712
‘‘(ii) the total payments to be 
made by qualifying entities for 
standard coverage under plans 
described in subsection (b) during 
the year. 
‘‘(B) ADJUSTMENT.—The Adminis-
trator shall proportionally adjust the 
payments made under subsections 
(a)(2) and (c) for a coverage year in 
such manner so that the total of the 
payments 
made 
under 
such 
sub-
sections (and under subsection (f)(3) 
insofar as such payments reflect pay-
ments that would have been made 
under such subsections if such sub-
sections had applied to qualified re-
tiree prescription drug plans instead 
of subsections (a)(3) and (f)(3)) for the 
year is equal to 30 percent of the total 
payments described in subparagraph 
(A)(ii). 
‘‘(2) RISK ADJUSTMENT FOR DIRECT SUB-
SIDIES.—To the extent the Administrator 
determines it appropriate to avoid risk 
selection, the payments made for direct
713
subsidies under subsection (a)(1) are sub-
ject to adjustment based upon risk fac-
tors specified by the Administrator. Any 
such risk adjustment shall be designed in 
a manner as to not result in a change in 
the aggregate payments made under such 
subsection. 
‘‘(e) PAYMENT METHODS.—
‘‘(1) IN
GENERAL.—Payments under 
this section shall be based on such a 
method as the Administrator determines. 
The Administrator may establish a pay-
ment method by which interim payments 
of amounts under this section are made 
during a year based on the Administra-
tor’s best estimate of amounts that will 
be payable after obtaining all of the in-
formation. 
‘‘(2) SOURCE OF PAYMENTS.—Payments 
under this section shall be made from the 
Medicare Prescription Drug Trust Fund. 
‘‘(f) RULES RELATING TO QUALIFIED RETIREE 
PRESCRIPTION DRUG PLAN.—
‘‘(1) DEFINITION.—For purposes of this 
section, the term ‘qualified retiree pre-
714
scription drug plan’ means employment-
based retiree health coverage (as defined 
in paragraph (4)(A)) if, with respect to an 
individual who is a participant or bene-
ficiary under such coverage and is eligi-
ble to be enrolled in a prescription drug 
plan or a MA-EFFS Rx plan under this 
part, the following requirements are met: 
‘‘(A) ACTUARIAL
EQUIVALENCE
TO 
STANDARD
COVERAGE.—The Adminis-
trator determines (based on an actu-
arial analysis by the Administrator) 
that coverage provides at least the 
same actuarial value as standard cov-
erage. Such determination may be 
made on an annual basis. 
‘‘(B) AUDITS.—The sponsor (and 
the plan) shall maintain, and afford 
the Administrator access to, such 
records as the Administrator may re-
quire for purposes of audits and 
other oversight activities necessary 
to ensure the adequacy of prescrip-
tion drug coverage and the accuracy 
of payments made.
715
‘‘(C) PROVISION
OF
CERTIFICATION 
OF
PRESCRIPTION
DRUG
COVERAGE.—
The sponsor of the plan shall provide 
for issuance of certifications of the 
type described in section 1860D–
1(c)(2)(D). 
‘‘(2) LIMITATION
ON
BENEFIT
ELIGI-
BILITY.—No payment shall be provided 
under this section with respect to a par-
ticipant or beneficiary in a qualified re-
tiree prescription drug plan unless the 
individual is—
‘‘(A) is covered under the plan; 
and 
‘‘(B) is eligible to obtain qualified 
prescription 
drug 
coverage 
under 
section 1860D–1 but did not elect such 
coverage 
under 
this 
part 
(either 
through a prescription drug plan or 
through a MA-EFFS Rx plan). 
‘‘(3) EMPLOYER AND UNION SPECIAL SUB-
SIDY AMOUNTS.—
‘‘(A) IN GENERAL.—For purposes of 
subsection (a), the special subsidy 
payment amount under this para-
716
graph for a qualifying covered retiree 
(as defined in paragraph (6)) for a 
coverage year (as defined in sub-
section (h)) enrolled in a qualifying 
entity described in subsection (b)(3) 
under a qualified retiree prescription 
drug plan is, for the portion of the in-
dividual’s gross covered prescription 
drug costs for the year that exceeds 
the deductible amount specified in 
subparagraph (B), an amount equal 
to, subject to subparagraph (D), 28 
percent of the allowable costs attrib-
utable to such gross covered prescrip-
tion drug costs, but only to the extent 
such costs exceed the deductible 
under subparagraph (B) and do not 
exceed the cost limit under such sub-
paragraph in the case of any such in-
dividual for the plan year. 
‘‘(B) DEDUCTIBLE
AND
COST
LIMIT 
APPLICABLE.—Subject 
to 
subpara-
graph (C)—
717
‘‘(i) the deductible under this 
subparagraph is equal to $250 for 
plan years that end in 2006; and 
‘‘(ii) the cost limit under this 
subparagraph is equal to $5,000 
for plan years that end in 2006. 
‘‘(C) 
INDEXING.—The 
deductible 
and cost limit amounts specified in 
subparagraphs (B) for a plan year 
that ends after 2006 shall be adjusted 
in the same manner as the annual de-
ductible under section 1860D–2(b)(1) 
is annually adjusted under such sec-
tion. 
‘‘(D) ADJUSTMENT
CONTINGENCY.—
The Secretary may adjust the per-
centage specified in subparagraph (A) 
with respect to plan years that end in 
a year in a manner so that the aggre-
gate expenditures in the year under 
this section are the same as the ag-
gregate expenditures that would have 
been made under this section (taking 
into account the effect of any adjust-
ment under subsection (d)(1)(B)) if
718
paragraphs (1) and (2) of subsection 
(a) had applied to qualified prescrip-
tion drug coverage instead of this 
paragraph and subsection (a)(3).
‘‘(4) RELATED DEFINITIONS.—As used in 
this section: 
‘‘(A) EMPLOYMENT-BASED
RETIREE 
HEALTH COVERAGE.—The term ‘employ-
ment-based retiree health coverage’ 
means health insurance or other cov-
erage of health care costs for individ-
uals eligible to enroll in a prescrip-
tion drug plan or MA-EFFS Rx plan 
under this part (or for such individ-
uals and their spouses and depend-
ents) under a group health plan (in-
cluding such a plan that is estab-
lished or maintained under or pursu-
ant to one or more collective bar-
gaining agreements) based on their 
status as retired participants in such 
plan. 
‘‘(B) 
QUALIFYING
COVERED
RE-
TIREE.—The term ‘qualifying covered 
retiree’ means an individual who is
719
eligible to obtain qualified prescrip-
tion drug coverage under section 
1860D–1 but did not elect such cov-
erage under this part (either through 
a prescription drug plan or through a 
MA-EFFS Rx plan) but is covered 
under a qualified retiree prescription 
drug plan. 
‘‘(C) SPONSOR.—The term ‘sponsor’ 
means a plan sponsor, as defined in 
section 3(16)(B) of the Employee Re-
tirement Income Security Act of 1974, 
except that, in the case of a single-
employer plan (as defined in section 
3(41) of such Act), such term means 
the employer of the plan participants 
if such employer has been designated 
as the plan sponsor in all prior sum-
mary plan descriptions and annual 
reports issued with respect to the 
plan under part 1 of subtitle B of title 
I of such Act. 
‘‘(5) CONSTRUCTION.—Nothing in this 
subsection shall be construed as—
720
‘‘(A) precluding an individual who 
is covered under employment-based 
retiree health coverage from enroll-
ing in a prescription drug plan or in 
a MA-EFFS plan; 
‘‘(B) precluding such employment-
based retiree health coverage or an 
employer or other person from pay-
ing all or any portion of any premium 
required for coverage under such a 
prescription drug plan or MA-EFFS 
plan on behalf of such an individual; 
or 
‘‘(C) preventing such employment-
based retiree health coverage from 
providing coverage for retirees—
‘‘(i) who are covered under a 
qualified retiree prescription plan 
that is better than standard cov-
erage; or 
‘‘(ii) who are not covered 
under a qualified retiree prescrip-
tion plan but who are enrolled in 
a prescription drug plan or a MA-
EFFS Rx plan, that is supple-
721
mental to the benefits provided 
under 
such 
prescription 
drug 
plan or MA-EFFS Rx plan, except 
that any such supplemental cov-
erage (not including payment of 
any premium referred to in sub-
paragraph (B)) shall be treated as 
primary coverage to which sec-
tion 1862(b)(2)(A)(i) is deemed to 
apply. 
‘‘(g) COMPUTATION
OF NATIONAL AVERAGE 
MONTHLY BID AMOUNT.—
‘‘(1) IN GENERAL.—For each year (be-
ginning with 2006) the Administrator 
shall compute a national average month-
ly bid amount equal to the average of the 
benchmark bid amounts for each pre-
scription drug plan and for each MA-
EFFS Rx plan (as computed under para-
graph (2), but excluding plans described 
in section 1851(a)(2)(C))) adjusted under 
paragraph (4) to take into account rein-
surance payments. 
‘‘(2) 
BENCHMARK
BID
AMOUNT
DE-
FINED.—For purposes of this subsection,
722
the term ‘benchmark bid amount’ means, 
with respect to qualified prescription 
drug coverage offered under—
‘‘(A) a prescription drug plan 
that—
‘‘(i) provides standard cov-
erage (or alternative prescription 
drug coverage the actuarial value 
of which is equivalent to that of 
standard coverage), the PDP bid; 
or 
‘‘(ii) provides alternative pre-
scription drug coverage the actu-
arial value of which is greater 
than that of standard coverage, 
the PDP bid multiplied by the 
ratio of (I) the actuarial value of 
standard coverage, to (II) the ac-
tuarial value of the alternative 
coverage; or 
‘‘(B) a MA-EFFS Rx plan, the por-
tion of the bid amount that is attrib-
utable to statutory drug benefits (de-
scribed 
in 
section 
1853(a)(1)(A)(ii)(II)).
723
For purposes of subparagraph (A), the 
term ‘PDP bid’ means, with respect to a 
prescription drug plan, the bid amount 
for enrollment under the plan under this 
part (determined without regard to any 
low-income subsidy under section 1860D–
7 or any late enrollment penalty under 
section 1860D–1(c)(2)(B)). 
‘‘(3) WEIGHTED AVERAGE.—
‘‘(A) IN
GENERAL.—The monthly 
national average monthly bid amount 
computed under paragraph (1) shall 
be a weighted average, with the 
weight for each plan being equal to 
the average number of beneficiaries 
enrolled under such plan in the pre-
vious year. 
‘‘(B) SPECIAL RULE FOR 2006.—For 
purposes of applying this subsection 
for 2006, the Administrator shall es-
tablish procedures for determining 
the weighted average under subpara-
graph (A) for 2005. 
‘‘(4) ADJUSTMENT TO ADD BACK IN VALUE 
OF
REINSURANCE
SUBSIDIES.—The adjust-
724
ment under this paragraph, to take into 
account 
reinsurance 
payments 
under 
subsection (c) making up 30 percent of 
total payments, is such an adjustment as 
will make the national average monthly 
bid amount represent represent 100 per-
cent, instead of representing 70 percent, 
of average payments under this part.
‘‘(h) COVERAGE YEAR DEFINED.—For pur-
poses of this section, the term ‘coverage year’ 
means a calendar year in which covered out-
patient drugs are dispensed if a claim for pay-
ment is made under the plan for such drugs, 
regardless of when the claim is paid. 
‘‘SEC. 1860D–9. MEDICARE PRESCRIPTION DRUG TRUST 
FUND. 
‘‘(a) IN GENERAL.—There is created on the 
books of the Treasury of the United States a 
trust fund to be known as the ‘Medicare Pre-
scription Drug Trust Fund’ (in this section re-
ferred to as the ‘Trust Fund’). The Trust Fund 
shall consist of such gifts and bequests as may 
be made as provided in section 201(i)(1), and 
such amounts as may be deposited in, or ap-
propriated to, such fund as provided in this
725
part. Except as otherwise provided in this sec-
tion, the provisions of subsections (b) through 
(i) of section 1841 shall apply to the Trust 
Fund in the same manner as they apply to the 
Federal Supplementary Medical Insurance 
Trust Fund under such section. 
‘‘(b) PAYMENTS FROM TRUST FUND.—
‘‘(1) 
IN
GENERAL.—The 
Managing 
Trustee shall pay from time to time from 
the Trust Fund such amounts as the Ad-
ministrator certifies are necessary to 
make—
‘‘(A) 
payments 
under 
section 
1860D–7 (relating to low-income sub-
sidy payments); 
‘‘(B) 
payments 
under 
section 
1860D–8 (relating to subsidy pay-
ments); and 
‘‘(C) payments with respect to ad-
ministrative expenses under this part 
in accordance with section 201(g). 
‘‘(2) TRANSFERS TO MEDICAID ACCOUNT 
FOR
INCREASED
ADMINISTRATIVE
COSTS.—
The Managing Trustee shall transfer from 
time to time from the Trust Fund to the
726
Grants to States for Medicaid account 
amounts the Administrator certifies are 
attributable to increases in payment re-
sulting from the application of a higher 
Federal matching percentage under sec-
tion 1935(b). 
‘‘(c) DEPOSITS INTO TRUST FUND.—
‘‘(1) LOW-INCOME TRANSFER.—There is 
hereby transferred to the Trust Fund, 
from amounts appropriated for Grants to 
States for Medicaid, amounts equivalent 
to the aggregate amount of the reduc-
tions 
in 
payments 
under 
section 
1903(a)(1) attributable to the application 
of section 1935(c). 
‘‘(2) APPROPRIATIONS
TO
COVER
GOV-
ERNMENT
CONTRIBUTIONS.—There are au-
thorized to be appropriated from time to 
time, out of any moneys in the Treasury 
not otherwise appropriated, to the Trust 
Fund, an 
amount 
equivalent 
to 
the 
amount of payments made from the Trust 
Fund under subsection (b), reduced by 
the amount transferred to the Trust Fund 
under paragraph (1).
727
‘‘(d) RELATION
TO
SOLVENCY
REQUIRE-
MENTS.—Any provision of law that relates to 
the solvency of the Trust Fund under this 
part shall take into account the Trust Fund 
and amounts receivable by, or payable from, 
the Trust Fund. 
‘‘SEC. 1860D–10. DEFINITIONS; APPLICATION TO MEDICARE 
ADVANTAGE AND EFFS PROGRAMS; TREAT-
MENT OF REFERENCES TO PROVISIONS IN 
PART C. 
‘‘(a) DEFINITIONS.—For purposes of this 
part: 
‘‘(1) COVERED OUTPATIENT DRUGS.—The 
term ‘covered outpatient drugs’ is defined 
in section 1860D–2(f). 
‘‘(2) 
INITIAL
COVERAGE
LIMIT.—The 
term ‘initial coverage limit’ means such 
limit as established under section 1860D–
2(b)(3), or, in the case of coverage that is 
not standard coverage, the comparable 
limit (if any) established under the cov-
erage. 
‘‘(3) 
MEDICARE
PRESCRIPTION
DRUG 
TRUST
FUND.—The term ‘Medicare Pre-
scription Drug Trust Fund’ means the
728
Trust Fund created under section 1860D–
9(a). 
‘‘(4) PDP SPONSOR.—The term ‘PDP 
sponsor’ means an entity that is certified 
under this part as meeting the require-
ments and standards of this part for such 
a sponsor. 
‘‘(5) PRESCRIPTION
DRUG
PLAN.—The 
term 
‘prescription 
drug 
plan’ 
means 
health benefits coverage that—
‘‘(A) is offered under a policy, con-
tract, or plan by a PDP sponsor pur-
suant to, and in accordance with, a 
contract between the Administrator 
and the sponsor under section 1860D–
4(b); 
‘‘(B) provides qualified prescrip-
tion drug coverage; and 
‘‘(C) meets the applicable require-
ments of the section 1860D–3 for a 
prescription drug plan. 
‘‘(6) 
QUALIFIED
PRESCRIPTION
DRUG 
COVERAGE.—The term ‘qualified prescrip-
tion drug coverage’ is defined in section 
1860D–2(a).
729
‘‘(7) STANDARD
COVERAGE.—The term 
‘standard coverage’ is defined in section 
1860D–2(b). 
‘‘(b) OFFER
OF
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE UNDER MEDICARE ADVANTAGE 
AND EFFS PROGRAMS.—
‘‘(1) AS PART OF MEDICARE ADVANTAGE 
PLAN.—Medicare Advantage organizations 
are required to offer Medicare Advantage 
plans that include qualified prescription 
drug coverage under part C pursuant to 
section 1851(j). 
‘‘(2) AS PART OF EFFS PLAN.—EFFS or-
ganizations are required to offer EFFS 
plans that include qualified prescription 
drug coverage under part E pursuant to 
section 1860E–2(d). 
‘‘(c) APPLICATION
OF PART C PROVISIONS 
UNDER THIS PART.—For purposes of applying 
provisions of part C under this part with re-
spect to a prescription drug plan and a PDP 
sponsor, unless otherwise provided in this 
part such provisions shall be applied as if—
730
‘‘(1) any reference to a Medicare Ad-
vantage or other plan included a ref-
erence to a prescription drug plan; 
‘‘(2) any reference to a provider-spon-
sored organization included a reference 
to a PDP sponsor; 
‘‘(3) any reference to a contract under 
section 1857 included a reference to a 
contract under section 1860D–4(b); and 
‘‘(4) any reference to part C included 
a reference to this part. 
‘‘(d) REPORT ON PHARMACY SERVICES PRO-
VIDED TO NURSING FACILITY PATIENTS.—
‘‘(1) REVIEW.—Within 6 months after 
the date of the enactment of this section, 
the Secretary shall review the current 
standards of practice for pharmacy serv-
ices provided to patients in nursing fa-
cilities. 
‘‘(2) EVALUATIONS
AND
RECOMMENDA-
TIONS.—Specifically in the review under 
paragraph (1), the Secretary shall—
‘‘(A) assess the current standards 
of practice, clinical services, and 
other service requirements generally
731
utilized for pharmacy services in the 
long-term care setting; 
‘‘(B) evaluate the impact of those 
standards with respect to patient 
safety, reduction of medication errors 
and quality of care; and 
‘‘(C) 
recommend 
(in 
the 
Sec-
retary’s report under paragraph (3)) 
necessary actions and appropriate re-
imbursement to ensure the provision 
of prescription drugs to medicare 
beneficiaries residing in nursing fa-
cilities in a manner consistent with 
existing patient safety and quality of 
care 
standards 
under 
applicable 
State and Federal laws. 
‘‘(3) 
REPORT.—The 
Secretary 
shall 
submit a report to the Congress on the 
Secretary’s findings and recommenda-
tions under this subsection, including a 
detailed description of the Secretary’s 
plans to implement this part in a manner 
consistent with applicable State and Fed-
eral laws designed to protect the safety
732
and quality of care of nursing facility pa-
tients.’’. 
(b) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PRE-
VIOUS PART D.—Any reference in law (in 
effect before the date of the enactment of 
this Act) to part D of title XVIII of the So-
cial Security Act is deemed a reference to 
part F of such title (as in effect after such 
date). 
(2) CONFORMING
AMENDMENT
PERMIT-
TING
WAIVER
OF
COST-SHARING.—Section 
1128B(b)(3) (42 U.S.C. 1320a–7b(b)(3)) is 
amended—
(A) by striking ‘‘and’’ at the end of 
subparagraph (E); 
(B) by striking the period at the 
end of subparagraph (F) and insert-
ing ‘‘; and’’; and 
(C) by adding at the end the fol-
lowing new subparagraph: 
‘‘(G) the waiver or reduction of any 
cost-sharing imposed under part D of 
title XVIII.’’.
733
(3) SUBMISSION
OF
LEGISLATIVE
PRO-
POSAL.—Not later than 6 months after the 
date of the enactment of this Act, the Sec-
retary of Health and Human Services 
shall submit to the appropriate commit-
tees of Congress a legislative proposal 
providing for such technical and con-
forming amendments in the law as are re-
quired by the provisions of this subtitle. 
(c) STUDY ON TRANSITIONING PART B PRE-
SCRIPTION DRUG COVERAGE.—Not later than 
January 1, 2005, the Medicare Benefits Ad-
ministrator shall submit a report to Congress 
that 
makes 
recommendations 
regarding 
methods for providing benefits under part D 
of title XVIII of the Social Security Act for out-
patient prescription drugs for which benefits 
are provided under part B of such title. 
SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG 
COVERAGE UNDER MEDICARE ADVANTAGE 
AND ENHANCED FEE-FOR-SERVICE (EFFS) 
PROGRAM. 
(a) MEDICARE ADVANTAGE.—Section 1851 
(42 U.S.C. 1395w–21) is amended by adding at 
the end the following new subsection:
740
an EFFS plan under this part that offers 
such coverage. 
‘‘(3) COMPLIANCE
WITH
CERTAIN
ADDI-
TIONAL BENEFICIARY PROTECTIONS FOR PRE-
SCRIPTION DRUG COVERAGE.—With respect 
to the offering of qualified prescription 
drug coverage by an EFFS organization 
under this part, the organization and 
plan shall meet the requirements of sub-
sections (a) through (d) of section 1860D–
3 in the same manner as they apply to a 
PDP sponsor and a prescription drug 
plan under part D and shall submit to the 
Administrator the information described 
in section 1860D–6(a)(2). The Adminis-
trator shall waive such requirements to 
the extent the Administrator determines 
that such requirements duplicate re-
quirements otherwise applicable to the 
organization or plan under this part. 
‘‘(4) AVAILABILITY
OF
PREMIUM
AND 
COST-SHARING
SUBSIDIES.—In the case of 
low-income individuals who are enrolled 
in an EFFS plan that provides qualified 
prescription drug coverage, premium and