconsideration 

6 of such determination by a qualified independent 

7 contractor under section 1869(c), the Secretary 

8 may not take any action (or authorize any other 

9 person, including any Medicare contractor, as 

10 defined in subparagraph (C)) to recoup the over11 payment until the date the decision on the recon12 sideration has been rendered. 

13 ‘‘(B) PAYMENT OF INTEREST.—

14 ‘‘(i) RETURN OF RECOUPED AMOUNT

15 WITH INTEREST IN CASE OF REVERSAL.—

16 Insofar as such determination on appeal 

17 against the provider of services, physician, 

18 practitioner, or supplier is later reversed, 

19 the Secretary shall provide for repayment of 

20 the amount recouped plus interest for the 

21 period in which the amount was recouped. 

22 ‘‘(ii) INTEREST IN CASE OF AFFIRMA23 TION.—Insofar as the determination on 

24 such appeal is against the provider of serv25 ices, physician, practitioner, or supplier, 
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1 interest on the overpayment shall accrue on 

2 and after the date of the original notice of 

3 overpayment. 

4 ‘‘(iii) RATE OF INTEREST.—The rate of 

5 interest under this subparagraph shall be 

6 the rate otherwise applicable under this title 

7 in the case of overpayments. 

8 ‘‘(C) MEDICARE CONTRACTOR DEFINED.—

9 For purposes of this subsection, the term ‘medi10 care contractor’ has the meaning given such term 

11 in section 1889(e). 

12 ‘‘(3) PAYMENT AUDITS.—

13 ‘‘(A) WRITTEN NOTICE FOR POST-PAYMENT

14 AUDITS.—Subject to subparagraph (C), if a 

15 medicare contractor decides to conduct a post16 payment audit of a provider of services, physi17 cian, practitioner, or supplier under this title, 

18 the contractor shall provide the provider of serv19 ices, physician, practitioner, or supplier with 

20 written notice (which may be in electronic form) 

21 of the intent to conduct such an audit. 

22 ‘‘(B) EXPLANATION OF FINDINGS FOR ALL

23 AUDITS.—Subject to subparagraph (C), if a 

24 medicare contractor audits a provider of services, 
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1 physician, practitioner, or supplier under this 

2 title, the contractor shall—

3 ‘‘(i) give the provider of services, phy4 sician, practitioner, or supplier a full re5 view and explanation of the findings of the 

6 audit in a manner that is understandable 

7 to the provider of services, physician, prac8 titioner, or supplier and permits the devel9 opment of an appropriate corrective action 

10 plan; 

11 ‘‘(ii) inform the provider of services, 

12 physician, practitioner, or supplier of the 

13 appeal rights under this title as well as con14 sent settlement options (which are at the 

15 discretion of the Secretary); and 

16 ‘‘(iii) give the provider of services, phy17 sician, practitioner, or supplier an oppor18 tunity to provide additional information to 

19 the contractor. 

20 ‘‘(C) EXCEPTION.—Subparagraphs (A) and 

21 (B) shall not apply if the provision of notice or 

22 findings would compromise pending law enforce23 ment activities, whether civil or criminal, or re24 veal findings of law enforcement-related audits.
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1 ‘‘(4) NOTICE OF OVER-UTILIZATION OF CODES.—

2 The Secretary shall establish, in consultation with or3 ganizations representing the classes of providers of 

4 services, physicians, practitioners, and suppliers, a 

5 process under which the Secretary provides for notice 

6 to classes of providers of services, physicians, practi7 tioners, and suppliers served by a medicare contractor 

8 in cases in which the contractor has identified that 

9 particular billing codes may be overutilized by that 

10 class of providers of services, physicians, practi11 tioners, or suppliers under the programs under this 

12 title (or provisions of title XI insofar as they relate 

13 to such programs). 

14 ‘‘(5) STANDARD METHODOLOGY FOR PROBE SAM15 PLING.—The Secretary shall establish a standard 

16 methodology for medicare administrative contractors 

17 to use in selecting a sample of claims for review in 

18 the case of an abnormal billing pattern. 

19 ‘‘(6) CONSENT SETTLEMENT REFORMS.—

20 ‘‘(A) IN GENERAL.—The Secretary may use 

21 a consent settlement (as defined in subparagraph 

22 (D)) to settle a projected overpayment. 

23 ‘‘(B) OPPORTUNITY TO SUBMIT ADDITIONAL

24 INFORMATION BEFORE CONSENT SETTLEMENT

25 OFFER.—Before offering a provider of services, 
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1 physician, practitioner, or supplier a consent 

2 settlement, the Secretary shall—

3 ‘‘(i) communicate to the provider of 

4 services, physician, practitioner, or supplier 

5 in a nonthreatening manner that, based on 

6 a review of the medical records requested by 

7 the Secretary, a preliminary evaluation of 

8 those records indicates that there would be 

9 an overpayment; and 

10 ‘‘(ii) provide for a 45-day period dur11 ing which the provider of services, physi12 cian, practitioner, or supplier may furnish 

13 additional information concerning the med14 ical records for the claims that had been re15 viewed. 

16 ‘‘(C) CONSENT SETTLEMENT OFFER.—The 

17 Secretary shall review any additional informa18 tion furnished by the provider of services, physi19 cian, practitioner, or supplier under subpara20 graph (B)(ii). Taking into consideration such 

21 information, the Secretary shall determine if 

22 there still appears to be an overpayment. If so, 

23 the Secretary—

24 ‘‘(i) shall provide notice of such deter25 mination to the provider of services, physi-
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1 cian, practitioner, or supplier, including an 

2 explanation of the reason for such deter3 mination; and 

4 ‘‘(ii) in order to resolve the overpay5 ment, may offer the provider of services, 

6 physician, practitioner, or supplier—

7 ‘‘(I) the opportunity for a statis8 tically valid random sample; or 

9 ‘‘(II) a consent settlement. 

10 The opportunity provided under clause (ii)(I) 

11 does not waive any appeal rights with respect to 

12 the alleged overpayment involved. 

13 ‘‘(D) CONSENT SETTLEMENT DEFINED.—

14 For purposes of this paragraph, the term ‘con15 sent settlement’ means an agreement between the 

16 Secretary and a provider of services, physician, 

17 practitioner, or supplier whereby both parties 

18 agree to settle a projected overpayment based on 

19 less than a statistically valid sample of claims 

20 and the provider of services, physician, practi21 tioner, or supplier agrees not to appeal the 

22 claims involved.’’. 

23 (b) EFFECTIVE DATES AND DEADLINES.—

24 (1) Not later than 1 year after the date of enact25 ment of this Act, the Secretary shall first—
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1 (A) develop standards for the recovery of 

2 overpayments under section 1874A(h)(1)(B) of 

3 the Social Security Act, as added by subsection 

4 (a); 

5 (B) establish the process for notice of over6 utilization of billing codes under section 

7 1874A(h)(4) of the Social Security Act, as added 

8 by subsection (a); and 

9 (C) establish a standard methodology for se10 lection of sample claims for abnormal billing 

11 patterns under section 1874A(h)(5) of the Social 

12 Security Act, as added by subsection (a). 

13 (2) Section 1874A(h)(2) of the Social Security 

14 Act, as added by subsection (a), shall apply to actions 

15 taken after the date that is 1 year after the date of 

16 enactment of this Act. 

17 (3) Section 1874A(h)(3) of the Social Security 

18 Act, as added by subsection (a), shall apply to audits 

19 initiated after the date of enactment of this Act. 

20 (4) Section 1874A(h)(6) of the Social Security 

21 Act, as added by subsection (a), shall apply to consent 

22 settlements entered into after the date of enactment of 

23 this Act.
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1 SEC. 543. PROCESS FOR CORRECTION OF MINOR ERRORS 

2 AND OMISSIONS ON CLAIMS WITHOUT PUR3 SUING APPEALS PROCESS. 

4 (a) IN GENERAL.—The Secretary shall develop, in con5 sultation with appropriate medicare contractors (as defined 

6 in section 1889(e) of the Social Security Act, as added by 

7 section 531(d)(1)) and representatives of providers of serv8 ices, physicians, practitioners, facilities, and suppliers, a 

9 process whereby, in the case of minor errors or omissions 

10 (as defined by the Secretary) that are detected in the sub11 mission of claims under the programs under title XVIII of 

12 such Act, a provider of services, physician, practitioner, fa13 cility, or supplier is given an opportunity to correct such 

14 an error or omission without the need to initiate an appeal. 

15 Such process shall include the ability to resubmit corrected 

16 claims. 

17 (b) DEADLINE.—Not later than 1 year after the date 

18 of enactment of this Act, the Secretary shall first develop 

19 the process under subsection (a). 

20 SEC. 544. AUTHORITY TO WAIVE A PROGRAM EXCLUSION. 

21 The first sentence of section 1128(c)(3)(B) (42 U.S.C. 

22 1320a–7(c)(3)(B)) is amended to read as follows: ‘‘Subject 

23 to subparagraph (G), in the case of an exclusion under sub24 section (a), the minimum period of exclusion shall be not 

25 less than 5 years, except that, upon the request of an admin26 istrator of a Federal health care program (as defined in 
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1 section 1128B(f)) who determines that the exclusion would 

2 impose a hardship on beneficiaries of that program, the Sec3 retary may, after consulting with the Inspector General of 

4 the Department of Health and Human Services, waive the 

5 exclusion under subsection (a)(1), (a)(3), or (a)(4) with re6 spect to that program in the case of an individual or entity 

7 that is the sole community physician or sole source of essen8 tial specialized services in a community.’’.

9 TITLE VI—OTHER PROVISIONS 

10 SEC. 601. INCREASE IN MEDICAID DSH ALLOTMENTS FOR 

11 FISCAL YEARS 2004 AND 2005. 

12 (a) IN GENERAL.—Section 1923(f)(4) (42 U.S.C. 

13 1396r–4(f)(4)) is amended—

14 (1) in the paragraph heading, by striking ‘‘FIS15 CAL YEARS 2001 AND 2002’’ and inserting ‘‘CERTAIN

16 FISCAL YEARS’’; 

17 (2) in subparagraph (A)—

18 (A) in clause (i)—

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

20 inserting ‘‘paragraphs (2) and (3)’’; and 

21 (ii) by striking ‘‘and’’ at the end; 

22 (B) in clause (ii), by striking the period 

23 and inserting a semicolon; and 

24 (C) by adding at the end the following: 
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1 ‘‘(iii) for fiscal year 2004, shall be the 

2 DSH allotment determined under para3 graph (3) for that fiscal year increased by 

4 the amount equal to the product of 0.50 and 

5 the difference between—

6 ‘‘(I) the amount that the DSH al7 lotment would be if the DSH allotment 

8 for the State determined under clause 

9 (ii) were increased, subject to subpara10 graph (B) and paragraph (5), by the 

11 percentage change in the Consumer 

12 Price Index for all urban consumers 

13 (all items; U.S. city average) for each 

14 of fiscal years 2002 and 2003; and 

15 ‘‘(II) the DSH allotment deter16 mined under paragraph (3) for the 

17 State for fiscal year 2004; and 

18 ‘‘(iv) for fiscal year 2005, shall be the 

19 DSH allotment determined under para20 graph (3) for that fiscal year increased by 

21 the amount equal to the product of 0.50 and 

22 the difference between—

23 ‘‘(I) the amount that the DSH al24 lotment would be if the DSH allotment 

25 for the State determined under clause 
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1 (ii) were increased, subject to subpara2 graph (B) and paragraph (5), by the 

3 percentage change in the Consumer 

4 Price Index for all urban consumers 

5 (all items; U.S. city average) for each 

6 of fiscal years 2002, 2003, and 2004; 

7 and 

8 ‘‘(II) the DSH allotment deter9 mined under paragraph (3) for the 

10 State for fiscal year 2005.’’; and 

11 (3) in subparagraph (C)—

12 (A) in the subparagraph heading, by strik13 ing ‘‘AFTER FISCAL YEAR 2002’’ and inserting 

14 ‘‘FOR OTHER FISCAL YEARS’’; and 

15 (B) by striking ‘‘2003 or’’ and inserting 

16 ‘‘2003, fiscal year 2004, fiscal year 2005, or’’. 

17 (b) DSH ALLOTMENT FOR THE DISTRICT OF COLUM18 BIA.—Section 1923(f)(4) (42 U.S.C. 1396r–4(f)(4)), as 

19 amended by paragraph (1), is amended—

20 (1) in subparagraph (A), by inserting ‘‘and ex21 cept as provided in subparagraph (C)’’ after ‘‘para22 graph (2)’’; 

23 (2) by redesignating subparagraph (C) as sub24 paragraph (D); and
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1 (3) by inserting after subparagraph (B) the fol2 lowing: 

3 ‘‘(C) DSH ALLOTMENT FOR THE DISTRICT

4 OF COLUMBIA.—

5 ‘‘(i) IN GENERAL.—Notwithstanding 

6 subparagraph (A), the DSH allotment for 

7 the District of Columbia for fiscal year 

8 2004, shall be determined by substituting 

9 ‘‘49’’ for ‘‘32’’ in the item in the table con10 tained in paragraph (2) with respect to the 

11 DSH allotment for FY 00 (fiscal year 2000) 

12 for the District of Columbia, and then in13 creasing such allotment, subject to subpara14 graph (B) and paragraph (5), by the per15 centage change in the Consumer Price Index 

16 for all urban consumers (all items; U.S. 

17 city average) for each of fiscal years 2000, 

18 2001, 2002, and 2003. 

19 ‘‘(ii) NO APPLICATION TO ALLOTMENTS

20 AFTER FISCAL YEAR 2004.—The DSH allot21 ment for the District of Columbia for fiscal 

22 year 2003, fiscal year 2005, or any suc23 ceeding fiscal year shall be determined 

24 under paragraph (3) without regard to the 
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1 DSH allotment determined under clause 

2 (i).’’. 

3 (c) CONFORMING AMENDMENT.—Section 1923(f)(3) of 

4 such Act (42 U.S.C. 1396r–4(f)(3)) is amended by inserting 

5 ‘‘, paragraph (4),’’ after ‘‘subparagraph (B)’’. 

6 SEC. 602. INCREASE IN FLOOR FOR TREATMENT AS AN EX7 TREMELY LOW DSH STATE UNDER THE MED8 ICAID PROGRAM FOR FISCAL YEARS 2004 AND 

9 2005. 

10 (a) IN GENERAL.—Section 1923(f)(5) (42 U.S.C. 

11 1396r–4(f)(5)) is amended—

12 (1) by striking ‘‘In the case of’’ and inserting the 

13 following: 

14 ‘‘(A) IN GENERAL.—In the case of’’; and 

15 (2) by adding at the end the following: 

16 ‘‘(B) INCREASE IN FLOOR FOR FISCAL

17 YEARS 2004 AND 2005.—

18 ‘‘(i) FISCAL YEAR 2004.—In the case of 

19 a State in which the total expenditures 

20 under the State plan (including Federal 

21 and State shares) for disproportionate share 

22 hospital adjustments under this section for 

23 fiscal year 2000, as reported to the Admin24 istrator of the Centers for Medicare & Med25 icaid Services as of August 31, 2003, is 
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1 greater than 0 but less than 3 percent of the 

2 State’s total amount of expenditures under 

3 the State plan for medical assistance during 

4 the fiscal year, the DSH allotment for fiscal 

5 year 2004 shall be increased to 3 percent of 

6 the State’s total amount of expenditures 

7 under such plan for such assistance during 

8 such fiscal year. 

9 ‘‘(ii) FISCAL YEAR 2005.—In the case of 

10 a State in which the total expenditures 

11 under the State plan (including Federal 

12 and State shares) for disproportionate share 

13 hospital adjustments under this section for 

14 fiscal year 2001, as reported to the Admin15 istrator of the Centers for Medicare & Med16 icaid Services as of August 31, 2004, is 

17 greater than 0 but less than 3 percent of the 

18 State’s total amount of expenditures under 

19 the State plan for medical assistance during 

20 the fiscal year, the DSH allotment for fiscal 

21 year 2005 shall be the DSH allotment deter22 mined for the State for fiscal year 2004 

23 (under clause (i) or paragraph (4) (as ap24 plicable)), increased by the percentage 

25 change in the consumer price index for all 
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1 urban consumers (all items; U.S. city aver2 age) for fiscal year 2004. 

3 ‘‘(iii) NO APPLICATION TO ALLOT4 MENTS AFTER FISCAL YEAR 2005.—The 

5 DSH allotment for any State for fiscal year 

6 2006 or any succeeding fiscal year shall be 

7 determined under this subsection without 

8 regard to the DSH allotments determined 

9 under this subparagraph.’’. 

10 (b) ALLOTMENT ADJUSTMENT.—

11 (1) IN GENERAL.—Section 1923(f) of the Social 

12 Security Act (42 U.S.C. 1396r–4(f)) is amended—

13 (A) by redesignating paragraph (6) as 

14 paragraph (7); and 

15 (B) by inserting after paragraph (5) the fol16 lowing: 

17 ‘‘(6) ALLOTMENT ADJUSTMENT.—Only with re18 spect to fiscal year 2004 or 2005, if a statewide waiv19 er under section 1115 that was implemented on Janu20 ary 1, 1994, is revoked or terminated before the end 

21 of either such fiscal year, the Secretary shall—

22 ‘‘(A) permit the State whose waiver was re23 voked or terminated to submit an amendment to 

24 its State plan that would describe the method25 ology to be used by the State (after the effective 
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1 date of such revocation or termination) to iden2 tify and make payments to disproportionate 

3 share hospitals, including children’s hospitals 

4 and institutions for mental diseases or other 

5 mental health facilities (other than State-owned 

6 institutions or facilities), on the basis of the pro7 portion of patients served by such hospitals that 

8 are low-income patients with special needs; and 

9 ‘‘(B) provide for purposes of this subsection 

10 for computation of an appropriate DSH allot11 ment for the State for fiscal year 2004 or 2005 

12 (or both) that provides for the maximum amount 

13 (permitted consistent with paragraph (3)(B)(ii)) 

14 that does not result in greater expenditures 

15 under this title than would have been made if 

16 such waiver had not been revoked or termi17 nated.’’. 

18 (2) TREATMENT OF INSTITUTIONS FOR MENTAL

19 DISEASES.—Section 1923(h)(1) of the Social Security 

20 Act (42 U.S.C. 1396r–4(h)(1)) is amended—

21 (A) in paragraph (1), in the matter pre22 ceding subparagraph (A), by inserting ‘‘(subject 

23 to paragraph (3))’’ after ‘‘the lesser of the fol24 lowing’’; and
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1 (B) by adding at the end the following new 

2 paragraph: 

3 ‘‘(3) SPECIAL RULE.—The limitation of para4 graph (1) shall not apply in the case of a State to 

5 which subsection (f)(6) applies.’’. 

6 SEC. 603. INCREASED REPORTING REQUIREMENTS TO EN7 SURE THE APPROPRIATENESS OF PAYMENT 

8 ADJUSTMENTS TO DISPROPORTIONATE 

9 SHARE HOSPITALS UNDER THE MEDICAID 

10 PROGRAM. 

11 Section 1923 (42 U.S.C. 1396r–4) is amended by add12 ing at the end the following new subsection: 

13 ‘‘(j) ANNUAL REPORTS REGARDING PAYMENT ADJUST14 MENTS.—With respect to fiscal year 2004 and each fiscal 

15 year thereafter, the Secretary shall require a State, as a 

16 condition of receiving a payment under section 1903(a)(1) 

17 with respect to a payment adjustment made under this sec18 tion, to submit an annual report that—

19 ‘‘(1) identifies each disproportionate share hos20 pital that received a payment adjustment under this 

21 section for the preceding fiscal year and the amount 

22 of the payment adjustment made to such hospital for 

23 the preceding fiscal year; and 

24 ‘‘(2) includes such other information as the Sec25 retary determines necessary to ensure the appro-
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1 priateness of the payment adjustments made under 

2 this section for the preceding fiscal year.’’. 

3 SEC. 604. CLARIFICATION OF INCLUSION OF INPATIENT 

4 DRUG PRICES CHARGED TO CERTAIN PUBLIC 

5 HOSPITALS IN THE BEST PRICE EXEMPTIONS 

6 FOR THE MEDICAID DRUG REBATE PROGRAM. 

7 (a) IN GENERAL.—Section 1927(c)(1)(C)(i)(I) of the 

8 Social Security Act (42 U.S.C. 1396r–8(c)(1)(C)(i)(I)) is 

9 amended by inserting before the semicolon the following: 

10 ‘‘(including inpatient prices charged to hospitals described 

11 in section 340B(a)(4)(L) of the Public Health Service Act)’’. 

12 (b) ANTI-DIVERSION PROTECTION.—Section 

13 1927(c)(1)(C) of the Social Security Act (42 U.S.C. 1396r–

14 8(c)(1)(C)) is amended by adding at the end the following: 

15 ‘‘(iii) APPLICATION OF AUDITING AND

16 RECORDKEEPING REQUIREMENTS.—With re17 spect to a covered entity described in section 

18 340B(a)(4)(L) of the Public Health Service 

19 Act, any drug purchased for inpatient use 

20 shall be subject to the auditing and record21 keeping requirements described in section 

22 340B(a)(5)(C) of the Public Health Service 

23 Act.’’. 

24 (c) EFFECTIVE DATE.—The amendments made by this 

25 section take effect on October 1, 2003. 
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1 SEC. 605. ASSISTANCE WITH COVERAGE OF LEGAL IMMI2 GRANTS UNDER THE MEDICAID PROGRAM 

3 AND SCHIP. 

4 (a) MEDICAID PROGRAM.—Section 1903(v) (42 U.S.C. 

5 1396b(v)) is amended—

6 (1) in paragraph (1), by striking ‘‘paragraph 

7 (2)’’ and inserting ‘‘paragraphs (2) and (4)’’; and 

8 (2) by adding at the end the following new para9 graph: 

10 ‘‘(4)(A) With respect to any or all of fiscal years 2005 

11 through 2007, a State may elect (in a plan amendment 

12 under this title) to provide medical assistance under this 

13 title (including under a waiver authorized by the Secretary) 

14 for aliens who are lawfully residing in the United States 

15 (including battered aliens described in section 431(c) of 

16 such Act) and who are otherwise eligible for such assistance, 

17 within either or both of the following eligibility categories: 

18 ‘‘(i) PREGNANT WOMEN.—Women during preg19 nancy (and during the 60-day period beginning on 

20 the last day of the pregnancy). 

21 ‘‘(ii) CHILDREN.—Children (as defined under 

22 such plan), including optional targeted low-income 

23 children described in section 1905(u)(2)(B). 

24 ‘‘(B)(i) In the case of a State that has elected to pro25 vide medical assistance to a category of aliens under sub26 paragraph (A), no debt shall accrue under an affidavit of 
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1 support against any sponsor of such an alien on the basis 

2 of provision of assistance to such category and the cost of 

3 such assistance shall not be considered as an unreimbursed 

4 cost. 

5 ‘‘(ii) The provisions of sections 401(a), 402(b), 403, 

6 and 421 of the Personal Responsibility and Work Oppor7 tunity Reconciliation Act of 1996 shall not apply to a State 

8 that makes an election under subparagraph (A).’’. 

9 (b) SCHIP.—Section 2107(e)(1) (42 U.S.C. 

10 1397gg(e)(1)) is amended by redesignating subparagraphs 

11 (C) and (D) as subparagraph (D) and (E), respectively, 

12 and by inserting after subparagraph (B) the following new 

13 subparagraph: 

14 ‘‘(C) Section 1903(v)(4) (relating to op15 tional coverage of categories of permanent resi16 dent alien children), but only if the State has 

17 elected to apply such section to the category of 

18 children under title XIX and only with respect 

19 to any or all of fiscal years 2005 through 2007.’’. 

20 SEC. 606. ESTABLISHMENT OF CONSUMER OMBUDSMAN AC21 COUNT. 

22 (a) IN GENERAL.—Section 1817 (42 U.S.C. 1395i) is 

23 amended by adding at the end the following new subsection: 

24 ‘‘(i) CONSUMER OMBUDSMAN ACCOUNT.—
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1 ‘‘(1) ESTABLISHMENT.—There is hereby estab2 lished in the Trust Fund an expenditure account to 

3 be known as the ‘Consumer Ombudsman Account’ (in 

4 this subsection referred to as the ‘Account’). 

5 ‘‘(2) APPROPRIATED AMOUNTS TO ACCOUNT FOR

6 HEALTH INSURANCE INFORMATION, COUNSELING, AND

7 ASSISTANCE GRANTS.—

8 ‘‘(A) IN GENERAL.—There are hereby ap9 propriated to the Account from the Trust Fund 

10 for each fiscal year beginning with fiscal year 

11 2005, the amount described in subparagraph (B) 

12 for such fiscal year for the purpose of making 

13 grants under section 4360 of the Omnibus Budg14 et Reconciliation Act of 1990. 

15 ‘‘(B) AMOUNT DESCRIBED.—For purposes of 

16 subparagraph (A), the amount described in this 

17 subparagraph for a fiscal year is the amount 

18 equal to the product of—

19 ‘‘(i) $1; and 

20 ‘‘(ii) the total number of individuals 

21 receiving benefits under this title for the cal22 endar year ending on December 31 of the 

23 preceding fiscal year.’’.
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1 (b) CONFORMING AMENDMENT.—Section 4360(g) of 

2 the Omnibus Budget Reconciliation Act of 1990 (42 U.S.C. 

3 1395b–4(g)) is amended to read as follows: 

4 ‘‘(g) FUNDING.—The Secretary shall use amounts ap5 propriated to the Consumer Ombudsman Account in ac6 cordance with section 1817(i) of the Social Security Act for 

7 a fiscal year for making grants under this section for that 

8 fiscal year.’’. 

9 SEC. 607. GAO STUDY REGARDING IMPACT OF ASSETS TEST 

10 FOR LOW-INCOME BENEFICIARIES. 

11 (a) STUDY.—The Comptroller General of the United 

12 States shall conduct a study to determine the extent to 

13 which drug utilization and access to covered drugs for an 

14 individual described in subsection (b) differs from the drug 

15 utilization and access to covered drugs of an individual who 

16 qualifies for the transitional assistance prescription drug 

17 card program under section 1807A of the Social Security 

18 Act (as added by section 111) or for the premiums and cost19 sharing subsidies applicable to a qualified medicare bene20 ficiary, a specified low-income medicare beneficiary, or a 

21 qualifying individual under section 1860D–19 of the Social 

22 Security Act (as added by section 101). 

23 (b) INDIVIDUAL DESCRIBED.—An individual is de24 scribed in this subsection if the individual does not qualify 

25 for the transitional assistance prescription drug card pro-
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1 gram under section 1807A of the Social Security Act or 

2 for the premiums and cost-sharing subsidies applicable to 

3 a qualified medicare beneficiary, a specified low-income 

4 medicare beneficiary, or a qualifying individual under sec5 tion 1860D–19 of the Social Security Act solely as a result 

6 of the application of an assets test to the individual. 

7 (c) REPORT.—Not later than September 30, 2007, the 

8 Comptroller General shall submit a report to Congress on 

9 the study conducted under subsection (a) that includes such 

10 recommendations for legislation as the Comptroller General 

11 determines are appropriate. 

12 (d) DEFINITIONS.—In this section: 

13 (1) COVERED DRUGS.—The term ‘‘covered drugs’’ 

14 has the meaning given that term in section 

15 1860D(a)(D) of the Social Security Act. 

16 (2) QUALIFIED MEDICARE BENEFICIARY; SPECI17 FIED LOW-INCOME MEDICARE BENEFICIARY; QUALI18 FYING INDIVIDUAL.—The terms ‘‘qualified medicare 

19 beneficiary’’, ‘‘specified low-income medicare bene20 ficiary’’ and ‘‘qualifying individual’’ have the mean21 ing given those terms under section 1860D–19 of the 

22 Social Security Act. 

23 SEC. 608. HEALTH CARE INFRASTRUCTURE IMPROVEMENT. 

24 At the end of the Social Security Act, add the following 

25 new title: 
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1 ‘‘TITLE XXII—HEALTH CARE IN2 FRASTRUCTURE IMPROVE3 MENT 

4 ‘‘SEC. 2201. DEFINITIONS. 

5 ‘‘In this title, the following definitions apply: 

6 ‘‘(1) ELIGIBLE PROJECT COSTS.—The term ‘eli7 gible project costs’ means amounts substantially all of 

8 which are paid by, or for the account of, an obligor 

9 in connection with a project, including the cost of—

10 ‘‘(A) development phase activities, including 

11 planning, feasibility analysis, revenue fore12 casting, environmental study and review, per13 mitting, architectural engineering and design 

14 work, and other preconstruction activities; 

15 ‘‘(B) construction, reconstruction, rehabili16 tation, replacement, and acquisition of facilities 

17 and real property (including land related to the 

18 project and improvements to land), environ19 mental mitigation, construction contingencies, 

20 and acquisition of equipment; 

21 ‘‘(C) capitalized interest necessary to meet 

22 market requirements, reasonably required reserve 

23 funds, capital issuance expenses, and other car24 rying costs during construction;
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1 ‘‘(D) major medical equipment determined 

2 to be appropriate by the Secretary; and 

3 ‘‘(E) refinancing projects or activities that 

4 are otherwise eligible for financial assistance 

5 under subparagraphs (A) through (D). 

6 ‘‘(2) FEDERAL CREDIT INSTRUMENT.—The term 

7 ‘Federal credit instrument’ means a secured loan, 

8 loan guarantee, or line of credit authorized to be 

9 made available under this title with respect to a 

10 project. 

11 ‘‘(3) INVESTMENT-GRADE RATING.—The term 

12 ‘investment-grade rating’ means a rating category of 

13 BBB minus, Baa3, or higher assigned by a rating 

14 agency to project obligations offered into the capital 

15 markets. 

16 ‘‘(4) LENDER.—The term ‘lender’ means any 

17 non-Federal qualified institutional buyer (as defined 

18 in section 230.144A(a) of title 17, Code of Federal 

19 Regulations (or any successor regulation), known as 

20 Rule 144A(a) of the Securities and Exchange Com21 mission and issued under the Securities Act of 1933 

22 (15 U.S.C. 77a et seq.)), including—

23 ‘‘(A) a qualified retirement plan (as defined 

24 in section 4974(c) of the Internal Revenue Code 
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1 of 1986) that is a qualified institutional buyer; 

2 and 

3 ‘‘(B) a governmental plan (as defined in 

4 section 414(d) of the Internal Revenue Code of 

5 1986) that is a qualified institutional buyer. 

6 ‘‘(5) LINE OF CREDIT.—The term ‘line of credit’ 

7 means an agreement entered into by the Secretary 

8 with an obligor under section 2204 to provide a direct 

9 loan at a future date upon the occurrence of certain 

10 events. 

11 ‘‘(6) LOAN GUARANTEE.—The term ‘loan guar12 antee’ means any guarantee or other pledge by the 

13 Secretary to pay all or part of the principal of and 

14 interest on a loan or other debt obligation issued by 

15 an obligor and funded by a lender. 

16 ‘‘(7) LOCAL SERVICER.—The term ‘local servicer’ 

17 means a State or local government or any agency of 

18 a State or local government that is responsible for 

19 servicing a Federal credit instrument on behalf of the 

20 Secretary. 

21 ‘‘(8) OBLIGOR.—The term ‘obligor’ means a 

22 party primarily liable for payment of the principal 

23 of or interest on a Federal credit instrument, which 

24 party may be a corporation, partnership, joint ven-
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1 ture, trust, or governmental entity, agency, or instru2 mentality. 

3 ‘‘(9) PROJECT.—The term ‘project’ means any 

4 project that is designed to improve the health care in5 frastructure, including the construction, renovation, 

6 or other capital improvement of any hospital, medical 

7 research facility, or other medical facility or the pur8 chase of any equipment to be used in a hospital, re9 search facility, or other medical research facility. 

10 ‘‘(10) PROJECT OBLIGATION.—The term ‘project 

11 obligation’ means any note, bond, debenture, lease, in12 stallment sale agreement, or other debt obligation 

13 issued or entered into by an obligor in connection 

14 with the financing of a project, other than a Federal 

15 credit instrument. 

16 ‘‘(11) RATING AGENCY.—The term ‘rating agen17 cy’ means a bond rating agency identified by the Se18 curities and Exchange Commission as a Nationally 

19 Recognized Statistical Rating Organization. 

20 ‘‘(12) SECURED LOAN.—The term ‘secured loan’ 

21 means a direct loan or other debt obligation issued by 

22 an obligor and funded by the Secretary in connection 

23 with the financing of a project under section 2203. 
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1 ‘‘(13) STATE.—The term ‘State’ has the meaning 

2 given the term in section 101 of title 23, United 

3 States Code. 

4 ‘‘(14) SUBSIDY AMOUNT.—The term ‘subsidy 

5 amount’ means the amount of budget authority suffi6 cient to cover the estimated long-term cost to the Fed7 eral Government of a Federal credit instrument, cal8 culated on a net present value basis, excluding ad9 ministrative costs and any incidental effects on gov10 ernmental receipts or outlays in accordance with the 

11 provisions of the Federal Credit Reform Act of 1990 

12 (2 U.S.C. 661 et seq.). 

13 ‘‘(15) SUBSTANTIAL COMPLETION.—The term 

14 ‘substantial completion’ means the opening of a 

15 project to patients or for research purposes. 

16 ‘‘SEC. 2202. DETERMINATION OF ELIGIBILITY AND PROJECT 

17 SELECTION. 

18 ‘‘(a) ELIGIBILITY.—To be eligible to receive financial 

19 assistance under this title, a project shall meet the following 

20 criteria: 

21 ‘‘(1) APPLICATION.—A State, a local servicer 

22 identified under section 2205(a), or the entity under23 taking a project shall submit a project application to 

24 the Secretary. 
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1 ‘‘(2) ELIGIBLE PROJECT COSTS.—To be eligible 

2 for assistance under this title, a project shall have 

3 total eligible project costs that are reasonably antici4 pated to equal or exceed $40,000,000. 

5 ‘‘(3) SOURCES OF REPAYMENTS.—Project financ6 ing shall be repayable, in whole or in part, from reli7 able revenue sources as described in the application 

8 submitted under paragraph (1). 

9 ‘‘(4) PUBLIC SPONSORSHIP OF PRIVATE ENTI10 TIES.—In the case of a project that is undertaken by 

11 an entity that is not a State or local government or 

12 an agency or instrumentality of a State or local gov13 ernment, the project that the entity is undertaking 

14 shall be publicly sponsored or sponsored by an entity 

15 that is described in section 501(c)(3) of the Internal 

16 Revenue Code of 1986 and exempt from tax under sec17 tion 501(a) of such Code. 

18 ‘‘(b) SELECTION AMONG ELIGIBLE PROJECTS.—

19 ‘‘(1) ESTABLISHMENT.—The Secretary shall es20 tablish criteria for selecting among projects that meet 

21 the eligibility criteria specified in subsection (a). 

22 ‘‘(2) SELECTION CRITERIA.—

23 ‘‘(A) IN GENERAL.—The selection criteria 

24 shall include the following:
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1 ‘‘(i) The extent to which the project is 

2 nationally or regionally significant, in 

3 terms of expanding or improving the health 

4 care infrastructure of the United States or 

5 the region or in terms of the medical benefit 

6 that the project will have. 

7 ‘‘(ii) The creditworthiness of the 

8 project, including a determination by the 

9 Secretary that any financing for the project 

10 has appropriate security features, such as a 

11 rate covenant, credit enhancement require12 ments, or debt services coverages, to ensure 

13 repayment. 

14 ‘‘(iii) The extent to which assistance 

15 under this title would foster innovative pub16 lic-private partnerships and attract private 

17 debt or equity investment. 

18 ‘‘(iv) The likelihood that assistance 

19 under this title would enable the project to 

20 proceed at an earlier date than the project 

21 would otherwise be able to proceed. 

22 ‘‘(v) The extent to which the project 

23 uses or results in new technologies. 
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1 ‘‘(vi) The amount of budget authority 

2 required to fund the Federal credit instru3 ment made available under this title. 

4 ‘‘(vii) The extent to which the project 

5 helps maintain or protect the environment. 

6 ‘‘(B) SPECIFIC REQUIREMENTS.—The selec7 tion criteria shall require that a project appli8 cant—

9 ‘‘(i) be engaged in research in the 

10 causes, prevention, and treatment of cancer; 

11 ‘‘(ii) be designated as a cancer center 

12 for the National Cancer Institute or be des13 ignated by the State as the sole official com14 prehensive cancer effort for the State; and 

15 ‘‘(iii) be located in a State that, on the 

16 date of enactment of this title, has a popu17 lation of less than 3,000,000 individuals. 

18 ‘‘(C) RATING LETTER.—For purposes of 

19 subparagraph (A)(ii), the Secretary shall require 

20 each project applicant to provide a rating letter 

21 from at least 1 rating agency indicating that the 

22 project’s senior obligations have the potential to 

23 achieve an investment-grade rating with or with24 out credit enhancement. 
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1 ‘‘SEC. 2203. SECURED LOANS. 

2 ‘‘(a) IN GENERAL.—

3 ‘‘(1) AGREEMENTS.—Subject to paragraphs (2) 

4 through (4), the Secretary may enter into agreements 

5 with 1 or more obligors to make secured loans, the 

6 proceeds of which shall be used—

7 ‘‘(A) to finance eligible project costs; 

8 ‘‘(B) to refinance interim construction fi9 nancing of eligible project costs; or 

10 ‘‘(C) to refinance existing debt or prior 

11 project obligations; 

12 of any project selected under section 2202. 

13 ‘‘(2) LIMITATION ON REFINANCING OF INTERIM

14 CONSTRUCTION FINANCING.—A loan under paragraph 

15 (1) shall not refinance interim construction financing 

16 under paragraph (1)(B) later than 1 year after the 

17 date of substantial completion of the project. 

18 ‘‘(3) RISK ASSESSMENT.—Before entering into 

19 an agreement for a secured loan under this subsection, 

20 the Secretary, in consultation with each rating agen21 cy providing a rating letter under section 

22 2202(b)(2)(B), shall determine an appropriate capital 

23 reserve subsidy amount for each secured loan, taking 

24 into account such letter. 

25 ‘‘(4) INVESTMENT-GRADE RATING REQUIRE26 MENT.—The funding of a secured loan under this sec-
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1 tion shall be contingent on the project’s senior obliga2 tions receiving an investment-grade rating, except 

3 that—

4 ‘‘(A) the Secretary may fund an amount of 

5 the secured loan not to exceed the capital reserve 

6 subsidy amount determined under paragraph (3) 

7 prior to the obligations receiving an investment8 grade rating; and 

9 ‘‘(B) the Secretary may fund the remaining 

10 portion of the secured loan only after the obliga11 tions have received an investment-grade rating 

12 by at least 1 rating agency. 

13 ‘‘(b) TERMS AND LIMITATIONS.—

14 ‘‘(1) IN GENERAL.—A secured loan under this 

15 section with respect to a project shall be on such terms 

16 and conditions and contain such covenants, represen17 tations, warranties, and requirements (including re18 quirements for audits) as the Secretary determines 

19 appropriate. 

20 ‘‘(2) MAXIMUM AMOUNT.—The amount of the se21 cured loan shall not exceed 100 percent of the reason22 ably anticipated eligible project costs. 

23 ‘‘(3) PAYMENT.—The secured loan—

24 ‘‘(A) shall—
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1 ‘‘(i) be payable, in whole or in part, 

2 from reliable revenue sources; and 

3 ‘‘(ii) include a rate covenant, coverage 

4 requirement, or similar security feature 

5 supporting the project obligations; and 

6 ‘‘(B) may have a lien on revenues described 

7 in subparagraph (A) subject to any lien securing 

8 project obligations. 

9 ‘‘(4) INTEREST RATE.—The interest rate on the 

10 secured loan shall be not less than the yield on mar11 ketable United States Treasury securities of a similar 

12 maturity to the maturity of the secured loan on the 

13 date of execution of the loan agreement. 

14 ‘‘(5) MATURITY DATE.—The final maturity date 

15 of the secured loan shall be not later than 30 years 

16 after the date of substantial completion of the project. 

17 ‘‘(6) NONSUBORDINATION.—The secured loan 

18 shall not be subordinated to the claims of any holder 

19 of project obligations in the event of bankruptcy, in20 solvency, or liquidation of the obligor. 

21 ‘‘(7) FEES.—The Secretary may establish fees at 

22 a level sufficient to cover all or a portion of the costs 

23 to the Federal Government of making a secured loan 

24 under this section. 

25 ‘‘(c) REPAYMENT.—
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1 ‘‘(1) SCHEDULE.—The Secretary shall establish 

2 a repayment schedule for each secured loan under this 

3 section based on the projected cash flow from project 

4 revenues and other repayment sources. 

5 ‘‘(2) COMMENCEMENT.—Scheduled loan repay6 ments of principal or interest on a secured loan under 

7 this section shall commence not later than 5 years 

8 after the date of substantial completion of the project. 

9 ‘‘(3) SOURCES OF REPAYMENT FUNDS.—The 

10 sources of funds for scheduled loan repayments under 

11 this section shall include any revenue generated by 

12 the project. 

13 ‘‘(4) DEFERRED PAYMENTS.—

14 ‘‘(A) AUTHORIZATION.—If, at any time 

15 during the 10 years after the date of substantial 

16 completion of the project, the project is unable to 

17 generate sufficient revenues to pay the scheduled 

18 loan repayments of principal and interest on the 

19 secured loan, the Secretary may, subject to sub20 paragraph (C), allow the obligor to add unpaid 

21 principal and interest to the outstanding balance 

22 of the secured loan. 

23 ‘‘(B) INTEREST.—Any payment deferred 

24 under subparagraph (A) shall—
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1 ‘‘(i) continue to accrue interest in ac2 cordance with subsection (b)(4) until fully 

3 repaid; and 

4 ‘‘(ii) be scheduled to be amortized over 

5 the remaining term of the loan beginning 

6 not later than 10 years after the date of 

7 substantial completion of the project in ac8 cordance with paragraph (1). 

9 ‘‘(C) CRITERIA.—

10 ‘‘(i) IN GENERAL.—Any payment de11 ferral under subparagraph (A) shall be con12 tingent on the project meeting criteria es13 tablished by the Secretary. 

14 ‘‘(ii) REPAYMENT STANDARDS.—The 

15 criteria established under clause (i) shall 

16 include standards for reasonable assurance 

17 of repayment. 

18 ‘‘(5) PREPAYMENT.—

19 ‘‘(A) USE OF EXCESS REVENUES.—Any ex20 cess revenues that remain after satisfying sched21 uled debt service requirements on the project obli22 gations and secured loan and all deposit require23 ments under the terms of any trust agreement, 

24 bond resolution, reimbursement agreement, credit 

25 agreement, loan agreement, or similar agreement 
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1 securing project obligations may be applied an2 nually to prepay the secured loan without pen3 alty. 

4 ‘‘(B) USE OF PROCEEDS OF REFI5 NANCING.—The secured loan may be prepaid at 

6 any time without penalty, regardless of whether 

7 such repayment is from the proceeds of refi8 nancing from non-Federal funding sources. 

9 ‘‘(d) SALE OF SECURED LOANS.—

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

11 soon as practicable after substantial completion of a 

12 project and after notifying the obligor, the Secretary 

13 may sell to another entity or reoffer into the capital 

14 markets a secured loan for the project if the Secretary 

15 determines that the sale or reoffering can be made on 

16 favorable terms. 

17 ‘‘(2) CONSENT OF OBLIGOR.—In making a sale 

18 or reoffering under paragraph (1), the Secretary may 

19 not change the original terms and conditions of the 

20 secured loan without the written consent of the obli21 gor. 

22 ‘‘(e) LOAN GUARANTEES.—

23 ‘‘(1) IN GENERAL.—The Secretary may provide 

24 a loan guarantee to a lender in lieu of making a se25 cured loan if the Secretary determines that the budg-
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1 etary cost of the loan guarantee is substantially the 

2 same as that of a secured loan. 

3 ‘‘(2) TERMS.—The terms of a guaranteed loan 

4 shall be consistent with the terms set forth in this sec5 tion for a secured loan, except that the rate on the 

6 guaranteed loan and any prepayment features shall 

7 be negotiated between the obligor and the lender, with 

8 the consent of the Secretary. 

9 ‘‘SEC. 2204. LINES OF CREDIT. 

10 ‘‘(a) IN GENERAL.—

11 ‘‘(1) AGREEMENTS.—Subject to paragraphs (2) 

12 through (4), the Secretary may enter into agreements 

13 to make available lines of credit to 1 or more obligors 

14 in the form of direct loans to be made by the Sec15 retary at future dates on the occurrence of certain 

16 events for any project selected under section 2202. 

17 ‘‘(2) USE OF PROCEEDS.—The proceeds of a line 

18 of credit made available under this section shall be 

19 available to pay debt service on project obligations 

20 issued to finance eligible project costs, extraordinary 

21 repair and replacement costs, operation and mainte22 nance expenses, and costs associated with unexpected 

23 Federal or State environmental restrictions. 

24 ‘‘(3) RISK ASSESSMENT.—Before entering into 

25 an agreement under this subsection, the Secretary, in 
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1 consultation with each rating agency providing a pre2 liminary rating opinion letter under section 

3 2202(b)(2)(B), shall determine an appropriate capital 

4 reserve subsidy amount for each line of credit, taking 

5 into account such letter. 

6 ‘‘(4) INVESTMENT-GRADE RATING REQUIRE7 MENT.—The funding of a line of credit under this sec8 tion shall be contingent on the project’s senior obliga9 tions receiving an investment-grade rating from at 

10 least 1 rating agency. 

11 ‘‘(b) TERMS AND LIMITATIONS.—

12 ‘‘(1) IN GENERAL.—A line of credit under this 

13 section with respect to a project shall be on such terms 

14 and conditions and contain such covenants, represen15 tations, warranties, and requirements (including re16 quirements for audits) as the Secretary determines 

17 appropriate. 

18 ‘‘(2) MAXIMUM AMOUNTS.—

19 ‘‘(A) TOTAL AMOUNT.—The total amount of 

20 the line of credit shall not exceed 33 percent of 

21 the reasonably anticipated eligible project costs. 

22 ‘‘(B) 1-YEAR DRAWS.—The amount drawn 

23 in any 1 year shall not exceed 20 percent of the 

24 total amount of the line of credit.
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1 ‘‘(3) DRAWS.—Any draw on the line of credit 

2 shall represent a direct loan and shall be made only 

3 if net revenues from the project (including capitalized 

4 interest, any debt service reserve fund, and any other 

5 available reserve) are insufficient to pay the costs 

6 specified in subsection (a)(2). 

7 ‘‘(4) INTEREST RATE.—The interest rate on a di8 rect loan resulting from a draw on the line of credit 

9 shall be not less than the yield on 30-year marketable 

10 United States Treasury securities as of the date on 

11 which the line of credit is obligated. 

12 ‘‘(5) SECURITY.—The line of credit—

13 ‘‘(A) shall—

14 ‘‘(i) be payable, in whole or in part, 

15 from reliable revenue sources; and 

16 ‘‘(ii) include a rate covenant, coverage 

17 requirement, or similar security feature 

18 supporting the project obligations; and 

19 ‘‘(B) may have a lien on revenues described 

20 in subparagraph (A) subject to any lien securing 

21 project obligations. 

22 ‘‘(6) PERIOD OF AVAILABILITY.—The line of 

23 credit shall be available during the period beginning 

24 on the date of substantial completion of the project 

25 and ending not later than 10 years after that date. 
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1 ‘‘(7) RIGHTS OF THIRD-PARTY CREDITORS.—

2 ‘‘(A) AGAINST FEDERAL GOVERNMENT.—A 

3 third-party creditor of the obligor shall not have 

4 any right against the Federal Government with 

5 respect to any draw on the line of credit. 

6 ‘‘(B) ASSIGNMENT.—An obligor may assign 

7 the line of credit to 1 or more lenders or to a 

8 trustee on the lenders’ behalf. 

9 ‘‘(8) NONSUBORDINATION.—A direct loan under 

10 this section shall not be subordinated to the claims of 

11 any holder of project obligations in the event of bank12 ruptcy, insolvency, or liquidation of the obligor. 

13 ‘‘(9) FEES.—The Secretary may establish fees at 

14 a level sufficient to cover all or a portion of the costs 

15 to the Federal Government of providing a line of cred16 it under this section. 

17 ‘‘(10) RELATIONSHIP TO OTHER CREDIT INSTRU18 MENTS.—A project that receives a line of credit under 

19 this section also shall not receive a secured loan or 

20 loan guarantee under section 183 of an amount that, 

21 combined with the amount of the line of credit, ex22 ceeds 100 percent of eligible project costs. 

23 ‘‘(c) REPAYMENT.—

24 ‘‘(1) TERMS AND CONDITIONS.—The Secretary 

25 shall establish repayment terms and conditions for 
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1 each direct loan under this section based on the pro2 jected cash flow from project revenues and other re3 payment sources. 

4 ‘‘(2) TIMING.—All scheduled repayments of prin5 cipal or interest on a direct loan under this section 

6 shall commence not later than 5 years after the end 

7 of the period of availability specified in subsection 

8 (b)(6) and be fully repaid, with interest, by the date 

9 that is 25 years after the end of the period of avail10 ability specified in subsection (b)(6). 

11 ‘‘(3) SOURCES OF REPAYMENT FUNDS.—The 

12 sources of funds for scheduled loan repayments under 

13 this section shall include reliable revenue sources. 

14 ‘‘SEC. 2205. PROJECT SERVICING. 

15 ‘‘(a) REQUIREMENT.—The State in which a project 

16 that receives financial assistance under this title is located 

17 may identify a local servicer to assist the Secretary in serv18 icing the Federal credit instrument made available under 

19 this title. 

20 ‘‘(b) AGENCY; FEES.—If a State identifies a local 

21 servicer under subsection (a), the local servicer—

22 ‘‘(1) shall act as the agent for the Secretary; and 

23 ‘‘(2) may receive a servicing fee, subject to ap24 proval by the Secretary. 
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1 ‘‘(c) LIABILITY.—A local servicer identified under sub2 section (a) shall not be liable for the obligations of the obli3 gor to the Secretary or any lender. 

4 ‘‘(d) ASSISTANCE FROM EXPERT FIRMS.—The Sec5 retary may retain the services of expert firms in the field 

6 of project finance to assist in the underwriting and serv7 icing of Federal credit instruments. 

8 ‘‘SEC. 2206. STATE AND LOCAL PERMITS. 

9 ‘‘The provision of financial assistance under this title 

10 with respect to a project shall not—

11 ‘‘(1) relieve any recipient of the assistance of any 

12 obligation to obtain any required State or local per13 mit or approval with respect to the project; 

14 ‘‘(2) limit the right of any unit of State or local 

15 government to approve or regulate any rate of return 

16 on private equity invested in the project; or 

17 ‘‘(3) otherwise supersede any State or local law 

18 (including any regulation) applicable to the construc19 tion or operation of the project. 

20 ‘‘SEC. 2207. REGULATIONS. 

21 ‘‘The Secretary may issue such regulations as the Sec22 retary determines appropriate to carry out this title. 

23 ‘‘SEC. 2208. FUNDING. 

24 ‘‘(a) FUNDING.—
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1 ‘‘(1) IN GENERAL.—There are authorized to be 

2 appropriated to carry out this title, $40,000,000 for 

3 each of fiscal years 2004 through 2008. 

4 ‘‘(2) ADMINISTRATIVE COSTS.—From funds 

5 made available under paragraph (1), the Secretary 

6 may use, for the administration of this title, not more 

7 than $2,000,000 for each of fiscal years 2004 through 

8 2008. 

9 ‘‘(3) AVAILABILITY.—Amounts made available 

10 under paragraph (1) shall remain available until ex11 pended and any unexpended amount shall be carried 

12 forward to the subsequent fiscal year until fully ex13 pended. 

14 ‘‘(b) CONTRACT AUTHORITY.—

15 ‘‘(1) IN GENERAL.—Notwithstanding any other 

16 provision of law, approval by the Secretary of a Fed17 eral credit instrument that uses funds made available 

18 under this title shall be deemed to be acceptance by 

19 the United States of a contractual obligation to fund 

20 the Federal credit instrument. 

21 ‘‘(2) AVAILABILITY.—Amounts authorized under 

22 this section for a fiscal year shall be available for ob23 ligation on October 1 of the fiscal year. 

24 ‘‘(c) LIMITATIONS ON CREDIT AMOUNTS.—For each of 

25 fiscal years 2004 through 2008, principal amounts of Fed-
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1 eral credit instruments made available under this title shall 

2 be limited to the amounts specified in the following table:

Maximum amount 

Fiscal year: of credit: 

2004 ............................................................................................. $40,000,000

2005 ............................................................................................. $40,000,000

2006 ............................................................................................. $40,000,000

2007 ............................................................................................. $40,000,000

2008 ............................................................................................. $40,000,000.

3 ‘‘SEC. 2209. REPORT TO CONGRESS. 

4 ‘‘Not later than 4 years after the date of enactment 

5 of this title, the Secretary shall submit to Congress a report 

6 summarizing the financial performance of the projects that 

7 are receiving, or have received, assistance under this title, 

8 including a recommendation as to whether the objectives of 

9 this title are best served—

10 ‘‘(1) by continuing the program under the au11 thority of the Secretary; 

12 ‘‘(2) by establishing a Government corporation 

13 or Government-sponsored enterprise to administer the 

14 program; or 

15 ‘‘(3) by phasing out the program and relying on 

16 the capital markets to fund the types of infrastructure 

17 investments assisted by this title without Federal par18 ticipation.’’. 
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1 SEC. 609. CAPITAL INFRASTRUCTURE REVOLVING LOAN 

2 PROGRAM. 

3 (a) IN GENERAL.—Part A of title XVI of the Public 

4 Health Service Act (42 U.S.C. 300q et seq.) is amended by 

5 adding at the end the following new section: 

6 ‘‘CAPITAL INFRASTRUCTURE REVOLVING LOAN PROGRAM

7 ‘‘SEC. 1603. (a) AUTHORITY TO MAKE AND GUAR8 ANTEE LOANS.—

9 ‘‘(1) AUTHORITY TO MAKE LOANS.—The Sec10 retary may make loans from the fund established 

11 under section 1602(d) to any rural entity for projects 

12 for capital improvements, including—

13 ‘‘(A) the acquisition of land necessary for 

14 the capital improvements; 

15 ‘‘(B) the renovation or modernization of 

16 any building; 

17 ‘‘(C) the acquisition or repair of fixed or 

18 major movable equipment; and 

19 ‘‘(D) such other project expenses as the Sec20 retary determines appropriate. 

21 ‘‘(2) AUTHORITY TO GUARANTEE LOANS.—

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

23 guarantee the payment of principal and interest 

24 for loans made to rural entities for projects for 

25 any capital improvement described in paragraph 

26 (1) to any non-Federal lender. 
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1 ‘‘(B) INTEREST SUBSIDIES.—In the case of 

2 a guarantee of any loan made to a rural entity 

3 under subparagraph (A), the Secretary may pay 

4 to the holder of such loan, for and on behalf of 

5 the project for which the loan was made, 

6 amounts sufficient to reduce (by not more than 

7 3 percent) the net effective interest rate otherwise 

8 payable on such loan. 

9 ‘‘(b) AMOUNT OF LOAN.—The principal amount of a 

10 loan directly made or guaranteed under subsection (a) for 

11 a project for capital improvement may not exceed 

12 $5,000,000. 

13 ‘‘(c) FUNDING LIMITATIONS.—

14 ‘‘(1) GOVERNMENT CREDIT SUBSIDY EXPO15 SURE.—The total of the Government credit subsidy 

16 exposure under the Credit Reform Act of 1990 scoring 

17 protocol with respect to the loans outstanding at any 

18 time with respect to which guarantees have been 

19 issued, or which have been directly made, under sub20 section (a) may not exceed $50,000,000 per year. 

21 ‘‘(2) TOTAL AMOUNTS.—Subject to paragraph 

22 (1), the total of the principal amount of all loans di23 rectly made or guaranteed under subsection (a) may 

24 not exceed $250,000,000 per year. 

25 ‘‘(d) CAPITAL ASSESSMENT AND PLANNING GRANTS.—
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1 ‘‘(1) NONREPAYABLE GRANTS.—Subject to para2 graph (2), the Secretary may make a grant to a rural 

3 entity, in an amount not to exceed $50,000, for pur4 poses of capital assessment and business planning. 

5 ‘‘(2) LIMITATION.—The cumulative total of 

6 grants awarded under this subsection may not exceed 

7 $2,500,000 per year. 

8 ‘‘(e) TERMINATION OF AUTHORITY.—The Secretary 

9 may not directly make or guarantee any loan under sub10 section (a) or make a grant under subsection (d) after Sep11 tember 30, 2008.’’. 

12 (b) RURAL ENTITY DEFINED.—Section 1624 of the 

13 Public Health Service Act (42 U.S.C. 300s–3) is amended 

14 by adding at the end the following new paragraph: 

15 ‘‘(14)(A) The term ‘rural entity’ includes—

16 ‘‘(i) a rural health clinic, as defined in sec17 tion 1861(aa)(2) of the Social Security Act; 

18 ‘‘(ii) any medical facility with at least 1 

19 bed, but with less than 50 beds, that is located 

20 in—

21 ‘‘(I) a county that is not part of a met22 ropolitan statistical area; or 

23 ‘‘(II) a rural census tract of a metro24 politan statistical area (as determined 

25 under the most recent modification of the 
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1 Goldsmith Modification, originally pub2 lished in the Federal Register on February 

3 27, 1992 (57 Fed. Reg. 6725)); 

4 ‘‘(iii) a hospital that is classified as a 

5 rural, regional, or national referral center under 

6 section 1886(d)(5)(C) of the Social Security Act; 

7 and 

8 ‘‘(iv) a hospital that is a sole community 

9 hospital (as defined in section 1886(d)(5)(D)(iii) 

10 of the Social Security Act). 

11 ‘‘(B) For purposes of subparagraph (A), the fact 

12 that a clinic, facility, or hospital has been geographi13 cally reclassified under the medicare program under 

14 title XVIII of the Social Security Act shall not pre15 clude a hospital from being considered a rural entity 

16 under clause (i) or (ii) of subparagraph (A).’’. 

17 (c) CONFORMING AMENDMENTS.—Section 1602 of the 

18 Public Health Service Act (42 U.S.C. 300q–2) is amend19 ed—

20 (1) in subsection (b)(2)(D), by inserting ‘‘or 

21 1603(a)(2)(B)’’ after ‘‘1601(a)(2)(B)’’; and 

22 (2) in subsection (d)—

23 (A) in paragraph (1)(C), by striking ‘‘sec24 tion 1601(a)(2)(B)’’ and inserting ‘‘sections 

25 1601(a)(2)(B) and 1603(a)(2)(B)’’; and 
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1 (B) in paragraph (2)(A), by inserting ‘‘or 

2 1603(a)(2)(B)’’ after ‘‘1601(a)(2)(B)’’. 

3 SEC. 610. FEDERAL REIMBURSEMENT OF EMERGENCY 

4 HEALTH SERVICES FURNISHED TO UNDOCU5 MENTED ALIENS. 

6 (a) TOTAL AMOUNT AVAILABLE FOR ALLOTMENT.—

7 There is appropriated, out of any funds in the Treasury 

8 not otherwise appropriated, $250,000,000 for each of fiscal 

9 years 2005 through 2008, for the purpose of making allot10 ments under this section to States described in paragraph 

11 (1) or (2) of subsection (b). Funds appropriated under the 

12 preceding sentence shall remain available until expended. 

13 (b) STATE ALLOTMENTS.—

14 (1) BASED ON PERCENTAGE OF UNDOCUMENTED

15 ALIENS.—

16 (A) IN GENERAL.—Out of the amount ap17 propriated under subsection (a) for a fiscal year, 

18 the Secretary shall use $167,000,000 of such 

19 amount to make allotments for such fiscal year 

20 in accordance with subparagraph (B). 

21 (B) FORMULA.—The amount of the allot22 ment for each State for a fiscal year shall be 

23 equal to the product of—
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1 (i) the total amount available for allot2 ments under this paragraph for the fiscal 

3 year; and 

4 (ii) the percentage of undocumented 

5 aliens residing in the State with respect to 

6 the total number of such aliens residing in 

7 all States, as determined by the Statistics 

8 Division of the Immigration and Natu9 ralization Service, as of January 2003, 

10 based on the 2000 decennial census. 

11 (2) BASED ON NUMBER OF UNDOCUMENTED

12 ALIEN APPREHENSION STATES.—

13 (A) IN GENERAL.—Out of the amount ap14 propriated under subsection (a) for a fiscal year, 

15 the Secretary shall use $83,000,000 of such 

16 amount to make allotments for such fiscal year 

17 for each of the 6 States with the highest number 

18 of undocumented alien apprehensions for such 

19 fiscal year. 

20 (B) DETERMINATION OF ALLOTMENTS.—The 

21 amount of the allotment for each State described 

22 in subparagraph (A) for a fiscal year shall bear 

23 the same ratio to the total amount available for 

24 allotments under this paragraph for the fiscal 

25 year as the ratio of the number of undocumented 
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1 alien apprehensions in the State in that fiscal 

2 year bears to the total of such numbers for all 

3 such States for such fiscal year. 

4 (C) DATA.—For purposes of this paragraph, 

5 the highest number of undocumented alien ap6 prehensions for a fiscal year shall be based on 

7 the 4 most recent quarterly apprehension rates 

8 for undocumented aliens in such States, as re9 ported by the Immigration and Naturalization 

10 Service. 

11 (3) RULE OF CONSTRUCTION.—Nothing in this 

12 section shall be construed as prohibiting a State that 

13 is described in both of paragraphs (1) and (2) from 

14 receiving an allotment under both paragraphs for a 

15 fiscal year. 

16 (c) USE OF FUNDS.—

17 (1) AUTHORITY TO MAKE PAYMENTS.—From the 

18 allotments made for a State under subsection (b) for 

19 a fiscal year, the Secretary shall pay directly to local 

20 governments, hospitals, or other providers located in 

21 the State (including providers of services received 

22 through an Indian Health Service facility whether 

23 operated by the Indian Health Service or by an In24 dian tribe or tribal organization) that provide un25 compensated emergency health services furnished to 
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1 undocumented aliens during that fiscal year, and to 

2 the State, such amounts (subject to the total amount 

3 available from such allotments) as the local govern4 ments, hospitals, providers, or State demonstrate were 

5 incurred for the provision of such services during that 

6 fiscal year. 

7 (2) LIMITATION ON STATE USE OF FUNDS.—

8 Funds paid to a State from allotments made under 

9 subsection (b) for a fiscal year may only be used for 

10 making payments to local governments, hospitals, or 

11 other providers for costs incurred in providing emer12 gency health services to undocumented aliens or for 

13 State costs incurred with respect to the provision of 

14 emergency health services to such aliens. 

15 (3) INCLUSION OF COSTS INCURRED WITH RE16 SPECT TO CERTAIN ALIENS.—Uncompensated emer17 gency health services furnished to aliens who have 

18 been allowed to enter the United States for the sole 

19 purpose of receiving emergency health services may be 

20 included in the determination of costs incurred by a 

21 State, local government, hospital, or other provider 

22 with respect to the provision of such services. 

23 (d) APPLICATIONS; ADVANCE PAYMENTS.—

24 (1) DEADLINE FOR ESTABLISHMENT OF APPLICA25 TION PROCESS.—
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1 (A) IN GENERAL.—Not later than Sep2 tember 1, 2004, the Secretary shall establish a 

3 process under which States, local governments, 

4 hospitals, or other providers located in the State 

5 may apply for payments from allotments made 

6 under subsection (b) for a fiscal year for uncom7 pensated emergency health services furnished to 

8 undocumented aliens during that fiscal year. 

9 (B) INCLUSION OF MEASURES TO COMBAT

10 FRAUD.—The Secretary shall include in the 

11 process established under subparagraph (A) 

12 measures to ensure that fraudulent payments are 

13 not made from the allotments determined under 

14 subsection (b). 

15 (2) ADVANCE PAYMENT; RETROSPECTIVE ADJUST16 MENT.—The process established under paragraph (1) 

17 shall allow for making payments under this section 

18 for each quarter of a fiscal year on the basis of ad19 vance estimates of expenditures submitted by appli20 cants for such payments and such other investigation 

21 as the Secretary may find necessary, and for making 

22 reductions or increases in the payments as necessary 

23 to adjust for any overpayment or underpayment for 

24 prior quarters of such fiscal year. 

25 (e) DEFINITIONS.—In this section: 
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1 (1) HOSPITAL.—The term ‘‘hospital’’ has the 

2 meaning given such term in section 1861(e) of the So3 cial Security Act (42 U.S.C. 1395x(e)). 

4 (2) INDIAN TRIBE; TRIBAL ORGANIZATION.—The 

5 terms ‘‘Indian tribe’’ and ‘‘tribal organization’’ have 

6 the meanings given such terms in section 4 of the In7 dian Health Care Improvement Act (25 U.S.C. 1603). 

8 (3) PROVIDER.—The term ‘‘provider’’ includes a 

9 physician, any other health care professional licensed 

10 under State law, and any other entity that furnishes 

11 emergency health services, including ambulance serv12 ices. 

13 (4) SECRETARY.—The term ‘‘Secretary’’ means 

14 the Secretary of Health and Human Services. 

15 (5) STATE.—The term ‘‘State’’ means the 50 

16 States and the District of Columbia. 

17 SEC. 611. INCREASE IN APPROPRIATION TO THE HEALTH 

18 CARE FRAUD AND ABUSE CONTROL AC19 COUNT. 

20 Section 1817(k)(3)(A) (42 U.S.C. 1395i(k)(3)(A)) is 

21 amended—

22 (1) in clause (i)—

23 (A) in subclause (II), by striking ‘‘and’’ at 

24 the end; and 
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1 (B) by striking subclause (III), and insert2 ing the following new subclauses: 

3 ‘‘(III) for fiscal year 2004, the 

4 limit for fiscal year 2003 increased by 

5 $10,000,000; 

6 ‘‘(IV) for fiscal year 2005, the 

7 limit for fiscal year 2003 increased by 

8 $15,000,000; 

9 ‘‘(V) for fiscal year 2006, the 

10 limit for fiscal year 2003 increased by 

11 $25,000,000; and 

12 ‘‘(VI) for each fiscal year after fis13 cal year 2006, the limit for fiscal year 

14 2003.’’; and 

15 (2) in clause (ii)—

16 (A) in subclause (VI), by striking ‘‘and’’ at 

17 the end; 

18 (B) in subclause (VII)—

19 (i) by striking ‘‘each fiscal year after 

20 fiscal year 2002’’ and inserting ‘‘fiscal year 

21 2003’’; and 

22 (ii) by striking the period and insert23 ing a semicolon; and 

24 (3) by adding at the end the following: 
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1 ‘‘(VIII) for fiscal year 2004, 

2 $170,000,000; 

3 ‘‘(IX) for fiscal year 2005, 

4 $175,000,000; 

5 ‘‘(X) for fiscal year 2006, 

6 $185,000,000; and 

7 ‘‘(XI) for each fiscal year after fis8 cal year 2006, not less than 

9 $150,000,000 and not more than 

10 $160,000,000.’’. 

11 SEC. 612. INCREASE IN CIVIL PENALTIES UNDER THE FALSE 

12 CLAIMS ACT. 

13 (a) IN GENERAL.—Section 3729(a) of title 31, United 

14 States Code, is amended—

15 (1) by striking ‘‘$5,000’’ and inserting ‘‘$7,500’’; 

16 and 

17 (2) by striking ‘‘$10,000’’ and inserting 

18 ‘‘$15,000’’. 

19 (b) EFFECTIVE DATE.—The amendments made by sub20 section (a) shall apply to violations occurring on or after 

21 January 1, 2004. 
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1 SEC. 613. INCREASE IN CIVIL MONETARY PENALTIES 

2 UNDER THE SOCIAL SECURITY ACT. 

3 (a) IN GENERAL.—Section 1128A(a) (42 U.S.C. 

4 1320a–7a(a)), in the matter following paragraph (7), is 

5 amended—

6 (1) by striking ‘‘$10,000’’ each place it appears 

7 and inserting ‘‘$12,500’’; 

8 (2) by striking ‘‘$15,000’’ and inserting 

9 ‘‘$18,750’’; and 

10 (3) striking ‘‘$50,000’’ and inserting ‘‘$62,500’’. 

11 (b) EFFECTIVE DATE.—The amendments made by sub12 section (a) shall apply to violations occurring on or after 

13 January 1, 2004. 

14 SEC. 614. EXTENSION OF CUSTOMS USER FEES. 

15 Section 13031(j)(3) of the Consolidated Omnibus 

16 Budget Reconciliation Act of 1985 (19 U.S.C. 58c(j)(3)) is 

17 amended by striking ‘‘September 30, 2003’’ and inserting 

18 ‘‘September 30, 2013’’.

Amend the title so as to read: ‘‘A bill to amend title 

XVIII of the Social Security Act to provide for a voluntary prescription drug benefit under the medicare program and to strengthen and improve the medicare program, and for other purposes.’’.

Calendar No. 138

108TH CONGRESS 

1ST SESSION S. 1

A BILL

To amend title XVIII of the Social Security Act to 

make improvements in the medicare program, to provide prescription drug coverage under the medicare program, and for other purposes. 

JUNE 13, 2001

Reported with an amendment and an amendment to the 

title