379 
different than the legal effect that would have re-
sulted if a supplemental application had been sub-
mitted and approved to conform the labeling of the 
generic version to a change in the labeling of the ref-
erence drug. 
‘‘(2) SUPPLEMENTAL APPLICATIONS.—Changes 
to labeling made in accordance with this paragraph 
shall not be eligible for an exclusivity period under 
this Act. 
‘‘(i) DRUG PRODUCT CLASSES.—In the case of a se-
lected drug for which the labeling changes ordered by the 
Secretary under subsection (d)(2) are required for a class 
of covered drugs, such labeling changes shall be made for 
generic versions of such drug in that class. 
‘‘(j) RULES OF CONSTRUCTION.— 
‘‘(1) APPROVAL
STANDARDS.—This section 
shall not be construed as altering the applicability of 
the standards for approval of an application under 
section 505. No order shall be issued under this sub-
section unless the evidence supporting the changed 
labeling meets the standards for approval applicable 
to any change to labeling under section 505. 
‘‘(2) REMOVAL OF INFORMATION.—Nothing in 
this section shall be construed to give the Secretary 
additional authority to remove approved indications 
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380 
for drugs, other than the authority described in this 
section. 
‘‘(k) REPORTS.—Not later than 4 years after the 
date of the enactment of the Fair Care Act of 2020 and 
every 4 years thereafter, the Secretary shall prepare and 
submit to the Committee on Health, Education, Labor, 
and Pensions of the Senate and the Committee on Energy 
and Commerce of the House of Representatives, a report 
that— 
‘‘(1) describes the actions of the Secretary 
under this section, including— 
‘‘(A) the number of covered drugs and de-
scription of the types of drugs the Secretary 
has selected for labeling changes and the ra-
tionale for such recommended changes; and 
‘‘(B) the number of times the Secretary 
entered into discussions concerning a disagree-
ment with an application holder or holders and 
a summary of the decision regarding a labeling 
change, if any; and 
‘‘(2) includes any recommendations of the Sec-
retary for modifying the program under this sec-
tion.’’. 
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SEC. 365. REQUIREMENTS WITH RESPECT TO PRESCRIP-
TION DRUG BENEFITS. 
(a) IN GENERAL.—Subpart II of part A of title 
XXVII of the Public Health Service Act (42 U.S.C. 
300gg–11 et seq.) is amended by adding at the end the 
following: 
‘‘SEC. 2729A. REQUIREMENTS WITH RESPECT TO PRESCRIP-
TION DRUG BENEFITS. 
‘‘A group health plan or a health insurance issuer of-
fering group or individual health insurance coverage shall 
not, and shall ensure that any entity that provides phar-
macy benefits management services under a contract with 
any such health plan or health insurance coverage does 
not, receive from a drug manufacturer a reduction in price 
or other remuneration with respect to any prescription 
drug received by an enrollee in the plan or coverage and 
covered by the plan or coverage, unless— 
‘‘(1) any such reduction in price is reflected at 
the point of sale to the enrollee; and 
‘‘(2) any such other remuneration is a flat fee- 
based service fee that a manufacturer of prescription 
drugs pays to a pharmacy benefit manager for serv-
ices rendered to the manufacturer that relate to ar-
rangements by the pharmacy benefit manager to 
provide pharmacy benefit management services to a 
health plan or health insurance issuer, if certain 
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conditions established by the Secretary are met, in-
cluding requirements that the fees are transparent 
to the health plan or health insurance issuer.’’. 
(b) EFFECTIVE DATE.—Section 2729A of the Public 
Health Service Act, as added by subsection (a), shall take 
effect on January 1, 2021. 
SEC. 366. PBM TRANSPARENCY AND ELIMINATION OF DIR 
FEES. 
(a) PROHIBITING MEDICARE PDP SPONSORS AND 
MA–PD ORGANIZATIONS FROM RETROACTIVELY REDUC-
ING PAYMENT ON CLEAN CLAIMS SUBMITTED BY PHAR-
MACIES.— 
(1) IN GENERAL.—Section 1860D–12(b)(4)(A) 
of the Social Security Act (42 U.S.C. 1395w– 
112(b)(4)(A)) is amended by adding at the end the 
following new clause: 
‘‘(iv) PROHIBITING RETROACTIVE RE-
DUCTIONS
IN
PAYMENTS
ON
CLEAN 
CLAIMS.—Each contract entered into with 
a PDP sponsor under this part with re-
spect to a prescription drug plan offered 
by such sponsor shall provide that after 
the date of receipt of a clean claim sub-
mitted by a pharmacy, the PDP sponsor 
(or an agent of the PDP sponsor) may not 
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retroactively reduce payment on such claim 
directly or indirectly through aggregated 
effective rate or otherwise except in the 
case such claim is found to not be a clean 
claim (such as in the case of a claim lack-
ing required substantiating documentation) 
during the course of a routine audit as 
permitted pursuant to written agreement 
between the PDP sponsor (or such an 
agent) and such pharmacy. The previous 
sentence shall not prohibit any retroactive 
increase in payment to a pharmacy pursu-
ant to a written agreement between a PDP 
sponsor (or an agent of such sponsor) and 
such pharmacy.’’. 
(2) EFFECTIVE DATE.—The amendment made 
by subsection (a) shall apply with respect to con-
tracts entered into on or after January 1, 2021. 
(b) ELIMINATION OF DIR FEES.— 
(1) PHARMACY
BENEFITS
MANAGER
STAND-
ARDS UNDER THE MEDICARE PROGRAM FOR PRE-
SCRIPTION DRUG PLANS AND MA–PD PLANS.— 
(A) IN
GENERAL.—Section 1860D–12(b) 
of the Social Security Act (42 U.S.C. 1395w– 
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112(b)) is amended by adding at the end the 
following new paragraph: 
‘‘(7) PHARMACY
BENEFITS
MANAGER
TRANS-
PARENCY
REQUIREMENTS.—Each contract entered 
into with a PDP sponsor under this part with re-
spect to a prescription drug plan offered by such 
sponsor or with an MA organization offering an 
MA–PD plan under part C shall provide that the 
sponsor or organization, respectively, may not enter 
into a contract with any pharmacy benefits manager 
(referred to in this paragraph as a ‘PBM’) to man-
age the prescription drug coverage provided under 
such plan, or to control the costs of the prescription 
drug coverage under such plan, unless the PBM ad-
heres to the following criteria when handling person-
ally identifiable utilization and claims data or other 
sensitive patient data: 
‘‘(A) The PBM may not transmit any per-
sonally identifiable utilization, protected health 
information, or claims data, with respect to a 
plan enrollee, to a pharmacy owned by a PBM 
if the plan enrollee has not voluntarily elected 
in writing or via secure electronic means to fill 
that particular prescription at the PBM-owned 
pharmacy. 
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‘‘(B) The PBM may not require that a 
plan enrollee use a retail pharmacy, mail order 
pharmacy, specialty pharmacy, or other phar-
macy entity providing pharmacy services in 
which the PBM has an ownership interest or 
that has an ownership interest in the PBM, or 
provide an incentive to a plan enrollee to en-
courage the enrollee to use a retail pharmacy, 
mail order pharmacy, specialty pharmacy, or 
other pharmacy entity providing pharmacy serv-
ices in which the PBM has an ownership inter-
est or that has an ownership interest in the 
PBM, if the incentive is applicable only to such 
pharmacies.’’. 
(B) REGULAR UPDATE OF PRESCRIPTION 
DRUG PRICING STANDARD.—Paragraph (6) of 
section 1860D–12(b) of the Social Security Act 
(42 U.S.C. 1395w–112(b)) is amended to read 
as follows: 
‘‘(6) REGULAR
UPDATE
OF
PRESCRIPTION 
DRUG PRICING STANDARD.— 
‘‘(A) IN GENERAL.—If the PDP sponsor of 
a prescription drug plan (or MA organization 
offering an MA–PD plan) uses a standard for 
reimbursement (as described in subparagraph 
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386 
(B)) of pharmacies based on the cost of a drug, 
each contract entered into with such sponsor 
under this part (or organization under part C) 
with respect to the plan shall provide that the 
sponsor (or organization) shall— 
‘‘(i) update such standard not less fre-
quently than once every 7 days, beginning 
with an initial update on January 1 of 
each year, to accurately reflect the market 
price of acquiring the drug; 
‘‘(ii) disclose to applicable pharmacies 
and the contracting entities of such phar-
macies the sources used for making any 
such update immediately without require-
ment of request; 
‘‘(iii) if the source for such a standard 
for reimbursement is not publicly available, 
disclose to the applicable pharmacies and 
the respective contracting entities of such 
pharmacies all individual drug prices to be 
so updated in advance of the use of such 
prices for the reimbursement of claims; 
‘‘(iv) establish a process to appeal, in-
vestigate, and resolve disputes regarding 
individual drug prices that are less than 
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the pharmacy acquisition price for such 
drug, which must be adjudicated within 7 
days of the pharmacy filing its appeal; and 
‘‘(v) provide all such pricing data in 
an .xml spreadsheet format or a com-
parable easily accessible and complete 
spreadsheet format. 
‘‘(B) 
PRESCRIPTION
DRUG
PRICING 
STANDARD
DEFINED.—For purposes of sub-
paragraph (A), a standard for reimbursement 
of a pharmacy is any methodology or formula 
for varying the pricing of a drug or drugs dur-
ing the term of the pharmacy reimbursement 
contract that is based on the cost of the drug 
involved, including drug pricing references and 
amounts that are based upon average wholesale 
price, wholesale average cost, average manufac-
turer price, average sales price, maximum al-
lowable cost (MAC), or other costs, whether 
publicly available or not.’’. 
(C) EFFECTIVE DATE.—The amendments 
made by this section shall apply to plan years 
beginning on or after January 1, 2021. 
(2) REGULAR UPDATE OF PRESCRIPTION DRUG 
PRICING STANDARD UNDER TRICARE RETAIL PHAR-
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388 
MACY
PROGRAM.—Section 1074g(d) of title 10, 
United States Code, is amended by adding at the 
end the following new paragraph: 
‘‘(3) To the extent practicable, with respect to the 
TRICARE retail pharmacy program described in sub-
section (a)(2)(E)(ii), the Secretary shall ensure that a con-
tract entered into with a TRICARE managed care support 
contractor includes requirements described in section 
1860D–12(b)(6) of the Social Security Act (42 U.S.C. 
1395w–112(b)(6)) to ensure the provision of information 
regarding the pricing standard for prescription drugs.’’. 
(3) PRESCRIPTION
DRUG
TRANSPARENCY
IN 
THE FEDERAL EMPLOYEES HEALTH BENEFITS PRO-
GRAM.— 
(A) IN GENERAL.—Section 8902 of title 5, 
United States Code, is amended by adding at 
the end the following new subsections: 
‘‘(p) A contract may not be made or a plan approved 
under this chapter under which a carrier has an agree-
ment with a pharmacy benefits manager (in this sub-
section referred to as a ‘PBM’) to manage prescription 
drug coverage or to control the costs of the prescription 
drug coverage unless the carrier and PBM adhere to the 
following criteria: 
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389 
‘‘(1) The PBM may not transmit any personally 
identifiable utilization, protected health information, 
or claims data with respect to an individual enrolled 
under such contract or plan to a pharmacy owned by 
the PBM if the individual has not voluntarily elected 
in writing or via secure electronic means to fill that 
particular prescription at such a pharmacy. 
‘‘(2) The PBM may not require that an indi-
vidual enrolled under such contract or plan use a re-
tail pharmacy, mail order pharmacy, specialty phar-
macy, or other pharmacy entity providing pharmacy 
services in which the PBM has an ownership interest 
or that has an ownership interest in the PBM or 
provide an incentive to a plan enrollee to encourage 
the enrollee to use a retail pharmacy, mail order 
pharmacy, specialty pharmacy, or other pharmacy 
entity providing pharmacy services in which the 
PBM has an ownership interest or that has an own-
ership interest in the PBM, if the incentive is appli-
cable only to such pharmacies. 
‘‘(q)(1) If a contract made or plan approved under 
this chapter provides for a standard for reimbursement 
(as described in paragraph (2)) with respect to a prescrip-
tion drug plan, such contract or plan shall provide that 
the applicable carrier— 
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390 
‘‘(A) update such standard not less frequently 
than once every 7 days, beginning with an initial up-
date on January 1 of each year, to accurately reflect 
the market price of acquiring the drug; 
‘‘(B) disclose to applicable pharmacies and the 
contracting entities of such pharmacies the sources 
used for making any such update immediately with-
out requirement of request; 
‘‘(C) if the source for such a standard for reim-
bursement is not publicly available, disclose to the 
applicable pharmacies and contracting entities of 
such pharmacies all individual drug prices to be so 
updated in advance of the use of such prices for the 
reimbursement of claims; 
‘‘(D) establish a process to appeal, investigate, 
and resolve disputes regarding individual drug prices 
that are less than the pharmacy acquisition price for 
such drug, which must be adjudicated within 7 days 
of the pharmacy filing its appeal; and 
‘‘(E) provide all such pricing data in an .xml 
spreadsheet format or a comparable easily accessible 
and complete spreadsheet format. 
‘‘(2) For purposes of paragraph (1), a standard for 
reimbursement of a pharmacy is any methodology or for-
mula for varying the pricing of a drug or drugs during 
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391 
the term of the pharmacy reimbursement contract that is 
based on the cost of the drug involved, including drug pric-
ing references and amounts that are based upon average 
wholesale price, wholesale average cost, average manufac-
turer price, average sales price, maximum allowable cost, 
or other costs, whether publicly available or not.’’. 
(B) APPLICATION.—The amendment made 
by subparagraph (A) shall apply to any contract 
entered into under section 8902 of title 5, 
United States Code, on or after the date of en-
actment of this section. 
SEC. 367. HEALTH PLAN OVERSIGHT OF PHARMACY BEN-
EFIT MANAGER SERVICES. 
Subpart II of part A of title XXVII of the Public 
Health Service Act (42 U.S.C. 300gg–11 et seq.), as 
amended by the preceding sections, is further amended by 
adding at the end the following: 
‘‘SEC. 2729E. HEALTH PLAN OVERSIGHT OF PHARMACY 
BENEFIT MANAGER SERVICES. 
‘‘(a) IN GENERAL.—A group health plan or health 
insurance issuer offering group health insurance coverage 
or an entity or subsidiary providing pharmacy benefits 
management services shall not enter into a contract with 
a drug manufacturer, distributor, wholesaler, subcon-
tractor, rebate aggregator, or any associated third party 
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392 
that limits the disclosure of information to plan sponsors 
in such a manner that prevents the plan or coverage, or 
an entity or subsidiary providing pharmacy benefits man-
agement services on behalf of a plan or coverage from 
making the reports described in subsection (b). 
‘‘(b) REPORTS TO GROUP PLAN SPONSORS.— 
‘‘(1) IN
GENERAL.—Beginning with the first 
plan year that begins after the date of enactment of 
the Fair Care Act of 2020, not less frequently than 
once every 6 months, a health insurance issuer offer-
ing group health insurance coverage or an entity 
providing pharmacy benefits management services 
on behalf of a group health plan shall submit to the 
plan sponsor (as defined in section 3(16)(B) of the 
Employee Retirement Income Security Act of 1974) 
of such group health plan or health insurance cov-
erage a report in accordance with this subsection 
and make such report available to the plan sponsor 
in a machine-readable format. Each such report 
shall include, with respect to the applicable group 
health plan or health insurance coverage— 
‘‘(A) information collected from drug man-
ufacturers by such issuer or entity on the total 
amount of copayment assistance dollars paid, or 
copayment cards applied, that were funded by 
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393 
the drug manufacturer with respect to the en-
rollees in such plan or coverage; 
‘‘(B) a list of each covered drug dispensed 
during the reporting period, including, with re-
spect to each such drug during the reporting 
period— 
‘‘(i) the brand name, chemical entity, 
and National Drug Code; 
‘‘(ii) the number of enrollees for 
whom the drug was filled during the plan 
year, the total number of prescription fills 
for the drug (including original prescrip-
tions and refills), and the total number of 
dosage units of the drug dispensed across 
the plan year, including whether the dis-
pensing channel was by retail, mail order, 
or specialty pharmacy; 
‘‘(iii) the wholesale acquisition cost, 
listed as cost per days supply and cost per 
pill, or in the case of a drug in another 
form, per dose; 
‘‘(iv) the total out-of-pocket spending 
by enrollees on such drug, including en-
rollee spending through copayments, coin-
surance, and deductibles; and 
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‘‘(v) for any drug for which gross 
spending of the group health plan or 
health 
insurance 
coverage 
exceeded 
$10,000 during the reporting period— 
‘‘(I) a list of all other available 
drugs in the same therapeutic cat-
egory or class, including brand name 
drugs and biological products and ge-
neric drugs or biosimilar biological 
products that are in the same thera-
peutic category or class; and 
‘‘(II) the rationale for preferred 
formulary placement of a particular 
drug or drugs in that therapeutic cat-
egory or class; 
‘‘(C) a list of each therapeutic category or 
class of drugs that were dispensed under the 
health plan or health insurance coverage during 
the reporting period, and, with respect to each 
such therapeutic category or class of drugs, 
during the reporting period— 
‘‘(i) total gross spending by the plan, 
before manufacturer rebates, fees, or other 
manufacturer remuneration; 
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‘‘(ii) the number of enrollees who 
filled a prescription for a drug in that cat-
egory or class; 
‘‘(iii) if applicable to that category or 
class, a description of the formulary tiers 
and utilization mechanisms (such as prior 
authorization or step therapy) employed 
for drugs in that category or class; 
‘‘(iv) the total out-of-pocket spending 
by enrollees, including enrollee spending 
through copayments, coinsurance, and 
deductibles; and 
‘‘(v) for each therapeutic category or 
class under which 3 or more drugs are in-
cluded on the formulary of such plan or 
coverage— 
‘‘(I) the amount received, or ex-
pected to be received, from drug man-
ufacturers in rebates, fees, alternative 
discounts, or other remuneration— 
‘‘(aa) to be paid by drug 
manufacturers for claims in-
curred during the reporting pe-
riod; or 
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396 
‘‘(bb) that is related to utili-
zation of drugs, in such thera-
peutic category or class; 
‘‘(II) the total net spending, after 
deducting rebates, price concessions, 
alternative discounts or other remu-
neration from drug manufacturers, by 
the health plan or health insurance 
coverage on that category or class of 
drugs; and 
‘‘(III) the net price per course of 
treatment or 30-day supply incurred 
by the health plan or health insurance 
coverage and its enrollees, after man-
ufacturer rebates, fees, and other re-
muneration for drugs dispensed within 
such therapeutic category or class 
during the reporting period; 
‘‘(D) total gross spending on prescription 
drugs by the plan or coverage during the re-
porting period, before rebates and other manu-
facturer fees or remuneration; 
‘‘(E) total amount received, or expected to 
be received, by the health plan or health insur-
ance coverage in drug manufacturer rebates, 
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397 
fees, alternative discounts, and all other remu-
neration received from the manufacturer or any 
third party, other than the plan sponsor, re-
lated to utilization of drug or drug spending 
under that health plan or health insurance cov-
erage during the reporting period; 
‘‘(F) the total net spending on prescription 
drugs by the health plan or health insurance 
coverage during the reporting period; and 
‘‘(G) amounts paid directly or indirectly in 
rebates, fees, or any other type of remuneration 
to brokers, consultants, advisors, or any other 
individual or firm who referred the group health 
plan’s or health insurance issuer’s business to 
the pharmacy benefit manager. 
‘‘(2) PRIVACY REQUIREMENTS.—Health insur-
ance issuers offering group health insurance cov-
erage and entities providing pharmacy benefits man-
agement services on behalf of a group health plan 
shall provide information under paragraph (1) in a 
manner consistent with the privacy, security, and 
breach notification regulations promulgated under 
section 264(c) of the Health Insurance Portability 
and Accountability Act of 1996 (or successor regula-
tions), and shall restrict the use and disclosure of 
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398 
such information according to such privacy regula-
tions. 
‘‘(3) DISCLOSURE AND REDISCLOSURE.— 
‘‘(A) LIMITATION
TO
BUSINESS
ASSOCI-
ATES.—A group health plan receiving a report 
under paragraph (1) may disclose such informa-
tion only to business associates of such plan as 
defined in section 160.103 of title 45, Code of 
Federal Regulations (or successor regulations). 
‘‘(B) CLARIFICATION REGARDING PUBLIC 
DISCLOSURE
OF
INFORMATION.—Nothing in 
this section prevents a health insurance issuer 
offering group health insurance coverage or an 
entity providing pharmacy benefits management 
services on behalf of a group health plan from 
placing reasonable restrictions on the public dis-
closure of the information contained in a report 
described in paragraph (1), except that such 
issuer or entity may not restrict disclosure of 
such report to governmental agencies pursuant 
to an investigation or enforcement action. 
‘‘(C) LIMITED
FORM
OF
REPORT.—The 
Secretary shall define through rulemaking a 
limited form of the report under paragraph (1) 
required of plan sponsors who are drug manu-
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399 
facturers, drug wholesalers, or other direct par-
ticipants in the drug supply chain, in order to 
prevent anti-competitive behavior. 
‘‘(c) LIMITATIONS ON SPREAD PRICING.— 
‘‘(1) PRESCRIPTION DRUG TRANSACTIONS WITH 
PHARMACIES
INDEPENDENT
OF
THE
ISSUER
OR 
PHARMACY BENEFITS MANAGER.—If the pharmacy 
that dispenses a prescription drug to an enrollee in 
a group health plan or group or individual health in-
surance coverage is not wholly or partially owned by 
such plan, such issuer, or an entity providing phar-
macy benefit management services under such plan 
or coverage, such plan, issuer, or entity shall not 
charge the plan, issuer, or enrollee a price for such 
prescription drug that exceeds the price paid to the 
pharmacy. 
‘‘(2) 
INTRA-COMPANY
PRESCRIPTION
DRUG 
TRANSACTIONS.—If the mail order, specialty, or re-
tail pharmacy that dispenses a prescription drug to 
an enrollee in a group health plan or health insur-
ance coverage is wholly or partially owned by, and 
submits claims to, such health insurance issuer or 
an entity providing pharmacy benefit management 
services under a group health plan or group or indi-
vidual health insurance coverage, the price charged 
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400 
for such drug by such pharmacy to such group 
health plan or health insurance issuer offering group 
or individual health insurance coverage may not ex-
ceed the lesser of— 
‘‘(A) the amount paid to the pharmacy for 
acquisition of the drug; or 
‘‘(B) the median price charged to the 
group health plan or health insurance issuer 
when the same drug is dispensed to enrollees in 
the plan or coverage by other similarly situated 
pharmacies not wholly or partially owned by the 
health insurance issuer or entity providing 
pharmacy benefits management services, as de-
scribed in paragraph (1). 
‘‘(3) SUPPLEMENTARY REPORTING FOR INTRA- 
COMPANY PRESCRIPTION DRUG TRANSACTIONS.—A 
health insurance issuer of group health insurance 
coverage or an entity providing pharmacy benefits 
management services under a group health plan or 
group health insurance coverage that conducts 
transactions with a wholly or partially owned phar-
macy, as described in paragraph (2), shall submit, 
together with the report under subsection (b), a sup-
plementary report every 6 months to the plan spon-
sor that includes— 
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‘‘(A) an explanation of any benefit design 
parameters that encourage enrollees in the plan 
or coverage to fill prescriptions at mail order, 
specialty, or retail pharmacies that are wholly 
or partially owned by that issuer or entity; 
‘‘(B) the percentage of total prescriptions 
charged to the plan, coverage, or enrollees in 
the plan or coverage, that were dispensed by 
mail order, specialty, or retail pharmacies that 
are wholly or partially owned by the issuer or 
entity providing pharmacy benefits management 
services; and 
‘‘(C) a list of all drugs dispensed by such 
wholly 
or 
partially-owned 
pharmacy 
and 
charged to the plan or coverage, or enrollees of 
the plan or coverage, during the applicable 
quarter, and, with respect to each drug— 
‘‘(i) the amount charged per course of 
treatment or 30-day supply with respect to 
enrollees in the plan or coverage, including 
amounts charged to the plan or coverage 
and amounts charged to the enrollee; 
‘‘(ii) the median amount charged to 
the plan or coverage, per course of treat-
ment or 30-day supply, including amounts 
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paid by the enrollee, when the same drug 
is dispensed by other pharmacies that are 
not wholly or partially owned by the issuer 
or entity and that are included in the 
pharmacy network of that plan or cov-
erage; 
‘‘(iii) the interquartile range of the 
costs, per course of treatment or 30-day 
supply, including amounts paid by the en-
rollee, when the same drug is dispensed by 
other pharmacies that are not wholly or 
partially owned by the issuer or entity and 
that are included in the pharmacy network 
of that plan or coverage; and 
‘‘(iv) the lowest cost per course of 
treatment or 30-day supply, for such drug, 
including amounts charged to the plan or 
issuer and enrollee, that is available from 
any pharmacy included in the network of 
the plan or coverage. 
‘‘(d) FULL REBATE PASS-THROUGH TO PLAN.— 
‘‘(1) IN GENERAL.—A pharmacy benefits man-
ager, a third-party administrator of a group health 
plan, a health insurance issuer offering group health 
insurance coverage, or an entity providing pharmacy 
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403 
benefits management services under such health 
plan or health insurance coverage shall remit 100 
percent of rebates, fees, alternative discounts, and 
all other remuneration received from a pharma-
ceutical manufacturer, distributor or any other third 
party, that are related to utilization of drugs under 
such health plan or health insurance coverage, to the 
group health plan. 
‘‘(2) FORM AND MANNER OF REMITTANCE.— 
Such rebates, fees, alternative discounts, and other 
remuneration shall be— 
‘‘(A) remitted to the group health plan in 
a timely fashion after the period for which such 
rebates, fees, or other remuneration is cal-
culated, and in no case later than 90 days after 
the end of such period; 
‘‘(B) fully disclosed and enumerated to the 
group health plan sponsor, as described in 
(b)(1); 
‘‘(C) available for audit by the plan spon-
sor, or a third party designated by a plan spon-
sor no less than once per plan year; and 
‘‘(D) returned to the issuer or entity pro-
viding 
pharmaceutical 
benefit 
management 
services by the group health plan if audits by 
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404 
such issuer or entity indicate that the amounts 
received are incorrect after such amounts have 
been paid to the group health plan. 
‘‘(3) AUDIT OF REBATE CONTRACTS.—A phar-
macy benefits manager, a third-party administrator 
of a group health plan, a health insurance issuer of-
fering group health insurance coverage, or an entity 
providing pharmacy benefits management services 
under such health plan or health insurance coverage 
shall make rebate contracts with drug manufactur-
ers available for audit by such plan sponsor or des-
ignated third party, subject to confidentiality agree-
ments to prevent re-disclosure of such contracts. 
‘‘(e) ENFORCEMENT.— 
‘‘(1) IN GENERAL.—The Secretary, in consulta-
tion with the Secretary of Labor and the Secretary 
of the Treasury, shall enforce this section. 
‘‘(2) FAILURE TO PROVIDE TIMELY INFORMA-
TION.—A health insurance issuer or an entity pro-
viding pharmacy benefit management services that 
violates subsection (a), fails to provide information 
required under subsection (b), engages in spread 
pricing as defined in subsection (c), or fails to com-
ply with the requirements of subsection (d), or a 
drug manufacturer that fails to provide information 
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405 
under subsection (b)(1)(A), in a timely manner shall 
be subject to a civil monetary penalty in the amount 
of $10,000 for each day during which such violation 
continues or such information is not disclosed or re-
ported. 
‘‘(3) FALSE INFORMATION.—A health insurance 
issuer, entity providing pharmacy benefit manage-
ment services, or drug manufacturer that knowingly 
provides false information under this section shall be 
subject to a civil money penalty in an amount not 
to exceed $100,000 for each item of false informa-
tion. Such civil money penalty shall be in addition to 
other penalties as may be prescribed by law. 
‘‘(4) PROCEDURE.—The provisions of section 
1128A of the Social Security Act, other than sub-
section (a) and (b) and the first sentence of sub-
section (c)(1) of such section shall apply to civil 
monetary penalties under this subsection in the 
same manner as such provisions apply to a penalty 
or proceeding under section 1128A of the Social Se-
curity Act. 
‘‘(5) SAFE HARBOR.—The Secretary may waive 
penalties under paragraph (2), or extend the period 
of time for compliance with a requirement of this 
section, for an entity in violation of this section that 
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406 
has made a good-faith effort to comply with this sec-
tion. 
‘‘(f) RULE OF CONSTRUCTION.—Nothing in this sec-
tion shall be construed to prohibit payments to entities 
offering pharmacy benefits management services for bona 
fide services using a fee structure not contemplated by this 
section, provided that such fees are transparent to group 
health plans and health insurance issuers. 
‘‘(g) DEFINITIONS.—In this section— 
‘‘(1) the term ‘similarly situated pharmacy’ 
means, with respect to a particular pharmacy, an-
other pharmacy that is approximately the same size 
(as measured by the number of prescription drugs 
dispensed), and that serves patients in the same geo-
graphical area, whether through physical locations or 
mail order; and 
‘‘(2) the term ‘wholesale acquisition cost’ has 
the 
meaning 
given 
such 
term 
in 
section 
1847A(c)(6)(B) of the Social Security Act.’’. 
SEC. 368. STUDY BY COMPTROLLER GENERAL OF UNITED 
STATES. 
(a) IN GENERAL.—The Comptroller General of the 
United States (referred to in this section as the ‘‘Comp-
troller General’’) shall, in consultation with appropriate 
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stakeholders, conduct a study on the role of pharmacy 
benefit managers. 
(b) PERMISSIBLE EXAMINATION.—In conducting the 
study required under subsection (a), the Comptroller Gen-
eral may examine various qualitative and quantitative as-
pects of the role of pharmacy benefit managers, such as 
the following: 
(1) The role that pharmacy benefit managers 
play in the pharmaceutical supply chain. 
(2) The state of competition among pharmacy 
benefit managers, including the market share for the 
Nation’s largest pharmacy benefit managers. 
(3) The use of rebates and fees by pharmacy 
benefit managers, including— 
(A) the extent to which rebates are passed 
on to health plans and whether such rebates are 
passed on to individuals enrolled in such plans; 
(B) the extent to which rebates are kept by 
such pharmacy benefit managers; and 
(C) the role of any fees charged by such 
pharmacy benefit managers. 
(4) Whether pharmacy benefit managers struc-
ture their formularies in favor of high-rebate pre-
scription drugs over lower-cost, lower-rebate alter-
natives. 
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(5) The average prior authorization approval 
time for pharmacy benefit managers. 
(6) Factors affecting the use of step therapy by 
pharmacy benefit managers. 
(c) REPORT.—Not later than 3 years after the date 
of enactment of this Act, the Comptroller General shall 
submit to the Secretary of Health and Human Services, 
the Committee on Health, Education, Labor, and Pen-
sions of the Senate, and the Committee on Energy and 
Commerce of the House of Representatives a report con-
taining the results of the study conducted under sub-
section (a), including policy recommendations. 
Subtitle E—Medicare and Medicaid 
Prescription Drug Reforms 
SEC. 371. MEDICARE PART B REBATE BY MANUFACTURERS 
FOR DRUGS OR BIOLOGICALS WITH PRICES 
INCREASING FASTER THAN INFLATION. 
(a) IN GENERAL.—Section 1847A of the Social Secu-
rity Act (42 U.S.C. 1395w–3a) is amended by adding at 
the end the following new subsection: 
‘‘(h) REBATE BY MANUFACTURERS FOR DRUGS OR 
BIOLOGICALS WITH PRICES INCREASING FASTER THAN 
INFLATION.— 
‘‘(1) REQUIREMENTS.— 
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‘‘(A) SECRETARIAL PROVISION OF INFOR-
MATION.—Not later than 6 months after the 
end of each rebate period (as defined in para-
graph (2)(A)) beginning on or after January 1, 
2021, the Secretary shall, for each rebatable 
drug (as defined in paragraph (2)(B)), report 
to each manufacturer of such rebatable drug 
the following for such rebate period: 
‘‘(i) Information on the total number 
of units of the billing and payment code 
described in subparagraph (A)(i) of para-
graph (3) with respect to such rebatable 
drug and rebate period. 
‘‘(ii) Information on the amount (if 
any) of the excess average sales price in-
crease described in subparagraph (A)(ii) of 
such paragraph for such rebatable drug 
and rebate period. 
‘‘(iii) The rebate amount specified 
under such paragraph for such rebatable 
drug and rebate period. 
‘‘(B) MANUFACTURER REBATE.— 
‘‘(i) IN GENERAL.—Subject to clause 
(ii), for each rebate period beginning on or 
after January 1, 2021, the manufacturer 
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410 
of a rebatable drug shall, for such drug, 
not later than 30 days after the date of re-
ceipt from the Secretary of the information 
and rebate amount pursuant to subpara-
graph (A) for such rebate period, provide 
to the Secretary a rebate that is equal to 
the amount specified in paragraph (3) for 
such drug for such rebate period. 
‘‘(ii) EXEMPTION FOR SHORTAGES.— 
The Secretary may reduce or waive the re-
bate under this subparagraph with respect 
to a rebatable drug that is listed on the 
drug shortage list maintained by the Food 
and Drug Administration pursuant to sec-
tion 506E of the Federal Food, Drug, and 
Cosmetic Act. 
‘‘(C) REQUEST FOR RECONSIDERATION.— 
The Secretary shall establish procedures under 
which a manufacturer of a rebatable drug may 
request a reconsideration by the Secretary of 
the rebate amount specified under paragraph 
(3) for such rebatable drug and rebate period, 
as reported to the manufacturer pursuant to 
subparagraph (A)(iii). 
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411 
‘‘(2) REBATE PERIOD AND REBATABLE DRUG 
DEFINED.—In this subsection: 
‘‘(A) REBATE PERIOD.—The term ‘rebate 
period’ means a calendar quarter beginning on 
or after January 1, 2021. 
‘‘(B) 
REBATABLE
DRUG.—The 
term 
‘rebatable drug’ means a single source drug or 
biological (other than a biosimilar biological 
product)— 
‘‘(i) 
described 
in 
section 
1842(o)(1)(C) for which the payment 
amount is provided under this section; or 
‘‘(ii) for which payment is made sepa-
rately under section 1833(i) or section 
1833(t) and for which the payment 
amount is calculated based on the payment 
amount under this section. 
‘‘(3) REBATE AMOUNT.— 
‘‘(A) IN GENERAL.—For purposes of para-
graph (1)(B), the amount specified in this para-
graph for a rebatable drug assigned to a billing 
and payment code for a rebate period is, subject 
to paragraph (4), the amount equal to the prod-
uct of— 
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‘‘(i) subject to subparagraph (B), the 
total number of units of the billing and 
payment code for such rebatable drug fur-
nished during the rebate period; and 
‘‘(ii) the amount (if any) by which— 
‘‘(I) 
the 
amount 
determined 
under subsection (b)(4) for such 
rebatable drug during the rebate pe-
riod; exceeds 
‘‘(II) the inflation-adjusted base 
payment amount determined under 
subparagraph (C) of this paragraph 
for such rebatable drug during the re-
bate period. 
‘‘(B) EXCLUDED UNITS.—For purposes of 
subparagraph (A)(i), the total number of units 
of the billing and payment code for rebatable 
drugs furnished during a rebate period shall not 
include units with respect to which the manu-
facturer provides a discount under the program 
under section 340B of the Public Health Serv-
ice Act or a rebate under section 1927. 
‘‘(C) DETERMINATION OF INFLATION-AD-
JUSTED PAYMENT AMOUNT.—The inflation-ad-
justed payment amount determined under this 
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subparagraph for a rebatable drug for a rebate 
period is— 
‘‘(i) the amount determined under 
subsection (b)(4) for such rebatable drug 
in the payment amount benchmark quarter 
(as defined in subparagraph (D)); in-
creased by 
‘‘(ii) the percentage by which the re-
bate period CPI–U (as defined in subpara-
graph (F)) for the rebate period exceeds 
the benchmark period CPI–U (as defined 
in subparagraph (E)). 
‘‘(D) 
PAYMENT
AMOUNT
BENCHMARK 
QUARTER.—The term ‘payment amount bench-
mark quarter’ means the calendar quarter be-
ginning July 1, 2019. 
‘‘(E) BENCHMARK
PERIOD
CPI–U.—The 
term ‘benchmark period CPI–U’ means the con-
sumer price index for all urban consumers 
(United States city average) for July 2019. 
‘‘(F) REBATE PERIOD CPI–U.—The term 
‘rebate period CPI–U’ means, with respect to a 
rebate period, the consumer price index for all 
urban consumers (United States city average) 
for the last month of the calendar quarter that 
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is two calendar quarters prior to the rebate pe-
riod. 
‘‘(4) APPLICATION
TO
NEW
DRUGS.—In the 
case of a rebatable drug first approved or licensed 
by the Food and Drug Administration after July 1, 
2019, the following shall apply: 
‘‘(A) DURING INITIAL PERIOD.—For quar-
ters during the initial period in which the pay-
ment amount for such drug is determined using 
the 
methodology 
described 
in 
subsection 
(c)(4)— 
‘‘(i) clause (ii)(I) of paragraph (3)(A) 
shall be applied as if the reference to ‘the 
amount 
determined 
under 
subsection 
(b)(4),’ were a reference to ‘the wholesale 
acquisition cost applicable under subsection 
(c)(4)’; 
‘‘(ii) clause (i) of paragraph (3)(C) 
shall be applied— 
‘‘(I) as if the reference to ‘the 
amount determined under subsection 
(b)(4),’ were a reference to ‘the whole-
sale acquisition cost applicable under 
subsection (c)(4)’; and 
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‘‘(II) as if the term ‘payment 
amount benchmark quarter’ were de-
fined under paragraph (3)(D) as the 
first full calendar quarter after the 
day on which the drug was first mar-
keted; and 
‘‘(iii) clause (ii) of paragraph (3)(C) 
shall be applied as if the term ‘benchmark 
period CPI–U’ were defined under para-
graph (4)(E) as if the reference to ‘July 
2019’ under such paragraph were a ref-
erence to ‘the first month of the first full 
calendar quarter after the day on which 
the drug was first marketed’. 
‘‘(B) AFTER INITIAL PERIOD.—For quar-
ters beginning after such initial period— 
‘‘(i) clause (i) of paragraph (3)(C) 
shall be applied as if the term ‘payment 
amount benchmark quarter’ were defined 
under paragraph (3)(D) as the first full 
calendar quarter for which the Secretary is 
able to compute an average sales price for 
the rebatable drug; and 
‘‘(ii) clause (ii) of paragraph (3)(C) 
shall be applied as if the term ‘benchmark 
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416 
period CPI–U’ were defined under para-
graph (4)(E) as if the reference to ‘July 
2019’ under such paragraph were a ref-
erence to ‘the first month of the first full 
calendar quarter for which the Secretary is 
able to compute an average sales price for 
the rebatable drug’. 
‘‘(5) REBATE DEPOSITS.—Amounts paid as re-
bates under paragraph (1)(B) shall be deposited into 
the Federal Supplementary Medical Insurance Trust 
Fund established under section 1841. 
‘‘(6) ENFORCEMENT.— 
‘‘(A) CIVIL MONEY PENALTY.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall impose a civil money penalty on a 
manufacturer that fails to comply with the 
requirements under paragraph (1)(B) with 
respect to providing a rebate for a 
rebatable drug for a rebate period for each 
such failure in an amount equal to the sum 
of— 
‘‘(I) the rebate amount specified 
pursuant to paragraph (3) for such 
drug for such rebate period; and 
‘‘(II) 25 percent of such amount. 
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417 
‘‘(ii) APPLICATION.—The provisions 
of section 1128A (other than subsections 
(a) (with respect to amounts of penalties 
or additional assessments) and (b)) shall 
apply to a civil money penalty under this 
subparagraph in the same manner as such 
provisions apply to a penalty or proceeding 
under section 1128A(a). 
‘‘(B) NO PAYMENT FOR MANUFACTURERS 
WHO FAIL TO PAY PENALTY.—If the manufac-
turer of a rebatable drug fails to pay a civil 
money penalty under subparagraph (A) with re-
spect to the failure to provide a rebate for a 
rebatable drug for a rebate period by a date 
specified by the Secretary after the imposition 
of such penalty, no payment shall be available 
under this part for such rebatable drug for cal-
endar quarters beginning on or after such date 
until the Secretary determines the manufac-
turer has paid the penalty due under such sub-
paragraph.’’. 
(b) IMPLEMENTATION.—Section 1847A(g) of the So-
cial Security Act (42 U.S.C. 1395w–3(g)) is amended— 
(1) in paragraph (4), by striking ‘‘and’’ at the 
end; 
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(2) in paragraph (5), by striking the period at 
the end and inserting ‘‘; and’’; and 
(3) by adding at the end the following new 
paragraph: 
‘‘(6) determination of the rebate amount for a 
rebatable drug under paragraph (3) of subsection 
(h), including with respect to a new drug pursuant 
to paragraph (4) of such subsection, including— 
‘‘(A) a decision by the Secretary with re-
spect to a request for reconsideration under 
paragraph (1)(C); and 
‘‘(B) the determination of— 
‘‘(i) the total number of units of the 
billing and payment code under paragraph 
(3)(A)(i); and 
‘‘(ii) the inflation-adjusted payment 
amount under paragraph (3)(C).’’. 
(c) CONFORMING AMENDMENT TO PART B ASP CAL-
CULATION.—Section 1847A(c)(3) of the Social Security 
Act (42 U.S.C. 1395w–3a(c)(3)) is amended by inserting 
‘‘or subsection (h)’’ after ‘‘section 1927’’. 
SEC. 372. MARKET BASED PART B PRICING INDEX. 
Notwithstanding any provision of part B of title 
XVIII of the Social Security Act, the Secretary of Health 
and Human Services may make payments for drugs pay-
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able under such part based on an international pricing 
index. In using such an index, the Secretary shall take 
into account whether the market of each country included 
in such index is a price-controlled or free market and give 
more weight under such index to countries with market- 
based drug policies. 
SEC. 373. INNOVATION MODEL TESTING OF MEDICARE 
DRUG PAYMENTS. 
Notwithstanding any provision of section 1115A, the 
Secretary of Health and Human Services may, under such 
section, test a model to integrate benefits provided for 
drugs under parts A, B, and D of title XVIII of the Social 
Security Act. 
SEC. 374. MODIFICATION OF MAXIMUM REBATE AMOUNT 
UNDER MEDICAID DRUG REBATE PROGRAM. 
(a) IN GENERAL.—Subparagraph (D) of section 
1927(c)(2) of the Social Security Act (42 U.S.C. 1396r– 
8(c)(2)) is amended to read as follows: 
‘‘(D) MAXIMUM REBATE AMOUNT.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), in no case shall the 
sum of the amounts applied under para-
graph (1)(A)(ii) and this paragraph with 
respect to each dosage form and strength 
of a single source drug or an innovator 
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420 
multiple source drug for a rebate period 
exceed— 
‘‘(I) for rebate periods beginning 
after December 31, 2009, and before 
September 30, 2022, 100 percent of 
the average manufacturer price of the 
drug; and 
‘‘(II) for rebate periods beginning 
on or after October 1, 2022, 125 per-
cent of the average manufacturer 
price of the drug. 
‘‘(ii) NO
MAXIMUM
AMOUNT
FOR 
DRUGS
IF
AMP
INCREASES
OUTPACE
IN-
FLATION.— 
‘‘(I) IN GENERAL.—If the aver-
age manufacturer price with respect 
to each dosage form and strength of 
a single source drug or an innovator 
multiple source drug increases on or 
after October 1, 2021, and such in-
creased average manufacturer price 
exceeds the inflation-adjusted average 
manufacturer price determined with 
respect to such drug under subclause 
(II) for the rebate period, clause (i) 
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421 
shall not apply and there shall be no 
limitation on the sum of the amounts 
applied under paragraph (1)(A)(ii) 
and this paragraph for the rebate pe-
riod with respect to each dosage form 
and strength of the single source drug 
or innovator multiple source drug. 
‘‘(II) INFLATION-ADJUSTED
AV-
ERAGE
MANUFACTURER
PRICE
DE-
FINED.—In this clause, the term ‘in-
flation-adjusted average manufacturer 
price’ means, with respect to a single 
source drug or an innovator multiple 
source drug and a rebate period, the 
average manufacturer price for each 
dosage form and strength of the drug 
for the calendar quarter beginning 
July 1, 1990 (without regard to 
whether or not the drug has been sold 
or transferred to an entity, including 
a division or subsidiary of the manu-
facturer, after the 1st day of such 
quarter), increased by the percentage 
by which the consumer price index for 
all urban consumers (United States 
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city average) for the month before the 
month in which the rebate period be-
gins exceeds such index for September 
1990.’’. 
(b) TREATMENT
OF
SUBSEQUENTLY
APPROVED 
DRUGS.—Section 1927(c)(2)(B) of the Social Security Act 
(42 U.S.C. 1396r–8(c)(2)(B)) is amended by inserting 
‘‘and clause (ii)(II) of subparagraph (D)’’ after ‘‘clause 
(ii)(II) of subparagraph (A)’’. 
(c) 
TECHNICAL
AMENDMENTS.—Section 
1927(c)(3)(C)(ii)(IV) of the Social Security Act (42 
U.S.C. 1396r–9(c)(3)(C)(ii)(IV)) is amended— 
(1) by striking ‘‘subparagraph (A)’’ and insert-
ing ‘‘paragraph (3)(A)’’; and 
(2) by striking ‘‘this subparagraph’’ and insert-
ing ‘‘paragraph (3)(C)’’. 
Subtitle F—Medical Malpractice 
Reform 
SEC. 381. DEFINITIONS. 
In this Act: 
(1) ALTERNATIVE DISPUTE RESOLUTION SYS-
TEM; ADR.—The term ‘‘alternative dispute resolution 
system’’ or ‘‘ADR’’ means a system that provides 
for the resolution of health care lawsuits in a man-
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ner other than through a civil action brought in a 
State or Federal court. 
(2) CLAIMANT.—The term ‘‘claimant’’ means 
any person who brings a health care lawsuit, includ-
ing a person who asserts or claims a right to legal 
or equitable contribution, indemnity, or subrogation, 
arising out of a health care liability claim or action, 
and any person on whose behalf such a claim is as-
serted or such an action is brought, whether de-
ceased, incompetent, or a minor. 
(3) COLLATERAL
SOURCE
BENEFITS.—The 
term ‘‘collateral source benefits’’ means any amount 
paid or reasonably likely to be paid in the future to 
or on behalf of the claimant, or any service, product, 
or other benefit provided or reasonably likely to be 
provided in the future to or on behalf of the claim-
ant, as a result of the injury or wrongful death, pur-
suant to— 
(A) any State or Federal health, sickness, 
income-disability, accident, or workers’ com-
pensation law; 
(B) any health, sickness, income-disability, 
or accident insurance that provides health bene-
fits or income-disability coverage; 
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(C) any contract or agreement of any 
group, organization, partnership, or corporation 
to provide, pay for, or reimburse the cost of 
medical, hospital, dental, or income-disability 
benefits; and 
(D) any other publicly or privately funded 
program. 
(4) CONTINGENT FEE.—The term ‘‘contingent 
fee’’ includes all compensation to any person or per-
sons which is payable only if a recovery is effected 
on behalf of one or more claimants. 
(5) ECONOMIC DAMAGES.—The term ‘‘economic 
damages’’ means objectively verifiable monetary 
losses incurred as a result of the provision or use of 
(or failure to provide or use) health care services or 
medical products, such as past and future medical 
expenses, loss of past and future earnings, cost of 
obtaining domestic services, loss of employment, and 
loss of business or employment opportunities, unless 
otherwise defined under applicable State law. In no 
circumstances shall damages for health care services 
or medical products exceed the amount actually paid 
or incurred by or on behalf of the claimant. 
(6) FUTURE
DAMAGES.—The term ‘‘future 
damages’’ means any damages that are incurred 
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after the date of judgment, settlement, or other reso-
lution (including mediation, or any other form of al-
ternative dispute resolution). 
(7) 
HEALTH
CARE
LAWSUIT.—The 
term 
‘‘health care lawsuit’’ means any health care liability 
claim concerning the provision of goods or services 
for which coverage was provided in whole or in part 
via a Federal program, subsidy or tax benefit, or 
any health care liability action concerning the provi-
sion of goods or services for which coverage was pro-
vided in whole or in part via a Federal program, 
subsidy or tax benefit, brought in a State or Federal 
court or pursuant to an alternative dispute resolu-
tion system, against a health care provider regard-
less of the theory of liability on which the claim is 
based, or the number of claimants, plaintiffs, de-
fendants, or other parties, or the number of claims 
or causes of action, in which the claimant alleges a 
health care liability claim. Such term does not in-
clude a claim or action which is based on criminal 
liability; which seeks civil fines or penalties paid to 
Federal, State, or local government; or which is 
grounded in antitrust. 
(8) HEALTH
CARE
LIABILITY
ACTION.—The 
term ‘‘health care liability action’’ means a civil ac-
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tion brought in a State or Federal court or pursuant 
to an alternative dispute resolution system, against 
a health care provider regardless of the theory of li-
ability on which the claim is based, or the number 
of plaintiffs, defendants, or other parties, or the 
number of causes of action, in which the claimant al-
leges a health care liability claim. 
(9) HEALTH
CARE
LIABILITY
CLAIM.—The 
term ‘‘health care liability claim’’ means a demand 
by any person, whether or not pursuant to ADR, 
against a health care provider, including, but not 
limited to, third-party claims, cross-claims, counter- 
claims, or contribution claims, which are based upon 
the provision or use of (or the failure to provide or 
use) health care services or medical products, re-
gardless of the theory of liability on which the claim 
is based, or the number of plaintiffs, defendants, or 
other parties, or the number of causes of action. 
(10) HEALTH
CARE
PROVIDER.—The term 
‘‘health care provider’’ means any person or entity 
required by State or Federal laws or regulations to 
be licensed, registered, or certified to provide health 
care services, and being either so licensed, reg-
istered, or certified, or exempted from such require-
ment by other statute or regulation, as well as any 
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other individual or entity defined as a health care 
provider, health care professional, or health care in-
stitution under State law. 
(11) HEALTH
CARE
SERVICES.—The term 
‘‘health care services’’ means the provision of any 
goods or services (including safety, professional, or 
administrative services directly related to health 
care) by a health care provider, or by any individual 
working under the supervision of a health care pro-
vider, that relates to the diagnosis, prevention, or 
treatment of any human disease or impairment, or 
the assessment or care of the health of human 
beings. 
(12) MEDICAL PRODUCT.—The term ‘‘medical 
product’’ means a drug, device, or biological product 
intended for humans, and the terms ‘‘drug’’, ‘‘de-
vice’’, and ‘‘biological product’’ have the meanings 
given such terms in sections 201(g)(1) and 201(h) 
of the Federal Food, Drug and Cosmetic Act (21 
U.S.C. 321(g)(1) and (h)) and section 351(a) of the 
Public Health Service Act (42 U.S.C. 262(a)), re-
spectively, including any component or raw material 
used therein, but excluding health care services. 
(13) 
NONECONOMIC
DAMAGES.—The 
term 
‘‘noneconomic damages’’ means damages for phys-
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ical and emotional pain, suffering, inconvenience, 
physical impairment, mental anguish, disfigurement, 
loss of enjoyment of life, loss of society and compan-
ionship, loss of consortium (other than loss of do-
mestic service), hedonic damages, injury to reputa-
tion, and all other nonpecuniary losses of any kind 
or nature incurred as a result of the provision or use 
of (or failure to provide or use) health care services 
or medical products, unless otherwise defined under 
applicable State law. 
(14) RECOVERY.—The term ‘‘recovery’’ means 
the net sum recovered after deducting any disburse-
ments or costs incurred in connection with prosecu-
tion or settlement of the claim, including all costs 
paid or advanced by any person. Costs of health care 
incurred by the plaintiff and the attorneys’ office 
overhead costs or charges for legal services are not 
deductible disbursements or costs for such purpose. 
(15) REPRESENTATIVE.—The term ‘‘represent-
ative’’ means a legal guardian, attorney, person des-
ignated to make decisions on behalf of a patient 
under a medical power of attorney, or any person 
recognized in law or custom as a patient’s agent. 
(16) STATE.—The term ‘‘State’’ means each of 
the several States, the District of Columbia, the 
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Commonwealth of Puerto Rico, the Virgin Islands, 
Guam, American Samoa, the Northern Mariana Is-
lands, the Trust Territory of the Pacific Islands, and 
any other territory or possession of the United 
States, or any political subdivision thereof. 
SEC. 382. ENCOURAGING SPEEDY RESOLUTION OF CLAIMS. 
(a) STATUTE OF LIMITATIONS.— 
(1) IN GENERAL.—Except as provided in para-
graph (2), the time for the commencement of a 
health care lawsuit shall be, whichever occurs first of 
the following: 
(A) Three years after the date of the oc-
currence of the breach or tort. 
(B) Three years after the date the medical 
or health care treatment that is the subject of 
the claim is completed. 
(C) One year after the claimant discovers, 
or through the use of reasonable diligence 
should have discovered, the injury. 
(2) TOLLING.—In no event shall the time for 
commencement of a health care lawsuit exceed 3 
years after the date of the occurrence of the breach 
or tort or 3 years after the date the medical or 
health care treatment that is the subject of the claim 
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is completed (whichever occurs first) unless tolled 
for any of the following— 
(A) upon proof of fraud; 
(B) intentional concealment; or 
(C) the presence of a foreign body, which 
has no therapeutic or diagnostic purpose or ef-
fect, in the person of the injured person. 
(3) ACTIONS BY A MINOR.—Actions by a minor 
shall be commenced within 3 years after the date of 
the occurrence of the breach or tort or 3 years after 
the date of the medical or health care treatment that 
is the subject of the claim is completed (whichever 
occurs first) except that actions by a minor under 
the full age of 6 years shall be commenced within 3 
years after the date of the occurrence of the breach 
or tort, 3 years after the date of the medical or 
health care treatment that is the subject of the claim 
is completed, or 1 year after the injury is discovered, 
or through the use of reasonable diligence should 
have been discovered, or prior to the minor’s 8th 
birthday, whichever provides a longer period. Such 
time limitation shall be tolled for minors for any pe-
riod during which a parent or guardian and a health 
care provider have committed fraud or collusion in 
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the failure to bring an action on behalf of the in-
jured minor. 
(b) STATE FLEXIBILITY.—No provision of subsection 
(a) shall be construed to preempt any State law (whether 
effective before, on, or after the date of the enactment of 
this Act) that— 
(1) specifies a time period of less than 3 years 
after the date of injury or less than 1 year after the 
claimant discovers, or through the use of reasonable 
diligence should have discovered, the injury, for the 
filing of a health care lawsuit; 
(2) that specifies a different time period for the 
filing of lawsuits by a minor; 
(3) that triggers the time period based on the 
date of the alleged negligence; or 
(4) establishes a statute of repose for the filing 
of a health care lawsuit. 
SEC. 383. COMPENSATING PATIENT INJURY. 
(a) UNLIMITED AMOUNT OF DAMAGES FOR ACTUAL 
ECONOMIC LOSSES IN HEALTH CARE LAWSUITS.—In any 
health care lawsuit, nothing in this Act shall limit a claim-
ant’s recovery of the full amount of the available economic 
damages, notwithstanding the limitation in subsection (b). 
(b) ADDITIONAL NONECONOMIC DAMAGES.—In any 
health care lawsuit, the amount of noneconomic damages, 
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if available, shall not exceed $250,000, regardless of the 
number of parties against whom the action is brought or 
the number of separate claims or actions brought with re-
spect to the same injury. 
(c) NO DISCOUNT OF AWARD FOR NONECONOMIC 
DAMAGES.—For purposes of applying the limitation in 
subsection (b), future noneconomic damages shall not be 
discounted to present value. The jury shall not be in-
formed about the maximum award for noneconomic dam-
ages. An award for noneconomic damages in excess of 
$250,000 shall be reduced either before the entry of judg-
ment, or by amendment of the judgment after entry of 
judgment, and such reduction shall be made before ac-
counting for any other reduction in damages required by 
law. If separate awards are rendered for past and future 
noneconomic damages and the combined awards exceed 
$250,000, the future noneconomic damages shall be re-
duced first. 
(d) FAIR SHARE RULE.—In any health care lawsuit, 
each party shall be liable for that party’s several share 
of any damages only and not for the share of any other 
person. Each party shall be liable only for the amount of 
damages allocated to such party in direct proportion to 
such party’s percentage of responsibility. Whenever a 
judgment of liability is rendered as to any party, a sepa-
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rate judgment shall be rendered against each such party 
for the amount allocated to such party. For purposes of 
this section, the trier of fact shall determine the propor-
tion of responsibility of each party for the claimant’s 
harm. 
(e) STATE FLEXIBILITY.—No provision of this sec-
tion shall be construed to preempt any State law (whether 
effective before, on, or after the date of the enactment of 
this Act) that specifies a particular monetary amount of 
economic or noneconomic damages (or the total amount 
of damages) that may be awarded in a health care lawsuit, 
regardless of whether such monetary amount is greater 
or lesser than is provided for under this section. 
SEC. 384. MAXIMIZING PATIENT RECOVERY. 
(a) COURT SUPERVISION OF SHARE OF DAMAGES 
ACTUALLY PAID TO CLAIMANTS.—In any health care law-
suit, the court shall supervise the arrangements for pay-
ment of damages to protect against conflicts of interest 
that may have the effect of reducing the amount of dam-
ages awarded that are actually paid to claimants. In par-
ticular, in any health care lawsuit in which the attorney 
for a party claims a financial stake in the outcome by vir-
tue of a contingent fee, the court shall have the power 
to restrict the payment of a claimant’s damage recovery 
to such attorney, and to redirect such damages to the 
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claimant based upon the interests of justice and principles 
of equity. In no event shall the total of all contingent fees 
for representing all claimants in a health care lawsuit ex-
ceed the following limits: 
(1) Forty percent of the first $50,000 recovered 
by the claimant(s). 
(2) Thirty-three and one-third percent of the 
next $50,000 recovered by the claimant(s). 
(3) Twenty-five percent of the next $500,000 
recovered by the claimant(s). 
(4) Fifteen percent of any amount by which the 
recovery by the claimant(s) is in excess of $600,000. 
(b) APPLICABILITY.—The limitations in this section 
shall apply whether the recovery is by judgment, settle-
ment, mediation, arbitration, or any other form of alter-
native dispute resolution. In a health care lawsuit involv-
ing a minor or incompetent person, a court retains the 
authority to authorize or approve a fee that is less than 
the maximum permitted under this section. The require-
ment for court supervision in the first two sentences of 
subsection (a) applies only in civil actions. 
(c) STATE FLEXIBILITY.—No provision of this sec-
tion shall be construed to preempt any State law (whether 
effective before, on, or after the date of the enactment of 
this Act) that specifies a lesser percentage or lesser total 
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value of damages which may be claimed by an attorney 
representing a claimant in a health care lawsuit. 
SEC. 385. AUTHORIZATION OF PAYMENT OF FUTURE DAM-
AGES TO CLAIMANTS IN HEALTH CARE LAW-
SUITS. 
(a) IN GENERAL.—In any health care lawsuit, if an 
award of future damages, without reduction to present 
value, equaling or exceeding $50,000 is made against a 
party with sufficient insurance or other assets to fund a 
periodic payment of such a judgment, the court shall, at 
the request of any party, enter a judgment ordering that 
the future damages be paid by periodic payments, in ac-
cordance with the Uniform Periodic Payment of Judg-
ments Act promulgated by the National Conference of 
Commissioners on Uniform State Laws. 
(b) APPLICABILITY.—This section applies to all ac-
tions which have not been first set for trial or retrial be-
fore the effective date of this Act. 
(c) STATE FLEXIBILITY.—No provision of this sec-
tion shall be construed to preempt any State law (whether 
effective before, on, or after the date of the enactment of 
this Act) that specifies periodic payments for future dam-
ages at any amount other than $50,000 or that mandates 
such payments absent the request of either party. 
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SEC. 386. PRODUCT LIABILITY FOR HEALTH CARE PRO-
VIDERS. 
A health care provider who prescribes, or who dis-
penses pursuant to a prescription, a medical product ap-
proved, licensed, or cleared by the Food and Drug Admin-
istration shall not be named as a party to a product liabil-
ity lawsuit involving such product and shall not be liable 
to a claimant in a class action lawsuit against the manu-
facturer, distributor, or seller of such product. 
SEC. 387. EFFECT ON OTHER LAWS. 
(a) VACCINE INJURY.— 
(1) To the extent that title XXI of the Public 
Health Service Act establishes a Federal rule of law 
applicable to a civil action brought for a vaccine-re-
lated injury or death— 
(A) this Act does not affect the application 
of the rule of law to such an action; and 
(B) any rule of law prescribed by this sub-
title in conflict with a rule of law of such title 
XXI shall not apply to such action. 
(2) If there is an aspect of a civil action 
brought for a vaccine-related injury or death to 
which a Federal rule of law under title XXI of the 
Public Health Service Act does not apply, then this 
subtitle or otherwise applicable law (as determined 
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under this subtitle) will apply to such aspect of such 
action. 
(b) OTHER FEDERAL LAW.—Except as provided in 
this section, nothing in this subtitle shall be deemed to 
affect any defense available to a defendant in a health care 
lawsuit or action under any other provision of Federal law. 
SEC. 388. LIMITATION ON EXPERT WITNESS TESTIMONY. 
(a) IN GENERAL.—No person in a health care profes-
sion requiring licensure under the laws of a State shall 
be competent to testify in any court of law to establish 
the following facts— 
(1) the recognized standard of acceptable pro-
fessional practice and the specialty thereof, if any, 
that the defendant practices, which shall be the type 
of acceptable professional practice recognized in the 
defendant’s community or in a community similar to 
the defendant’s community that was in place at the 
time the alleged injury or wrongful action occurred; 
(2) that the defendant acted with less than or 
failed to act with ordinary and reasonable care in ac-
cordance with the recognized standard; and 
(3) that as a proximate result of the defend-
ant’s negligent act or omission, the claimant suf-
fered injuries which would not otherwise have oc-
curred, 
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unless the person was licensed to practice, in the State 
or a contiguous bordering State, a profession or specialty 
which would make the person’s expert testimony relevant 
to the issues in the case and had practiced this profession 
or specialty in one of these States during the year pre-
ceding the date that the alleged injury or wrongful act 
occurred. 
(b) APPLICABILITY.—The requirements set forth in 
subsection (a) shall also apply to expert witnesses testi-
fying for the defendant as rebuttal witnesses. 
(c) WAIVER AUTHORITY.—The court may waive the 
requirements in this subsection if it determines that the 
appropriate witnesses otherwise would not be available. 
SEC. 389. EXPERT WITNESS QUALIFICATIONS. 
(a) IN GENERAL.—In any health care lawsuit, an in-
dividual shall not give expert testimony on the appropriate 
standard of practice or care involved unless the individual 
is licensed as a health professional in one or more States 
and the individual meets the following criteria: 
(1) If the party against whom or on whose be-
half the testimony is to be offered is or claims to be 
a specialist, the expert witness shall specialize at the 
time of the occurrence that is the basis for the law-
suit in the same specialty or claimed specialty as the 
party against whom or on whose behalf the testi-
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mony is to be offered. If the party against whom or 
on whose behalf the testimony is to be offered is or 
claims to be a specialist who is board certified, the 
expert witness shall be a specialist who is board cer-
tified in that specialty or claimed specialty. 
(2) During the 1-year period immediately pre-
ceding the occurrence of the action that gave rise to 
the lawsuit, the expert witness shall have devoted a 
majority of the individual’s professional time to one 
or more of the following: 
(A) The active clinical practice of the same 
health profession as the defendant and, if the 
defendant is or claims to be a specialist, in the 
same specialty or claimed specialty. 
(B) The instruction of students in an ac-
credited health professional school or accredited 
residency or clinical research program in the 
same health profession as the defendant and, if 
the defendant is or claims to be a specialist, in 
an accredited health professional school or ac-
credited residency or clinical research program 
in the same specialty or claimed specialty. 
(3) If the defendant is a general practitioner, 
the expert witness shall have devoted a majority of 
the witness’s professional time in the 1-year period 
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preceding the occurrence of the action giving rise to 
the lawsuit to one or more of the following: 
(A) Active clinical practice as a general 
practitioner. 
(B) Instruction of students in an accred-
ited health professional school or accredited 
residency or clinical research program in the 
same health profession as the defendant. 
(b) LAWSUITS AGAINST ENTITIES.—If the defendant 
in a health care lawsuit is an entity that employs a person 
against whom or on whose behalf the testimony is offered, 
the provisions of subsection (a) apply as if the person were 
the party or defendant against whom or on whose behalf 
the testimony is offered. 
(c) POWER OF COURT.—Nothing in this section shall 
limit the power of the trial court in a health care lawsuit 
to disqualify an expert witness on grounds other than the 
qualifications set forth under this subsection. 
(d) LIMITATION.—An expert witness in a health care 
lawsuit shall not be permitted to testify if the fee of the 
witness is in any way contingent on the outcome of the 
lawsuit. 
(e) STATE FLEXIBILITY.—No provision of this sec-
tion shall be construed to preempt any State law (whether 
effective before, on, or after the date of the enactment of 
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this Act) that places additional qualification requirements 
upon any individual testifying as an expert witness. 
SEC. 390. COMMUNICATIONS FOLLOWING UNANTICIPATED 
OUTCOME. 
(a) PROVIDER COMMUNICATIONS.—In any health 
care liability action, any and all statements, affirmations, 
gestures, or conduct expressing apology, fault, sympathy, 
commiseration, condolence, compassion, or a general sense 
of benevolence which are made by a health care provider 
or an employee of a health care provider to the patient, 
a relative of the patient, or a representative of the patient 
and which relate to the discomfort, pain, suffering, injury, 
or death of the patient as the result of the unanticipated 
outcome of medical care shall be inadmissible for any pur-
pose as evidence of an admission of liability or as evidence 
of an admission against interest. 
(b) STATE FLEXIBILITY.—No provision of this sec-
tion shall be construed to preempt any State law (whether 
effective before, on, or after the date of the enactment of 
this Act) that makes additional communications inadmis-
sible as evidence of an admission of liability or as evidence 
of an admission against interest. 
SEC. 391. AFFIDAVIT OF MERIT. 
(a) REQUIRED FILING.—Subject to subsection (b), 
the plaintiff in a health care lawsuit alleging negligence 
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or, if the plaintiff is represented by an attorney, the plain-
tiff’s attorney shall file simultaneously with the health 
care lawsuit an affidavit of merit signed by a health pro-
fessional who meets the requirements for an expert wit-
ness under section 242 of this Act. The affidavit of merit 
shall certify that the health professional has reviewed the 
notice and all medical records supplied to him or her by 
the plaintiff’s attorney concerning the allegations con-
tained in the notice and shall contain a statement of each 
of the following: 
(1) The applicable standard of practice or care. 
(2) The health professional’s opinion that the 
applicable standard of practice or care was breached 
by the health professional or health facility receiving 
the notice. 
(3) The actions that should have been taken or 
omitted by the health professional or health facility 
in order to have complied with the applicable stand-
ard of practice or care. 
(4) The manner in which the breach of the 
standard of practice or care was the proximate cause 
of the injury alleged in the notice. 
(5) A listing of the medical records reviewed. 
(b) FILING EXTENSION.—Upon motion of a party for 
good cause shown, the court in which the complaint is filed 
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may grant the plaintiff or, if the plaintiff is represented 
by an attorney, the plaintiff’s attorney an additional 28 
days in which to file the affidavit required under sub-
section (a). 
(c) STATE FLEXIBILITY.—No provision of this sec-
tion shall be construed to preempt any State law (whether 
effective before, on, or after the date of the enactment of 
this Act) that establishes additional requirements for the 
filing of an affidavit of merit or similar pre-litigation docu-
mentation. 
SEC. 392. NOTICE OF INTENT TO COMMENCE LAWSUIT. 
(a) ADVANCE NOTICE.—A person shall not com-
mence a health care lawsuit against a health care provider 
unless the person has given the health care provider 90 
days written notice before the action is commenced. 
(b) EXCEPTIONS.—A health care lawsuit against a 
health care provider filed within 6 months of the statute 
of limitations expiring as to any claimant, or within 1 year 
of the statute of repose expiring as to any claimant, shall 
be exempt from compliance with this section. 
(c) STATE FLEXIBILITY.—No provision of this sec-
tion shall be construed to preempt any State law (whether 
effective before, on, or after the date of the enactment of 
this Act) that establishes a different time period for the 
filing of written notice. 
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SEC. 393. LIMITATION ON LIABILITY FOR VOLUNTEER 
HEALTH CARE PROFESSIONALS. 
(a) IN GENERAL.—Title II of the Public Health Serv-
ice Act (42 U.S.C. 202 et seq.) is amended by inserting 
after section 224 the following: 
‘‘SEC. 224A. LIMITATION ON LIABILITY FOR VOLUNTEER 
HEALTH CARE PROFESSIONALS. 
‘‘(a) LIMITATION ON LIABILITY.—A physician shall 
not be liable under Federal or State law in any civil action 
for any harm caused by an act or omission of such physi-
cian, or attending medical personnel supporting such phy-
sician, if such act or omission— 
‘‘(1) occurs in the course of furnishing qualified 
charity care (as such term is defined in section 
199B of the Internal Revenue Code of 1986); and 
‘‘(2) was not grossly negligent. 
‘‘(b) PREEMPTION.—This section preempts the laws 
of a State or any political subdivision of a State to the 
extent that such laws are inconsistent with this section, 
unless such laws provide greater protection from liability 
for a defendant. 
‘‘(c) DEFINITIONS.—In this section: 
‘‘(1) PHYSICIAN.—The term ‘physician’ has the 
meaning given such term by section 1861(r) of the 
Social Security Act. 
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‘‘(2) ATTENDING MEDICAL PERSONNEL.—The 
term ‘attending medical personnel’ means an indi-
vidual who is licensed to directly support a physician 
in furnishing medical services.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to any claim filed to the extent 
that it is with respect to acts or omissions occurring after 
the date of the enactment of this Act. 
SEC. 394. RULES OF CONSTRUCTION. 
(a) HEALTH CARE LAWSUITS.—Unless otherwise 
specified in this subtitle, the provisions governing health 
care lawsuits set forth in this subtitle preempt, subject to 
subsections (b) and (c), State law to the extent that State 
law prevents the application of any provisions of law estab-
lished by or under this subtitle. The provisions governing 
health care lawsuits set forth in this subtitle supersede 
chapter 171 of title 28, United States Code, to the extent 
that such chapter— 
(1) provides for a greater amount of damages 
or contingent fees, a longer period in which a health 
care lawsuit may be commenced, or a reduced appli-
cability or scope of periodic payment of future dam-
ages, than provided in this subtitle; or 
(2) prohibits the introduction of evidence re-
garding collateral source benefits, or mandates or 
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permits subrogation or a lien on collateral source 
benefits. 
(b) PROTECTION OF STATES’ RIGHTS AND OTHER 
LAWS.—Any issue that is not governed by any provision 
of law established by or under this subtitle (including 
State standards of negligence) shall be governed by other-
wise applicable State or Federal law. 
(c) STATE FLEXIBILITY.—No provision of this sub-
title shall be construed to preempt any defense available 
to a party in a health care lawsuit under any other provi-
sion of State or Federal law. 
SEC. 395. EFFECTIVE DATE. 
This subtitle shall apply to any health care lawsuit 
brought in a Federal or State court, or subject to an alter-
native dispute resolution system, that is initiated on or 
after the date of the enactment of this subtitle, except that 
any health care lawsuit arising from an injury occurring 
prior to the date of the enactment of this subtitle shall 
be governed by the applicable statute of limitations provi-
sions in effect at the time the cause of action accrued. 
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447 
TITLE IV—MEDICARE AND 
MEDICAID REFORMS 
Subtitle A—Medicaid Reforms 
SEC. 401. MEDICAID PAYMENT REFORM. 
(a) IN GENERAL.—Title XIX of the Social Security 
Act (42 U.S.C. 1396 et seq.) is amended by inserting after 
section 1903 the following section: 
‘‘SEC. 1903A. REFORMED PAYMENT TO STATES. 
‘‘(a) REFORMED PAYMENT SYSTEM.— 
‘‘(1) IN GENERAL.—For quarters beginning on 
or after the implementation date (as defined in sub-
section (k)(1)), in the case of a State that elects (in 
a time and manner specified by the Secretary) to 
apply this section, in lieu of amounts otherwise pay-
able to such State under this title (including any 
payments attributable to section 1923), except as 
otherwise provided in this section, the amount pay-
able to such State shall be equal to the sum of the 
following: 
‘‘(A) 
ADJUSTED
AGGREGATE
BENE-
FICIARY-BASED AMOUNT.—The aggregate bene-
ficiary-based amount specified in subsection (b) 
for the quarter and the State, adjusted under 
subsection (e). 
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‘‘(B) CHRONIC
CARE
QUALITY
BONUS.— 
The amount (if any) of the chronic care quality 
bonus payment specified in subsection (f) for 
the quarter for the State. 
‘‘(2) REQUIREMENT OF STATE SHARE.— 
‘‘(A) IN GENERAL.—A State shall make, 
from non-Federal funds, expenditures in an 
amount equal to its State share (as determined 
under subparagraph (B)) for a quarter for 
items, services, and other costs for which, but 
for paragraph (1), Federal funds would have 
been payable under this title. 
‘‘(B) STATE SHARE.—The State share for 
a State for a quarter in a fiscal year is equal 
to the product of— 
‘‘(i) the aggregate beneficiary-based 
amount specified in subsection (b) for the 
quarter and the State; and 
‘‘(ii) the ratio of— 
‘‘(I) the State percentage de-
scribed in subparagraph (D)(ii) for 
such State and fiscal year; to 
‘‘(II) the Federal percentage de-
scribed in subparagraph (D)(i) for 
such State and fiscal year. 
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449 
‘‘(C) NONPAYMENT FOR FAILURE TO PAY 
STATE SHARE.— 
‘‘(i) IN GENERAL.—If a State fails to 
expend the amount required under sub-
paragraph (A) for a quarter in a fiscal 
year, the amount payable to the State 
under paragraph (1) shall be reduced by 
the product of the amount by which the 
State payment is less than the State share 
and the ratio of— 
‘‘(I) the Federal percentage de-
scribed in subparagraph (D)(i) for 
such State and fiscal year; to 
‘‘(II) the State percentage de-
scribed in subparagraph (D)(ii) for 
such State and fiscal year. 
‘‘(ii) GRACE PERIOD.—A State shall 
not be considered to have failed to provide 
payment of its required State share for a 
quarter under subparagraph (A) if the ag-
gregate State payment towards the State’s 
required State share for the 4-quarter pe-
riod beginning with such quarter exceeds 
the required State share amount for such 
4-quarter period. 
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450 
‘‘(D) FEDERAL
AND
STATE
PERCENT-
AGES.—In this paragraph, with respect to a 
State and a fiscal year: 
‘‘(i) 
FEDERAL
PERCENTAGE.—The 
Federal percentage described in this clause 
is 75 percent or, if higher, the Federal 
medical assistance percentage for such 
State for such fiscal year. 
‘‘(ii) STATE PERCENTAGE.—The State 
percentage described in this clause is 100 
percent minus the Federal percentage de-
scribed in clause (i). 
‘‘(E) RULES
FOR
CREDITING
TOWARD 
STATE SHARE.— 
‘‘(i) GENERAL LIMITATION TO MATCH-
ABLE EXPENDITURES.—A payment for ex-
penditures shall not be counted toward the 
State share under subparagraph (A) unless 
Federal payments may be used for such 
expenditures consistent with paragraph 
(3)(B). 
‘‘(ii) FURTHER LIMITATIONS ON AL-
LOWABLE EXPENDITURES.—A payment for 
expenditures shall not be counted towards 
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451 
the State share under subparagraph (A) if 
the expenditure is for any of the following: 
‘‘(I) 
ABORTION.—Expenditures 
for an abortion. 
‘‘(II) 
INTERGOVERNMENTAL 
TRANSFERS.—An expenditure that is 
attributable to an intergovernmental 
transfer. 
‘‘(III) CERTIFIED
PUBLIC
EX-
PENDITURES.—An expenditure that is 
attributable to certified public expend-
itures. 
‘‘(iii) CREDITING FRAUD AND ABUSE 
RECOVERIES.—Amounts recovered by a 
State through the operation of its Medicaid 
fraud and abuse control unit described in 
section 1903(q) shall be fully counted to-
ward the State share under subparagraph 
(A). 
‘‘(F) CONSTRUCTION.—Nothing in the 
paragraph shall be construed as preventing a 
State from expending, from non-Federal funds, 
an amount under this title in excess of the 
amount of the State share. 
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452 
‘‘(G) DETERMINATION BASED UPON SUB-
MITTED CLAIMS.—In applying this paragraph 
with respect to expenditures of a State for a 
quarter, the determination of the expenditures 
for such State for such quarter shall be made 
after the end of the period (which, as of the 
date of the enactment of this section, is 2 
years) for which the Secretary accepts claims 
for payment under this title with respect to 
such quarter. 
‘‘(3) USE OF FEDERAL PAYMENTS.— 
‘‘(A) APPLICATION OF MEDICAID LIMITA-
TIONS.—A State may only use Federal pay-
ments received under subsection (a) for expend-
itures for which Federal funds would have been 
payable under this title but for this section. 
‘‘(B) LIMITATION
FOR
CERTAIN
ELIGI-
BLES.— 
‘‘(i) APPLICATION
OF
100
PERCENT 
FEDERAL POVERTY LINE LIMIT ON ELIGI-
BILITY.—Subject to clause (iii), a State 
may not use such Federal payments to 
provide medical assistance for an indi-
vidual who has an income (as determined 
under clause (ii)) that exceeds 100 percent 
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453 
of the poverty line (as defined in section 
2110(c)(5)) applicable to a family of the 
size involved. 
‘‘(ii) DETERMINATION
OF
INCOME 
USING
MODIFIED
ADJUSTED
GROSS
IN-
COME
WITHOUT
ANY
PERCENT
IN-
CREASE.—In determining income for pur-
poses 
of 
clause 
(i) 
under 
section 
1902(e)(14) (relating to modified adjusted 
gross income), the following rules shall 
apply: 
‘‘(I) APPLICATION
OF
SPEND 
DOWN.—The State shall take into ac-
count the costs incurred for medical 
care or for any other type of remedial 
care recognized under State law in the 
same manner and to the same extent 
that such State takes such costs into 
account 
for 
purposes 
of 
section 
1902(a)(17). 
‘‘(II) DISREGARD OF 5 PERCENT 
INCREASE.—Subparagraph (I) of sec-
tion 1902(e)(14) (relating to a 5 per-
cent reduction) shall not apply. 
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454 
‘‘(iii) EXCEPTION.—Clause (i) shall 
not apply to an individual who is— 
‘‘(I) a woman described in clause 
(i) of section 1903(v)(4)(A); 
‘‘(II) a child who is an individual 
described in clause (i) of section 
1905(a); 
‘‘(III) enrolled in a State plan 
under this title as of the date of the 
enactment of this section for the pe-
riod of continuous enrollment; or 
‘‘(IV) 
described 
in 
section 
1902(e)(14)(D) (relating to modified 
adjusted gross income). 
‘‘(iv) CLARIFICATION
RELATED
TO 
COMMUNITY
SPOUSE.—Nothing in this 
subparagraph shall supersede the applica-
tion of section 1924 (related to community 
spouse income and assets). 
‘‘(4) EXCEPTIONS
FOR
PASS-THROUGH
PAY-
MENTS.— 
‘‘(A) IN
GENERAL.—Paragraph (1) shall 
not apply, and amounts shall continue to be 
payable under this title (and not under sub-
section (a)), in the case of the following pay-
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455 
ments (and related administrative costs and ex-
penditures): 
‘‘(i) PAYMENTS
TO
TERRITORIES.— 
Payments to a State other than the 50 
States and the District of Columbia. 
‘‘(ii) 
MEDICARE
COST-SHARING.— 
Payments attributable to Medicare cost- 
sharing under section 1905(p). 
‘‘(iii) 
PEDIATRIC
VACCINES.—Pay-
ments attributable to section 1928. 
‘‘(iv) EMERGENCY SERVICES FOR CER-
TAIN
INDIVIDUALS.—Payments for treat-
ment of emergency medical conditions at-
tributable to the application of section 
1903(v)(2). 
‘‘(v) INDIAN
HEALTH
CARE
FACILI-
TIES.—Payments for medical assistance 
described in the third sentence of section 
1905(b). 
‘‘(vi) EMPLOYER-SPONSORED
INSUR-
ANCE (ESI).—Payments for medical assist-
ance attributable to payments to employers 
for employer-sponsored health benefits cov-
erage. 
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456 
‘‘(vii) OTHER
POPULATIONS
WITH 
LIMITED BENEFIT COVERAGE.—Other pay-
ments that are determined by the Sec-
retary to be related to a specified popu-
lation for which the medical assistance 
under this title is limited and does not in-
clude any inpatient, nursing facility, or 
long-term care services. 
‘‘(B) CERTAIN EXPENSES.—Paragraph (1) 
shall not apply, and amounts shall continue to 
be payable under this title (and not under sub-
section (a)), in the case of the following: 
‘‘(i) ADMINISTRATION
OF
MEDICARE 
PRESCRIPTION DRUG BENEFIT.—Expendi-
tures described in section 1935(b) (relating 
to administration of the Medicare prescrip-
tion drug benefit). 
‘‘(ii) PAYMENTS FOR HIT BONUSES.— 
Payments under section 1903(a)(3)(F) (re-
lating to payments to encourage the adop-
tion and use of certified EHR technology). 
‘‘(iii) PAYMENTS FOR DESIGN, DEVEL-
OPMENT, AND INSTALLATION OF MMIS AND 
ELIGIBILITY
SYSTEMS.—Payments under 
subparagraphs (A)(i) and (H)(i) of section 
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457 
1903(a)(3) for expenditures for design, de-
velopment, and installation of the Medicaid 
management 
information 
systems 
and 
mechanized verification and information 
retrieval systems (related to eligibility). 
‘‘(5) PAYMENT OF AMOUNTS.— 
‘‘(A) IN
GENERAL.—Except as the Sec-
retary may otherwise provide, amounts shall be 
payable to a State under subsection (a) in the 
same manner as amounts are payable under 
subsection (d) of section 1903 to a State under 
subsection (a) of such section. 
‘‘(B) INFORMATION AND FORMS.— 
‘‘(i) SUBMISSION.—As a condition of 
receiving payment under subsection (a), a 
State shall submit such information, in 
such form, and manner, as the Secretary 
shall specify, including information nec-
essary to make the computations under 
subsections (c)(2)(C) and (e). 
‘‘(ii) 
UNIFORM
REPORTING.—The 
Secretary shall develop such forms as may 
be needed to assure a system of uniform 
reporting 
of 
such 
information 
across 
States. 
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458 
‘‘(C) REQUIRED REPORTING OF INFORMA-
TION ON MEDICAL LOSS RATIOS FOR MANAGED 
CARE.—The information required to be reported 
under subparagraph (B)(i) shall include infor-
mation on the medical loss ratio with respect to 
coverage provided under each Medicaid man-
aged care plan with a contract with the State 
under section 1903(m) or 1932. 
‘‘(b) AGGREGATE BENEFICIARY-BASED AMOUNT.— 
‘‘(1) IN GENERAL.—The aggregate beneficiary- 
based amount specified in this subsection for a State 
for a quarter is equal to the sum of the products, 
for each of the categories of Medicaid beneficiaries 
specified in paragraph (2), of the following: 
‘‘(A) 
BENEFICIARY-BASED
QUARTERLY 
AMOUNT.—The 
beneficiary-based 
quarterly 
amount for such category computed under sub-
section (c) for such State for such quarter. 
‘‘(B) NUMBER
OF
INDIVIDUALS
IN
CAT-
EGORY.—Subject to subsection (d), the average 
number of Medicaid beneficiaries enrolled in 
such category in the State in such quarter. 
‘‘(2) CATEGORIES.—The categories specified in 
this paragraph are the following: 
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459 
‘‘(A) ELDERLY.—A category of Medicaid 
beneficiaries who are 65 years of age or older. 
‘‘(B) BLIND OR DISABLED.—A category of 
Medicaid beneficiaries not described in subpara-
graph (A) who are described in section 
1937(a)(2)(B)(ii). 
‘‘(C) CHILDREN.—A category of Medicaid 
beneficiaries not described in subparagraph (B) 
who are under 21 years of age. 
‘‘(D) OTHER ADULTS.—A category of any 
Medicaid beneficiaries who are not described in 
a previous subparagraph of this paragraph. 
‘‘(c) COMPUTATION OF PER BENEFICIARY, PER CAT-
EGORY QUARTERLY AMOUNT.— 
‘‘(1) IN GENERAL.—For a State, for each cat-
egory of beneficiary for a quarter— 
‘‘(A) FIRST REFORM YEAR.—For quarters 
in the first reform year (as defined in sub-
section (k)(2)), the beneficiary-based quarterly 
amount is equal to 1⁄4 of the base average per 
beneficiary Federal payments for such State for 
such category determined under paragraph (2), 
increased by a factor that reflects the sum of 
the following: 
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460 
‘‘(i) HISTORICAL MEDICAL CARE COM-
PONENT OF CPI THROUGH PREVIOUS RE-
FORM YEAR.—The percentage increase in 
the historical medical care component of 
the Consumer Price Index for all urban 
consumers (U.S. city average) from the 
midpoint of the base fiscal year (as defined 
in paragraph (6)) to the midpoint of the 
fiscal year preceding the first reform year. 
‘‘(ii) PROJECTED MEDICAL CARE COM-
PONENT OF CPI FOR THE FIRST REFORM 
YEAR.—The percentage increase in the 
projected medical care component of the 
Consumer Price Index for all urban con-
sumers (U.S. city average) from the mid-
point of the previous fiscal year referred to 
in clause (i) to the midpoint of the first re-
form year. 
‘‘(B) 
SECOND
AND
THIRD
REFORM 
YEARS.—The 
beneficiary-based 
quarterly 
amount for a State for a category for quarters 
in the second reform year or the third reform 
year is equal to the beneficiary-based quarterly 
amount under this paragraph for such State 
and category for the previous reform year in-
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461 
creased by the per beneficiary percentage in-
crease (as defined in subparagraph (E)) for 
such category and reform year. 
‘‘(C) FOURTH THROUGH TENTH REFORM 
YEARS.—The 
beneficiary-based 
quarterly 
amount for a State for a category for quarters 
in a reform year beginning with the fourth re-
form year and ending with the tenth reform 
year is— 
‘‘(i) in the case of a State that is a 
high per beneficiary State or a low per 
beneficiary State (as defined in paragraph 
(4)(B)(iii)) for the category, the amount 
determined under clause (i) or (ii) of para-
graph (4)(B) for such State, category, and 
reform year; or 
‘‘(ii) in the case of any other State, 
the beneficiary-based quarterly amount 
under this paragraph for such State and 
category for the previous reform year in-
creased by the per beneficiary percentage 
increase for such category and reform 
year. 
‘‘(D) ELEVENTH REFORM YEAR AND SUB-
SEQUENT
REFORM
YEARS.—The beneficiary- 
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462 
based quarterly amount for a State for a cat-
egory for quarters in a reform year beginning 
with the eleventh reform year is equal to the 
beneficiary-based quarterly amount under this 
paragraph for such State and category for the 
previous reform year increased by the per bene-
ficiary percentage increase for such category 
and reform year. 
‘‘(E) ANNUAL PERCENTAGE INCREASE BE-
GINNING
WITH
SECOND
REFORM
YEAR.—For 
purposes of this subsection, the term ‘per bene-
ficiary percentage increase’ means, for a reform 
year, the sum of— 
‘‘(i) the projected percentage change 
in nominal gross domestic product from 
the midpoint of the previous reform year to 
the midpoint of the reform year for which 
the percentage increase is being applied; 
and 
‘‘(ii) one percentage point. 
‘‘(2) BASE PER BENEFICIARY, PER CATEGORY 
AMOUNT FOR EACH STATE.— 
‘‘(A) AVERAGE PER CATEGORY.— 
‘‘(i) IN
GENERAL.—The Secretary 
shall determine, consistent with this para-
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graph and paragraph (3), a base per bene-
ficiary, per category amount for each of 
the 50 States and the District of Columbia 
equal to the average amount, per Medicaid 
beneficiary, of Federal payments under 
this title, including payments attributable 
to disproportionate share hospital pay-
ments under section 1923, for each of the 
categories of beneficiaries under subsection 
(b)(2) for the base fiscal year for each of 
the 50 States and the District of Colum-
bia. 
‘‘(ii) BEST
AVAILABLE
DATA.—The 
determination under clause (i) shall ini-
tially be estimated by the Secretary, based 
upon the best available data at the time 
the determination is made. 
‘‘(iii) UPDATES.—The determination 
under clause (i) shall be updated by the 
Secretary on an annual basis based upon 
improved data. The Secretary shall adjust 
the amounts under subsection (a)(1)(A) to 
reflect changes in the amounts so deter-
mined based on such updates. 
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‘‘(B) EXCLUSION OF PASS-THROUGH PAY-
MENTS.—In computing base per beneficiary, 
per category amounts under subparagraph 
(A)(i) the Secretary shall exclude payments de-
scribed in subsection (a)(4). 
‘‘(C) STANDARDIZATION.— 
‘‘(i) IN GENERAL.—In computing each 
such amount, the Secretary shall stand-
ardize the amount in order to remove the 
variation attributable to the following: 
‘‘(I) RISK FACTORS.—Such risk 
factors as age, health and disability 
status (including high cost medical 
conditions), gender, institutional sta-
tus, and such other factors as the 
Secretary determines to be appro-
priate, so as to ensure actuarial 
equivalence. 
‘‘(II) 
GEOGRAPHIC.—Variations 
in costs on a county-by-county basis. 
‘‘(ii) 
METHOD
OF
STANDARDIZA-
TION.— 
‘‘(I) CONSULTATION
IN
DEVEL-
OPMENT
OF
RISK
STANDARDIZA-
TION.—In developing the methodology 
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465 
for risk standardization for purposes 
of clause (i)(I), the Secretary shall 
consult with the Medicaid and CHIP 
Payment and Access Commission, the 
Medicare Payment Advisory Commis-
sion, and the National Association of 
Medicaid Directors. 
‘‘(II) METHOD FOR RISK STAND-
ARDIZATION.—In carrying out clause 
(i)(I), the Secretary may apply the 
hierarchal condition category method-
ology under section 1853(a)(1)(C). If 
the Secretary uses such methodology, 
the Secretary shall adjust the applica-
tion of such methodology to take into 
account the differences in services 
provided under this title compared to 
title XVIII, such as the coverage of 
long term care, pregnancy, and pedi-
atric services. 
‘‘(III) METHOD FOR GEOGRAPHIC 
STANDARDIZATION.—The 
Secretary 
shall apply the standardization under 
clause (i)(II) in a manner similar to 
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466 
that 
applied 
under 
section 
1853(c)(4)(A)(iii). 
‘‘(iii) APPLICATION ON A NATIONAL, 
BUDGET NEUTRAL BASIS.—The standard-
ization under clause (i) shall be designed 
and implemented on a uniform national 
basis and shall be budget neutral so as to 
not result in any aggregate change in pay-
ments under subsection (a). 
‘‘(iv) RESPONSE TO NEW RISK.—Sub-
ject to clause (iii), the Secretary may ad-
just the standardization under clause (i) to 
respond promptly to new instances of com-
municable diseases and other public health 
hazards. 
‘‘(v) REFERENCE TO APPLICATION OF 
RISK ADJUSTMENT.—For rules related to 
the application of risk adjustment to 
amounts under subsection (a)(1)(A), see 
subsection (e). 
‘‘(D) ADJUSTMENT FOR TEMPORARY FMAP 
INCREASES.—In computing each base per bene-
ficiary, per category amounts under subpara-
graph (A)(i) the Secretary shall disregard por-
tions of payments that are attributable to a 
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467 
temporary increase in the Federal matching 
rates, including those attributable to the fol-
lowing: 
‘‘(i) PPACA DISASTER
FMAP.—Sec-
tion 1905(aa). 
‘‘(ii) ARRA.—Section 5001 of the 
American Recovery and Reinvestment Act 
of 2009 (42 U.S.C. 1396d note). 
‘‘(iii) 
EXTRAORDINARY
EMPLOYER 
PENSION CONTRIBUTION.—Section 614 of 
the Children’s Health Insurance Program 
Reauthorization Act of 2009 (42 U.S.C. 
1396d note). 
‘‘(3) ALLOCATION OF NONMEDICAL ASSISTANCE 
PAYMENTS.—The Secretary shall establish rules for 
the allocation of payments under this title (other 
than those payments described in paragraph (1) or 
(5) of section 1903(a) and including such payments 
attributable to section 1923)— 
‘‘(A) among different categories of bene-
ficiaries; and 
‘‘(B) between payments included under 
subsection (a)(1) and payments described in 
subsection (a)(4). 
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‘‘(4) TRANSITION TO A CORRIDOR AROUND THE 
NATIONAL AVERAGE.— 
‘‘(A) DETERMINATION OF NATIONAL AVER-
AGE BASE PER BENEFICIARY, PER CATEGORY 
AMOUNT.—Subject to subparagraph (C), the 
Secretary shall determine a national average 
base per beneficiary, per category amount equal 
to the average of the base per beneficiary, per 
category amounts for each of the 50 States and 
the District of Columbia determined under 
paragraph (2), weighted by the average number 
of beneficiaries in each such category and State 
as determined by the Secretary consistent with 
subsection (d) for the base fiscal year. 
‘‘(B) TRANSITION ADJUSTMENT.— 
‘‘(i) 
HIGH
PER
BENEFICIARY 
STATES.—In the case of a high per bene-
ficiary State (as defined in clause (iii)(I)) 
for a category, the beneficiary-based quar-
terly amount for such State and category 
for a quarter in a reform year (beginning 
with the fourth reform year and ending 
with the tenth reform year) is equal to the 
sum of— 
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‘‘(I) the product of the State-spe-
cific factor for such reform year (as 
defined in clause (iv)) and the bene-
ficiary-based quarterly amount that 
would otherwise be determined under 
paragraph (1) for such State and cat-
egory if the State were a State de-
scribed in clause (ii) of paragraph 
(1)(C), instead of a State described in 
clause (i) of such paragraph; and 
‘‘(II) the product of 1 minus the 
State-specific factor for such reform 
year and the beneficiary-based quar-
terly amount that would otherwise be 
determined under paragraph (1) for a 
State and category if the base per 
beneficiary, per category amount de-
termined under paragraph (2) for the 
State and category were equal to 110 
percent of the national average base 
per beneficiary, per category amount 
determined under subparagraph (A) 
for such category. 
‘‘(ii) 
LOW
PER
BENEFICIARY 
STATES.—In the case of a low per bene-
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ficiary State (as defined in clause (iii)(II)) 
for a category, the beneficiary-based quar-
terly amount for such State and category 
for a quarter in a reform year (beginning 
with the fourth reform year and ending 
with the tenth reform year) is equal to the 
sum of— 
‘‘(I) the product of the State-spe-
cific factor for such reform year and 
the 
beneficiary-based 
quarterly 
amount that would otherwise be deter-
mined under paragraph (1) for such 
State and category if the State were 
a State described in clause (ii) of 
paragraph (1)(C), instead of a State 
described in clause (i) of such para-
graph; and 
‘‘(II) the product of 1 minus the 
State-specific factor for such reform 
year and the beneficiary-based quar-
terly amount that would otherwise be 
determined under paragraph (1) for a 
State and category if the base per 
beneficiary, per category amount de-
termined under paragraph (2) for the 
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State and category were equal to 90 
percent of the national average base 
per beneficiary, per category amount 
determined under subparagraph (A) 
for such category. 
‘‘(iii) HIGH
AND
LOW
PER
BENE-
FICIARY
STATES
DEFINED.—In this sub-
paragraph: 
‘‘(I) HIGH
PER
BENEFICIARY 
STATE.—The term ‘high per bene-
ficiary State’ means, with respect to a 
category, a State for which the base 
per beneficiary, per category amount 
determined under paragraph (2) for 
such category is greater than 110 per-
cent of the national average base per 
beneficiary, per category amount de-
termined under subparagraph (A) for 
such category. 
‘‘(II) LOW
PER
BENEFICIARY 
STATE.—The term ‘low per bene-
ficiary State’ means, with respect to a 
category, a State for which the base 
per beneficiary, per category amount 
determined under paragraph (2) for 
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472 
such category is less than 90 percent 
of the national average base per bene-
ficiary, per category amount deter-
mined under subparagraph (A) for 
such category. 
‘‘(iv) STATE-SPECIFIC
FACTOR.—In 
this subparagraph, the term ‘State-specific 
factor’ means— 
‘‘(I) for the fourth reform year, 
7⁄8; and 
‘‘(II) for a subsequent reform 
year, the State-specific factor under 
this clause for the previous reform 
year minus 1⁄8. 
‘‘(C) NO ADDITIONAL EXPENDITURES.— 
‘‘(i) DETERMINATION OF INCREASE IN 
FEDERAL EXPENDITURES.—For each cat-
egory for each reform year (beginning with 
the fourth reform year and ending with the 
tenth reform year), the Secretary shall de-
termine whether the application of this 
paragraph— 
‘‘(I) to the category for the re-
form year will result in an aggregate 
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473 
increase in the aggregate Federal ex-
penditures under subsection (a); and 
‘‘(II) to all the categories for the 
reform year will result in a net aggre-
gate increase in the aggregate Federal 
expenditures under subsection (a). 
‘‘(ii) ADJUSTMENT.—If the Secretary 
determines under clause (i)(II) that the 
application of this paragraph to all the cat-
egories for a reform year will result in a 
net aggregate increase in the aggregate 
Federal expenditures under subsection (a), 
the Secretary shall reduce the national av-
erage base per beneficiary, per category 
amount computed under subparagraph (A) 
for each of the categories determined 
under clause (i)(I) for which there will be 
an aggregate increase in the aggregate 
Federal expenditures under subsection (a) 
by such uniform percentage as will ensure 
that there is no net aggregate Federal ex-
penditure increase described in clause 
(i)(II) for the reform year. 
‘‘(5) REPORTS
ON
PER
BENEFICIARY
RATES; 
APPEALS.— 
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474 
‘‘(A) REPORT TO STATES.—Not later than 
8 months after the date of the enactment of 
this section, the Secretary shall submit to each 
State the Secretary’s initial determination of— 
‘‘(i) the base per beneficiary, per cat-
egory amounts under paragraph (2) for 
such State; and 
‘‘(ii) the national average base per 
beneficiary, per category amounts under 
paragraph (4)(A). 
‘‘(B) OPPORTUNITY
TO
APPEAL.—Not 
later than 3 months after the date a State re-
ceives notice of the Secretary’s initial deter-
mination of such base per beneficiary, per cat-
egory amounts for such State under subpara-
graph (A)(i), the State may file with the Sec-
retary, in a form and manner specified by the 
Secretary, an appeal of such determination. 
‘‘(C) DETERMINATION
ON
APPEAL.—Not 
later than 3 months after receiving such an ap-
peal, the Secretary shall make a final deter-
mination on such amounts for such State. If no 
such appeal is received for a State, the Sec-
retary’s initial determination under subpara-
graph (A)(i) shall become final. 
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475 
‘‘(6) BASE
FISCAL
YEAR
DEFINED.—In this 
section, the term ‘base fiscal year’ means the latest 
fiscal year, ending before the date of the enactment 
of this section, for which the Secretary determines 
that adequate data are available to make the com-
putations required under this subsection. 
‘‘(d) NOT COUNTING INDIVIDUALS TO ACCOUNT FOR 
EXCLUDED PAYMENTS.—Under rules specified by the 
Secretary, individuals shall not be counted as Medicaid 
beneficiaries for purposes of subsection (b)(1)(B) and sub-
section (c)(2)(A) to the extent that such individuals— 
‘‘(1) are receiving medical assistance for which 
payments described under subsection (a)(4)(A) are 
made; or 
‘‘(2) would not have been eligible to enroll 
under the State plan (or waiver of such plan) in the 
State in which such individual is so enrolled if the 
rules for eligibility for enrollment under such plan 
(or waiver) were the same as such rules for eligi-
bility in effect as of January 1, 2009. 
‘‘(e) RISK ADJUSTMENT.— 
‘‘(1) IN
GENERAL.—The amount under sub-
section (a)(1)(A) shall be adjusted under this sub-
section in an appropriate manner, specified by the 
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476 
Secretary and consistent with paragraph (2), to take 
into account— 
‘‘(A) the factors described in subsection 
(c)(2)(C)(i)(I) within a category of bene-
ficiaries; and 
‘‘(B) variations in costs on a county-by- 
county basis for medical assistance and admin-
istrative expenses. 
‘‘(2) METHOD OF ADJUSTMENT.— 
‘‘(A) 
IN
GENERAL.—The 
adjustments 
under paragraph (1) shall be made in a manner 
similar to the manner in which similar adjust-
ments are made under subsection (c)(2)(C) and 
consistent with the requirements of clause (iii) 
of such subsection and subparagraph (B). 
‘‘(B) BIANNUAL UPDATE OF RISK ADJUST-
MENT
METHODOLOGY.—In 
applying 
clause 
(i)(I) of subsection (c)(2)(C) for purposes of 
subparagraph (A), the Secretary shall, in con-
sultation with the entities described in clause 
(ii)(I) of such subsection, update the risk ad-
justment methodology applied as appropriate 
not less often than every 2 years. 
‘‘(f) CHRONIC CARE QUALITY BONUS PAYMENTS.— 
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477 
‘‘(1) DETERMINATION OF BONUS PAYMENTS.— 
If the Secretary determines that, based on the re-
ports under paragraph (5), with respect to cat-
egories of chronic disease for which chronic care per-
formance targets had been established under para-
graph (3) for each category of Medicaid beneficiaries 
specified under subsection (b)(2) such targets have 
been met by a State for a reform year, the Secretary 
shall make an additional payment to such State in 
the amount specified in paragraph (6) for each quar-
ter in the succeeding reform year. Such payments 
shall be made in a manner specified by the Secretary 
and may only be used consistent with subsection 
(a)(3). 
‘‘(2) IDENTIFICATION
OF
CATEGORIES
OF 
CHRONIC DISEASE.—The Secretary shall determine 
the categories of chronic disease for which bonus 
payments may be available under this subsection for 
each category of Medicaid beneficiaries. 
‘‘(3) ADOPTION
OF
QUALITY
MEASUREMENT 
SYSTEM
AND
IDENTIFICATION
OF
PERFORMANCE 
TARGETS.— 
‘‘(A) SYSTEM AND DATA.—With respect to 
the categories of chronic disease under para-
graph (2), the Secretary shall adopt a quality 
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478 
measurement system that uses data described 
in paragraph (4) and is similar to the Five-Star 
Quality Rating System used to indicate the per-
formance of Medicare Advantage plans under 
part C of title XVIII. 
‘‘(B) TARGETS.—Using such system and 
data, the Secretary shall establish for each re-
form year the chronic care performance targets 
for purposes of the payments under paragraph 
(1). Such performance targets shall be estab-
lished in consultation with States, associations 
representing individuals with chronic illnesses, 
entities providing treatment to such individuals 
for such chronic illnesses, and other stake-
holders, including the National Association of 
Medicaid Directors and the National Governors 
Association. 
‘‘(4) DATA TO BE USED.—The data to be used 
under paragraph (3) shall include— 
‘‘(A) data collected through methods such 
as— 
‘‘(i) the ‘Healthcare Effectiveness 
Data and Information Set’ (also known as 
‘HEDIS’) (or an appropriate successor 
performance measurement tool); 
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‘‘(ii) the ‘Consumer Assessment of 
Healthcare Providers and Systems’ (also 
known as ‘CAHPS’) (or an appropriate 
successor performance measurement tool); 
and 
‘‘(iii) the ‘Health Outcomes Survey’ 
(also known as ‘HOS’) (or an appropriate 
successor performance measurement tool); 
and 
‘‘(B) other data collected by the State. 
‘‘(5) REPORTS.— 
‘‘(A) IN GENERAL.—Each State shall col-
lect, analyze, and report to the Secretary, at a 
frequency and in a manner to be established by 
the Secretary, data described in paragraph (4) 
that permit the Secretary to monitor the State’s 
performance relative to the chronic care per-
formance targets established under paragraph 
(3). 
‘‘(B) REVIEW
AND
VERIFICATION.—The 
Secretary may review the data collected by the 
State under subparagraph (A) to verify the 
State’s analysis of such data with respect to the 
performance targets under paragraph (3). 
‘‘(6) AMOUNT OF BONUS PAYMENTS.— 
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480 
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (C), with respect to each cat-
egory of Medicaid beneficiaries, in the case of 
a State that the Secretary determines, based on 
the chronic care performance targets set under 
paragraph (3) for a reform year for such cat-
egory, performs— 
‘‘(i) in the top five States in such cat-
egory, subject to subparagraph (C)(ii), the 
amount of the bonus for each quarter in 
the succeeding reform year shall be 10 per-
cent of the payment amount otherwise paid 
to the State under subsection (a) for indi-
viduals enrolled under the plan within such 
category; 
‘‘(ii) in the next five States in such 
category, subject to subparagraph (C)(ii), 
the amount of the bonus for each such 
quarter shall be 5 percent of the payment 
amount otherwise paid to the State under 
subsection (a) for individuals enrolled 
under the plan within such category; 
‘‘(iii) in the next five States in such 
category, subject to clauses (i) and (iii) of 
subparagraph (C), the amount of the 
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481 
bonus for each such quarter shall be 3 per-
cent of the payment amount otherwise paid 
to the State under subsection (a) for indi-
viduals enrolled under the plan within such 
category; 
‘‘(iv) in the next five States in such 
category, subject to clauses (i) and (iii) of 
subparagraph (C), the amount of the 
bonus for each such quarter shall be 2 per-
cent of the payment amount otherwise paid 
to the State under subsection (a) for indi-
viduals enrolled under the plan within such 
category; and 
‘‘(v) in the next five States in such 
category, subject to clauses (i) and (iii) of 
subparagraph (C), the amount of the 
bonus for each such quarter shall be 1 per-
cent of the payment amount otherwise paid 
to the State under subsection (a) for indi-
viduals enrolled under the plan within such 
category. 
‘‘(B) AGGREGATE
ANNUAL
LIMIT
FOR 
EACH
CATEGORY
OF
MEDICAID
BENE-
FICIARIES.— 
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482 
‘‘(i) IN GENERAL.—In no case may 
the aggregate amount of bonuses under 
this subsection for quarters in a reform 
year for a category of Medicaid bene-
ficiaries exceed the limit specified in clause 
(ii) for the reform year. 
‘‘(ii) LIMIT.—The limit specified in 
this clause— 
‘‘(I) for the second reform year is 
equal to $250,000,000; or 
‘‘(II) for a subsequent reform 
year is equal to the limit specified in 
this clause for the previous reform 
year increased by the per beneficiary 
percentage increase determined under 
paragraph (1)(E) of subsection (c). 
‘‘(C) LIMITATION AND PRORATION OF BO-
NUSES BASED ON APPLICATION OF AGGREGATE 
LIMIT.— 
‘‘(i) NO BONUS FOR THIRD OR SUBSE-
QUENT TIERS UNLESS AGGREGATE LIMIT 
NOT REACHED ON FIRST TWO TIERS.—No 
bonus shall be payable under clause (iii), 
(iv), or (v) of subparagraph (A) for a cat-
egory of Medicaid beneficiaries for a quar-
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483 
ter in a reform year unless the aggregate 
amount of bonuses under clauses (i) and 
(ii) of such subparagraph for such category 
and reform year is less than the limit spec-
ified in subparagraph (B)(ii) for the re-
form year. 
‘‘(ii) PRORATION
FOR
FIRST
TWO 
TIERS.—If the aggregate amount of bo-
nuses under clauses (i) and (ii) of subpara-
graph (A) for a category of Medicaid bene-
ficiaries for quarters in a reform year ex-
ceeds the limit specified in subparagraph 
(B)(ii) for the reform year, the amount of 
each such bonus shall be prorated in a 
manner so the aggregate amount of such 
bonuses is equal to such limit. 
‘‘(iii) PRORATION FOR NEXT THREE 
TIERS.—If the aggregate amount of bo-
nuses under clauses (i) and (ii) of subpara-
graph (A) for a category of Medicaid bene-
ficiaries for quarters in a reform year is 
less than the limit specified in subpara-
graph (B)(ii) for the reform year, but the 
aggregate amount of bonuses under clauses 
(i) through (v) of subparagraph (A) for the 
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category and such quarters in the reform 
year exceeds the limit specified in subpara-
graph (B)(ii) for the reform year, the 
amount of each bonus in clauses (iii), (iv), 
and (v) of subparagraph (A) shall be pro-
rated in a manner so the aggregate 
amount of all the bonuses under subpara-
graph (A) is equal to such limit. 
‘‘(g) STATE OPTION FOR RECEIVING MEDICARE PAY-
MENTS FOR FULL-BENEFIT DUAL ELIGIBLE INDIVID-
UALS.— 
‘‘(1) IN
GENERAL.—Under this subsection a 
State may elect for quarters beginning on or after 
the implementation date in a reform year to receive 
payment from the Secretary under paragraph (3). 
As a condition of receiving such payment, the State 
shall agree to provide to full-benefit dual eligible in-
dividuals eligible for medical assistance under the 
State plan— 
‘‘(A) the medical assistance to which such 
eligible individuals would otherwise be entitled 
under this title; and 
‘‘(B) any items and services which such eli-
gible individuals would otherwise receive under 
title XVIII. 
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‘‘(2) PROVIDER PAYMENT REQUIREMENT.— 
‘‘(A) IN GENERAL.—A State electing the 
option under this subsection shall provide pay-
ment to health care providers for the items and 
services described under paragraph (1)(B) at a 
rate that is not less than the rate at which pay-
ments would be made to such providers for such 
items and services under title XVIII. 
‘‘(B) FLEXIBILITY
IN
PAYMENT
METH-
ODS.—Nothing in subparagraph (A) shall be 
construed as preventing a State from using al-
ternative payment methodologies (such as bun-
dled payments or the use of accountable care 
organizations (as such term is used in section 
1899)) for purposes of making payments to 
health care providers for items and services pro-
vided to dual eligible individuals in the State 
under the option under this subsection. 
‘‘(3) PAYMENTS TO STATES IN LIEU OF MEDI-
CARE
PAYMENTS.—With respect to a full-benefit 
dual eligible individual, in the case of a State that 
elects the option under paragraph (1) for quarters in 
a reform year— 
‘‘(A) the Secretary shall not make any pay-
ment under title XVIII for items and services 
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furnished to such individual for such quarters; 
and 
‘‘(B) the Secretary shall pay to the State, 
in addition to the amounts paid to such State 
under subsection (a), the amount that the Sec-
retary would, but for this subsection, otherwise 
pay under title XVIII for items and services 
furnished to such an individual in such State 
for such quarters. 
‘‘(4) FULL-BENEFIT
DUAL
ELIGIBLE
INDI-
VIDUAL
DEFINED.—In this subsection, the term 
‘full-benefit dual eligible individual’ means an indi-
vidual who meets the requirements of section 
1935(c)(6)(A)(ii). 
‘‘(h) AUDITS.—The Secretary shall conduct such au-
dits on the number and classification of Medicaid bene-
ficiaries under such subsections and expenditures under 
this section as may be necessary to ensure appropriate 
payments under this section. 
‘‘(i) TREATMENT OF WAIVERS.— 
‘‘(1) NO IMPACT ON CURRENT WAIVERS.—In 
the case of a waiver of requirements of this title pur-
suant to section 1115 or other law that is in effect 
as of the date of the enactment of this section, noth-
ing in this section shall be construed to affect such 
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waiver for the period of the waiver as approved as 
of such date. 
‘‘(2) APPLICATION OF BUDGET NEUTRALITY TO 
SUBSEQUENT WAIVERS AND RENEWALS TAKING SEC-
TION INTO ACCOUNT.—In the case of a waiver of re-
quirements of this title pursuant to section 1115 or 
other law that is approved or renewed after the date 
of the enactment of this section, to the extent that 
such approval or renewal is conditioned upon a dem-
onstration of budget neutrality, budget neutrality 
shall be determined taking into account the applica-
tion of this section. 
‘‘(j) REPORT TO CONGRESS.—Not later than Janu-
ary 1 of the second reform year, the Secretary shall submit 
to Congress a report on the implementation of this section. 
‘‘(k) DEFINITIONS.—In this section: 
‘‘(1) IMPLEMENTATION DATE.—The term ‘im-
plementation date’ means— 
‘‘(A) July 1, 2021, if this section is en-
acted on or before July 1, 2020; or 
‘‘(B) July 1, 2022, if this section is en-
acted after July 1, 2020. 
‘‘(2) REFORM YEARS.— 
‘‘(A) The term ‘reform year’ means a fiscal 
year beginning with the first reform year. 
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‘‘(B) The term ‘first reform year’ means 
the fiscal year in which the implementation date 
occurs. 
‘‘(C) The terms ‘second’, ‘third’, and suc-
cessive similar terms mean, with respect to a 
reform year, the second, third, or successive re-
form year, respectively, succeeding the first re-
form year.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) CONTINUED
APPLICATION
OF
CLAWBACK 
PROVISIONS.— 
(A) 
CONTINUED
APPLICATION.—Sub-
sections (a) and (c)(1)(C) of section 1935 of 
such Act (42 U.S.C. 1396u–5) are each amend-
ed by inserting ‘‘or 1903A(a)’’ after ‘‘1903(a)’’. 
(B) 
TECHNICAL
AMENDMENT.—Section 
1935(d)(1) of the Social Security Act (42 
U.S.C. 1396u–5(d)(1)) is amended by inserting 
‘‘except as provided in section 1903A(g)’’ after 
‘‘any other provision of this title’’. 
(2) PAYMENT RULES UNDER SECTION 1903.— 
(A) Section 1903(a) of the Social Security 
Act (42 U.S.C. 1396b(a)) is amended, in the 
matter before paragraph (1), by inserting ‘‘and 
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‘‘(4)(A) An experimental, pilot, or demonstra-
tion project undertaken under subsection (a) may be 
approved or renewed by a State if such project is de-
scribed in subparagraph (B). 
‘‘(B) An experimental, pilot, or demonstration 
project is described in this subparagraph if such 
project provides for a waiver of requirements with 
respect to a State plan (or a waiver of such plan) 
under title XIX such that— 
‘‘(i) individuals enrolled under such plan 
(or such waiver) may elect to participate in 
such project with respect to a year; and 
‘‘(ii) such individuals who elect to so par-
ticipate are furnished with primary care serv-
ices (as described in section 223(c)(1)(D)(ii)(I) 
of the Internal Revenue Code of 1986) through 
a direct primary care service arrangement (as 
defined in such section). 
‘‘(C) For purposes of a State’s approval or re-
newal of an experimental, pilot, or demonstration 
project under subparagraph (A), each reference to 
‘the Secretary’ in subsection (a) shall be deemed to 
be a reference to ‘the State’.’’; and 
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‘‘(2) provider-led risk-bearing plans (also known 
as ACOs). 
‘‘(3) Medicare Advantage plans. 
‘‘(c) MEDICARE
ADVANTAGE
PLAN
ACTUARIAL 
VALUE REQUIREMENT.—Each Medicare Advantage plan 
offered through the process described in subsection (a) 
shall have an actuarial value equal to traditional fee-for- 
service coverage under parts A and B. 
‘‘(d) MA DIRECT DEPOSIT OF CERTAIN REBATES.— 
In the case of an Medicare Advantage plan with a bid for 
a year that involves a premium differential between such 
bid and the benchmark for such year and plan, such plan 
shall provide for a direct deposit of such differential if the 
applicable enrollee in such plan does not elect any supple-
mental coverage under such plan. 
‘‘(e) ENROLLMENT IN PRESCRIPTION DRUG COV-
ERAGE.—As part of the method described in subsection 
(a), the Secretary shall establish a process to allow an in-
dividual to enroll in prescription drug coverage. In the 
case of an individual who enrolls in a Medicare Advantage 
plan, such coverage shall be provided under such plan. In 
a case of an individual who enrolls in an ACO, such cov-
erage shall be provided under such network. In the case 
of an individual who enrolls under traditional fee-for-serv-
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1860E–23(c)) applicable to such enrollee for such 
items or services.’’. 
(d) CONFORMING AMENDMENTS.— 
(1) Section 1813 of the Social Security Act (42 
U.S.C. 1395e) is amended— 
(A) in subsection (a), by inserting ‘‘Subject 
to subpart 2 of part E:’’ before paragraph (1); 
and 
(B) in subsection (b), by inserting ‘‘Sub-
ject to subpart 2 of part E:’’ before paragraph 
(1). 
(2) Section 1833 of such Act (42 U.S.C. 1395l) 
is amended— 
(A) in subsection (a), in the matter pre-
ceding paragraph (1), by inserting ‘‘and sub-
part 2 of part E’’ after ‘‘succeeding provisions 
of this section’’; 
(B) in subsection (b), in the first sentence, 
by striking ‘‘Before applying’’ and inserting 
‘‘Subject to subpart 2 of part E, before apply-
ing’’; 
(C) in subsection (c)(1), in the matter pre-
ceding subparagraph (A), by inserting ‘‘subject 
to subpart 2 of part E,’’ after ‘‘this part,’’; 
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