IB 
Union Calendar No. 115
108TH CONGRESS 
1ST SESSION H. R. 2473
[Report No. 108–178, Parts I and II] 
To amend title XVIII of the Social Security Act to provide for a voluntary 
program for prescription drug coverage under the Medicare Program, 
to modernize the Medicare Program, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 16, 2003
Mr. THOMAS (for himself and Mr. TAUZIN) introduced the following bill; 
which was referred jointly to the Committees on Energy and Commerce, 
and Ways and Means, in each case for consideration of such provisions 
as fall within the jurisdiction of the committee concerned 
JUNE 25, 2003
Reported from the Committee on Energy and Commerce with an amendment 
[Strike out all after the enacting clause and insert the part printed in italic] 
JULY 15, 2003
Reported from the Committee on Ways and Means with an amendment, com-
mitted to the Committee of the Whole House on the State of the Union, 
and ordered to be printed 
[Strike out all after the enacting clause and insert the part printed in boldface roman] 
[For text of introduced bill, see copy of bill as introduced on June 16, 2003] 
A BILL 
To amend title XVIII of the Social Security Act to provide 
for a voluntary program for prescription drug coverage
Sec. 1. Short title; amendments to Social Security Act; references to BIPA and 
Secretary; table of contents. 
TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT 
Sec. 101. Establishment of a medicare prescription drug benefit. 
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM 
‘‘Sec. 1860D–1. Benefits; eligibility; enrollment; and coverage period. 
‘‘Sec. 1860D–2. Requirements for qualified prescription drug coverage. 
‘‘Sec. 1860D–3. Beneficiary protections for qualified prescription drug cov-
erage. 
‘‘Sec. 1860D–4. Requirements for and contracts with prescription drug plan 
(PDP) sponsors. 
‘‘Sec. 1860D–5. Process for beneficiaries to select qualified prescription drug 
coverage. 
‘‘Sec. 1860D–6. Submission of bids and premiums. 
‘‘Sec. 1860D–7. Premium and cost-sharing subsidies for low-income individ-
uals. 
‘‘Sec. 1860D–8. Subsidies for all medicare beneficiaries for qualified pre-
scription drug coverage. 
‘‘Sec. 1860D–9. Medicare Prescription Drug Trust Fund. 
‘‘Sec. 1860D–10. Definitions; application to medicare advantage and EFFS 
programs; treatment of references to provisions in part C. 
Sec. 102. Offering of qualified prescription drug coverage under Medicare Advan-
tage and enhanced fee-for-service (EFFS) program. 
Sec. 103. Medicaid amendments. 
‘‘Sec. 1935. Special provisions relating to medicare prescription drug ben-
efit. 
Sec. 104. Medigap transition. 
Sec. 105. Medicare prescription drug discount card and assistance program. 
Sec. 106. Disclosure of return information for purposes of carrying out medicare 
catastrophic prescription drug program. 
Sec. 107. State pharmaceutical assistance transition commission. 
TITLE II—MEDICARE ENHANCED FEE-FOR-SERVICE AND MEDICARE 
ADVANTAGE PROGRAMS; MEDICARE COMPETITION 
Sec. 200. Medicare modernization and revitalization. 
Subtitle A—Medicare Enhanced Fee-for-Service Program 
Sec. 201. Establishment of enhanced fee-for-service (EFFS) program under medi-
care. 
‘‘PART E—ENHANCED FEE-FOR-SERVICE PROGRAM 
‘‘Sec. 1860E–1. Offering of enhanced fee-for-service plans throughout the 
United States. 
‘‘Sec. 1860E–2. Offering of enhanced fee-for-service (EFFS) plans. 
‘‘Sec. 1860E–3. Submission of bids; beneficiary savings; payment of plans. 
‘‘Sec. 1860E–4. Premiums; organizational and financial requirements; estab-
lishment of standards; contracts with EFFS organizations.
Subtitle B—Medicare Advantage Program 
CHAPTER 1—IMPLEMENTATION OF PROGRAM 
Sec. 211. Implementation of medicare advantage program. 
Sec. 212. Medicare advantage improvements. 
CHAPTER 2—IMPLEMENTATION OF COMPETITION PROGRAM 
Sec. 221. Competition program beginning in 2006. 
CHAPTER 3—ADDITIONAL REFORMS 
Sec. 231. Making permanent change in medicare advantage reporting deadlines 
and annual, coordinated election period. 
Sec. 232. Avoiding duplicative State regulation. 
Sec. 233. Specialized medicare advantage plans for special needs beneficiaries. 
Sec. 234. Medicare MSAs. 
Sec. 235. Extension of reasonable cost contracts. 
Subtitle C—Application of FEHBP-Style Competitive Reforms 
Sec. 241. Application of FEHBP-style competitive reform beginning in 2010. 
TITLE III—COMBATTING WASTE, FRAUD, AND ABUSE 
Sec. 301. Medicare secondary payor (MSP) provisions. 
Sec. 302. Competitive acquisition of certain items and services. 
Sec. 303. Competitive acquisition of covered outpatient drugs and biologicals. 
Sec. 304. Demonstration project for use of recovery audit contractors. 
TITLE IV—RURAL HEALTH CARE IMPROVEMENTS 
Sec. 401. Enhanced disproportionate share hospital (DSH) treatment for rural 
hospitals and urban hospitals with fewer than 100 beds. 
Sec. 402. Immediate establishment of uniform standardized amount in rural and 
small urban areas. 
Sec. 403. Establishment of essential rural hospital classification. 
Sec. 404. More frequent update in weights used in hospital market basket. 
Sec. 405. Improvements to critical access hospital program. 
Sec. 406. Redistribution of unused resident positions. 
Sec. 407. Two-year extension of hold harmless provisions for small rural hospitals 
and sole community hospitals under prospective payment system 
for hospital outpatient department services. 
Sec. 408. Exclusion of certain rural health clinic and federally qualified health 
center services from the prospective payment system for skilled 
nursing facilities. 
Sec. 409. Recognition of attending nurse practitioners as attending physicians to 
serve hospice patients. 
Sec. 410. Improvement in payments to retain emergency capacity for ambulance 
services in rural areas. 
Sec. 411. Providing safe harbor for certain collaborative efforts that benefit medi-
cally underserved populations. 
Sec. 412. GAO study of geographic differences in payments for physicians’ serv-
ices. 
Sec. 413. Treatment of missing cost reporting periods for sole community hos-
pitals. 
Sec. 414. Extension of telemedicine demonstration project.
Sec. 415. Two-year increase for home health services furnished in a rural area. 
TITLE V—PROVISIONS RELATING TO PART A 
Subtitle A—Inpatient Hospital Services 
Sec. 501. Revision of acute care hospital payment updates. 
Sec. 502. Recognition of new medical technologies under inpatient hospital PPS. 
Sec. 503. Increase in Federal rate for hospitals in Puerto Rico. 
Sec. 504. Wage index adjustment reclassification reform . 
Sec. 505. MedPAC report on specialty hospitals. 
Subtitle B—Other Provisions 
Sec. 511. Payment for covered skilled nursing facility services. 
Sec. 512. Coverage of hospice consultation services. 
TITLE VI—PROVISIONS RELATING TO PART B 
Subtitle A—Physicians’ Services 
Sec. 601. Revision of updates for physicians’ services. 
Sec. 602. Studies on access to physicians’ services. 
Sec. 603. MedPAC report on payment for physicians’ services. 
Sec. 604. Inclusion of podiatrists and dentists under private contracting author-
ity. 
Sec. 605. Establishment of floor on work geographic adjustment. 
SUBTITLE B—PREVENTIVE SERVICES 
Sec. 611. Coverage of an initial preventive physical examination. 
Sec. 612. Coverage of cholesterol and blood lipid screening. 
Sec. 613. Waiver of deductible for colorectal cancer screening tests. 
Sec. 614. Improved payment for certain mammography services. 
Sec. 615. Medicare coverage of diabetes laboratory diagnostic tests. 
Subtitle C—Other Services 
Sec. 621. Hospital outpatient department (HOPD) payment reform. 
Sec. 622. Payment for ambulance services. 
Sec. 623. Renal dialysis services. 
Sec. 624. One-year moratorium on therapy caps; provisions relating to reports. 
Sec. 625. Adjustment to payments for services furnished in ambulatory surgical 
centers. 
Sec. 626. Payment for certain shoes and inserts under the fee schedule for 
orthotics and prosthetics. 
Sec. 627. Waiver of part B late enrollment penalty for certain military retirees; 
special enrollment period. 
Sec. 628. Part B deductible. 
Sec. 629. Demonstration project for coverage of self-injected biologics for rheu-
matoid arthritis. 
TITLE VII—PROVISIONS RELATING TO PARTS A AND B 
Subtitle A—Home Health Services 
Sec. 701. Update in home health services. 
Sec. 702. MedPAC study on medicare margins of home health agencies.
Sec. 703. Demonstration project to clarify the definition of homebound. 
Subtitle B—Direct Graduate Medical Education 
Sec. 711. Extension of update limitation on high cost programs. 
Subtitle C—Chronic Care Improvement 
Sec. 721. Voluntary chronic care improvement under traditional fee-for-service. 
Sec. 722. Chronic care improvement under medicare advantage and enhanced fee-
for-service programs. 
Sec. 723. Institute of Medicine report. 
Sec. 724. MedPAC report. 
Subtitle D—Other Provisions 
Sec. 731. Modifications to medicare payment advisory commission (MedPAC). 
Sec. 732. Demonstration project for medical adult day care services. 
Sec. 733. Improvements in national and local coverage determination process to 
respond to changes in technology. 
Sec. 734. Treatment of certain physician pathology services. 
Sec. 735. Medicare pancreatic islet cell transplant demonstration project. 
Sec. 736. Demonstration project for consumer-directed chronic outpatient services. 
TITLE VIII—MEDICARE BENEFITS ADMINISTRATION 
Sec. 801. Establishment of Medicare Benefits Administration. 
TITLE IX—REGULATORY REDUCTION AND CONTRACTING REFORM 
Subtitle A—Regulatory Reform 
Sec. 901. Construction; definition of supplier. 
‘‘Supplier 
Sec. 902. Issuance of regulations. 
Sec. 903. Compliance with changes in regulations and policies. 
Sec. 904. Reports and studies relating to regulatory reform. 
Subtitle B—Contracting Reform 
Sec. 911. Increased flexibility in medicare administration. 
Sec. 912. Requirements for information security for medicare administrative con-
tractors. 
Subtitle C—Education and Outreach 
Sec. 921. Provider education and technical assistance. 
‘‘Sec. 1889. Provider education and technical assistance. 
Sec. 922. Small provider technical assistance demonstration program. 
Sec. 923. Medicare Provider Ombudsman; Medicare Beneficiary Ombudsman. 
Sec. 924. Beneficiary outreach demonstration program. 
Sec. 925. Inclusion of additional information in notices to beneficiaries about 
skilled nursing facility benefits. 
Sec. 926. Information on medicare-certified skilled nursing facilities in hospital 
discharge plans.
Subtitle D—Appeals and Recovery 
Sec. 931. Transfer of responsibility for medicare appeals. 
Sec. 932. Process for expedited access to review. 
Sec. 933. Revisions to medicare appeals process. 
Sec. 934. Prepayment review. 
Sec. 935. Recovery of overpayments. 
Sec. 936. Provider enrollment process; right of appeal. 
Sec. 937. Process for correction of minor errors and omissions without pursuing 
appeals process. 
Sec. 938. Prior determination process for certain items and services; advance ben-
eficiary notices. 
Subtitle V—Miscellaneous Provisions 
Sec. 941. Policy development regarding evaluation and management (E & M) 
documentation guidelines. 
Sec. 942. Improvement in oversight of technology and coverage. 
Sec. 943. Treatment of hospitals for certain services under medicare secondary 
payor (MSP) provisions. 
Sec. 944. EMTALA improvements. 
Sec. 945. Emergency Medical Treatment and Active Labor Act (EMTALA) tech-
nical advisory group. 
Sec. 946. Authorizing use of arrangements to provide core hospice services in cer-
tain circumstances. 
Sec. 947. Application of osha bloodborne pathogens standard to certain hospitals. 
Sec. 948. BIPA-related technical amendments and corrections. 
Sec. 949. Conforming authority to waive a program exclusion. 
Sec. 950. Treatment of certain dental claims. 
Sec. 951. Furnishing hospitals with information to compute dsh formula. 
Sec. 952. Revisions to reassignment provisions. 
Sec. 953. Other provisions. 
TITLE X—MEDICAID 
Sec. 1001. Medicaid disproportionate share hospital (DSH) payments. 
Sec. 1002. Clarification of inclusion of inpatient drug prices charged to certain 
public hospitals in the best price exemptions for the medicaid 
drug rebate program.
TITLE I—MEDICARE 
PRESCRIPTION DRUG BENEFIT 
SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION 
DRUG BENEFIT. 
(a) IN GENERAL.—Title XVIII is amended—
(1) by redesignating part D as part F; and 
(2) by inserting after part C the following new 
part:
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT 
PROGRAM 
‘‘SEC. 1860D–1. BENEFITS; ELIGIBILITY; ENROLLMENT; AND 
COVERAGE PERIOD. 
‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG 
COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject to 
the succeeding provisions of this part, each individual who 
is entitled to benefits under part A or is enrolled under part 
B is entitled to obtain qualified prescription drug coverage 
(described in section 1860D–2(a)) as follows:
‘‘(1) MEDICARE-RELATED PLANS.—
‘‘(A) MEDICARE ADVANTAGE.—If the indi-
vidual is eligible to enroll in a Medicare Advan-
tage plan that provides qualified prescription 
drug coverage under section 1851(j), the indi-
vidual may enroll in such plan and obtain cov-
erage through such plan. 
‘‘(B) EFFS PLANS.—If the individual is el-
igible to enroll in an EFFS plan that provides 
qualified prescription drug coverage under part 
E under section 1860E–2(d), the individual may 
enroll in such plan and obtain coverage through 
such plan. 
‘‘(C) 
MA-EFFS 
PLAN; 
MA-EFFS 
RX 
PLAN.—For purposes of this part, the term ‘MA-
EFFS plan’ means a Medicare Advantage plan 
under part C and an EFFS plan under part E 
and the term ‘MA-EFFS Rx plan’ means a MA-
EFFS plan insofar as such plan provides quali-
fied prescription drug coverage. 
‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi-
vidual is not enrolled in a MA-EFFS plan , the indi-
vidual may enroll under this part in a prescription 
drug plan (as defined in section 1860D–10(a)(5)). 
Such individuals shall have a choice of such plans under 
section 1860D–5(d). 
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN
GENERAL.—An individual eligible to 
make an election under subsection (a) may elect to 
enroll in a prescription drug plan under this part, or 
elect the option of qualified prescription drug cov-
erage under a MA-EFFS Rx plan under part C or 
part E, and to change such election only in such 
manner and form as may be prescribed by regulations 
of the Administrator of the Medicare Benefits Admin-
istration (appointed under section 1809(b)) (in this 
part referred to as the ‘Medicare Benefits Adminis-
trator’) and only during an election period prescribed 
in or under this subsection. 
‘‘(2) ELECTION PERIODS.—
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, the election periods under this 
subsection shall be the same as the coverage elec-
tion periods under the Medicare Advantage and 
EFFS programs under section 1851(e), includ-
ing—
‘‘(i) annual coordinated election peri-
ods; and 
‘‘(ii) special election periods. 
In applying the last sentence of section 
1851(e)(4) (relating to discontinuance of an elec-
tion during the first year of eligibility) under 
this subparagraph, in the case of an election de-
scribed in such section in which the individual 
had elected or is provided qualified prescription 
drug coverage at the time of such first enroll-
ment, the individual shall be permitted to enroll 
in a prescription drug plan under this part at 
the time of the election of coverage under the 
original fee-for-service plan. 
‘‘(B) INITIAL ELECTION PERIODS.—
‘‘(i) INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who is 
entitled to benefits under part A or enrolled 
under part B as of October 1, 2005, there
shall be an initial election period of 6 
months beginning on that date. 
‘‘(ii) INDIVIDUAL
COVERED
IN
FU-
TURE.—In the case of an individual who is 
first entitled to benefits under part A or en-
rolled under part B after such date, there 
shall be an initial election period which is 
the same as the initial enrollment period 
under section 1837(d). 
‘‘(C) ADDITIONAL SPECIAL ELECTION PERI-
ODS.—The Administrator shall establish special 
election periods—
‘‘(i) in cases of individuals who have 
and involuntarily lose prescription drug 
coverage described in subsection (c)(2)(C); 
‘‘(ii) in cases described in section 
1837(h) (relating to errors in enrollment), 
in the same manner as such section applies 
to part B; 
‘‘(iii) in the case of an individual who 
meets such exceptional conditions (including 
conditions 
provided 
under 
section 
1851(e)(4)(D)) as the Administrator may 
provide; and
‘‘(iv) in cases of individuals (as deter-
mined by the Administrator) who become el-
igible for prescription drug assistance under 
title XIX under section 1935(d). 
‘‘(3) INFORMATION ON PLANS.—Information de-
scribed in section 1860D–3(b)(1) on prescription drug 
plans shall be made available during election periods. 
‘‘(c) GUARANTEED ISSUE; COMMUNITY RATING; AND 
NONDISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible individual 
who is eligible to elect qualified prescription 
drug coverage under a prescription drug plan or 
MA-EFFS Rx plan at a time during which elec-
tions are accepted under this part with respect 
to the plan shall not be denied enrollment based 
on any health status-related factor (described in 
section 2702(a)(1) of the Public Health Service 
Act) or any other factor. 
‘‘(B) MEDICARE
ADVANTAGE
LIMITATIONS 
PERMITTED.—The provisions of paragraphs (2) 
and (3) (other than subparagraph (C)(i), relat-
ing to default enrollment) of section 1851(g) (re-
lating to priority and limitation on termination
of election) shall apply to PDP sponsors under 
this subsection. 
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who enrolls under a prescription drug 
plan or in a MA-EFFS Rx plan during the in-
dividual’s initial enrollment period under this 
part or maintains (as determined under sub-
paragraph (C)) continuous prescription drug 
coverage since the date the individual first quali-
fies to elect prescription drug coverage under this 
part, a PDP sponsor or entity offering a pre-
scription drug plan or MA-EFFS Rx plan and 
in which the individual is enrolled may not 
deny, limit, or condition the coverage or provi-
sion of covered prescription drug benefits or vary 
or increase the premium under the plan based on 
any health status-related factor described in sec-
tion 2702(a)(1) of the Public Health Service Act 
or any other factor. 
‘‘(B) LATE ENROLLMENT PENALTY.—In the 
case of an individual who does not maintain 
such continuous prescription drug coverage (as 
described in subparagraph (C)), a PDP sponsor 
or an entity offering a MA-EFFS Rx plan may
(notwithstanding any provision in this title) ad-
just the premium otherwise applicable or impose 
a pre-existing condition exclusion with respect to 
qualified prescription drug coverage in a man-
ner that reflects additional actuarial risk in-
volved. Such a risk shall be established through 
an appropriate actuarial opinion of the type de-
scribed in subparagraphs (A) through (C) of sec-
tion 2103(c)(4). 
‘‘(C) CONTINUOUS
PRESCRIPTION
DRUG 
COVERAGE.—An individual is considered for 
purposes of this part to be maintaining contin-
uous prescription drug coverage on and after the 
date the individual first qualifies to elect pre-
scription drug coverage under this part if the in-
dividual establishes that as of such date the indi-
vidual is covered under any of the following pre-
scription drug coverage and before the date that 
is the last day of the 63-day period that begins 
on the date of termination of the particular pre-
scription drug coverage involved (regardless of 
whether the individual subsequently obtains any 
of the following prescription drug coverage): 
‘‘(i) COVERAGE UNDER PRESCRIPTION 
DRUG PLAN OR MA-EFFS RX PLAN.—Quali-
fied prescription drug coverage under a pre-
scription drug plan or under a MA-EFFS 
Rx plan. 
‘‘(ii) MEDICAID
PRESCRIPTION
DRUG 
COVERAGE.—Prescription 
drug 
coverage 
under a medicaid plan under title XIX, in-
cluding through the Program of All-inclu-
sive Care for the Elderly (PACE) under sec-
tion 1934, through a social health mainte-
nance organization (referred to in section 
4104(c) of the Balanced Budget Act of 
1997), or through a demonstration project 
under part C that demonstrates the applica-
tion of capitation payment rates for frail 
elderly medicare beneficiaries through the 
use of an interdisciplinary team and 
through the provision of primary care serv-
ices to such beneficiaries by means of such 
a team at the nursing facility involved. 
‘‘(iii) PRESCRIPTION DRUG COVERAGE 
UNDER
GROUP
HEALTH
PLAN.—Any out-
patient prescription drug coverage under a 
group health plan, including a health bene-
fits plan under the Federal Employees 
Health Benefit Plan under chapter 89 of
title 5, United States Code, and a qualified 
retiree prescription drug plan as defined in 
section 1860D–8(f)(1), but only if (subject 
to subparagraph (E)(ii)) the coverage pro-
vides benefits at least equivalent to the bene-
fits under a qualified prescription drug 
plan. 
‘‘(iv) PRESCRIPTION DRUG COVERAGE 
UNDER CERTAIN MEDIGAP POLICIES.—Cov-
erage under a medicare supplemental policy 
under section 1882 that provides benefits for 
prescription drugs (whether or not such cov-
erage conforms to the standards for pack-
ages of benefits under section 1882(p)(1)), 
but only if the policy was in effect on Janu-
ary 1, 2006, and if (subject to subpara-
graph (E)(ii)) the coverage provides benefits 
at least equivalent to the benefits under a 
qualified prescription drug plan. 
‘‘(v) STATE PHARMACEUTICAL ASSIST-
ANCE PROGRAM.—Coverage of prescription 
drugs under a State pharmaceutical assist-
ance program, but only if (subject to sub-
paragraph (E)(ii)) the coverage provides
benefits at least equivalent to the benefits 
under a qualified prescription drug plan. 
‘‘(vi) VETERANS’ COVERAGE OF PRE-
SCRIPTION
DRUGS.—Coverage of prescrip-
tion drugs for veterans under chapter 17 of 
title 38, United States Code, but only if 
(subject to subparagraph (E)(ii)) the cov-
erage provides benefits at least equivalent to 
the benefits under a qualified prescription 
drug plan. 
‘‘(D) CERTIFICATION.—For purposes of car-
rying out this paragraph, the certifications of the 
type described in sections 2701(e) of the Public 
Health Service Act and in section 9801(e) of the 
Internal Revenue Code shall also include a state-
ment for the period of coverage of whether the in-
dividual involved had prescription drug coverage 
described in subparagraph (C). 
‘‘(E) DISCLOSURE.—
‘‘(i) IN
GENERAL.—Each entity that 
offers coverage of the type described in 
clause (iii), (iv), (v), or (vi) of subpara-
graph (C) shall provide for disclosure, con-
sistent with standards established by the 
Administrator, of whether such coverage
provides benefits at least equivalent to the 
benefits under a qualified prescription drug 
plan. 
‘‘(ii) WAIVER
OF
LIMITATIONS.—An 
individual may apply to the Administrator 
to waive the requirement that coverage of 
such type provide benefits at least equiva-
lent to the benefits under a qualified pre-
scription drug plan, if the individual estab-
lishes that the individual was not ade-
quately informed that such coverage did not 
provide such level of benefits. 
‘‘(F) CONSTRUCTION.—Nothing in this sec-
tion shall be construed as preventing the 
disenrollment of an individual from a prescrip-
tion drug plan or a MA-EFFS Rx plan based on 
the termination of an election described in sec-
tion 1851(g)(3), including for non-payment of 
premiums or for other reasons specified in sub-
section (d)(3), which takes into account a grace 
period described in section 1851(g)(3)(B)(i). 
‘‘(3) NONDISCRIMINATION.—A PDP sponsor that 
offers a prescription drug plan in an area designated 
under section 1860D–4(b)(5) shall make such plan 
available to all eligible individuals residing in the
area without regard to their health or economic status 
or their place of residence within the area. 
‘‘(d) EFFECTIVE DATE OF ELECTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this 
section, the Administrator shall provide that elections 
under subsection (b) take effect at the same time as 
the Administrator provides that similar elections 
under section 1851(e) take effect under section 
1851(f). 
‘‘(2) NO ELECTION EFFECTIVE BEFORE 2006.—In 
no case shall any election take effect before January 
1, 2006. 
‘‘(3) TERMINATION.—The Administrator shall 
provide for the termination of an election in the case 
of—
‘‘(A) termination of coverage under both 
part A and part B; and 
‘‘(B) termination of elections described in 
section 1851(g)(3) (including failure to pay re-
quired premiums). 
‘‘SEC. 1860D–2. REQUIREMENTS FOR QUALIFIED PRESCRIP-
TION DRUG COVERAGE. 
‘‘(a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part 
and part C and part E, the term ‘qualified prescrip-
tion drug coverage’ means either of the following: 
‘‘(A) STANDARD
COVERAGE
WITH
ACCESS 
TO NEGOTIATED PRICES.—Standard coverage (as 
defined in subsection (b)) and access to nego-
tiated prices under subsection (d). 
‘‘(B) ACTUARIALLY EQUIVALENT COVERAGE 
WITH
ACCESS
TO
NEGOTIATED
PRICES.—Cov-
erage of covered outpatient drugs which meets the 
alternative coverage requirements of subsection 
(c) and access to negotiated prices under sub-
section (d), but only if it is approved by the Ad-
ministrator, as provided under subsection (c). 
‘‘(2) PERMITTING ADDITIONAL OUTPATIENT PRE-
SCRIPTION DRUG COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), nothing in this part shall be con-
strued as preventing qualified prescription drug 
coverage from including coverage of covered out-
patient drugs that exceeds the coverage required 
under paragraph (1), but any such additional 
coverage shall be limited to coverage of covered 
outpatient drugs.
‘‘(B) DISAPPROVAL
AUTHORITY.—The Ad-
ministrator shall review the offering of qualified 
prescription drug coverage under this part or 
part C or E. If the Administrator finds, in the 
case of a qualified prescription drug coverage 
under a prescription drug plan or a MA-EFFS 
Rx plan, that the organization or sponsor offer-
ing the coverage is engaged in activities intended 
to discourage enrollment of classes of eligible 
medicare 
beneficiaries 
obtaining 
coverage 
through the plan on the basis of their higher like-
lihood of utilizing prescription drug coverage, the 
Administrator may terminate the contract with 
the sponsor or organization under this part or 
part C or E. 
‘‘(3) APPLICATION OF SECONDARY PAYOR PROVI-
SIONS.—The provisions of section 1852(a)(4) shall 
apply under this part in the same manner as they 
apply under part C. 
‘‘(b) STANDARD COVERAGE.—For purposes of this 
part, the ‘standard coverage’ is coverage of covered out-
patient drugs (as defined in subsection (f)) that meets the 
following requirements: 
‘‘(1) DEDUCTIBLE.—The coverage has an annual 
deductible—
‘‘(A) for 2006, that is equal to $250; or 
‘‘(B) for a subsequent year, that is equal to 
the amount specified under this paragraph for 
the previous year increased by the percentage 
specified in paragraph (5) for the year involved. 
Any amount determined under subparagraph (B) 
that is not a multiple of $10 shall be rounded to the 
nearest multiple of $10. 
‘‘(2) 80:20 BENEFIT STRUCTURE.—
‘‘(A) 20 PERCENT COINSURANCE.—The cov-
erage has cost-sharing (for costs above the annual 
deductible specified in paragraph (1) and up to 
the initial coverage limit under paragraph (3)) 
that is—
‘‘(i) equal to 20 percent; or 
‘‘(ii) is actuarially equivalent (using 
processes established under subsection (e)) to 
an average expected payment of 20 percent 
of such costs. 
‘‘(B) USE OF TIERS.—Nothing in this part 
shall be construed as preventing a PDP sponsor 
from applying tiered copayments, so long as such 
tiered copayments are consistent with subpara-
graph (A).
‘‘(3) INITIAL COVERAGE LIMIT.—Subject to para-
graph (4), the coverage has an initial coverage limit 
on the maximum costs that may be recognized for 
payment purposes—
‘‘(A) for 2006, that is equal to $2,000; or 
‘‘(B) for a subsequent year, that is equal to 
the amount specified in this paragraph for the 
previous year, increased by the annual percent-
age increase described in paragraph (5) for the 
year involved. 
Any amount determined under subparagraph (B) 
that is not a multiple of $25 shall be rounded to the 
nearest multiple of $25.
‘‘(4) CATASTROPHIC PROTECTION.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (3), the coverage provides benefits with no 
cost-sharing after the individual has incurred 
costs (as described in subparagraph (C)) for cov-
ered outpatient drugs in a year equal to the an-
nual out-of-pocket threshold specified in subpara-
graph (B). 
‘‘(B) ANNUAL
OUT-OF-POCKET
THRESH-
OLD.—
‘‘(i) IN
GENERAL.—For purposes of 
this part, the ‘annual out-of-pocket thresh-
old’ specified in this subparagraph is equal 
to $3,500 (subject to adjustment under 
clause (ii) and subparagraph (D)). 
‘‘(ii) INFLATION
INCREASE.—For a 
year after 2006, the dollar amount specified 
in clause (i) shall be increased by the an-
nual percentage increase described in para-
graph (5) for the year involved. Any 
amount determined under the previous sen-
tence that is not a multiple of $100 shall be 
rounded to the nearest multiple of $100. 
‘‘(C) APPLICATION.—In applying subpara-
graph (A)—
‘‘(i) incurred costs shall only include 
costs incurred for the annual deductible (de-
scribed in paragraph (1)), cost-sharing (de-
scribed in paragraph (2)), and amounts for 
which benefits are not provided because of 
the application of the initial coverage limit 
described in paragraph (3); and 
‘‘(ii) such costs shall be treated as in-
curred only if they are paid by the indi-
vidual (or by another individual, such as a 
family member, on behalf of the individual), 
under section 1860D–7, under title XIX, or
under a State pharmaceutical assistance 
program and the individual (or other indi-
vidual) is not reimbursed through insurance 
or otherwise, a group health plan, or other 
third-party payment arrangement (other 
than under such title or such program) for 
such costs. 
‘‘(D) ADJUSTMENT
OF
ANNUAL
OUT-OF-
POCKET THRESHOLDS.—
‘‘(i) IN GENERAL.—For each enrollee 
in a prescription drug plan or in a MA-
EFFS Rx plan whose adjusted gross income 
exceeds the income threshold as defined in 
clause (ii) for a year, the annual out-of-
pocket threshold otherwise determined under 
subparagraph (B) for such year shall be in-
creased by an amount equal to the percent-
age specified in clause (iii), multiplied by 
the lesser of—
‘‘(I) the amount of such excess; or 
‘‘(II) the amount by which the in-
come threshold limit exceeds the income 
threshold.
Any amount determined under the previous 
sentence that is not a multiple of $100 shall 
be rounded to the nearest multiple of $100. 
‘‘(ii) INCOME THRESHOLD.—For pur-
poses of clause (i)—
‘‘(I) IN
GENERAL.—Subject to 
subclause (II), the term ‘income thresh-
old’ means $60,000 and the term ‘in-
come threshold limit’ means $200,000. 
‘‘(II) INCOME INFLATION ADJUST-
MENT.—In the case of a year begin-
ning after 2006, each of the dollar 
amounts in subclause (I) shall be in-
creased by an amount equal to such 
dollar amount multiplied by the cost-
of-living adjustment determined under 
section 1(f)(3) of the Internal Revenue 
Code of 1986 for such year, determined 
by substituting ‘calendar year 2005’ 
for ‘calendar year 1992’. If any 
amount increased under the previous 
sentence is not a multiple of $100, such 
amount shall be rounded to the nearest 
multiple of $100.
‘‘(iii) PERCENTAGE.—The percentage 
specified in this clause for a year is a frac-
tion (expressed as a percentage) equal to—
‘‘(I) 
the 
annual 
out-of-pocket 
threshold for a year under subpara-
graph (B) (determined without regard 
to this subparagraph), divided by 
‘‘(II) the income threshold under 
clause (ii) for that year. 
If any percentage determined under the pre-
vious sentence that is not a multiple of 
1⁄10th of 1 percentage point, such percentage 
shall be rounded to the nearest multiple of 
1⁄10th of 1 percentage point. 
‘‘(iv) USE OF MOST RECENT RETURN 
INFORMATION.—For purposes of clause (i) 
for an enrollee for a year, except as pro-
vided in clause (v), the adjusted gross in-
come of an individual shall be based on the 
most recent information disclosed to the 
Secretary under section 6109(l)(19) of the 
Internal Revenue Code of 1986 before the be-
ginning of that year. 
‘‘(v) 
INDIVIDUAL
ELECTION
TO 
PRESENT MOST RECENT INFORMATION RE-
GARDING INCOME.—The Secretary shall pro-
vide, in coordination with the Secretary of 
the Treasury, a procedure under which, for 
purposes of applying this subparagraph for 
a calendar year, instead of using the infor-
mation described in clause (iv), an enrollee 
may elect to use more recent information, 
including information with respect to a tax-
able year ending in such calendar year. 
Such process shall—
‘‘(I) require the enrollee to provide 
the Secretary with a copy of the rel-
evant portion of the more recent return 
to be used under this clause; 
‘‘(II) provide for the Medicare 
Beneficiary Ombudsman (under sec-
tion 1810) offering assistance to such 
enrollees in presenting such informa-
tion and the toll-free number under 
such section being a point of contact 
for beneficiaries to inquire as to how to 
present such information; 
‘‘(III) provide for the verification 
of the information in such return by 
the Secretary of the Treasury under
section 6103(l)(19) of the Internal Rev-
enue Code of 1986; and 
‘‘(IV) provide for the payment by 
the Secretary (in a manner specified 
by the Secretary) to the enrollee of an 
amount equal to the excess of the ben-
efit payments that would have been 
payable under the plan if the more re-
cent return information were used, 
over the benefit payments that were 
made under the plan. 
In the case of a payment under subclause 
(III) for an enrollee under a prescription 
drug plan, the PDP sponsor of the plan 
shall pay to the Secretary the amount so 
paid, 
less 
the 
applicable 
reinsurance 
amount that would have applied under sec-
tion 1860D–8(c)(1)(B) if such payment had 
been treated as an allowable cost under such 
section. Such plan payment shall be depos-
ited in the Treasury to the credit of the 
Medicare Prescription Drug Account in the 
Federal Supplementary Medical Insurance 
Trust Fund (under section 1841).
‘‘(vi) DISSEMINATION OF INFORMATION 
ON PROCESS.—The Secretary shall provide, 
through the annual medicare handbook 
under section 1804(a), for a general descrip-
tion of the adjustment of annual out-of-
pocket thresholds provided under this sub-
paragraph, including the process for adjust-
ment based upon more recent information 
and the confidentiality provisions of sub-
paragraph (F), and shall provide for dis-
semination of a table for each year that sets 
forth the amount of the adjustment that is 
made under clause (i) based on the amount 
of an enrollee’s adjusted gross income. 
‘‘(E) REQUESTING
INFORMATION
ON
EN-
ROLLEES.—
‘‘(i) 
IN
GENERAL.—The 
Secretary 
shall, periodically as required to carry out 
subparagraph (D), transmit to the Sec-
retary of the Treasury a list of the names 
and TINs of enrollees in prescription drug 
plans (or in MA-EFFS Rx plans) and re-
quest that such Secretary disclose to the 
Secretary information under subparagraph 
(A) of section 6103(l)(19) of the Internal
Revenue Code of 1986 with respect to those 
enrollees for a specified taxable year for ap-
plication in a particular calendar year. 
‘‘(ii) DISCLOSURE
TO
PLAN
SPON-
SORS.—In the case of a specified taxpayer 
(as defined in section 6103(l)(19)(B) of the 
Internal Revenue Code of 1986) who is en-
rolled in a prescription drug plan or in an 
MA-EFFS Rx plan, the Secretary shall dis-
close to the entity that offers the plan the 
annual out-of-pocket threshold applicable to 
such individual under subparagraph (D). 
‘‘(F) MAINTAINING CONFIDENTIALITY OF IN-
FORMATION.—
‘‘(i) IN GENERAL.—The amount of any 
increase in an annual out-of-pocket thresh-
old under subparagraph (D) may not be 
disclosed by the Secretary except to a PDP 
sponsor or entity that offers a MA-EFFS 
Rx plan to the extent necessary to carry out 
this part. 
‘‘(ii) CRIMINAL AND CIVIL PENALTIES 
FOR UNAUTHORIZED DISCLOSURE.—A per-
son who makes an unauthorized disclosure 
of information disclosed under section
6103(l)(19) of the Internal Revenue Code of 
1986 (including disclosure of any increase 
in an annual out-of-pocket threshold under 
subparagraph (D)) shall be subject to pen-
alty to the extent provided under—
‘‘(I) section 7213 of such Code (re-
lating to criminal penalty for unau-
thorized disclosure of information); 
‘‘(II) section 7213A of such Code 
(relating to criminal penalty for unau-
thorized inspection of returns or return 
information); 
‘‘(III) section 7431 of such Code 
(relating to civil damages for unau-
thorized inspection or disclosure of re-
turns and return information); 
‘‘(IV) any other provision of the 
Internal Revenue Code of 1986; or 
‘‘(V) any other provision of law. 
‘‘(iii) APPLICATION
OF
ADDITIONAL 
CIVIL MONETARY PENALTY FOR UNAUTHOR-
IZED
DISCLOSURES.—In addition to any 
penalty otherwise provided under law, any 
person who makes an unauthorized disclo-
sure of such information shall be subject to
a civil monetary penalty of not to exceed 
$10,000 for each such unauthorized disclo-
sure. The provisions of section 1128A (other 
than subsections (a) and (b)) shall apply to 
civil money penalties under this subpara-
graph in the same manner as they apply to 
a penalty or proceeding under section 
1128A(a).
‘‘(5) ANNUAL PERCENTAGE INCREASE.—For pur-
poses of this part, the annual percentage increase 
specified in this paragraph for a year is equal to the 
annual percentage increase in average per capita ag-
gregate expenditures for covered outpatient drugs in 
the United States for medicare beneficiaries, as deter-
mined by the Administrator for the 12-month period 
ending in July of the previous year.
‘‘(c) ALTERNATIVE COVERAGE REQUIREMENTS.—A 
prescription drug plan or MA-EFFS Rx plan may provide 
a different prescription drug benefit design from the stand-
ard coverage described in subsection (b) so long as the Ad-
ministrator determines (based on an actuarial analysis by 
the Administrator) that the following requirements are met 
and the plan applies for, and receives, the approval of the 
Administrator for such benefit design:
‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIVA-
LENT COVERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE
OF 
TOTAL COVERAGE.—The actuarial value of the 
total coverage (as determined under subsection 
(e)) is at least equal to the actuarial value (as 
so determined) of standard coverage. 
‘‘(B) ASSURING EQUIVALENT UNSUBSIDIZED 
VALUE OF COVERAGE.—The unsubsidized value 
of the coverage is at least equal to the unsub-
sidized value of standard coverage. For purposes 
of this subparagraph, the unsubsidized value of 
coverage is the amount by which the actuarial 
value of the coverage (as determined under sub-
section (e)) exceeds the actuarial value of the sub-
sidy payments under section 1860D–8 with re-
spect to such coverage. 
‘‘(C) ASSURING
STANDARD
PAYMENT
FOR 
COSTS AT INITIAL COVERAGE LIMIT.—The cov-
erage is designed, based upon an actuarially rep-
resentative pattern of utilization (as determined 
under subsection (e)), to provide for the pay-
ment, with respect to costs incurred that are 
equal to the initial coverage limit under sub-
section (b)(3), of an amount equal to at least the 
product of—
‘‘(i) the amount by which the initial 
coverage limit described in subsection (b)(3) 
exceeds the deductible described in sub-
section (b)(1); and 
‘‘(ii) 100 percent minus the cost-shar-
ing 
percentage 
specified 
in 
subsection 
(b)(2)(A)(i). 
‘‘(2) CATASTROPHIC PROTECTION.—The coverage 
provides for beneficiaries the catastrophic protection 
described in subsection (b)(4). 
‘‘(d) ACCESS TO NEGOTIATED PRICES.—
‘‘(1) IN GENERAL.—Under qualified prescription 
drug coverage offered by a PDP sponsor or an entity 
offering a MA-EFFS Rx plan, the sponsor or entity 
shall provide beneficiaries with access to negotiated 
prices (including applicable discounts) used for pay-
ment for covered outpatient drugs, regardless of the 
fact that no benefits may be payable under the cov-
erage with respect to such drugs because of the appli-
cation of cost-sharing or an initial coverage limit (de-
scribed in subsection (b)(3)). Insofar as a State elects 
to provide medical assistance under title XIX for a 
drug based on the prices negotiated by a prescription
drug plan or MA-EFFS Rx plan under this part, the 
requirements of section 1927 shall not apply to such 
drugs. The prices negotiated by a prescription drug 
plan under this part, by a MA-EFFS Rx plan with 
respect to covered outpatient drugs, or by a qualified 
retiree prescription drug plan (as defined in section 
1860D–8(f)(1)) with respect to such drugs on behalf 
of individuals entitled to benefits under part A or en-
rolled under part B, shall (notwithstanding any other 
provision of law) not be taken into account for the 
purposes of establishing the best price under section 
1927(c)(1)(C). 
‘‘(2) DISCLOSURE.—The PDP sponsor or entity 
offering a MA-EFFS Rx plan shall disclose to the Ad-
ministrator (in a manner specified by the Adminis-
trator) the extent to which discounts or rebates or 
other remuneration or price concessions made avail-
able to the sponsor or organization by a manufacturer 
are passed through to enrollees through pharmacies 
and other dispensers or otherwise. The provisions of 
section 1927(b)(3)(D) shall apply to information dis-
closed to the Administrator under this paragraph in 
the same manner as such provisions apply to infor-
mation disclosed under such section.
‘‘(3) AUDITS AND REPORTS.—To protect against 
fraud and abuse and to ensure proper disclosures and 
accounting under this part, in addition to any pro-
tections against fraud and abuse provided under sec-
tion 1860D–4(b)(3)(C), the Administrator may peri-
odically audit the financial statements and records of 
PDP sponsor or entities offering a MA-EFFS Rx 
plan.
‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF AN-
NUAL PERCENTAGE INCREASES.—
‘‘(1) PROCESSES.—For purposes of this section, 
the Administrator shall establish processes and meth-
ods—
‘‘(A) for determining the actuarial valu-
ation of prescription drug coverage, including—
‘‘(i) an actuarial valuation of standard 
coverage and of the reinsurance subsidy 
payments under section 1860D–8; 
‘‘(ii) the use of generally accepted actu-
arial principles and methodologies; and 
‘‘(iii) applying the same methodology 
for determinations of alternative coverage 
under subsection (c) as is used with respect 
to determinations of standard coverage 
under subsection (b); and
‘‘(B) for determining annual percentage in-
creases described in subsection (b)(5). 
‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the 
processes under paragraph (1)(A), PDP sponsors and 
entities offering MA-EFFS Rx plans may use actu-
arial opinions certified by independent, qualified ac-
tuaries to establish actuarial values, but the Adminis-
trator shall determine whether such actuarial values 
meet the requirements under subsection (c)(1). 
‘‘(f) COVERED OUTPATIENT DRUGS DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in this 
subsection, for purposes of this part, the term ‘covered 
outpatient drug’ means—
‘‘(A) a drug that may be dispensed only 
upon a prescription and that is described in sub-
paragraph (A)(i) or (A)(ii) of section 1927(k)(2); 
or 
‘‘(B) a biological product described in 
clauses (i) through (iii) of subparagraph (B) of 
such section or insulin described in subpara-
graph (C) of such section and medical supplies 
associated with the injection of insulin (as de-
fined in regulations of the Secretary), 
and such term includes a vaccine licensed under sec-
tion 351 of the Public Health Service Act and any
‘‘(4) APPLICATION OF GENERAL EXCLUSION PRO-
VISIONS.—A prescription drug plan or MA-EFFS Rx 
plan may exclude from qualified prescription drug 
coverage any covered outpatient drug—
‘‘(A) for which payment would not be made 
if section 1862(a) applied to part D; or 
‘‘(B) which are not prescribed in accordance 
with the plan or this part. 
Such exclusions are determinations subject to recon-
sideration and appeal pursuant to section 1860D–
3(f). 
‘‘SEC. 1860D–3. BENEFICIARY PROTECTIONS FOR QUALIFIED 
PRESCRIPTION DRUG COVERAGE. 
‘‘(a) GUARANTEED ISSUE, COMMUNITY-RATED PRE-
MIUMS, ACCESS
TO
NEGOTIATED
PRICES, AND
NON-
DISCRIMINATION.—For provisions requiring guaranteed 
issue, community-rated premiums, access to negotiated 
prices, and nondiscrimination, see sections 1860D–1(c)(1), 
1860D–1(c)(2), 1860D–2(d), and 1860D–6(b), respectively. 
‘‘(b) DISSEMINATION OF INFORMATION.—
‘‘(1) GENERAL INFORMATION.—A PDP sponsor 
shall disclose, in a clear, accurate, and standardized 
form to each enrollee with a prescription drug plan 
offered by the sponsor under this part at the time of 
enrollment and at least annually thereafter, the infor-
mation described in section 1852(c)(1) relating to 
such plan. Such information includes the following: 
‘‘(A) Access to specific covered outpatient 
drugs, including access through pharmacy net-
works. 
‘‘(B) How any formulary used by the spon-
sor functions, including the drugs included in 
the formulary. 
‘‘(C) Co-payments and deductible require-
ments, including the identification of the tiered 
or other co-payment level applicable to each drug 
(or class of drugs). 
‘‘(D) Grievance and appeals procedures. 
Such information shall also be made available upon 
request to prospective enrollees. 
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL 
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an individual eligible to en-
roll under a prescription drug plan, the PDP sponsor 
shall provide the information described in section 
1852(c)(2) (other than subparagraph (D)) to such in-
dividual. 
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
Each PDP sponsor offering a prescription drug plan 
shall have a mechanism for providing specific infor-
mation to enrollees upon request. The sponsor shall 
make available on a timely basis, through an Internet 
website and in writing upon request, information on 
specific changes in its formulary. 
‘‘(4) CLAIMS INFORMATION.—Each PDP sponsor 
offering a prescription drug plan must furnish to 
each enrollee in a form easily understandable to such 
enrollees an explanation of benefits (in accordance 
with section 1806(a) or in a comparable manner) and 
a notice of the benefits in relation to initial coverage 
limit and the annual out-of-pocket threshold applica-
ble to such enrollee for the current year, whenever pre-
scription drug benefits are provided under this part 
(except that such notice need not be provided more 
often than monthly).
‘‘(c) ACCESS TO COVERED BENEFITS.—
‘‘(1) ASSURING PHARMACY ACCESS.—
‘‘(A) SECURING
SUFFICIENT
PARTICIPA-
TION.—
‘‘(i) PARTICIPATION OF ANY WILLING 
PHARMACY.—A PDP sponsor and an entity 
offering a MA-EFFS Rx plan shall permit 
the participation of any pharmacy that 
meets terms and conditions that the plan 
has established.
‘‘(ii) DISCOUNTS ALLOWED FOR NET-
WORK
PHARMACIES.—A prescription drug 
plan and a MA-EFFS Rx plan may, not-
withstanding clause (i), reduce coinsurance 
or copayments for its enrolled beneficiaries 
below the level otherwise provided for cov-
ered outpatient drugs dispensed through in-
network pharmacies, but in no case shall 
such a reduction result in an increase in 
payments made by the Administrator under 
section 1860D–8 to a plan. 
‘‘(iii) CONVENIENT ACCESS FOR NET-
WORK PHARMACIES.—The PDP sponsor of 
the prescription drug plan and the entity 
offering a MA-EFFS Rx plan shall secure 
the participation in its network of a suffi-
cient number of pharmacies that dispense 
(other than by mail order) drugs directly to 
patients to ensure convenient access (con-
sistent with rules of the Administrator es-
tablished under subparagraph (B)). The Ad-
ministrator shall establish convenient access 
rules under this clause that are no less fa-
vorable to enrollees than the rules for con-
venient access to pharmacies of the Sec-
retary of Defense established as of June 1, 
2003, for purposes of the TRICARE Retail 
Pharmacy (TRRx) program. Such rules 
shall include adequate emergency access for 
enrolled beneficiaries. 
‘‘(iv) LEVEL PLAYING FIELD.—Such a 
sponsor shall permit enrollees to receive ben-
efits (which may include a 90-day supply of 
drugs or biologicals) through a community 
pharmacy, rather than through mail order, 
with any differential in cost paid by such 
enrollees. 
‘‘(v) NOT REQUIRED TO ACCEPT INSUR-
ANCE
RISK.—The terms and conditions 
under clause (i) may not require partici-
pating pharmacies to accept insurance risk 
as a condition of participation. 
‘‘(2) USE OF STANDARDIZED TECHNOLOGY.—
‘‘(A) IN GENERAL.—The PDP sponsor of a 
prescription drug plan and an entity offering a 
MA-EFFS Rx plan shall issue (and reissue, as 
appropriate) such a card (or other technology) 
that may be used by an enrollee to assure access 
to negotiated prices under section 1860D–2(d) 
for the purchase of prescription drugs for which
coverage is not otherwise provided under the 
plan. 
‘‘(B) STANDARDS.—
‘‘(i) DEVELOPMENT.—The Adminis-
trator shall provide for the development or 
utilization of uniform standards relating to 
a standardized format for the card or other 
technology referred to in subparagraph (A). 
Such standards shall be compatible with 
standards established under part C of title 
XI. 
‘‘(ii) APPLICATION OF ADVISORY TASK 
FORCE.—The advisory task force established 
under subsection (d)(3)(B)(ii) shall provide 
recommendations 
to 
the 
Administrator 
under such subsection regarding the stand-
ards developed under clause (i). 
‘‘(3) REQUIREMENTS ON DEVELOPMENT AND AP-
PLICATION OF FORMULARIES.—If a PDP sponsor of a 
prescription drug plan or an entity offering a MA-
EFFS Rx plan uses a formulary, the following re-
quirements must be met: 
‘‘(A) PHARMACY AND THERAPEUTIC (P&T) 
COMMITTEE.—The sponsor or entity must estab-
lish a pharmacy and therapeutic committee that
develops and reviews the formulary. Such com-
mittee shall include at least one practicing phy-
sician and at least one practicing pharmacist 
both with expertise in the care of elderly or dis-
abled persons and a majority of its members 
shall consist of individuals who are practicing 
physicians or practicing pharmacists (or both). 
‘‘(B) FORMULARY
DEVELOPMENT.—In de-
veloping and reviewing the formulary, the com-
mittee shall—
‘‘(i) base clinical decisions on the 
strength of scientific evidence and standards 
of practice, including assessing peer-re-
viewed medical literature, such as random-
ized clinical trials, pharmacoeconomic stud-
ies, outcomes research data, and such other 
information as the committee determines to 
be appropriate; and 
‘‘(ii) shall take into account whether 
including in the formulary particular cov-
ered outpatient drugs has therapeutic ad-
vantages in terms of safety and efficacy. 
‘‘(C) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES.—The formulary must in-
clude drugs within each therapeutic category and
class of covered outpatient drugs (although not 
necessarily for all drugs within such categories 
and classes). In establishing such classes, the 
committee shall take into account the standards 
published in the United States Pharmacopeia-
Drug Information. The committee shall make 
available to the enrollees under the plan through 
the Internet or otherwise the clinical bases for the 
coverage of any drug on the formulary. 
‘‘(D) 
PROVIDER
AND
PATIENT
EDU-
CATION.—The committee shall establish policies 
and procedures to educate and inform health 
care providers and enrollees concerning the for-
mulary. 
‘‘(E) NOTICE
BEFORE
REMOVING
DRUG 
FROM FORMULARY FOR CHANGING PREFERRED 
OR TIER STATUS OF DRUG.—Any removal of a 
covered outpatient drug from a formulary and 
any change in the preferred or tier cost-sharing 
status of such a drug shall take effect only after 
appropriate notice is made available to bene-
ficiaries and physicians. 
‘‘(F) PERIODIC
EVALUATION
OF
PROTO-
COLS.—In connection with the formulary, a pre-
scription drug plan shall provide for the periodic
evaluation and analysis of treatment protocols 
and procedures. 
‘‘(G) GRIEVANCES AND APPEALS RELATING 
TO APPLICATION OF FORMULARIES.—For provi-
sions relating to grievances and appeals of cov-
erage, see subsections (e) and (f). 
‘‘(d) COST AND UTILIZATION MANAGEMENT; QUALITY 
ASSURANCE; MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(1) IN GENERAL.—The PDP sponsor or entity 
offering a MA-EFFS Rx plan shall have in place, di-
rectly or through appropriate arrangements, with re-
spect to covered outpatient drugs—
‘‘(A) an effective cost and drug utilization 
management program, including medically ap-
propriate incentives to use generic drugs and 
therapeutic interchange, when appropriate; 
‘‘(B) quality assurance measures and sys-
tems to reduce medical errors and adverse drug 
interactions, including side-effects, and improve 
medication use, including a medication therapy 
management program described in paragraph 
(2) and for years beginning with 2007, an elec-
tronic prescription program described in para-
graph (3); and
‘‘(C) a program to control fraud, abuse, and 
waste. 
Nothing in this section shall be construed as impair-
ing a PDP sponsor or entity from utilizing cost man-
agement tools (including differential payments) under 
all methods of operation. 
‘‘(2) MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(A) IN GENERAL.—A medication therapy 
management program described in this para-
graph is a program of drug therapy management 
and medication administration that may be fur-
nished by a pharmacy provider and that is de-
signed to assure, with respect to beneficiaries at 
risk for potential medication problems, such as 
beneficiaries with complex or chronic diseases 
(such as diabetes, asthma, hypertension, and 
congestive heart failure) or multiple prescrip-
tions, that covered outpatient drugs under the 
prescription drug plan are appropriately used to 
optimize therapeutic outcomes through improved 
medication use and reduce the risk of adverse 
events, including adverse drug interactions. Such 
programs may distinguish between services in 
ambulatory and institutional settings.
‘‘(B) ELEMENTS.—Such program may in-
clude—
‘‘(i) 
enhanced 
beneficiary 
under-
standing to promote the appropriate use of 
medications by beneficiaries and to reduce 
the risk of potential adverse events associ-
ated with medications, through beneficiary 
education, counseling, case management, 
disease state management programs, and 
other appropriate means; 
‘‘(ii) increased beneficiary adherence 
with 
prescription 
medication 
regimens 
through medication refill reminders, special 
packaging, and other compliance programs 
and other appropriate means; and 
‘‘(iii) detection of patterns of overuse 
and underuse of prescription drugs. 
‘‘(C) DEVELOPMENT
OF
PROGRAM
IN
CO-
OPERATION WITH LICENSED PHARMACISTS.—The 
program shall be developed in cooperation with 
licensed and practicing pharmacists and physi-
cians. 
‘‘(D) 
CONSIDERATIONS
IN
PHARMACY 
FEES.—The PDP sponsor of a prescription drug 
program and an entity offering a MA-EFFS Rx
plan shall take into account, in establishing fees 
for pharmacists and others providing services 
under the medication therapy management pro-
gram, the resources and time used in imple-
menting the program. Each such sponsor or enti-
ty shall disclose to the Administrator upon re-
quest the amount of any such management or 
dispensing fees. 
‘‘(3) ELECTRONIC PRESCRIPTION PROGRAM.—
‘‘(A) IN GENERAL.—An electronic prescrip-
tion drug program described in this paragraph 
is a program that includes at least the following 
components, consistent with uniform standards 
established under subparagraph (B): 
‘‘(i) ELECTRONIC
TRANSMITTAL
OF 
PRESCRIPTIONS.—Prescriptions 
must 
be 
written 
and 
transmitted 
electronically 
(other than by facsimile), except in emer-
gency cases and other exceptional cir-
cumstances recognized by the Adminis-
trator. 
‘‘(ii) PROVISION OF INFORMATION TO 
PRESCRIBING
HEALTH
CARE
PROFES-
SIONAL.—The program provides for the elec-
tronic transmittal to the prescribing health
care professional of information that in-
cludes—
‘‘(I) information (to the extent 
available and feasible) on the drug or 
drugs being prescribed for that patient 
and other information relating to the 
medical history or condition of the pa-
tient that may be relevant to the ap-
propriate prescription for that patient; 
‘‘(II) cost-effective alternatives (if 
any) for the use of the drug prescribed; 
and 
‘‘(III) information on the drugs 
included in the applicable formulary. 
To the extent feasible, such program shall 
permit the prescribing health care profes-
sional to provide (and be provided) related 
information on an interactive, real-time 
basis. 
‘‘(B) STANDARDS.—
‘‘(i) DEVELOPMENT.—The Adminis-
trator shall provide for the development of 
uniform standards relating to the electronic 
prescription drug program described in sub-
paragraph (A). Such standards shall be
compatible with standards established under 
part C of title XI. 
‘‘(ii) ADVISORY TASK FORCE.—In de-
veloping such standards and the standards 
described in subsection (c)(2)(B)(i) the Ad-
ministrator shall establish a task force that 
includes representatives of physicians, hos-
pitals, pharmacies, beneficiaries, pharmacy 
benefit managers, individuals with expertise 
in information technology, and pharmacy 
benefit experts of the Departments of Vet-
erans Affairs and Defense and other appro-
priate Federal agencies to provide rec-
ommendations to the Administrator on such 
standards, including recommendations re-
lating to the following: 
‘‘(I) The range of available com-
puterized prescribing software and 
hardware and their costs to develop 
and implement. 
‘‘(II) The extent to which such 
standards and systems reduce medica-
tion errors and can be readily imple-
mented by physicians, pharmacies, and 
hospitals.
‘‘(III) Efforts to develop uniform 
standards and a common software 
platform for the secure electronic com-
munication of medication history, eli-
gibility, benefit, and prescription in-
formation. 
‘‘(IV) Efforts to develop and pro-
mote universal connectivity and inter-
operability for the secure electronic ex-
change of such information.
‘‘(V) The cost of implementing 
such systems in the range of hospital 
and physician office settings and phar-
macies, including hardware, software, 
and training costs. 
‘‘(VI) Implementation issues as 
they relate to part C of title XI, and 
current Federal and State prescribing 
laws and regulations and their impact 
on implementation of computerized 
prescribing. 
‘‘(iii) DEADLINES.—
‘‘(I) The Administrator shall con-
stitute the task force under clause (ii) 
by not later than April 1, 2004.
‘‘(II) Such task force shall submit 
recommendations to Administrator by 
not later than January 1, 2005. 
‘‘(III) The Administrator shall 
provide for the development and pro-
mulgation, by not later than January 
1, 2006, of national standards relating 
to the electronic prescription drug pro-
gram described in clause (ii). Such 
standards shall be issued by a stand-
ards organization accredited by the 
American National Standards Insti-
tute (ANSI) and shall be compatible 
with standards established under part 
C of title XI. 
‘‘(4) TREATMENT OF ACCREDITATION.—Section 
1852(e)(4) (relating to treatment of accreditation) 
shall apply to prescription drug plans under this part 
with respect to the following requirements, in the 
same manner as they apply to plans under part C 
with respect to the requirements described in a clause 
of section 1852(e)(4)(B): 
‘‘(A) Paragraph (1) (including quality as-
surance), including medication therapy manage-
ment program under paragraph (2).
‘‘(B) Subsection (c)(1) (relating to access to 
covered benefits). 
‘‘(C) Subsection (g) (relating to confiden-
tiality and accuracy of enrollee records). 
‘‘(5) PUBLIC DISCLOSURE OF PHARMACEUTICAL 
PRICES FOR EQUIVALENT DRUGS.—Each PDP spon-
sor and each entity offering a MA-EFFS Rx plan 
shall provide that each pharmacy or other dispenser 
that arranges for the dispensing of a covered out-
patient drug shall inform the beneficiary at the time 
of purchase of the drug of any differential between the 
price of the prescribed drug to the enrollee and the 
price of the lowest cost available generic drug covered 
under the plan that is therapeutically equivalent and 
bioequivalent.
‘‘(e) GRIEVANCE MECHANISM, COVERAGE DETERMINA-
TIONS, AND RECONSIDERATIONS.—
‘‘(1) IN
GENERAL.—Each PDP sponsor shall 
provide meaningful procedures for hearing and resolv-
ing grievances between the organization (including 
any entity or individual through which the sponsor 
provides covered benefits) and enrollees with prescrip-
tion drug plans of the sponsor under this part in ac-
cordance with section 1852(f).
‘‘(2) APPLICATION
OF
COVERAGE
DETERMINA-
TION
AND
RECONSIDERATION
PROVISIONS.—A PDP 
sponsor shall meet the requirements of paragraphs (1) 
through (3) of section 1852(g) with respect to covered 
benefits under the prescription drug plan it offers 
under this part in the same manner as such require-
ments apply to an organization with respect to bene-
fits it offers under a plan under part C. 
‘‘(3) REQUEST
FOR
REVIEW
OF
TIERED
FOR-
MULARY DETERMINATIONS.—In the case of a prescrip-
tion drug plan offered by a PDP sponsor or a MA-
EFFS Rx plan that provides for tiered cost-sharing 
for drugs included within a formulary and provides 
lower cost-sharing for preferred drugs included within 
the formulary, an individual who is enrolled in the 
plan may request coverage of a nonpreferred drug 
under the terms applicable for preferred drugs if the 
prescribing physician determines that the preferred 
drug for treatment of the same condition either would 
not be as effective for the individual or would have 
adverse effects for the individual or both.
‘‘(f) APPEALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a 
PDP sponsor shall meet the requirements of para-
graphs (4) and (5) of section 1852(g) with respect to
drugs (including a determination related to the appli-
cation of tiered cost-sharing described in subsection 
(e)(3)) in the same manner as such requirements 
apply to an organization with respect to benefits it 
offers under a plan under part C. 
‘‘(2) FORMULARY
DETERMINATIONS.—An indi-
vidual who is enrolled in a prescription drug plan of-
fered by a PDP sponsor or in a MA-EFFS Rx plan 
may appeal to obtain coverage for a covered out-
patient drug that is not on a formulary of the sponsor 
or entity offering the plan if the prescribing physi-
cian determines that the formulary drug for treat-
ment of the same condition either would not be as ef-
fective for the individual or would have adverse effects 
for the individual or both. 
‘‘(g) CONFIDENTIALITY AND ACCURACY OF ENROLLEE 
RECORDS.—A PDP sponsor that offers a prescription drug 
plan shall meet the requirements of section 1852(h) with 
respect to enrollees under the plan in the same manner as 
such requirements apply to an organization with respect 
to enrollees under part C. A PDP sponsor shall be treated 
as a covered entity for purposes of the provisions of subpart 
E of part 164 of title 45, Code of Federal Regulations, 
adopted pursuant to the authority of the Secretary under
section 264(c) of the Health Insurance Portability and Ac-
countability Act of 1996 (42 U.S. C. 1320d-2 note). 
‘‘SEC. 1860D–4. REQUIREMENTS FOR AND CONTRACTS WITH 
PRESCRIPTION DRUG PLAN (PDP) SPONSORS. 
‘‘(a) GENERAL REQUIREMENTS.—Each PDP sponsor 
of a prescription drug plan shall meet the following require-
ments: 
‘‘(1) LICENSURE.—Subject to subsection (c), the 
sponsor is organized and licensed under State law as 
a risk-bearing entity eligible to offer health insurance 
or health benefits coverage in each State in which it 
offers a prescription drug plan. 
‘‘(2) ASSUMPTION OF FINANCIAL RISK FOR UN-
SUBSIDIZED COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B) and section 1860D–5(d)(2), the entity 
assumes full financial risk on a prospective basis 
for qualified prescription drug coverage that it 
offers under a prescription drug plan and that 
is not covered under section 1860D–8. 
‘‘(B) REINSURANCE PERMITTED.—The enti-
ty may obtain insurance or make other arrange-
ments for the cost of coverage provided to any 
enrollee.
‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—In 
the case of a sponsor that is not described in para-
graph (1), the sponsor shall meet solvency standards 
established by the Administrator under subsection (d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Administrator shall not 
permit the election under section 1860D–1 of a pre-
scription drug plan offered by a PDP sponsor under 
this part, and the sponsor shall not be eligible for 
payments under section 1860D–7 or 1860D–8, unless 
the Administrator has entered into a contract under 
this subsection with the sponsor with respect to the of-
fering of such plan. Such a contract with a sponsor 
may cover more than one prescription drug plan. 
Such contract shall provide that the sponsor agrees to 
comply with the applicable requirements and stand-
ards of this part and the terms and conditions of 
payment as provided for in this part. 
‘‘(2) NEGOTIATION REGARDING TERMS AND CON-
DITIONS.—The Administrator shall have the same au-
thority to negotiate the terms and conditions of pre-
scription drug plans under this part as the Director 
of the Office of Personnel Management has with re-
spect to health benefits plans under chapter 89 of title 
5, United States Code. In negotiating the terms and
conditions regarding premiums for which information 
is submitted under section 1860D–6(a)(2), the Ad-
ministrator shall take into account the subsidy pay-
ments under section 1860D–8. 
‘‘(3) INCORPORATION OF CERTAIN MEDICARE AD-
VANTAGE CONTRACT REQUIREMENTS.—The following 
provisions of section 1857 shall apply, subject to sub-
section (c)(5), to contracts under this section in the 
same manner as they apply to contracts under section 
1857(a): 
‘‘(A) MINIMUM ENROLLMENT.—Paragraphs 
(1) and (3) of section 1857(b). 
‘‘(B) CONTRACT
PERIOD
AND
EFFECTIVE-
NESS.—Paragraphs (1) through (3) and (5) of 
section 1857(c). 
‘‘(C) PROTECTIONS
AGAINST
FRAUD
AND 
BENEFICIARY PROTECTIONS.—Section 1857(d). 
‘‘(D) ADDITIONAL CONTRACT TERMS.—Sec-
tion 1857(e); except that in applying section 
1857(e)(2) under this part—
‘‘(i) such section shall be applied sepa-
rately to costs relating to this part (from 
costs under part C and part E); 
‘‘(ii) in no case shall the amount of the 
fee established under this subparagraph for
a plan exceed 20 percent of the maximum 
amount of the fee that may be established 
under subparagraph (B) of such section; 
and 
‘‘(iii) no fees shall be applied under 
this subparagraph with respect to MA-
EFFS Rx plans. 
‘‘(E) INTERMEDIATE
SANCTIONS.—Section 
1857(g). 
‘‘(F) PROCEDURES
FOR
TERMINATION.—
Section 1857(h). 
‘‘(4) RULES OF APPLICATION FOR INTERMEDIATE 
SANCTIONS.—In applying paragraph (3)(E)—
‘‘(A) the reference in section 1857(g)(1)(B) 
to section 1854 is deemed a reference to this 
part; and 
‘‘(B) the reference in section 1857(g)(1)(F) 
to section 1852(k)(2)(A)(ii) shall not be applied. 
‘‘(5) SERVICE AREA REQUIREMENT.—For pur-
poses of this part, the Administrator shall designate 
at least 10 areas covering the entire United States 
and to the extent practicable shall be consistent with 
EFFS regions established under section 1860E–
1(a)(2).
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EXPAND 
CHOICE.—
‘‘(1) IN GENERAL.—In the case of an entity that 
seeks to offer a prescription drug plan in a State, the 
Administrator shall waive the requirement of sub-
section (a)(1) that the entity be licensed in that State 
if the Administrator determines, based on the applica-
tion and other evidence presented to the Adminis-
trator, that any of the grounds for approval of the ap-
plication described in paragraph (2) have been met. 
‘‘(2) GROUNDS FOR APPROVAL.—The grounds for 
approval under this paragraph are the grounds for 
approval described in subparagraph (B), (C), and 
(D) of section 1855(a)(2), and also include the appli-
cation by a State of any grounds other than those re-
quired under Federal law. 
‘‘(3) APPLICATION OF WAIVER PROCEDURES.—
With respect to an application for a waiver (or a 
waiver granted) under this subsection, the provisions 
of subparagraphs (E), (F), and (G) of section 
1855(a)(2) shall apply. 
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR OR 
CONSTITUTE CERTIFICATION.—The fact that an entity 
is licensed in accordance with subsection (a)(1) does
not deem the entity to meet other requirements im-
posed under this part for a PDP sponsor. 
‘‘(5) REFERENCES
TO
CERTAIN
PROVISIONS.—
For purposes of this subsection, in applying provi-
sions of section 1855(a)(2) under this subsection to 
prescription drug plans and PDP sponsors—
‘‘(A) any reference to a waiver application 
under section 1855 shall be treated as a reference 
to a waiver application under paragraph (1); 
and 
‘‘(B) any reference to solvency standards 
shall be treated as a reference to solvency stand-
ards established under subsection (d). 
‘‘(d) SOLVENCY
STANDARDS
FOR
NON-LICENSED 
SPONSORS.—
‘‘(1) ESTABLISHMENT.—The Administrator shall 
establish, by not later than October 1, 2004, financial 
solvency and capital adequacy standards that an en-
tity that does not meet the requirements of subsection 
(a)(1) must meet to qualify as a PDP sponsor under 
this part. 
‘‘(2) 
COMPLIANCE
WITH
STANDARDS.—Each 
PDP sponsor that is not licensed by a State under 
subsection (a)(1) and for which a waiver application 
has been approved under subsection (c) shall meet sol-
vency and capital adequacy standards established 
under paragraph (1). The Administrator shall estab-
lish certification procedures for such PDP sponsors 
with respect to such solvency standards in the manner 
described in section 1855(c)(2). 
‘‘(e) RELATION TO STATE LAWS.—
‘‘(1) IN
GENERAL.—The standards established 
under this part shall supersede any State law or reg-
ulation (other than State licensing laws or State laws 
relating to plan solvency, except as provided in sub-
section (d)) with respect to prescription drug plans 
which are offered by PDP sponsors under this part. 
‘‘(2) PROHIBITION
OF
STATE
IMPOSITION
OF 
PREMIUM TAXES.—No State may impose a premium 
tax or similar tax with respect to premiums paid to 
PDP sponsors for prescription drug plans under this 
part, or with respect to any payments made to such 
a sponsor by the Administrator under this part. 
‘‘SEC. 1860D–5. PROCESS FOR BENEFICIARIES TO SELECT 
QUALIFIED PRESCRIPTION DRUG COVERAGE. 
‘‘(a) IN GENERAL.—The Administrator shall establish 
a process for the selection of the prescription drug plan or 
MA-EFFS Rx plan through which eligible individuals elect 
qualified prescription drug coverage under this part.
‘‘(b) ELEMENTS.—Such process shall include the fol-
lowing: 
‘‘(1) Annual, coordinated election periods, in 
which such individuals can change the qualifying 
plans through which they obtain coverage, in accord-
ance with section 1860D–1(b)(2). 
‘‘(2) Active dissemination of information to pro-
mote an informed selection among qualifying plans 
based upon price, quality, and other features, in the 
manner described in (and in coordination with) sec-
tion 1851(d), including the provision of annual com-
parative information, maintenance of a toll-free hot-
line, and the use of non-Federal entities. 
‘‘(3) Coordination of elections through filing 
with the entity offering a MA-EFFS Rx plan or a 
PDP sponsor, in the manner described in (and in co-
ordination with) section 1851(c)(2). 
‘‘(4) Informing each enrollee before the beginning 
of each year of the annual out-of-pocket threshold ap-
plicable to the enrollee for that year under section 
1860D–2(b)(4) at such time. 
‘‘(c) MA-EFFS RX ENROLLEE MAY ONLY OBTAIN 
BENEFITS THROUGH THE PLAN.—An individual who is 
enrolled under a MA-EFFS Rx plan may only elect to re-
ceive qualified prescription drug coverage under this part 
through such plan. 
‘‘(d) ASSURING ACCESS TO A CHOICE OF QUALIFIED 
PRESCRIPTION DRUG COVERAGE.—
‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH 
AREA.—
‘‘(A) IN
GENERAL.—The Administrator 
shall assure that each individual who is entitled 
to benefits under part A or enrolled under part 
B and who is residing in an area in the United 
States has available, consistent with subpara-
graph (B), a choice of enrollment in at least two 
qualifying plans (as defined in paragraph (5)) 
in the area in which the individual resides, at 
least one of which is a prescription drug plan. 
‘‘(B) REQUIREMENT FOR DIFFERENT PLAN 
SPONSORS.—The requirement in subparagraph 
(A) is not satisfied with respect to an area if 
only one PDP sponsor or one entity that offers 
a MA-EFFS Rx plan offers all the qualifying 
plans in the area. 
‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—In 
order to assure access under paragraph (1) and con-
sistent with paragraph (3), the Administrator may 
provide partial underwriting of risk for a PDP spon-
sor to expand the service area under an existing pre-
scription drug plan to adjoining or additional areas 
or to establish such a plan (including offering such a 
plan on a regional or nationwide basis), but only so 
long as (and to the extent) necessary to assure the ac-
cess guaranteed under paragraph (1). 
‘‘(3) LIMITATION ON AUTHORITY.—In exercising 
authority under this subsection, the Administrator—
‘‘(A) shall not provide for the full under-
writing of financial risk for any PDP sponsor; 
and 
‘‘(B) shall seek to maximize the assumption 
of financial risk by PDP sponsors or entities of-
fering a MA-EFFS Rx plan. 
‘‘(4) REPORTS.—The Administrator shall, in 
each annual report to Congress under section 1809(f), 
include information on the exercise of authority under 
this subsection. The Administrator also shall include 
such recommendations as may be appropriate to min-
imize the exercise of such authority, including mini-
mizing the assumption of financial risk. 
‘‘(5) QUALIFYING PLAN DEFINED.—For purposes 
of this subsection, the term ‘qualifying plan’ means a 
prescription drug plan or a MA-EFFS Rx plan.
‘‘SEC. 1860D–6. SUBMISSION OF BIDS AND PREMIUMS. 
‘‘(a) SUBMISSION OF BIDS, PREMIUMS, AND RELATED 
INFORMATION.—
‘‘(1) IN
GENERAL.—Each PDP sponsor shall 
submit to the Administrator the information de-
scribed in paragraph (2) in the same manner as in-
formation is submitted by an organization under sec-
tion 1854(a)(1). 
‘‘(2) INFORMATION
SUBMITTED.—The informa-
tion described in this paragraph is the following: 
‘‘(A) COVERAGE
PROVIDED.—Information 
on the qualified prescription drug coverage to be 
provided. 
‘‘(B) ACTUARIAL
VALUE.—Information on 
the actuarial value of the coverage. 
‘‘(C) BID AND PREMIUM.—Information on 
the bid and the premium for the coverage, in-
cluding an actuarial certification of—
‘‘(i) the actuarial basis for such bid 
and premium; 
‘‘(ii) the portion of such bid and pre-
mium attributable to benefits in excess of 
standard coverage; 
‘‘(iii) the reduction in such bid result-
ing from the reinsurance subsidy payments 
provided under section 1860D–8(a)(2); and
‘‘(iv) the reduction in such premium 
resulting from the direct and reinsurance 
subsidy payments provided under section 
1860D–8. 
‘‘(D) 
ADDITIONAL
INFORMATION.—Such 
other information as the Administrator may re-
quire to carry out this part. 
‘‘(3) REVIEW
OF
INFORMATION; NEGOTIATION 
AND APPROVAL OF PREMIUMS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the Administrator shall review the in-
formation filed under paragraph (2) for the pur-
pose of conducting negotiations under section 
1860D–4(b)(2) (relating to using OPM-like au-
thority under the FEHBP). The Administrator, 
using the information provided (including the 
actuarial certification under paragraph (2)(C)) 
shall approve the premium submitted under this 
subsection only if the premium accurately re-
flects both (i) the actuarial value of the benefits 
provided, and (ii) the 73 percent average subsidy 
provided under section 1860D–8 for the standard 
benefit. The Administrator shall apply actuarial 
principles to approval of a premium under this 
part in a manner similar to the manner in
which those principles are applied in estab-
lishing the monthly part B premium under sec-
tion 1839. 
‘‘(B) EXCEPTION.—In the case of a plan de-
scribed in section 1851(a)(2)(C), the provisions 
of subparagraph (A) shall not apply and the 
provisions of paragraph (5)(B) of section 
1854(a), prohibiting the review, approval, or dis-
approval of amounts described in such para-
graph, shall apply to the negotiation and rejec-
tion of the monthly bid amounts and proportion 
referred to in subparagraph (A). 
‘‘(b) UNIFORM BID AND PREMIUM.—
‘‘(1) IN GENERAL.—The bid and premium for a 
prescription drug plan under this section may not 
vary among enrollees in the plan in the same service 
area. 
‘‘(2) CONSTRUCTION.—Nothing in paragraph (1) 
shall be construed as preventing the imposition of a 
late enrollment penalty under section 1860D–
1(c)(2)(B).
‘‘(c) COLLECTION.—
‘‘(1) 
BENEFICIARY’S
OPTION
OF
PAYMENT 
THROUGH
WITHHOLDING
FROM
SOCIAL
SECURITY 
PAYMENT OR USE OF ELECTRONIC FUNDS TRANSFER
MECHANISM.—In accordance with regulations, a PDP 
sponsor shall permit each enrollee, at the enrollee’s 
option, to make payment of premiums under this 
part to the sponsor through withholding from benefit 
payments in the manner provided under section 1840 
with respect to monthly premiums under section 1839 
or through an electronic funds transfer mechanism 
(such as automatic charges of an account at a finan-
cial institution or a credit or debit card account) or 
otherwise. All premium payments that are withheld 
under this paragraph shall be credited to the Medi-
care Prescription Drug Trust Fund and shall be paid 
to the PDP sponsor involved. 
‘‘(2) OFFSETTING.—Reductions in premiums for 
coverage under parts A and B as a result of a selec-
tion of a MA-EFFS Rx plan may be used to reduce 
the premium otherwise imposed under paragraph (1). 
‘‘(d) ACCEPTANCE OF REFERENCE PREMIUM AMOUNT 
AS FULL PREMIUM FOR SUBSIDIZED LOW-INCOME INDI-
VIDUALS IF NO STANDARD (OR EQUIVALENT) COVERAGE IN 
AN AREA.—
‘‘(1) IN GENERAL.—If there is no standard pre-
scription drug coverage (as defined in paragraph (2)) 
offered in an area, in the case of an individual who 
is eligible for a premium subsidy under section
1860D–7 and resides in the area, the PDP sponsor of 
any prescription drug plan offered in the area (and 
any entity offering a MA-EFFS Rx plan in the area) 
shall accept the reference premium amount (under 
paragraph (3)) as payment in full for the premium 
charge for qualified prescription drug coverage. 
‘‘(2) STANDARD PRESCRIPTION DRUG COVERAGE 
DEFINED.—For purposes of this subsection, the term 
‘standard prescription drug coverage’ means qualified 
prescription drug coverage that is standard coverage 
or that has an actuarial value equivalent to the actu-
arial value for standard coverage. 
‘‘(3) REFERENCE PREMIUM AMOUNT DEFINED.—
For purposes of this subsection, the term ‘reference 
premium amount’ means, with respect to qualified 
prescription drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the ac-
tuarial value of which is equivalent to that 
of standard coverage), the plan’s PDP pre-
mium; or 
‘‘(ii) provides alternative prescription 
drug coverage the actuarial value of which 
is greater than that of standard coverage,
the plan’s PDP premium multiplied by the 
ratio of (I) the actuarial value of standard 
coverage, to (II) the actuarial value of the 
alternative coverage; 
‘‘(B) an EFFS plan, the EFFS monthly 
prescription drug beneficiary premium (as de-
fined in section 1860E–4(a)(3)(B)); or 
‘‘(C) a Medicare Advantage, the Medicare 
Advantage monthly prescription drug beneficiary 
premium (as defined in section 1854(b)(2)(B)). 
For purposes of subparagraph (A), the term ‘PDP 
premium’ means, with respect to a prescription drug 
plan, the premium 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)). 
‘‘SEC. 1860D–7. PREMIUM AND COST-SHARING SUBSIDIES 
FOR LOW-INCOME INDIVIDUALS.
‘‘(a) INCOME-RELATED SUBSIDIES FOR INDIVIDUALS 
WITH INCOME BELOW 150 PERCENT OF FEDERAL POVERTY 
LEVEL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION 
OF
COST-SHARING
FOR
INDIVIDUALS
WITH
INCOME 
BELOW 135 PERCENT OF FEDERAL POVERTY LEVEL.—
In the case of a subsidy eligible individual (as defined 
in paragraph (4)) who is determined to have income 
that does not exceed 135 percent of the Federal pov-
erty level, the individual is entitled under this sec-
tion—
‘‘(A) to an income-related premium subsidy 
equal to 100 percent of the amount described in 
subsection (b)(1); and 
‘‘(B) subject to subsection (c), to the substi-
tution for the beneficiary cost-sharing described 
in paragraphs (1) and (2) of section 1860D–2(b) 
(up to the initial coverage limit specified in 
paragraph (3) of such section) of amounts that 
do not exceed $2 for a multiple source or generic 
drug (as described in section 1927(k)(7)(A)) and 
$5 for a non-preferred drug.
‘‘(2) SLIDING SCALE PREMIUM SUBSIDY FOR IN-
DIVIDUALS WITH INCOME ABOVE 135, BUT BELOW 150 
PERCENT, OF FEDERAL POVERTY LEVEL.—In the case 
of a subsidy eligible individual who is determined to 
have income that exceeds 135 percent, but does not ex-
ceed 150 percent, of the Federal poverty level, the in-
dividual is entitled under this section to an income-
related premium subsidy determined on a linear slid-
ing scale ranging from 100 percent of the amount de-
scribed in subsection (b)(1) for individuals with in-
comes at 135 percent of such level to 0 percent of such 
amount for individuals with incomes at 150 percent 
of such level. 
‘‘(3) CONSTRUCTION.—Nothing in this section 
shall be construed as preventing a PDP sponsor or 
entity offering a MA-EFFS Rx plan from reducing to 
0 the cost-sharing otherwise applicable to generic 
drugs. 
‘‘(4) DETERMINATION OF ELIGIBILITY.—
‘‘(A) SUBSIDY
ELIGIBLE
INDIVIDUAL
DE-
FINED.—For purposes of this section, subject to 
subparagraph (D), the term ‘subsidy eligible in-
dividual’ means an individual who—
‘‘(i) is eligible to elect, and has elected, 
to obtain qualified prescription drug cov-
erage under this part; 
‘‘(ii) has income below 150 percent of 
the Federal poverty line; and 
‘‘(iii) meets the resources requirement 
described in subparagraph (D) . 
‘‘(B) DETERMINATIONS.—The determina-
tion of whether an individual residing in a State 
is a subsidy eligible individual and the amount 
of such individual’s income shall be determined
under the State medicaid plan for the State 
under section 1935(a) or by the Social Security 
Administration. In the case of a State that does 
not operate such a medicaid plan (either under 
title XIX or under a statewide waiver granted 
under section 1115), such determination shall be 
made under arrangements made by the Adminis-
trator. There are authorized to be appropriated 
to the Social Security Administration such sums 
as may be necessary for the determination of eli-
gibility under this subparagraph. 
‘‘(C) INCOME DETERMINATIONS.—For pur-
poses of applying this section—
‘‘(i) income shall be determined in the 
manner described in section 1905(p)(1)(B); 
and 
‘‘(ii) the term ‘Federal poverty line’ 
means the official poverty line (as defined 
by the Office of Management and Budget, 
and revised annually in accordance with 
section 673(2) of the Omnibus Budget Rec-
onciliation Act of 1981) applicable to a 
family of the size involved. 
‘‘(D) RESOURCE STANDARD APPLIED TO BE 
BASED ON TWICE SSI RESOURCE STANDARD.—
The resource requirement of this subparagraph is 
that an individual’s resources (as determined 
under section 1613 for purposes of the supple-
mental security income program) do not ex-
ceed—
‘‘(i) for 2006 twice the maximum 
amount of resources that an individual may 
have and obtain benefits under that pro-
gram; and 
‘‘(ii) for a subsequent year the resource 
limitation established under this clause for 
the previous year increased by the annual 
percentage increase in the consumer price 
index (all items; U.S. city average) as of 
September of such previous year. 
Any resource limitation established under clause 
(ii) that is not a multiple of $10 shall be round-
ed to the nearest multiple of $10. 
‘‘(E) TREATMENT
OF
TERRITORIAL
RESI-
DENTS.—In the case of an individual who is not 
a resident of the 50 States or the District of Co-
lumbia, the individual is not eligible to be a sub-
sidy eligible individual but may be eligible for 
financial assistance with prescription drug ex-
penses under section 1935(e).
‘‘(F) TREATMENT OF CONFORMING MEDIGAP 
POLICIES.—For purposes of this section, the term 
‘qualified prescription drug coverage’ includes a 
medicare supplemental policy described in sec-
tion 1860D–8(b)(4). 
‘‘(5) INDEXING DOLLAR AMOUNTS.—
‘‘(A) FOR
2007.—The dollar amounts ap-
plied under paragraphs (1)(B) for 2007 shall be 
the dollar amounts specified in such paragraph 
increased by the annual percentage increase de-
scribed in section 1860D–2(b)(5) for 2007. 
‘‘(B) FOR SUBSEQUENT YEARS.—The dollar 
amounts applied under paragraph (1)(B) for a 
year after 2007 shall be the amounts (under this 
paragraph) applied under paragraph (1)(B) for 
the preceding year increased by the annual per-
centage increase described in section 1860D–
2(b)(5) (relating to growth in medicare prescrip-
tion drug costs per beneficiary) for the year in-
volved. 
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) 
IN
GENERAL.—The 
premium 
subsidy 
amount described in this subsection for an individual 
residing in an area is the benchmark premium 
amount (as defined in paragraph (2)) for qualified
prescription drug coverage offered by the prescription 
drug plan or the MA-EFFS Rx plan in which the in-
dividual is enrolled. 
‘‘(2) BENCHMARK PREMIUM AMOUNT DEFINED.—
For purposes of this subsection, the term ‘benchmark 
premium amount’ means, with respect to qualified 
prescription drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the ac-
tuarial value of which is equivalent to that 
of standard coverage), the premium amount 
for enrollment under the plan under this 
part (determined without regard to any 
subsidy under this section or any late en-
rollment penalty under section 1860D–
1(c)(2)(B)); or 
‘‘(ii) provides alternative prescription 
drug coverage the actuarial value of which 
is greater than that of standard coverage, 
the premium amount described in clause (i) 
multiplied by the ratio of (I) the actuarial 
value of standard coverage, to (II) the actu-
arial value of the alternative coverage; or
‘‘(B) a MA-EFFS Rx plan, the portion of 
the premium amount that is attributable to stat-
utory 
drug 
benefits 
(described 
in 
section 
1853(a)(1)(A)(ii)(II)). 
‘‘(c) RULES
IN
APPLYING
COST-SHARING
SUB-
SIDIES.—
‘‘(1) IN
GENERAL.—In applying subsection 
(a)(1)(B), nothing in this part shall be construed as 
preventing a plan or provider from waiving or reduc-
ing the amount of cost-sharing otherwise applicable. 
‘‘(2) LIMITATION ON CHARGES.—In the case of 
an individual receiving cost-sharing subsidies under 
subsection (a)(1)(B), the PDP sponsor or entity offer-
ing a MA-EFFS Rx plan may not charge more than 
$5 per prescription. 
‘‘(3) APPLICATION
OF
INDEXING
RULES.—The 
provisions of subsection (a)(5) shall apply to the dol-
lar amount specified in paragraph (2) in the same 
manner as they apply to the dollar amounts specified 
in subsections (a)(1)(B). 
‘‘(d) ADMINISTRATION OF SUBSIDY PROGRAM.—The 
Administrator shall provide a process whereby, in the case 
of an individual who is determined to be a subsidy eligible 
individual and who is enrolled in prescription drug plan 
or is enrolled in a MA-EFFS Rx plan—
‘‘(1) the Administrator provides for a notifica-
tion of the PDP sponsor or the entity offering the 
MA-EFFS Rx plan involved that the individual is el-
igible for a subsidy and the amount of the subsidy 
under subsection (a); 
‘‘(2) the sponsor or entity involved reduces the 
premiums or cost-sharing otherwise imposed by the 
amount of the applicable subsidy and submits to the 
Administrator information on the amount of such re-
duction; and 
‘‘(3) the Administrator periodically and on a 
timely basis reimburses the sponsor or entity for the 
amount of such reductions. 
The reimbursement under paragraph (3) with respect to 
cost-sharing subsidies may be computed on a capitated 
basis, taking into account the actuarial value of the sub-
sidies and with appropriate adjustments to reflect dif-
ferences in the risks actually involved. 
‘‘(e) RELATION TO MEDICAID PROGRAM.—
‘‘(1) IN GENERAL.—For provisions providing for 
eligibility determinations, and additional financing, 
under the medicaid program, see section 1935. 
‘‘(2) MEDICAID PROVIDING WRAP AROUND BENE-
FITS.—The coverage provided under this part is pri-
mary payor to benefits for prescribed drugs provided
under the medicaid program under title XIX con-
sistent with section 1935(d)(1). 
‘‘(3) COORDINATION.—The Administrator shall 
develop and implement a plan for the coordination of 
prescription drug benefits under this part with the 
benefits provided under the medicaid program under 
title XIX, with particular attention to insuring co-
ordination of payments and prevention of fraud and 
abuse. In developing and implementing such plan, the 
Administrator shall involve the Secretary, the States, 
the data processing industry, pharmacists, and phar-
maceutical manufacturers, and other experts.
‘‘SEC. 1860D–8. SUBSIDIES FOR ALL MEDICARE BENE-
FICIARIES FOR QUALIFIED PRESCRIPTION 
DRUG COVERAGE. 
‘‘(a) SUBSIDY PAYMENT.—In order to reduce premium 
levels applicable to qualified prescription drug coverage for 
all medicare beneficiaries consistent with an overall subsidy 
level of 73 percent, to reduce adverse selection among pre-
scription drug plans and MA-EFFS Rx plans, and to pro-
mote the participation of PDP sponsors under this part, 
the Administrator shall provide in accordance with this sec-
tion for payment to a qualifying entity (as defined in sub-
section (b)) of the following subsidies:
‘‘(1) DIRECT SUBSIDY.—In the case of an en-
rollee enrolled for a month in a prescription drug 
plan or a MA-EFFS Rx plan, a direct subsidy equal 
to 43 percent of the national average monthly bid 
amount (computed under subsection (g)) for that 
month.
‘‘(2) SUBSIDY THROUGH REINSURANCE.—In the 
case of an enrollee enrolled for a month in a prescrip-
tion drug plan or a MA-EFFS Rx plan, the reinsur-
ance payment amount (as defined in subsection (c)), 
which in the aggregate is 30 percent of the total pay-
ments made by qualifying entities for standard cov-
erage under the respective plan, for excess costs in-
curred in providing qualified prescription drug cov-
erage—
‘‘(A) for enrollees with a prescription drug 
plan under this part; and 
‘‘(B) for enrollees with a MA-EFFS Rx 
plan. 
‘‘(3) EMPLOYER
AND
UNION
FLEXIBILITY.—In 
the case of an individual who is a participant or ben-
eficiary in a qualified retiree prescription drug plan 
(as defined in subsection (f)(1)) and who is not en-
rolled in a prescription drug plan or in a MA-EFFS
Rx plan, the special subsidy payments under sub-
section (f)(3). 
This section constitutes budget authority in advance of ap-
propriations Acts and represents the obligation of the Ad-
ministrator to provide for the payment of amounts provided 
under this section. In applying the percentages under para-
graphs (1) and (2), there shall be taken into account under 
the respective paragraphs the portion of the employer and 
union special subsidy payments under subsection (f)(3) that 
reflect payments that would have been made under the re-
spective paragraphs if such paragraphs had applied to 
qualified retiree prescription drug plans instead of para-
graph (3). 
‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes of 
this section, the term ‘qualifying entity’ means any of the 
following that has entered into an agreement with the Ad-
ministrator to provide the Administrator with such infor-
mation as may be required to carry out this section: 
‘‘(1) A PDP sponsor offering a prescription drug 
plan under this part. 
‘‘(2) An entity that offers a MA-EFFS Rx plan. 
‘‘(3) The sponsor of a qualified retiree prescrip-
tion drug plan (as defined in subsection (f)). 
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) 
IN
GENERAL.—Subject 
to 
subsection 
(d)(1)(B) and paragraph (4), the reinsurance pay-
ment amount under this subsection for a qualifying 
covered individual (as defined in paragraph (5)) for 
a coverage year (as defined in subsection (h)(2)) is 
equal to the sum of the following: 
‘‘(A) REINSURANCE BETWEEN INITIAL REIN-
SURANCE
THRESHOLD
AND
THE
INITIAL
COV-
ERAGE LIMIT.—For the portion of the individ-
ual’s gross covered prescription drug costs (as de-
fined in paragraph (3)) for the year that exceeds 
the initial reinsurance threshold specified in 
paragraph (4), but does not exceed the initial 
coverage limit specified in section 1860D–
2(b)(3), an amount equal to 20 percent of the al-
lowable costs (as defined in paragraph (2)) at-
tributable to such gross covered prescription drug 
costs. 
‘‘(B) REINSURANCE ABOVE ANNUAL OUT-OF-
POCKET THRESHOLD.—For the portion of the in-
dividual’s gross covered prescription drug costs 
for the year that exceeds the annual out-of-pocket 
threshold specified in 1860D–2(b)(4)(B), an 
amount equal to 80 percent of the allowable costs
attributable to such gross covered prescription 
drug costs. 
‘‘(2) ALLOWABLE COSTS.—For purposes of this 
section, the term ‘allowable costs’ means, with respect 
to gross covered prescription drug costs under a plan 
described in subsection (b) offered by a qualifying en-
tity, the part of such costs that are actually paid (net 
of discounts, chargebacks, and average percentage re-
bates) under the plan, but in no case more than the 
part of such costs that would have been paid under 
the plan if the prescription drug coverage under the 
plan were standard coverage. 
‘‘(3) GROSS
COVERED
PRESCRIPTION
DRUG 
COSTS.—For purposes of this section, the term ‘gross 
covered prescription drug costs’ means, with respect to 
an enrollee with a qualifying entity under a plan de-
scribed in subsection (b) during a coverage year, the 
costs incurred under the plan (including costs attrib-
utable to administrative costs) for covered prescrip-
tion drugs dispensed during the year, including costs 
relating to the deductible, whether paid by the enrollee 
or under the plan, regardless of whether the coverage 
under the plan exceeds standard coverage and regard-
less of when the payment for such drugs is made.
‘‘(4) INITIAL
REINSURANCE
THRESHOLD.—The 
initial reinsurance threshold specified in this para-
graph—
‘‘(A) for 2006, is equal to $1,000; or 
‘‘(B) for a subsequent year, is equal to the 
payment threshold specified in this paragraph 
for the previous year, increased by the annual 
percentage increase described in section 1860D–
2(b)(5) for the year involved. 
Any amount determined under subparagraph (B) 
that is not a multiple of $10 shall be rounded to the 
nearest multiple of $10.
‘‘(5) QUALIFYING
COVERED
INDIVIDUAL
DE-
FINED.—For purposes of this subsection, the term 
‘qualifying covered individual’ means an individual 
who—
‘‘(A) is enrolled with a prescription drug 
plan under this part; or 
‘‘(B) is enrolled with a MA-EFFS Rx plan. 
‘‘(d) ADJUSTMENT OF PAYMENTS.—
‘‘(1) ADJUSTMENT OF REINSURANCE PAYMENTS 
TO ASSURE 30 PERCENT LEVEL OF SUBSIDY THROUGH 
REINSURANCE.—
‘‘(A) ESTIMATION OF PAYMENTS.—The Ad-
ministrator shall estimate—
‘‘(i) the total payments to be made 
(without regard to this subsection) during a 
year under subsections (a)(2) and (c); and 
‘‘(ii) the total payments to be made by 
qualifying entities for standard coverage 
under plans described in subsection (b) dur-
ing the year. 
‘‘(B) 
ADJUSTMENT.—The 
Administrator 
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 pay-
ments made under such subsections (and under 
subsection (f)(3) insofar as such payments reflect 
payments that would have been made under such 
subsections if such subsections had applied to 
qualified retiree prescription drug plans instead 
of subsections (a)(3) and (f)(3)) for the year is 
equal to 30 percent of the total payments de-
scribed 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 subsidies under subsection (a)(1) are 
subject to adjustment based upon risk factors 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 sub-
section. 
‘‘(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 Administrator’s best estimate of amounts that will 
be payable after obtaining all of the information. 
‘‘(2) SOURCE OF PAYMENTS.—Payments under 
this section shall be made from the Medicare Prescrip-
tion Drug Trust Fund. 
‘‘(f) RULES RELATING TO QUALIFIED RETIREE PRE-
SCRIPTION DRUG PLAN.—
‘‘(1) DEFINITION.—For purposes of this section, 
the term ‘qualified retiree prescription 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 beneficiary under 
such coverage and is eligible to be enrolled in a pre-
scription drug plan or a MA-EFFS Rx plan under 
this part, the following requirements are met:
‘‘(A) ACTUARIAL EQUIVALENCE TO STAND-
ARD COVERAGE.—The Administrator determines 
(based on an actuarial analysis by the Adminis-
trator) that coverage provides at least the same 
actuarial value as standard coverage. Such de-
termination may be made on an annual basis. 
‘‘(B) AUDITS.—The sponsor (and the plan) 
shall maintain, and afford the Administrator ac-
cess to, such records as the Administrator may 
require for purposes of audits and other oversight 
activities necessary to ensure the adequacy of 
prescription drug coverage and the accuracy of 
payments made. 
‘‘(C) PROVISION OF CERTIFICATION OF PRE-
SCRIPTION 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 ELIGIBILITY.—No 
payment shall be provided under this section with re-
spect to a participant 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 prescrip-
tion drug coverage under section 1860D–1 but 
did not elect such coverage under this part (ei-
ther through a prescription drug plan or through 
a MA-EFFS Rx plan). 
‘‘(3) EMPLOYER AND UNION SPECIAL SUBSIDY 
AMOUNTS.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a), the special subsidy payment amount 
under this paragraph for a qualifying covered 
retiree (as defined in paragraph (6)) for a cov-
erage year (as defined in subsection (h)) enrolled 
in a qualifying entity described in subsection 
(b)(3) under a qualified retiree prescription drug 
plan is, for the portion of the individual’s gross 
covered prescription drug costs for the year that 
exceeds the deductible amount specified in sub-
paragraph (B), an amount equal to, subject to 
subparagraph (D), 28 percent of the allowable 
costs attributable 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 individual for 
the plan year.
‘‘(B) DEDUCTIBLE AND COST LIMIT APPLI-
CABLE.—Subject to subparagraph (C)—
‘‘(i) the deductible under this subpara-
graph is equal to $250 for plan years that 
end in 2006; and 
‘‘(ii) the cost limit under this subpara-
graph 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 ad-
justed in the same manner as the annual deduct-
ible under section 1860D–2(b)(1) is annually ad-
justed under such section. 
‘‘(D) 
ADJUSTMENT
CONTINGENCY.—The 
Secretary may adjust the percentage specified in 
subparagraph (A) with respect to plan years that 
end in a year in a manner so that the aggregate 
expenditures in the year under this section are 
the same as the aggregate expenditures that 
would have been made under this section (taking 
into account the effect of any adjustment under 
subsection (d)(1)(B)) if paragraphs (1) and (2) 
of subsection (a) had applied to qualified pre-
scription drug coverage instead of this para-
graph and subsection (a)(3).
‘‘(4) RELATED DEFINITIONS.—As used in this 
section: 
‘‘(A) 
EMPLOYMENT-BASED
RETIREE 
HEALTH
COVERAGE.—The term ‘employment-
based retiree health coverage’ means health in-
surance or other coverage of health care costs for 
individuals eligible to enroll in a prescription 
drug plan or MA-EFFS Rx plan under this part 
(or for such individuals and their spouses and 
dependents) under a group health plan (includ-
ing such a plan that is established or main-
tained under or pursuant to one or more collec-
tive bargaining agreements) based on their status 
as retired participants in such plan. 
‘‘(B) QUALIFYING COVERED RETIREE.—The 
term ‘qualifying covered retiree’ means an indi-
vidual who is eligible to obtain qualified pre-
scription 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) 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 Retirement Income Security Act of 
1974. 
‘‘(5) CONSTRUCTION.—Nothing in this subsection 
shall be construed as—
‘‘(A) precluding an individual who is cov-
ered under employment-based retiree health cov-
erage from enrolling in a prescription drug plan 
or in a MA-EFFS plan; 
‘‘(B) precluding such employment-based re-
tiree health coverage or an employer or other 
person from paying all or any portion of any 
premium required for coverage under such a pre-
scription drug plan or MA-EFFS plan on behalf 
of such an individual; or 
‘‘(C) preventing such employment-based re-
tiree health coverage from providing coverage for 
retirees—
‘‘(i) who are covered under a qualified 
retiree prescription plan that is better than 
standard coverage; or 
‘‘(ii) who are not covered under a 
qualified retiree prescription plan but who 
are enrolled in a prescription drug plan or
a MA-EFFS Rx plan, that is supplemental 
to the benefits provided under such prescrip-
tion drug plan or MA-EFFS Rx plan, ex-
cept that any such supplemental coverage 
(not including payment of any premium re-
ferred to in subparagraph (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 (beginning 
with 2006) the Administrator shall compute a na-
tional average monthly bid amount equal to the aver-
age of the benchmark bid amounts for each prescrip-
tion drug plan and for each MA-EFFS Rx plan (as 
computed under paragraph (2), but excluding plans 
described in section 1851(a)(2)(C))) adjusted under 
paragraph (4) to take into account reinsurance pay-
ments. 
‘‘(2) BENCHMARK BID AMOUNT DEFINED.—For 
purposes of this subsection, the term ‘benchmark bid 
amount’ means, with respect to qualified prescription 
drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the ac-
tuarial value is equivalent to that of stand-
ard coverage), the PDP bid; or 
‘‘(ii) provides alternative prescription 
drug coverage the actuarial 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 actuarial value of the alternative 
coverage; or 
‘‘(B) a MA-EFFS Rx plan, the portion of 
the bid amount that is attributable to statutory 
drug 
benefits 
(described 
in 
section 
1853(a)(1)(A)(ii)(II)). 
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-in-
come subsidy under section 1860D–7 or any late en-
rollment 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 aver-
age number of beneficiaries enrolled under such 
plan in the previous year. 
‘‘(B) SPECIAL RULE FOR 2006.—For pur-
poses of applying this subsection for 2006, the 
Administrator shall establish procedures for de-
termining the weighted average under subpara-
graph (A) for 2005. 
‘‘(4) ADJUSTMENT TO ADD BACK IN VALUE OF 
REINSURANCE
SUBSIDIES.—The adjustment under 
this paragraph, to take into account reinsurance pay-
ments 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 percent, instead of representing 70 per-
cent, of average payments under this part.
‘‘(h) COVERAGE YEAR DEFINED.—For purposes of this 
section, the term ‘coverage year’ means a calendar year in 
which covered outpatient drugs are dispensed if a claim for 
payment 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 Prescription Drug Trust Fund’ (in this 
section referred 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 appropriated to, such fund as provided 
in this part. Except as otherwise provided in this section, 
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 Administrator certifies are necessary 
to make—
‘‘(A) payments under section 1860D–7 (re-
lating to low-income subsidy payments); 
‘‘(B) payments under section 1860D–8 (re-
lating to subsidy payments); and 
‘‘(C) payments with respect to administra-
tive expenses under this part in accordance with 
section 201(g). 
‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR IN-
CREASED
ADMINISTRATIVE
COSTS.—The Managing 
Trustee shall transfer from time to time from the
100
Trust Fund to the Grants to States for Medicaid ac-
count amounts the Administrator certifies are attrib-
utable to increases in payment resulting from the ap-
plication of a higher Federal matching percentage 
under section 1935(b). 
‘‘(c) DEPOSITS INTO TRUST FUND.—
‘‘(1) LOW-INCOME TRANSFER.—There is hereby 
transferred to the Trust Fund, from amounts appro-
priated for Grants to States for Medicaid, amounts 
equivalent to the aggregate amount of the reductions 
in payments under section 1903(a)(1) attributable to 
the application of section 1935(c). 
‘‘(2) APPROPRIATIONS TO COVER GOVERNMENT 
CONTRIBUTIONS.—There are authorized to be appro-
priated 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 pay-
ments made from the Trust Fund under subsection 
(b), reduced by the amount transferred to the Trust 
Fund under paragraph (1). 
‘‘(d) RELATION TO SOLVENCY REQUIREMENTS.—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.
101
‘‘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 ‘ini-
tial coverage limit’ means such limit as established 
under section 1860D–2(b)(3), or, in the case of cov-
erage that is not standard coverage, the comparable 
limit (if any) established under the coverage. 
‘‘(3) MEDICARE
PRESCRIPTION
DRUG
TRUST 
FUND.—The term ‘Medicare Prescription Drug Trust 
Fund’ means the 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 requirements and standards of this part 
for such a sponsor. 
‘‘(5) PRESCRIPTION DRUG PLAN.—The term ‘pre-
scription drug plan’ means health benefits coverage 
that—
‘‘(A) is offered under a policy, contract, or 
plan by a PDP sponsor pursuant to, and in ac-
102
cordance with, a contract between the Adminis-
trator and the sponsor under section 1860D–
4(b); 
‘‘(B) provides qualified prescription drug 
coverage; and 
‘‘(C) meets the applicable requirements of 
the section 1860D–3 for a prescription drug 
plan. 
‘‘(6) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘qualified prescription drug cov-
erage’ is defined in section 1860D–2(a). 
‘‘(7) STANDARD COVERAGE.—The term ‘standard 
coverage’ is defined in section 1860D–2(b). 
‘‘(b) OFFER OF QUALIFIED PRESCRIPTION DRUG COV-
ERAGE UNDER MEDICARE ADVANTAGE AND EFFS PRO-
GRAMS.—
‘‘(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 organiza-
tions are required to offer EFFS plans that include 
qualified prescription drug coverage under part E 
pursuant to section 1860E–2(d).
103
‘‘(c) APPLICATION OF PART C PROVISIONS UNDER 
THIS PART.—For purposes of applying provisions of part 
C under this part with respect to a prescription drug plan 
and a PDP sponsor, unless otherwise provided in this part 
such provisions shall be applied as if—
‘‘(1) any reference to a Medicare Advantage or 
other plan included a reference to a prescription drug 
plan; 
‘‘(2) any reference to a provider-sponsored orga-
nization 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 PROVIDED TO 
NURSING FACILITY PATIENTS.—
‘‘(1) REVIEW.—Within 6 months after the date of 
the enactment of this section, the Secretary shall re-
view the current standards of practice for pharmacy 
services provided to patients in nursing facilities. 
‘‘(2) EVALUATIONS
AND
RECOMMENDATIONS.—
Specifically in the review under paragraph (1), the 
Secretary shall—
104
‘‘(A) assess the current standards of prac-
tice, clinical services, and other service require-
ments generally utilized for pharmacy services in 
the long-term care setting; 
‘‘(B) evaluate the impact of those standards 
with respect to patient safety, reduction of medi-
cation errors and quality of care; and 
‘‘(C) recommend (in the Secretary’s report 
under paragraph (3)) necessary actions and ap-
propriate reimbursement to ensure the provision 
of prescription drugs to medicare beneficiaries 
residing in nursing facilities in a manner con-
sistent with existing patient safety and quality 
of care standards under applicable State and 
Federal laws. 
‘‘(3) REPORT.—The Secretary shall submit a re-
port to the Congress on the Secretary’s findings and 
recommendations under this subsection, including a 
detailed description of the Secretary’s plans to imple-
ment this part in a manner consistent with applica-
ble State and Federal laws designed to protect the 
safety and quality of care of nursing facility pa-
tients.’’. 
(b) ADDITIONAL CONFORMING CHANGES.—
105
(1) CONFORMING
REFERENCES
TO
PREVIOUS 
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 Social Security Act is deemed a reference 
to part F of such title (as in effect after such date). 
(2) CONFORMING AMENDMENT PERMITTING WAIV-
ER
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 sub-
paragraph (E); 
(B) by striking the period at the end of sub-
paragraph (F) and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(G) the waiver or reduction of any cost-sharing 
imposed under part D of title XVIII.’’. 
(3) SUBMISSION OF LEGISLATIVE PROPOSAL.—
Not later than 6 months after the date of the enact-
ment of this Act, the Secretary of Health and Human 
Services shall submit to the appropriate committees of 
Congress a legislative proposal providing for such 
technical and conforming amendments in the law as 
are required by the provisions of this subtitle. 
(c) STUDY ON TRANSITIONING PART B PRESCRIPTION 
DRUG COVERAGE.—Not later than January 1, 2005, the
106
Medicare Benefits Administrator 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 outpatient 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: 
‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENEFITS 
AND SUBSIDIES.—
‘‘(1) OFFERING
OF
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE.—A Medicare Advantage organiza-
tion on and after January 1, 2006—
‘‘(A) may not offer a Medicare Advantage 
plan described in section 1851(a)(2)(A) in an 
area unless either that plan (or another Medicare 
Advantage plan offered by the organization in 
that area) includes qualified prescription drug 
coverage; and 
‘‘(B) may not offer the prescription drug 
coverage (other than that required under parts A
107
and B) to an enrollee under a Medicare Advan-
tage plan, unless such drug coverage is at least 
qualified prescription drug coverage and unless 
the requirements of this subsection with respect 
to such coverage are met. 
‘‘(2) REQUIREMENT FOR ELECTION OF PART D 
COVERAGE
TO
OBTAIN
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE.—For purposes of this part, an in-
dividual who has not elected qualified prescription 
drug coverage under section 1860D–1(b) shall be 
treated as being ineligible to enroll in a Medicare Ad-
vantage plan under this part that offers such cov-
erage. 
‘‘(3) COMPLIANCE
WITH
CERTAIN
ADDITIONAL 
BENEFICIARY PROTECTIONS FOR PRESCRIPTION DRUG 
COVERAGE.—With respect to the offering of qualified 
prescription drug coverage by a Medicare Advantage 
organization under this part on and after January 1, 
2006, the organization and plan shall meet the re-
quirements of subsections (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 in-
formation described in section 1860D–6(a)(2). The 
Administrator shall waive such requirements to the
108
extent the Administrator determines that such re-
quirements duplicate requirements otherwise applica-
ble to the organization or plan under this part. 
‘‘(4) AVAILABILITY OF PREMIUM AND COST-SHAR-
ING SUBSIDIES.—In the case of low-income individ-
uals who are enrolled in a Medicare Advantage plan 
that provides qualified prescription drug coverage, 
premium and cost-sharing subsidies are provided for 
such coverage under section 1860D–7. 
‘‘(5) AVAILABILITY
OF
DIRECT
AND
REINSUR-
ANCE SUBSIDIES TO REDUCE BIDS AND PREMIUMS.—
Medicare Advantage organizations are provided direct 
and reinsurance subsidy payments for providing 
qualified prescription drug coverage under this part 
under section 1860D–8. 
‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG 
PREMIUMS.—In the case of a Medicare Advantage 
plan that includes qualified prescription drug cov-
erage, with respect to an enrollee in such plan there 
shall be a single premium for both drug and non-drug 
coverage provided under the plan. 
‘‘(7) TRANSITION IN INITIAL ENROLLMENT PE-
RIOD.—Notwithstanding any other provision of this 
part, the annual, coordinated election period under
109
subsection (e)(3)(B) for 2006 shall be the 6-month pe-
riod beginning with November 2005. 
‘‘(8) QUALIFIED PRESCRIPTION DRUG COVERAGE; 
STANDARD COVERAGE.—For purposes of this part, the 
terms ‘qualified prescription drug coverage’ and 
‘standard coverage’ have the meanings given such 
terms in section 1860D–2.’’. 
(b) APPLICATION TO EFFS PLANS.—Subsection (d) of 
section 1860E–2, as added by section 201(a), is amended 
to read as follows: 
‘‘(d) AVAILABILITY OF PRESCRIPTION DRUG BENEFITS 
AND SUBSIDIES.—
‘‘(1) OFFERING
OF
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE.—An EFFS organization—
‘‘(A) may not offer an EFFS plan in an 
area unless either that plan (or another EFFS 
plan offered by the organization in that area) 
includes qualified prescription drug coverage; 
and 
‘‘(B) may not offer the prescription drug 
coverage (other than that required under parts A 
and B) to an enrollee under an EFFS plan, un-
less such drug coverage is at least qualified pre-
scription drug coverage and unless the require-
110
ments of this subsection with respect to such cov-
erage are met. 
‘‘(2) REQUIREMENT FOR ELECTION OF PART D 
COVERAGE
TO
OBTAIN
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE.—For purposes of this part, an in-
dividual who has not elected qualified prescription 
drug coverage under section 1860D–1(b) shall be 
treated as being ineligible to enroll in an EFFS plan 
under this part that offers such coverage. 
‘‘(3) COMPLIANCE
WITH
CERTAIN
ADDITIONAL 
BENEFICIARY PROTECTIONS FOR PRESCRIPTION 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 subsections (a) through (d) of sec-
tion 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 in-
formation described in section 1860D–6(a)(2). The 
Administrator shall waive such requirements to the 
extent the Administrator determines that such re-
quirements duplicate requirements otherwise applica-
ble to the organization or plan under this part. 
‘‘(4) AVAILABILITY OF PREMIUM AND COST-SHAR-
ING SUBSIDIES.—In the case of low-income individ-
111
uals who are enrolled in an EFFS plan that provides 
qualified prescription drug coverage, premium and 
cost-sharing subsidies are provided for such coverage 
under section 1860D–7. 
‘‘(5) AVAILABILITY
OF
DIRECT
AND
REINSUR-
ANCE SUBSIDIES TO REDUCE BIDS AND PREMIUMS.—
EFFS organizations are provided direct and reinsur-
ance subsidy payments for providing qualified pre-
scription drug coverage under this part under section 
1860D–8. 
‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG 
PREMIUMS.—In the case of an EFFS plan that in-
cludes qualified prescription drug coverage, with re-
spect to an enrollee in such plan there shall be a sin-
gle premium for both drug and non-drug coverage 
provided under the plan. 
‘‘(7) QUALIFIED PRESCRIPTION DRUG COVERAGE; 
STANDARD COVERAGE.—For purposes of this part, the 
terms ‘qualified prescription drug coverage’ and 
‘standard coverage’ have the meanings given such 
terms in section 1860D–2.’’. 
(c) CONFORMING AMENDMENTS.—Section 1851 (42 
U.S.C. 1395w–21) is amended—
(1) in subsection (a)(1)—
112
(A) by inserting ‘‘(other than qualified pre-
scription drug benefits)’’ after ‘‘benefits’’; 
(B) by striking the period at the end of sub-
paragraph (B) and inserting a comma; and 
(C) by adding after and below subpara-
graph (B) the following: 
‘‘and may elect qualified prescription drug coverage 
in accordance with section 1860D–1.’’; and 
(2) in subsection (g)(1), by inserting ‘‘and sec-
tion 1860D–1(c)(2)(B)’’ after ‘‘in this subsection’’. 
(d) EFFECTIVE DATE.—The amendments made by this 
section apply to coverage provided on or after January 1, 
2006.
SEC. 103. MEDICAID AMENDMENTS. 
(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN-
COME SUBSIDIES.—
(1) REQUIREMENT.—Section 1902(a) (42 U.S.C. 
1396a(a)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (64); 
(B) by striking the period at the end of 
paragraph (65) and inserting ‘‘; and’’; and 
(C) by inserting after paragraph (65) the 
following new paragraph:
113
‘‘(66) provide for making eligibility determina-
tions under section 1935(a).’’. 
(2) NEW SECTION.—Title XIX is further amend-
ed—
(A) by redesignating section 1935 as section 
1936; and 
(B) by inserting after section 1934 the fol-
lowing new section: 
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE 
PRESCRIPTION DRUG BENEFIT 
‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI-
BILITY DETERMINATIONS FOR LOW-INCOME SUBSIDIES.—
As a condition of its State plan under this title under sec-
tion 1902(a)(66) and receipt of any Federal financial as-
sistance under section 1903(a), a State shall—
‘‘(1) make determinations of eligibility for pre-
mium and cost-sharing subsidies under (and in ac-
cordance with) section 1860D–7; 
‘‘(2) inform the Administrator of the Medicare 
Benefits Administration of such determinations in 
cases in which such eligibility is established; and 
‘‘(3) otherwise provide such Administrator with 
such information as may be required to carry out 
part D of title XVIII (including section 1860D–7). 
‘‘(b) PAYMENTS
FOR ADDITIONAL ADMINISTRATIVE 
COSTS.—
114
‘‘(1) IN GENERAL.—The amounts expended by a 
State in carrying out subsection (a) are, subject to 
paragraph (2), expenditures reimbursable under the 
appropriate paragraph of section 1903(a); except 
that, notwithstanding any other provision of such sec-
tion, the applicable Federal matching rates with re-
spect to such expenditures under such section shall be 
increased as follows (but in no case shall the rate as 
so increased exceed 100 percent):
‘‘(A) For expenditures attributable to costs 
incurred during 2005, the otherwise applicable 
Federal matching rate shall be increased by 6-2⁄3 
percent of the percentage otherwise payable (but 
for this subsection) by the State. 
‘‘(B)(i) For expenditures attributable to 
costs incurred during 2006 and each subsequent 
year through 2018, the otherwise applicable Fed-
eral matching rate shall be increased by the ap-
plicable percent (as defined in clause (ii)) of the 
percentage otherwise payable (but for this sub-
section) by the State. 
‘‘(ii) For purposes of clause (i), the ‘appli-
cable percent’ for—
‘‘(I) 2006 is 13-1⁄3 percent; or
115
‘‘(II) a subsequent year is the applica-
ble percent under this clause for the pre-
vious year increased by 6-2⁄3 percentage 
points. 
‘‘(C) For expenditures attributable to costs 
incurred after 2018, the otherwise applicable 
Federal matching rate shall be increased to 100 
percent.
‘‘(2) COORDINATION.—The State shall provide 
the Administrator with such information as may be 
necessary to properly allocate administrative expendi-
tures described in paragraph (1) that may otherwise 
be made for similar eligibility determinations.’’. 
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID 
RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB-
SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN GENERAL.—Section 1903(a)(1) (42 U.S.C. 
1396b(a)(1)) is amended by inserting before the semi-
colon the following: ‘‘, reduced by the amount com-
puted under section 1935(c)(1) for the State and the 
quarter’’. 
(2) AMOUNT DESCRIBED.—Section 1935, as in-
serted by subsection (a)(2), is amended by adding at 
the end the following new subsection:
116
‘‘(c) FEDERAL ASSUMPTION OF MEDICAID PRESCRIP-
TION
DRUG
COSTS
FOR
DUALLY-ELIGIBLE
BENE-
FICIARIES.—
‘‘(1) IN
GENERAL.—For purposes of section 
1903(a)(1), for a State that is one of the 50 States 
or the District of Columbia for a calendar quarter in 
a year (beginning with 2005) the amount computed 
under this subsection is equal to the product of the 
following: 
‘‘(A) MEDICARE
SUBSIDIES.—The total 
amount of payments made in the quarter under 
section 1860D–7 (relating to premium and cost-
sharing prescription drug subsidies for low-in-
come medicare beneficiaries) that are attrib-
utable to individuals who are residents of the 
State and are entitled to benefits with respect to 
prescribed drugs under the State plan under this 
title (including such a plan operating under a 
waiver under section 1115). 
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent 
the Federal medical assistance percentage (as de-
fined in section 1905(b)) applicable to the State 
and the quarter.
117
‘‘(C) PHASE-OUT PROPORTION.—The phase-
out proportion (as defined in paragraph (2)) for 
the quarter. 
‘‘(2) PHASE-OUT PROPORTION.—For purposes of 
paragraph (1)(C), the ‘phase-out proportion’ for a 
calendar quarter in—
‘‘(A) 2006 is 93-1⁄3 percent; 
‘‘(B) a subsequent year before 2021, is the 
phase-out proportion for calendar quarters in the 
previous year decreased by 6-2⁄3
percentage 
points; or 
‘‘(C) a year after 2020 is 0 percent.’’. 
(c) MEDICAID
PROVIDING
WRAP-AROUND
BENE-
FITS.—Section 1935, as so inserted and amended, is further 
amended by adding at the end the following new subsection: 
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the 
case of an individual who is entitled to qualified pre-
scription drug coverage under a prescription drug 
plan under part D of title XVIII (or under a MA-
EFFS Rx plan under part C or E of such title) and 
medical assistance for prescribed drugs under this 
title, medical assistance shall continue to be provided 
under this title for prescribed drugs to the extent pay-
118
ment is not made under the prescription drug plan 
or MA-EFFS Rx plan selected by the individual. 
‘‘(2) CONDITION.—A State may require, as a 
condition for the receipt of medical assistance under 
this title with respect to prescription drug benefits for 
an individual eligible to obtain qualified prescription 
drug coverage described in paragraph (1), that the in-
dividual elect qualified prescription drug coverage 
under section 1860D–1.’’. 
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1935, as so inserted 
and amended, is further amended—
(A) in subsection (a) in the matter pre-
ceding paragraph (1), by inserting ‘‘subject to 
subsection (e)’’ after ‘‘section 1903(a)’’; 
(B) in subsection (c)(1), by inserting ‘‘sub-
ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and 
(C) by adding at the end the following new 
subsection: 
‘‘(e) TREATMENT OF TERRITORIES.—
‘‘(1) IN GENERAL.—In the case of a State, other 
than the 50 States and the District of Columbia—
‘‘(A) the previous provisions of this section 
shall not apply to residents of such State; and
119
‘‘(B) if the State establishes a plan de-
scribed in paragraph (2) (for providing medical 
assistance with respect to the provision of pre-
scription drugs to medicare beneficiaries), the 
amount otherwise determined under section 
1108(f) (as increased under section 1108(g)) for 
the State shall be increased by the amount speci-
fied in paragraph (3). 
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of covered outpatient drugs 
(as defined in section 1860D–2(f)) to low-income 
medicare beneficiaries; and 
‘‘(B) assures that additional amounts re-
ceived by the State that are attributable to the 
operation of this subsection are used only for 
such assistance. 
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified 
in this paragraph for a State for a year is equal 
to the product of—
‘‘(i) the aggregate amount specified in 
subparagraph (B); and
120
‘‘(ii) the amount specified in section 
1108(g)(1) for that State, divided by the 
sum of the amounts specified in such section 
for all such States. 
‘‘(B) AGGREGATE AMOUNT.—The aggregate 
amount specified in this subparagraph for—
‘‘(i) 2006, is equal to $25,000,000; or 
‘‘(ii) a subsequent year, is equal to the 
aggregate amount specified in this subpara-
graph for the previous year increased by 
annual percentage increase specified in sec-
tion 1860D–2(b)(5) for the year involved. 
‘‘(4) REPORT.—The Administrator shall submit 
to Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Administrator deems appro-
priate.’’. 
(2) CONFORMING AMENDMENT.—Section 1108(f) 
(42 U.S.C. 1308(f)) is amended by inserting ‘‘and sec-
tion 1935(e)(1)(B)’’ after ‘‘Subject to subsection (g)’’. 
(e) 
AMENDMENT
TO
BEST
PRICE.—Section 
1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)) is amend-
ed—
(1) by striking ‘‘and’’ at the end of subclause 
(III);
121
(2) by striking the period at the end of subclause 
(IV) and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
clause: 
‘‘(V) any prices charged which are 
negotiated by a prescription drug plan 
under part D of title XVIII, by a MA-
EFFS Rx plan under part C or E of 
such title with respect to covered out-
patient drugs, or by a qualified retiree 
prescription drug plan (as defined in 
section 1860D–8(f)(1)) with respect to 
such drugs on behalf of individuals en-
titled to benefits under part A or en-
rolled under part B of such title.’’. 
SEC. 104. MEDIGAP TRANSITION. 
(a) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) is 
amended by adding at the end the following new subsection: 
‘‘(v) COVERAGE OF PRESCRIPTION DRUGS.—
‘‘(1) IN GENERAL.—Notwithstanding any other 
provision of law, except as provided in paragraph (3) 
no new medicare supplemental policy that provides 
coverage of expenses for prescription drugs may be 
issued under this section on or after January 1, 2006, 
to an individual unless it replaces a medicare supple-
122
mental policy that was issued to that individual and 
that provided some coverage of expenses for prescrip-
tion drugs. Nothing in this subsection shall be con-
strued as preventing the policy holder of a medicare 
supplemental policy issued before January 1, 2006, 
from continuing to receive benefits under such policy 
on and after such date. 
‘‘(2) ISSUANCE OF SUBSTITUTE POLICIES FOR 
BENEFICIARIES ENROLLED WITH A PLAN UNDER PART 
D.—
‘‘(A) IN GENERAL.—The issuer of a medi-
care supplemental policy—
‘‘(i) may not deny or condition the 
issuance or effectiveness of a medicare sup-
plemental policy that has a benefit package 
classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’, ‘F’, or ‘G’ 
(under the standards established under sub-
section (p)(2)) and that is offered and is 
available for issuance to new enrollees by 
such issuer; 
‘‘(ii) may not discriminate in the pric-
ing of such policy, because of health status, 
claims experience, receipt of health care, or 
medical condition; and
123
‘‘(iii) may not impose an exclusion of 
benefits based on a pre-existing condition 
under such policy, 
in the case of an individual described in sub-
paragraph (B) who seeks to enroll under the pol-
icy not later than 63 days after the date of the 
termination of enrollment described in such 
paragraph and who submits evidence of the date 
of termination or disenrollment along with the 
application for such medicare supplemental pol-
icy. 
‘‘(B) INDIVIDUAL COVERED.—An individual 
described in this subparagraph is an individual 
who—
‘‘(i) enrolls in a prescription drug 
plan under part D; and 
‘‘(ii) at the time of such enrollment 
was enrolled and terminates enrollment in 
a medicare supplemental policy which has a 
benefit package classified as ‘H’, ‘I’, or ‘J’ 
under the standards referred to in subpara-
graph (A)(i) or terminates enrollment in a 
policy to which such standards do not apply 
but which provides benefits for prescription 
drugs.
124
‘‘(C) ENFORCEMENT.—The provisions of 
paragraph (4) of subsection (s) shall apply with 
respect to the requirements of this paragraph in 
the same manner as they apply to the require-
ments of such subsection. 
‘‘(3) NEW STANDARDS.—In applying subsection 
(p)(1)(E) (including permitting the NAIC to revise 
its model regulations in response to changes in law) 
with respect to the change in benefits resulting from 
title I of the Medicare Prescription Drug and Mod-
ernization Act of 2003, with respect to policies issued 
to individuals who are enrolled in a plan under part 
D, the changes in standards shall only provide for 
substituting (for the benefit packages described in 
paragraph (2)(B)(ii) that included coverage for pre-
scription drugs) two benefit packages that may pro-
vide for coverage of cost-sharing (other than the pre-
scription drug deductible) with respect to qualified 
prescription drug coverage under such part. The two 
benefit packages shall be consistent with the following: 
‘‘(A) FIRST NEW POLICY.—The policy de-
scribed in this subparagraph has the following 
benefits, notwithstanding any other provision of 
this section relating to a core benefit package:
125
‘‘(i) Coverage of 50 percent of the cost-
sharing otherwise applicable under parts A 
and B, except coverage of 100 percent of 
any cost-sharing otherwise applicable for 
preventive benefits. 
‘‘(ii) No coverage of the part B deduct-
ible. 
‘‘(iii) Coverage for all hospital coinsur-
ance for long stays (as in the current core 
benefit package). 
‘‘(iv) A limitation on annual out-of-
pocket expenditures under parts A and B to 
$4,000 in 2005 (or, in a subsequent year, to 
such limitation for the previous year in-
creased by an appropriate inflation adjust-
ment specified by the Secretary). 
‘‘(B) SECOND NEW POLICY.—The policy de-
scribed in this subparagraph has the same bene-
fits as the policy described in subparagraph (A), 
except as follows: 
‘‘(i) Substitute ‘75 percent’ for ‘50 per-
cent’ in clause (i) of such subparagraph. 
‘‘(ii) Substitute ‘$2,000’ for ‘$4,000’ in 
clause (iv) of such subparagraph.
126
‘‘(4) CONSTRUCTION.—Any provision in this sec-
tion or in a medicare supplemental policy relating to 
guaranteed renewability of coverage shall be deemed 
to have been met through the offering of other coverage 
under this subsection.’’. 
(b) NAIC REPORT TO CONGRESS ON MEDIGAP MOD-
ERNIZATION.—The Secretary shall request the National As-
sociation of Insurance Commissioners to submit to Con-
gress, not later than 18 months after the date of the enact-
ment of this Act, a report that includes recommendations 
on the modernization of coverage under the medigap pro-
gram under section 1882 of the Social Security Act (42 
U.S.C. 1395ss).
SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT CARD 
AND ASSISTANCE PROGRAM. 
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1806 the following new sections: 
‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD 
ENDORSEMENT AND ASSISTANCE PROGRAM 
‘‘SEC. 1807. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—The Secretary (or the Medi-
care Benefits Administrator pursuant to section 
1809(c)(3)(C)) shall establish a program—
‘‘(A) to endorse prescription drug discount 
card programs (each such program referred to as 
an ‘endorsed program’) that meet the require-
127
ments of this section in order to provide access 
to prescription drug discounts through an eligi-
ble entity for medicare beneficiaries throughout 
the United States; and 
‘‘(B) to provide for prescription drug ac-
counts and public contributions into such ac-
counts. 
The Secretary shall make available to medicare bene-
ficiaries information regarding endorsed programs 
and accounts under this section. 
‘‘(2) LIMITED PERIOD OF OPERATION.—The Sec-
retary shall begin—
‘‘(A) the card endorsement part of the pro-
gram under paragraph (1)(A) as soon as pos-
sible, but in no case later than 90 days after the 
date of the enactment of this section; and 
‘‘(B) the prescription drug account part of 
the program under paragraph (1)(B) as soon as 
possible, but in no case later than September 
2004. 
‘‘(3) TRANSITION.—The program under this sec-
tion shall continue through 2005 throughout the 
United States. The Secretary shall provide for an ap-
propriate transition and discontinuation of such pro-
128
gram at the time medicare prescription drug benefits 
become available under part D. 
‘‘(4) VOLUNTARY NATURE OF PROGRAM.—Noth-
ing in this section shall be construed as requiring an 
eligible beneficiary to enroll in the program under 
this section. 
‘‘(b) ELIGIBLE BENEFICIARY; ELIGIBLE ENTITY; PRE-
SCRIPTION DRUG ACCOUNT.—For purposes of this section: 
‘‘(1) ELIGIBLE BENEFICIARY.—The term ‘eligible 
beneficiary’ means an individual who is eligible for 
benefits under part A or enrolled under part B and 
who is not enrolled in a prescription drug plan or 
MA-EFFS Rx plan, but who may be enrolled in a 
Medicare Advantage plan that does not offer qualified 
prescription drug coverage. 
‘‘(2) ELIGIBLE ENTITY.—The term ‘eligible enti-
ty’ means any entity that the Secretary determines to 
be appropriate to provide the benefits under this sec-
tion, including—
‘‘(A) pharmaceutical benefit management 
companies; 
‘‘(B) wholesale and retail pharmacy deliv-
ery systems; 
‘‘(C) insurers;
129
‘‘(D) Medicare Advantage or EFFS organi-
zations; 
‘‘(E) other entities; or 
‘‘(F) any combination of the entities de-
scribed in subparagraphs (A) through (E). 
‘‘(3) PRESCRIPTION DRUG ACCOUNT.—The term 
‘prescription drug account’ means, with respect to an 
eligible beneficiary, an account established for the 
benefit of that beneficiary under section 1807A. 
‘‘(c) ENROLLMENT IN ENDORSED PLAN.—
‘‘(1) ESTABLISHMENT OF PROCESS.—
‘‘(A) IN GENERAL.—The Secretary shall es-
tablish a process through which an eligible bene-
ficiary may make an election to enroll under 
this section with an endorsed program. 
‘‘(B) REQUIREMENT OF ENROLLMENT.—An 
eligible beneficiary must enroll under this section 
for a year in order to be eligible to receive the 
benefits under this section for that year. 
‘‘(C) LIMITATION ON ENROLLMENT.—
‘‘(i) IN GENERAL.—Except as provided 
under this subparagraph and under such 
exceptional circumstances as the Secretary 
may provide, an eligible individual shall 
have the opportunity to enroll under this
130
section during an initial, general enroll-
ment period as soon as possible after the 
date of the enactment of this section and 
annually thereafter. The Secretary shall 
specify the form, manner, and timing of 
such election but shall permit the exercise of 
such election at the time the individual is 
eligible to enroll. The annual open enroll-
ment periods shall be coordinated with those 
provided under the Medicare Advantage and 
EFFS programs under parts C and E as 
well as under the prescription drug pro-
gram under part D. 
‘‘(ii) 
REELECTION
AFTER
TERMI-
NATION
OF
ENROLLMENT
IN
A
MEDICARE 
ADVANTAGE PLAN.—In the case of an indi-
vidual who is enrolled under this section 
and who subsequently enrolls in a Medicare 
Advantage plan that provides qualified pre-
scription drug coverage under part C, the 
individual shall be given the opportunity to 
reenroll under this section at the time the 
individual 
discontinues 
the 
enrollment 
under such part.
131
‘‘(iii) LATE
ENROLLMENT.—The Sec-
retary shall permit individuals to elect to 
enroll under this section at times other than 
as permitted under the previous provisions 
of this paragraph. 
‘‘(D) TERMINATION OF ENROLLMENT.—An 
enrollee under this section shall be disenrolled—
‘‘(i) upon enrollment in a prescription 
drug plan under part D or a Medicare Ad-
vantage or EFFS plan under part C or E 
that provides qualified prescription drug 
coverage; 
‘‘(ii) upon failure to pay the applicable 
enrollment fee under subsection (f); 
‘‘(iii) upon termination of coverage 
under part A or part B; or 
‘‘(iv) upon notice submitted to the Sec-
retary in such form, manner, and time as 
the Secretary shall provide. 
Terminations of enrollment under this subpara-
graph shall be effective as specified by the Sec-
retary in regulations. 
‘‘(2) ENROLLMENT PERIODS.—
‘‘(A) IN
GENERAL.—Except as provided 
under this paragraph, an eligible beneficiary
132
may not enroll in the program under this part 
during any period after the beneficiary’s initial 
enrollment period under part B (as determined 
under section 1837). 
‘‘(B) OPEN ENROLLMENT PERIOD FOR CUR-
RENT BENEFICIARIES.—The Secretary shall es-
tablish a period, which shall begin on the date 
on which the Secretary first begins to accept elec-
tions for enrollment under this section and shall 
end not earlier than 3 months later, during 
which any eligible beneficiary may enroll under 
this section. 
‘‘(C) SPECIAL
ENROLLMENT
PERIOD
IN 
CASE OF TERMINATION OF COVERAGE UNDER A 
GROUP HEALTH PLAN.—The Secretary shall pro-
vide for a special enrollment period under this 
section in the same manner as is provided under 
section 1837(i) with respect to part B, except 
that for purposes of this subparagraph any ref-
erence to ‘by reason of the individual’s (or the 
individual’s spouse’s) current employment status’ 
shall be treated as being deleted. 
‘‘(3) PERIOD OF COVERAGE.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B) and subject to subparagraph
133
(C), an eligible beneficiary’s coverage under the 
program under this section shall be effective for 
the period provided under section 1838, as if 
that section applied to the program under this 
section. 
‘‘(B) ENROLLMENT DURING OPEN AND SPE-
CIAL
ENROLLMENT.—Subject to subparagraph 
(C), an eligible beneficiary who enrolls under the 
program under this section under subparagraph 
(B) or (C) of paragraph (2) shall be entitled to 
the benefits under this section beginning on the 
first day of the month following the month in 
which such enrollment occurs. 
‘‘(d) SELECTION OF AN ELIGIBLE ENTITY FOR ACCESS 
TO NEGOTIATED PRICES.—
‘‘(1) PROCESS.—
‘‘(A) IN GENERAL.—The Secretary shall es-
tablish a process through which an eligible bene-
ficiary who is enrolled under this section shall 
select any eligible entity, that has been awarded 
a contract under this section and serves the State 
in which the beneficiary resides, to provide ac-
cess to negotiated prices under subsection (i). 
‘‘(B) RULES.—In establishing the process 
under subparagraph (A), the Secretary shall use
134
rules similar to the rules for enrollment and 
disenrollment with a Medicare Advantage plan 
under section 1851 (including the special election 
periods under subsection (e)(4) of such section), 
including that—
‘‘(i) an individual may not select more 
than one eligible entity at any time; and 
‘‘(ii) an individual shall only be per-
mitted (except for unusual circumstances) to 
change the selection of the entity once a 
year. 
In carrying out clause (ii), the Secretary may 
consider a change in residential setting (such as 
placement in a nursing facility) to be an un-
usual circumstance. 
‘‘(C) DEFAULT SELECTION.—In establishing 
such process, the Secretary shall provide an equi-
table method for selecting an eligible entity for 
individuals who enroll under this section and 
fail to make such a selection. 
‘‘(2) COMPETITION.—Eligible entities with a 
contract under this section shall compete for bene-
ficiaries on the basis of discounts, formularies, phar-
macy networks, and other services provided for under 
the contract.
135
‘‘(e) PROVIDING ENROLLMENT, SELECTION, AND COV-
ERAGE INFORMATION TO BENEFICIARIES.—
‘‘(1) ACTIVITIES.—The Secretary shall provide 
for activities under this section to broadly dissemi-
nate information to eligible beneficiaries (and pro-
spective eligible beneficiaries) regarding enrollment 
under this section, the selection of eligible entities, 
and the prescription drug coverage made available by 
eligible entities with a contract under this section. 
‘‘(2) SPECIAL
RULE
FOR
FIRST
ENROLLMENT 
UNDER THE PROGRAM.—To the extent practicable, the 
activities described in paragraph (1) shall ensure that 
eligible beneficiaries are provided with such informa-
tion at least 60 days prior to the first enrollment pe-
riod described in subsection (c). 
‘‘(f) ENROLLMENT FEE.—
‘‘(1) AMOUNT.—
‘‘(A) IN GENERAL.—Except as provided in 
paragraph (3), enrollment under the program 
under this section is conditioned upon payment 
of an annual enrollment fee of $30 for 2004 (in-
cluding any portion of 2003 in which the pro-
gram is implemented under this section). 
‘‘(B) ANNUAL
PERCENTAGE
INCREASE
IN 
ENROLLMENT FEE.—In the case of any calendar
136
year beginning after 2004, the dollar amount of 
the enrollment fee in subparagraph (A) shall be 
the dollar amount of such fee for the previous 
year increased by the annual percentage increase 
in the consumer price index for all urban con-
sumers (U.S. city average; all items) as of Sep-
tember before the beginning of the year involved. 
If any increase determined under the previous 
sentence is not a multiple of $1, such increase 
shall be rounded to the nearest multiple of $1. 
‘‘(2) COLLECTION
OF
ENROLLMENT
FEE.—The 
annual enrollment fee shall be collected and credited 
to the Federal Supplementary Medical Insurance 
Trust Fund in the same manner as the monthly pre-
mium determined under section 1839 is collected and 
credited to such Trust Fund under section 1840, ex-
cept that it shall be collected only 1 time per year. 
‘‘(3) PAYMENT OF ENROLLMENT FEE BY STATE 
FOR CERTAIN BENEFICIARIES.—
‘‘(A) IN GENERAL.—The Secretary shall es-
tablish an arrangement under which a State 
may provide for payment of some or all of the 
enrollment fee for some or all low income enroll-
ees in the State, as specified by the State under 
the arrangement. Insofar as such a payment ar-
137
rangement is made with respect to an enrollee, 
the amount of the enrollment fee shall be paid di-
rectly by the State and shall not be collected 
under paragraph (2). In carrying out this para-
graph, the Secretary may apply procedures simi-
lar to that applied under state agreements under 
section 1843. 
‘‘(B) NO
FEDERAL
MATCHING
AVAILABLE 
UNDER
MEDICAID
OR
SCHIP.—Expenditures 
made by a State described in subparagraph (A) 
shall not be treated as State expenditures for 
purposes of Federal matching payments under 
titles XIX and XXI insofar as such expenditures 
are for an enrollment fee under this subsection. 
‘‘(4) DISTRIBUTION
OF
PORTION
OF
ENROLL-
MENT FEE.—Of the enrollment fee collected by the 
Secretary under this subsection with respect to a ben-
eficiary, 2⁄3 of that fee shall be made available to the 
eligible entity selected by the eligible beneficiary. 
‘‘(g) ISSUANCE OF CARD AND COORDINATION.—Each 
eligible entity shall—
‘‘(1) issue, in a uniform standard format 
specified by the Secretary, to each enrolled bene-
ficiary a card and an enrollment number that
138
establishes proof of enrollment and that can be 
used in a coordinated manner—
‘‘(A) to identify the eligible entity selected to 
provide access to negotiated prices under sub-
section (i); and 
‘‘(B) to make deposits to and withdrawals 
from a prescription drug account under section 
1807A; and 
‘‘(2) provide for electronic methods to coordinate 
with the accounts established under section 1807A. 
‘‘(h) ENROLLEE PROTECTIONS.—
‘‘(1) GUARANTEED ISSUE AND NONDISCRIMINA-
TION.—
‘‘(A) GUARANTEED ISSUE.—
‘‘(i) IN
GENERAL.—An eligible bene-
ficiary who is eligible to select an eligible 
entity under subsection (b) for prescription 
drug coverage under this section at a time 
during which selections are accepted under 
this section with respect to the coverage 
shall not be denied selection based on any 
health status-related factor (described in sec-
tion 2702(a)(1) of the Public Health Service 
Act) or any other factor and may not be
139
charged any selection or other fee as a con-
dition of such acceptance. 
‘‘(ii) MEDICARE+CHOICE LIMITATIONS 
PERMITTED.—The provisions of paragraphs 
(2) and (3) (other than subparagraph 
(C)(i), relating to default enrollment) of sec-
tion 1851(g) (relating to priority and limi-
tation on termination of election) shall 
apply to selection of eligible entities under 
this paragraph. 
‘‘(B) NONDISCRIMINATION.—An eligible en-
tity offering prescription drug coverage under 
this section shall not establish a service area in 
a manner that would discriminate based on 
health or economic status of potential enrollees. 
‘‘(C) COVERAGE
OF
ALL
PORTIONS
OF
A 
STATE.—If an eligible entity with a contract 
under this section serves any part of a State it 
shall serve the entire State. 
‘‘(2) DISSEMINATION OF INFORMATION.—
‘‘(A) GENERAL INFORMATION.—An eligible 
entity with a contract under this section shall 
disclose, in a clear, accurate, and standardized 
form to each eligible beneficiary who has selected 
the entity to provide access to negotiated prices
140
under this section at the time of selection and at 
least annually thereafter, the information de-
scribed in section 1852(c)(1) relating to such 
prescription drug coverage. Such information in-
cludes the following (in a manner designed to 
permit and promote competition among eligible 
entities): 
‘‘(i) Summary information regarding 
negotiated prices (including discounts) for 
covered outpatient drugs. 
‘‘(ii) Access to such prices through 
pharmacy networks. 
‘‘(iii) How any formulary used by the 
eligible entity functions. 
‘‘(B) DISCLOSURE UPON REQUEST OF GEN-
ERAL COVERAGE, UTILIZATION, AND GRIEVANCE 
INFORMATION.—Upon request of an eligible bene-
ficiary, the eligible entity shall provide the infor-
mation described in section 1852(c)(2) (other 
than subparagraph (D)) to such beneficiary. 
‘‘(C) RESPONSE
TO
BENEFICIARY
QUES-
TIONS.—Each eligible entity offering prescrip-
tion drug coverage under this section shall have 
a mechanism (including a toll-free telephone 
number) for providing upon request specific in-
141
formation (such as negotiated prices, including 
discounts) to individuals who have selected the 
entity. The entity shall make available, through 
an Internet website and in writing upon request, 
information on specific changes in its formulary. 
‘‘(D) COORDINATION
WITH
PRESCRIPTION 
DRUG ACCOUNT BENEFITS.—Each such eligible 
entity shall provide for coordination of such in-
formation as the Secretary may specify to carry 
out section 1807A. 
‘‘(3) ACCESS TO COVERED BENEFITS.—
‘‘(A) ENSURING
PHARMACY
ACCESS.—The 
provisions of subsection (c)(1) of section 1860D–
3 (other than payment provisions under section 
1860D–8 with respect to sponsors under such 
subsection) shall apply to an eligible entity 
under this section in the same manner as they 
apply to a PDP sponsor under such section. 
‘‘(B) ACCESS TO NEGOTIATED PRICES FOR 
PRESCRIPTION DRUGS.—For requirements relat-
ing to the access of an eligible beneficiary to ne-
gotiated prices (including applicable discounts), 
see subsection (i). 
‘‘(C) REQUIREMENTS
ON
DEVELOPMENT 
AND APPLICATION OF FORMULARIES.—Insofar as
142
an eligible entity with a contract under this part 
uses a formulary, the entity shall comply with 
the requirements of section 1860D–3(c)(3), inso-
far as the Secretary determines that such re-
quirements can be implemented on a timely 
basis. 
‘‘(4) COST
AND
UTILIZATION
MANAGEMENT; 
QUALITY ASSURANCE; MEDICATION THERAPY MANAGE-
MENT PROGRAM.—
‘‘(A) IN GENERAL.—For purposes of pro-
viding access to negotiated benefits under sub-
section (i), the eligible entity shall have in place 
the programs and measure described in section 
1860D–3(d), including an effective cost and drug 
utilization management program, quality assur-
ance measures and systems, and a program to 
control fraud, abuse, and waste, insofar as the 
Secretary determines that such provisions can be 
implemented on a timely basis. 
‘‘(B) TREATMENT
OF
ACCREDITATION.—
Section 1852(e)(4) (relating to treatment of ac-
creditation) shall apply to the requirements for 
an endorsed program under this section with re-
spect to the following requirements, in the same 
manner as they apply to Medicare Advantage
143
plans under part C with respect to the require-
ments 
described 
in 
a 
clause 
of 
section 
1852(e)(4)(B): 
‘‘(i) Paragraph (3)(A) (relating to ac-
cess to covered benefits). 
‘‘(ii) Paragraph (7) (relating to con-
fidentiality 
and 
accuracy 
of 
enrollee 
records). 
‘‘(5) GRIEVANCE MECHANISM.—Each eligible en-
tity shall provide meaningful procedures for hearing 
and resolving grievances between the organization 
consistent with the requirements of section 1860D–
3(e) insofar as they relate to PDP sponsors of pre-
scription drug plans. 
‘‘(6) BENEFICIARY SERVICES.—An eligible entity 
shall provide for its enrollees pharmaceutical support 
services, such as education and counseling, and serv-
ices to prevent adverse drug interactions. 
‘‘(7) COVERAGE DETERMINATIONS AND RECON-
SIDERATIONS.—An eligible entity shall meet the re-
quirements of section 1852(g) with respect to covered 
benefits under the prescription drug coverage it offers 
under this section in the same manner as such re-
quirements apply to a Medicare Advantage organiza-
144
tion with respect to benefits it offers under a Medicare 
Advantage plan under part C. 
‘‘(8) CONFIDENTIALITY AND ACCURACY OF EN-
ROLLEE RECORDS.—An eligible entity shall meet the 
requirements of section 1852(h) with respect to enroll-
ees under this section in the same manner as such re-
quirements apply to a Medicare Advantage organiza-
tion with respect to enrollees under part C. The eligi-
ble entity shall implement policies and procedures to 
safeguard the use and disclosure of enrollees’ individ-
ually identifiable health information in a manner 
consistent with the Federal regulations (concerning 
the privacy of individually identifiable health infor-
mation) promulgated under section 264(c) of the 
Health Insurance Portability and Accountability Act 
of 1996. The eligible entity shall be treated as a cov-
ered entity for purposes of the provisions of subpart 
E of part 164 of title 45, Code of Federal Regulations, 
adopted pursuant to the authority of the Secretary 
under section 264(c) of the Health Insurance Port-
ability and Accountability Act of 1996 (42 U.S. C. 
1320d-2 note). 
‘‘(9) PERIODIC REPORTS AND OVERSIGHT.—The 
eligible entity shall submit to the Secretary periodic 
reports on performance, utilization, finances, and
145
such other matters as the Secretary may specify. The 
Secretary shall provide appropriate oversight to en-
sure compliance of eligible entities with the require-
ments of this subsection, including verification of the 
discounts and services provided. 
‘‘(10) 
ADDITIONAL
BENEFICIARY
PROTEC-
TIONS.—The eligible entity meets such additional re-
quirements as the Secretary identifies to protect and 
promote the interest of enrollees, including require-
ments that ensure that enrollees are not charged more 
than the lower of the negotiated retail price or the 
usual and customary price.
‘‘(i) BENEFITS UNDER THE PROGRAM THROUGH SAV-
INGS TO ENROLLEES THROUGH NEGOTIATED PRICES.—
‘‘(1) IN
GENERAL.—Subject to paragraph (2), 
each eligible entity with a contract under this section 
shall provide each eligible beneficiary enrolled with 
the entity with access to negotiated prices (including 
applicable discounts). For purposes of this paragraph, 
the term ‘prescription drugs’ is not limited to covered 
outpatient drugs, but does not include any over-the-
counter drug that is not a covered outpatient drug. 
The prices negotiated by an eligible entity under this 
paragraph shall (notwithstanding any other provision 
of law) not be taken into account for the purposes of
146
establishing 
the 
best 
price 
under 
section 
1927(c)(1)(C). 
‘‘(2) FORMULARY RESTRICTIONS.—Insofar as an 
eligible entity with a contract under this part uses a 
formulary, the negotiated prices (including applicable 
discounts) for prescription drugs shall only be avail-
able for drugs included in such formulary. 
‘‘(3) PROHIBITION
ON
APPLICATION
ONLY
TO 
MAIL ORDER.—The negotiated prices under this sub-
section shall apply to prescription drugs that are 
available other than solely through mail order. 
‘‘(4) PROHIBITION ON CHARGES FOR REQUIRED 
SERVICES.—An eligible entity (and any pharmacy 
contracting with such entity for the provision of a 
discount under this section) may not charge a bene-
ficiary any amount for any services required to be 
provided by the entity under this section. 
‘‘(5) DISCLOSURE.—The eligible entity offering 
the endorsed program shall disclose to the Secretary 
(in a manner specified by the Secretary) the extent to 
which discounts or rebates or other remuneration or 
price concessions made available to the entity by a 
manufacturer are passed through to enrollees through 
pharmacies and other dispensers or otherwise. The 
provisions of section 1927(b)(3)(D) shall apply to in-
147
formation disclosed to the Administrator under this 
paragraph in the same manner as such provisions 
apply to information disclosed under such section. 
‘‘(6) PUBLIC DISCLOSURE OF PHARMACEUTICAL 
PRICES FOR EQUIVALENT DRUGS.—Each eligible enti-
ty shall provide that each pharmacy or other dis-
penser that arranges for the dispensing of a covered 
outpatient drug in connection with its endorsed pro-
gram shall inform the enrollee in that program at the 
time of purchase of the drug of any differential be-
tween the price of the prescribed drug to the enrollee 
and the price of the lowest cost available generic drug 
covered under the program that is therapeutically 
equivalent and bioequivalent. 
‘‘(j) CONTRIBUTION INTO PRESCRIPTION DRUG AC-
COUNT.—
‘‘(1) IN GENERAL.—In the case of an individual 
enrolled under this section—
‘‘(A) the Secretary shall establish a pre-
scription drug account for the individual under 
section 1807A; and 
‘‘(B) shall deposit into such account on a 
monthly or other periodic basis an amount that, 
on an annual basis, is equivalent to the annual
148
Federal contribution amount specified in para-
graph (2) for the enrollee involved. 
‘‘(2) 
ANNUAL
FEDERAL
CONTRIBUTION 
AMOUNT.—
‘‘(A) IN 2004.—Subject to paragraphs (3) 
and (4), in the case of an accountholder whose 
modified adjusted gross income is—
‘‘(i) not more than 135 percent of the 
poverty line, the annual Federal contribu-
tion amount for 2004 is $800; 
‘‘(ii) more than 135 percent, but less 
than 150 percent, of the poverty line, the 
annual Federal contribution amount for 
2004 is $500; and 
‘‘(iii) more than 150 percent of the 
poverty line, the annual Federal contribu-
tion amount for 2004 is $100. 
‘‘(B) 
THEREAFTER.—For 
periods 
after 
2004, the amounts applicable under subpara-
graph (A) shall be increased by the annual per-
centage increase described in section 1860D–
2(b)(5) for the period involved. 
‘‘(C) ROUNDING.—If an annual Federal 
contribution amount determined under subpara-
149
graph (B) is not a multiple of $10, it shall be 
rounded to the nearest multiple of $10. 
‘‘(3) REQUIREMENT FOR INCOME VERIFICATION 
TO OBTAIN INCREASED CONTRIBUTION AMOUNT.—
‘‘(A) IN GENERAL.—The provisions of sub-
sections clauses (i) and (ii) of subparagraphs (A) 
and (B) of paragraph (2) shall apply to an indi-
vidual only if the individual—
‘‘(i) provides such information as the 
Secretary may require in order to deter-
mine the appropriate category of benefits 
under the respective provisions; and 
‘‘(ii) authorizes in a form and manner 
specified by the Secretary the verification of 
the individual’s modified adjusted gross in-
come by the Secretary through arrange-
ments with States. 
An arrangement with a State under clause (ii) 
shall provide for the payment by the Secretary 
under this section of the State’s reasonable costs 
of conducting income verifications under such 
arrangement. 
‘‘(B) PENALTIES FOR UNDERSTATEMENT OF 
INCOME.—The provision of false information
150
under subparagraph (A)(i) is subject to criminal 
penalties under section 1128B. 
‘‘(C) 
PROCEDURES
FOR
DETERMINING 
MODIFIED ADJUSTED GROSS INCOME.—
‘‘(i) IN GENERAL.—The Secretary shall 
establish procedures for determining the 
modified adjusted gross income of enrollees. 
The Secretary shall consult with the Sec-
retary of the Treasury in making such de-
terminations. Income determinations under 
this subsection shall be valid for a period (of 
not less than 1 year) specified by the Sec-
retary. 
‘‘(ii) DISCLOSURE OF INFORMATION.—
The Secretary of the Treasury may, upon 
written request from the Secretary, disclose 
to Secretary such return information as is 
necessary to make the determinations de-
scribed in clause (i). Return information 
disclosed under the preceding sentence may 
be used by the Secretary only for the pur-
poses of, and to the extent necessary in, 
making such determinations. 
‘‘(iii) PENALTY
FOR
UNAUTHORIZED 
DISCLOSURE.—The provisions of section
151
1860D–2(b)(4)(F)(ii) shall apply to an un-
authorized disclosure of information under 
clause (ii) in the same manner as those pro-
visions apply to an unauthorized disclosure 
of information under such section. 
‘‘(4) PARTIAL YEAR.—Insofar as the provisions 
of this subsection and section 1807A are not imple-
mented for all months in 2004, the annual contribu-
tion amount under this subsection for 2004 shall be 
prorated to reflect the portion of that year in which 
such provisions are in effect. 
‘‘(5) APPROPRIATION TO COVER NET PROGRAM 
EXPENDITURES.—There are authorized to be appro-
priated from time to time, out of any moneys in the 
Treasury not otherwise appropriated, to the Federal 
Supplementary Medical Insurance Trust Fund estab-
lished under section 1841, an amount equal to the 
amount by which the benefits and administrative 
costs of providing the benefits under this section ex-
ceed the sum of the portion of the enrollment fees re-
tained by the Secretary. 
‘‘(k) DEFINITIONS.—In this part and section 1807A: 
‘‘(1) COVERED OUTPATIENT DRUG.—
152
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, for purposes of this section, the 
term ‘covered outpatient drug’ means—
‘‘(i) a drug that may be dispensed only 
upon a prescription and that is described in 
subparagraph (A)(i) or (A)(ii) of section 
1927(k)(2); or 
‘‘(ii) a biological product described in 
clauses (i) through (iii) of subparagraph 
(B) of such section or insulin described in 
subparagraph (C) of such section and med-
ical supplies associated with the injection of 
insulin (as defined in regulations of the 
Secretary), 
and such term includes a vaccine licensed under 
section 351 of the Public Health Service Act and 
any use of a covered outpatient drug for a medi-
cally accepted indication (as defined in section 
1927(k)(6)). 
‘‘(B) EXCLUSIONS.—
‘‘(i) IN GENERAL.—Such term does not 
include drugs or classes of drugs, or their 
medical uses, which may be excluded from 
coverage or otherwise restricted under sec-
tion 1927(d)(2), other than subparagraph
153
(E) thereof (relating to smoking cessation 
agents), or under section 1927(d)(3). 
‘‘(ii) AVOIDANCE OF DUPLICATE COV-
ERAGE.—A drug prescribed for an indi-
vidual that would otherwise be a covered 
outpatient drug under this section shall not 
be so considered if payment for such drug is 
available under part A or B for an indi-
vidual entitled to benefits under part A and 
enrolled under part B. 
‘‘(C) APPLICATION OF FORMULARY RESTRIC-
TIONS.—A drug prescribed for an individual 
that would otherwise be a covered outpatient 
drug under this section shall not be so considered 
under an endorsed program if the eligible entity 
offering the program excludes the drug under a 
formulary and a review of such exclusion is not 
successfully resolved under subsection (h)(5). 
‘‘(D) APPLICATION OF GENERAL EXCLUSION 
PROVISIONS.—An eligible entity offering an en-
dorsed program may exclude from qualified pre-
scription drug coverage any covered outpatient 
drug—
154
‘‘(i) for which payment would not be 
made if section 1862(a) applied to part D; 
or 
‘‘(ii) which are not prescribed in ac-
cordance with the program or this section. 
Such exclusions are determinations subject to re-
view pursuant to subsection (h)(5). 
‘‘(2) INCOME.—
‘‘(A) IN
GENERAL.—The term ‘income’ 
means, with respect to benefits under this section 
in a year, the modified adjusted gross income of 
the individual for the taxable year ending in the 
previous year. 
‘‘(B) TREATMENT OF JOINT RETURNS.—In 
the case of a individual who files a joint return 
(as defined for purposes of the Internal Revenue 
Code of 1986), the income of the modified ad-
justed gross income of both individuals shall be 
treated as the income of each individual. 
‘‘(C) 
TREATMENT
OF
SEPARATE
RE-
TURNS.—In the case of an individual who is 
married and who does not file a joint return and 
who is not living separate and apart from the 
individual’s spouse during at least 6 months of 
the taxable year shall be treated for purposes of
155
this section as having income that exceeds 150 
percent of the poverty line. 
‘‘(3) DEFINITION OF MODIFIED ADJUSTED GROSS 
INCOME.—The term ‘modified adjusted gross income’ 
means adjusted gross income (as defined in section 62 
of the Internal Revenue Code of 1986)—
‘‘(A) determined without regard to sections 
911, 931, and 933 of such Code; and 
‘‘(B) increased by—
‘‘(i) the amount of interest received or 
accrued by the taxpayer during the taxable 
year which is exempt from tax under such 
Code, and 
‘‘(ii) the amount of social security ben-
efits not includible in gross income under 
section 86 of such Code. 
‘‘(4) POVERTY
LINE.—The term ‘poverty line’ 
means the income official poverty line (as defined by 
the Office of Management and Budget, and revised 
annually in accordance with section 673(2) of the 
Omnibus Budget Reconciliation Act of 1981) applica-
ble to a family of the size involved. 
‘‘(l) AUTHORIZATION OF APPROPRIATIONS.—There are 
authorized to be appropriated such sums as may be nec-
essary to carry out this section and section 1807A.
156
‘‘(e) INTERIM, FINAL REGULATORY AUTHORITY.—In 
order to carry out this section and section 1807A in a time-
ly manner, the Secretary may promulgate regulations that 
take effect on an interim basis, after notice and pending 
opportunity for public comment. 
‘‘PRESCRIPTION DRUG ACCOUNTS 
‘‘SEC. 1807A. ‘‘(a) ESTABLISHMENT OF ACCOUNTS.—
‘‘(1) IN GENERAL.—The Secretary shall establish 
and maintain for each eligible beneficiary who is en-
rolled under section 1807 at the time of enrollment a 
prescription drug account (in this section and section 
1807 referred to as an ‘account’). 
‘‘(2) RESERVE ACCOUNTS.—In cases described in 
subsections 
(b)(3)(A), 
(b)(3)(B)(i), 
and 
(b)(3)(B)(ii)(I), the Secretary shall establish and 
maintain for each surviving spouse who is not en-
rolled under section 1807 a reserve prescription drug 
account (in this section referred to as an ‘reserve ac-
count’). 
‘‘(3) ACCOUNTHOLDER DEFINED.—In this section 
and section 1807A, the term ‘accountholder’ means an 
individual for whom an account or reserve account 
has been established under this section. 
‘‘(4) EXPENDITURES FROM ACCOUNT.—Nothing 
in this section shall be construed as requiring the 
Federal Government to obligate funds for amounts in
157
any account until such time as a withdrawal from 
such account is authorized under this section. 
‘‘(b) USE OF ACCOUNTS.—
‘‘(1) APPLICATION OF ACCOUNT.—Except as pro-
vided in this subsection, amounts credited to an ac-
count shall only be used for the purchase of covered 
outpatient drugs for the accountholder. Any amounts 
remaining at the end of a year remain available for 
expenditures in succeeding years. 
‘‘(2) ACCOUNT RULES FOR PUBLIC AND PRIVATE 
CONTRIBUTIONS.—The Secretary shall establish a on-
going process for the determination of the amount in 
each account that is attributable to public and pri-
vate contributions (including spousal rollover con-
tributions) based on the following rules: 
‘‘(A) TREATMENT OF EXPENDITURES.—Ex-
penditures from the account shall—
‘‘(i) first be counted against any public 
contribution; and 
‘‘(ii) next be counted against private 
contributions. 
‘‘(B) TREATMENT OF SPOUSAL ROLLOVER 
CONTRIBUTIONS.—With respect to any spousal 
rollover contribution, the portions of such con-
tribution that were attributable to public and
158
private contributions at the time of its distribu-
tion under subsection (b)(3) shall be treated 
under this paragraph as if it were a direct pub-
lic or private contribution, respectively, into the 
account of the spouse. 
‘‘(3) DEATH OF ACCOUNTHOLDER.—In the case 
of the death of an accountholder, the balance in any 
account (taking into account liabilities accrued before 
the time of death) shall be distributed as follows: 
‘‘(A) TREATMENT
OF
PUBLIC
CONTRIBU-
TIONS.—If the accountholder is married at the 
time of death, the amount in the account that is 
attributable to public contributions shall be cred-
ited to the account (if any) of the surviving 
spouse of the accountholder (or, if the surviving 
spouse is not an eligible beneficiary, into a re-
serve account to be held for when that spouse be-
comes an eligible beneficiary). 
‘‘(B) TREATMENT OF PRIVATE CONTRIBU-
TIONS.—The amount in the account that is at-
tributable to private contributions shall be dis-
tributed as follows: 
‘‘(i) DESIGNATION OF DISTRIBUTEE.—
If the accountholder has made a designa-
tion, in a form and manner specified by the
159
Secretary, for the distribution of some or all 
of such amount, such amount shall be dis-
tributed in accordance with the designation. 
Such designation may provide for the dis-
tribution into an account (including a re-
serve account) of a surviving spouse. 
‘‘(ii) ABSENCE OF DESIGNATION.—In-
sofar as the accountholder has not made 
such a designation—
‘‘(I) SURVIVING
SPOUSE.—If the 
accountholder was married at the time 
of death, the remainder shall be cred-
ited to an account (including a reserve 
account) of the accountholder’s sur-
viving spouse. 
‘‘(II) NO SURVIVING SPOUSE.—If 
the accountholder was not so married, 
the remainder shall be distributed to 
the estate of the accountholder and dis-
tributed as provided by law. 
‘‘(4) USE OF ACCOUNT FOR PREMIUMS FOR EN-
ROLLMENT
IN
A
MEDICARE
ADVANTAGE
OR
EFFS 
PLAN.—During any period in which an accountholder 
is enrolled in a Medicare Advantage plan under part 
C or an EFFS plan under part E, the balance in the
160
account may be used and applied only to reimburse 
the amount of the premium (if any) established for 
enrollment under the plan. 
‘‘(5) APPLICATION TO MEDICAID EXPENSES IN 
CERTAIN CASES.—
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, an account shall be treated as 
an asset for purposes of establishing eligibility 
for medical assistance under title XIX. 
‘‘(B) 
APPLICATION
TOWARDS 
SPENDDOWN.—In the case of an accountholder 
who is applying for such medical assistance and 
who would, but for the application of subpara-
graph (A), be eligible for such assistance—
‘‘(i) subparagraph (A) shall not apply; 
and 
‘‘(ii) the account shall be available (in 
accordance with a procedure established by 
the Secretary) to the State to reimburse the 
State for any expenditures made under the 
plan for such medical assistance. 
‘‘(c) AMOUNTS CREDITED
IN ACCOUNT.—The Sec-
retary shall credit to a prescription drug account of an eli-
gible beneficiary the following amounts:
161
‘‘(1) PUBLIC
CONTRIBUTIONS.—The following 
contributions (each referred to in this section as a 
‘public contribution’): 
‘‘(A) FEDERAL
CONTRIBUTIONS.—Federal 
contributions provided under subsection (d). 
‘‘(B) STATE
CONTRIBUTIONS.—Contribu-
tions made by a State under subsection (f). 
‘‘(2) SPOUSAL
ROLLOVER
CONTRIBUTION.—A 
distribution from a deceased spouse under subsection 
(b)(3) (referred to in this section as a ‘spousal rollover 
contribution’). 
‘‘(3) PRIVATE
CONTRIBUTIONS.—The following 
contributions (each referred to in this section as a 
‘private contribution’): 
‘‘(A) EMPLOYER
AND
INDIVIDUAL
CON-
TRIBUTIONS.—Contributions made under sub-
section (e). 
‘‘(B) OTHER INDIVIDUAL CONTRIBUTIONS.—
Contributions made by accountholder other than 
under subsection (e). 
‘‘(C) CONTRIBUTIONS BY NONPROFIT ORGA-
NIZATIONS.—Contributions made by a chari-
table, not-for-profit organization (that may be a 
religious organization).
162
Except as provided in this subsection, no amounts may be 
contributed to, or credited to, a prescription drug account. 
‘‘(d) FEDERAL CONTRIBUTION.—For Federal contribu-
tions in the case of accountholders, see section 1807(j). 
‘‘(e) EMPLOYER AND INDIVIDUAL CONTRIBUTIONS.—
‘‘(1) EMPLOYMENT-RELATED CONTRIBUTION.—
‘‘(A) IN
GENERAL.—In the case of any 
accountholder who is a beneficiary or partici-
pant in a group health plan (including a multi-
employer plan), whether as an employee, former 
employee or otherwise, including as a dependent 
of an employee or former employee, the plan 
may 
make 
a 
contribution 
into 
the 
accountholder’s account (but not into a reserve 
account of the accountholder). 
‘‘(B) LIMITATION.—The total amount that 
may be contributed under subparagraph (A) 
under a plan to an account during any year 
may not exceed $5,000. 
‘‘(C) CONDITION.—A group health plan 
may condition a contribution with respect to an 
accountholder under this paragraph on the 
accountholder’s enrollment under section 1807 
with an eligible entity that is recognized or ap-
proved by that plan.
163
‘‘(2) OTHER INDIVIDUALS.—
‘‘(A) IN
GENERAL.—Any individual may 
also contribute to the account of that individual 
or the account of any other individual under this 
subsection. 
‘‘(B) LIMITATION.—The total amount that 
may be contributed to an account under sub-
paragraph (A) during any year may not exceed 
$5,000, regardless of who makes such contribu-
tion. 
‘‘(3) NO CONTRIBUTION PERMITTED TO RESERVE 
ACCOUNT.—No contribution may be made under this 
subsection to a reserve account. 
‘‘(4) FORM AND MANNER OF CONTRIBUTION.—
The Secretary shall specify the form and manner of 
contributions under this subsection. 
‘‘(5) INDEXING OF DOLLAR AMOUNTS.—The dol-
lar amounts of the limitation amounts specified in 
paragraphs (1)(B) and (2)(B) shall be subject to an-
nual increases for each year after 2004 in the same 
manner as the annual deductible is subject to an an-
nual increase under subparagraph (B) and the last 
sentence of section 1860D–2(b)(1). 
‘‘(f) STATE CONTRIBUTIONS.—
164
‘‘(1) IN GENERAL.—A State may enter into ar-
rangements with the Secretary for the crediting of 
amounts for accountholders. 
‘‘(2) FORM AND MANNER OF CONTRIBUTION.—
The Secretary shall specify the form and manner of 
contributions under this subsection. 
‘‘(3) MEDICAID TREATMENT.—Amounts credited 
under this subsection shall not be treated as medical 
assistance for purposes of title XIX or child health as-
sistance for purposes of title XXI for individuals who 
are not qualifying low income enrollees.’’. 
(b) EXCLUSION OF COSTS FROM DETERMINATION OF 
PART B MONTHLY PREMIUM.—Section 1839(g) (42 U.S.C. 
1395r(g)) is amended—
(1) by striking ‘‘attributable to the application of 
section’’ and inserting ‘‘attributable to—
‘‘(1) the application of section’’;
(2) by striking the period and inserting ‘‘; and’’; 
and 
(3) by adding at the end the following new para-
graph: 
‘‘(2) the Voluntary Medicare Outpatient Pre-
scription Drug Discount and Security Program under 
sections 1807 and 1807A.’’. 
(c) MEDICAID AMENDMENTS.—
165
(1) VERIFICATION
OF
ELIGIBILITY
FOR
IM-
PROVED ACCOUNT CONTRIBUTIONS.—
(A) REQUIREMENT.—Section 1902(a) (42 
U.S.C. 1396a(a)) is amended—
(i) by striking ‘‘and’’ at the end of 
paragraph (64); 
(ii) by striking the period at the end of 
paragraph (65) and inserting ‘‘; and’’; and 
(iii) by inserting after paragraph (65) 
the following new paragraph: 
‘‘(66) provide for verification of income under 
section 1807(j)(3).’’. 
(B) NEW SECTION.—Title XIX is further 
amended—
(i) by redesignating section 1935 as 
section 1936; and 
(ii) by inserting after section 1934 the 
following new section: 
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE PART D 
BENEFITS 
‘‘SEC. 1935. (a) REQUIREMENT FOR VERIFICATION OF 
ELIGIBILITY DETERMINATIONS FOR IMPROVED ACCOUNT 
CONTRIBUTIONS.—As a condition of its State plan under 
this title under section 1902(a)(66) and receipt of any Fed-
eral financial assistance under section 1903(a), a State
166
shall provide for verification of income statements in ac-
cordance with arrangements under section 1807(j)(1). 
‘‘(b) PAYMENTS
FOR ADDITIONAL ADMINISTRATIVE 
COSTS.—
‘‘(1) IN GENERAL.—The amounts expended by a 
State in carrying out subsection (a) are, subject to 
paragraph (2), expenditures reimbursable under the 
appropriate paragraph of section 1903(a); except 
that, notwithstanding any other provision of such sec-
tion, the applicable Federal matching rates with re-
spect to such expenditures under such section shall be 
90 percent. 
‘‘(2) COORDINATION.—The State shall provide 
the Secretary with such information as may be nec-
essary to properly allocate administrative expendi-
tures described in paragraph (1) that may otherwise 
be made for eligibility determinations.’’. 
SEC. 106. DISCLOSURE OF RETURN INFORMATION FOR PUR-
POSES OF CARRYING OUT MEDICARE CATA-
STROPHIC PRESCRIPTION DRUG PROGRAM. 
(a) IN GENERAL.—Subsection (l) of section 6103 of the 
Internal Revenue Code of 1986 (relating to disclosure of re-
turns and return information for purposes other than tax 
administration) is amended by adding at the end the fol-
lowing new paragraph:
167
‘‘(19) DISCLOSURE
OF
RETURN
INFORMATION 
FOR PURPOSES OF CARRYING OUT MEDICARE CATA-
STROPHIC PRESCRIPTION DRUG PROGRAM.—
‘‘(A) IN
GENERAL.—The Secretary may, 
upon written request from the Secretary of 
Health and Human Services under section 
1860D–2(b)(4)(E)(i) of the Social Security Act, 
disclose to officers and employees of the Depart-
ment of Health and Human Services with re-
spect to a specified taxpayer for the taxable year 
specified by the Secretary of Health and Human 
Services in such request—
‘‘(i) the taxpayer identity information 
with respect to such taxpayer, and 
‘‘(ii) the adjusted gross income of such 
taxpayer for the taxable year (or, if less, the 
income threshold limit specified in section 
1860D–2(b)(4)(D)(ii) for the calendar year 
specified by such Secretary in such request). 
‘‘(B) SPECIFIED TAXPAYER.—For purposes 
of this paragraph, the term ‘specified taxpayer’ 
means any taxpayer who—
‘‘(i) is identified by the Secretary of 
Health and Human Services in the request 
referred to in subparagraph (A), and
168
‘‘(ii) either—
‘‘(I) has an adjusted gross income 
for the taxable year referred to in sub-
paragraph (A) in excess of the income 
threshold specified in section 1860D–
2(b)(4)(D)(ii) of such Act for the cal-
endar year referred to in such subpara-
graph, or 
‘‘(II) is identified by such Sec-
retary under subparagraph (A) as 
being an individual who elected to use 
more recent information under section 
1860D–2(b)(4)(D)(v) of such Act. 
‘‘(C) JOINT
RETURNS.—In the case of a 
joint return, the Secretary shall, for purposes of 
applying this paragraph, treat each spouse as a 
separate taxpayer having an adjusted gross in-
come equal to one-half of the adjusted gross in-
come determined with respect to such return. 
‘‘(D) RESTRICTION ON USE OF DISCLOSED 
INFORMATION.—Return 
information 
disclosed 
under subparagraph (A) may be used by officers 
and employees of the Department of Health and 
Human Services only for the purpose of admin-
istering the prescription drug benefit under title
169
XVIII of the Social Security Act. Such officers 
and employees may disclose the annual out-of-
pocket threshold which applies to an individual 
under such part to the entity that offers the plan 
referred to in section 1860D–2(b)(4)(E)(ii) of 
such Act in which such individual is enrolled. 
Such sponsor may use such information only for 
purposes of administering such benefit.’’. 
(b) CONFIDENTIALITY.—Paragraph (3) of section 
6103(a) of such Code is amended by striking ‘‘or (16)’’ and 
inserting ‘‘(16), or (19)’’. 
(c) PROCEDURES AND RECORDKEEPING RELATED TO 
DISCLOSURES.—Subsection (p)(4) of section 6103 of such 
Code is amended by striking ‘‘any other person described 
in subsection (l)(16) or (17)’’ each place it appears and in-
serting ‘‘any other person described in subsection (l)(16), 
(17), or (19)’’. 
(d) UNAUTHORIZED DISCLOSURE.—Paragraph (2) of 
section 7213(a) of such Code is amended by striking ‘‘or 
(16)’’ and inserting ‘‘(16), or (19)’’. 
(e) UNAUTHORIZED INSPECTION.—Subparagraph (B) 
of section 7213A(a)(1) of such Code is amended by inserting 
‘‘or (19)’’ after ‘‘subsection (l)(18)’’.
170
SEC. 107. STATE PHARMACEUTICAL ASSISTANCE TRANSI-
TION COMMISSION. 
(a) ESTABLISHMENT.—
(1) IN GENERAL.—There is established, as of the 
first day of the third month beginning after the date 
of the enactment of this Act, a State Pharmaceutical 
Assistance Transition Commission (in this section re-
ferred to as the ‘‘Commission’’) to develop a proposal 
for addressing the unique transitional issues facing 
State pharmaceutical assistance programs, and pro-
gram participants, due to the implementation of the 
medicare prescription drug program under part D of 
title XVIII of the Social Security Act. 
(2) DEFINITIONS.—For purposes of this section: 
(A) STATE
PHARMACEUTICAL
ASSISTANCE 
PROGRAM DEFINED.—The term ‘‘State pharma-
ceutical assistance program’’ means a program 
(other than the medicaid program) operated by 
a State (or under contract with a State) that 
provides as of the date of the enactment of this 
Act assistance to low-income medicare bene-
ficiaries for the purchase of prescription drugs. 
(B) PROGRAM
PARTICIPANT.—The term 
‘‘program participant’’ means a low-income 
medicare beneficiary who is a participant in a 
State pharmaceutical assistance program.
171
(b) COMPOSITION.—The Commission shall include the 
following: 
(1) A representative of each governor of each 
State that the Secretary identifies as operating on a 
statewide basis a State pharmaceutical assistance 
program that provides for eligibility and benefits that 
are comparable or more generous than the low-income 
assistance eligibility and benefits offered under part 
D of title XVIII of the Social Security Act. 
(2) Representatives from other States that the 
Secretary identifies have in operation other State 
pharmaceutical assistance programs, as appointed by 
the Secretary. 
(3) Representatives of organizations that have an 
inherent interest in program participants or the pro-
gram itself, as appointed by the Secretary but not to 
exceed the number of representatives under para-
graphs (1) and (2). 
(4) Representatives of Medicare Advantage orga-
nizations and other private health insurance plans, as 
appointed by the Secretary. 
(5) The Secretary (or the Secretary’s designee) 
and such other members as the Secretary may specify
172
The Secretary shall designate a member to serve as chair 
of the Commission and the Commission shall meet at the 
call of the chair. 
(c) DEVELOPMENT OF PROPOSAL.—The Commission 
shall develop the proposal described in subsection (a) in a 
manner consistent with the following principles: 
(1) Protection of the interests of program par-
ticipants in a manner that is the least disruptive to 
such participants and that includes a single point of 
contact for enrollment and processing of benefits. 
(2) Protection of the financial and flexibility in-
terests of States so that States are not financially 
worse off as a result of the enactment of this title. 
(3) Principles of medicare modernization pro-
vided under title II of this Act. 
(d) REPORT.—By not later than January 1, 2005, the 
Commission shall submit to the President and the Congress 
a report that contains a detailed proposal (including spe-
cific legislative or administrative recommendations, if any) 
and such other recommendations as the Commission deems 
appropriate. 
(e) SUPPORT.—The Secretary shall provide the Com-
mission with the administrative support services necessary 
for the Commission to carry out its responsibilities under 
this section.
173
(f) TERMINATION.—The Commission shall terminate 
30 days after the date of submission of the report under 
subsection (d).
TITLE II—MEDICARE ENHANCED 
FEE-FOR-SERVICE AND MEDI-
CARE 
ADVANTAGE 
PRO-
GRAMS; MEDICARE COMPETI-
TION 
SEC. 200. MEDICARE MODERNIZATION AND REVITALIZA-
TION. 
This title provides for—
(1) establishment of the medicare enhanced fee-
for-service (EFFS) program under which medicare 
beneficiaries are provided access to a range of en-
hanced fee-for-service (EFFS) plans that may use 
preferred provider networks to offer an enhanced 
range of benefits; 
(2) establishment of a Medicare Advantage pro-
gram that offers improved managed care plans with 
coordinated care; and 
(3) competitive bidding, in the style of the Fed-
eral Employees Health Benefits program (FEHBP), 
among enhanced fee-for-service plans and Medicare 
Advantage plans in order to promote greater effi-
ciency and responsiveness to medicare beneficiaries.
174
Subtitle A—Medicare Enhanced 
Fee-for-Service Program 
SEC. 201. ESTABLISHMENT OF ENHANCED FEE-FOR-SERV-
ICE (EFFS) PROGRAM UNDER MEDICARE. 
(a) IN GENERAL.—Title XVIII, as amended by section 
101(a), is amended—
(1) by redesignating part E as part F; and 
(2) by inserting after part D the following new 
part:
‘‘PART E—ENHANCED FEE-FOR-SERVICE PROGRAM 
‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE PLANS 
THROUGHOUT THE UNITED STATES 
‘‘SEC. 1860E–1. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—The Administrator shall es-
tablish under this part beginning January 1, 2006, 
an enhanced fee-for-service program under which en-
hanced fee-for-service plans (as defined in subsection 
(b)) are offered to EFFS-eligible individuals (as so 
defined) in EFFS regions throughout the United 
States. 
‘‘(2) EFFS REGIONS.—For purposes of this part 
the Administrator shall establish EFFS regions 
throughout the United States by dividing the entire 
United States into at least 10 such regions. Before es-
tablishing such regions, the Administrator shall con-
175
duct a market survey and analysis, including an ex-
amination of current insurance markets, to determine 
how the regions should be established. The regions 
shall be established in a manner to take into consider-
ation maximizing full access for all EFFS-eligible in-
dividuals, especially those residing in rural areas. 
‘‘(b) DEFINITIONS.—For purposes of this part: 
‘‘(1) EFFS ORGANIZATION.—The ‘EFFS organi-
zation’ means an entity that the Administrator cer-
tifies as meeting the requirements and standards ap-
plicable to such organization under this part. 
‘‘(2) ENHANCED FEE-FOR-SERVICE PLAN; EFFS 
PLAN.—The terms ‘enhanced fee-for-service plan’ and 
‘EFFS plan’ mean health benefits coverage offered 
under a policy, contract, or plan by an EFFS organi-
zation pursuant to and in accordance with a contract 
pursuant to section 1860E–4(c), but only if the plan 
provides either fee-for-service coverage described in the 
following subparagraph (A) or preferred provider cov-
erage described in the following subparagraph (B): 
‘‘(A) FEE-FOR-SERVICE
COVERAGE.—The 
plan—
‘‘(i) reimburses hospitals, physicians, 
and other providers at a rate determined by
176
the plan on a fee-for-service basis without 
placing the provider at financial risk; 
‘‘(ii) does not vary such rates for such 
a provider based on utilization relating to 
such provider; and 
‘‘(iii) does not restrict the selection of 
providers among those who are lawfully au-
thorized to provide the covered services and 
agree to accept the terms and conditions of 
payment established by the plan. 
‘‘(B) PREFERRED PROVIDER COVERAGE.—
The plan—
‘‘(i) has a network of providers that 
have agreed to a contractually specified re-
imbursement for covered benefits with the 
organization offering the plan; and 
‘‘(ii) provides for reimbursement for all 
covered benefits regardless of whether such 
benefits are provided within such network of 
providers. 
‘‘(3) EFFS ELIGIBLE
INDIVIDUAL.—The term 
‘EFFS eligible individual’ means an eligible indi-
vidual described in section 1851(a)(3). 
‘‘(4) EFFS REGION.—The term ‘EFFS region’ 
means a region established under subsection (a)(2).
177
‘‘(c) APPLICATION OF CERTAIN ELIGIBILITY, ENROLL-
MENT, ETC. REQUIREMENTS.—The provisions of section 
1851 (other than subsection (h)(4)(A)) shall apply to EFFS 
plans offered by an EFFS organization in an EFFS region, 
including subsection (g) (relating to guaranteed issue and 
renewal). 
‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE (EFFS) PLANS 
‘‘SEC. 1860E–2. (a) PLAN
REQUIREMENTS.—No 
EFFS plan may be offered under this part in an EFFS 
region unless the requirements of this part are met with 
respect to the plan and EFFS organization offering the 
plan. 
‘‘(b) AVAILABLE TO ALL EFFS BENEFICIARIES IN THE 
ENTIRE REGION.—With respect to an EFFS plan offered 
in an EFFS region—
‘‘(1) IN GENERAL.—The plan must be offered to 
all EFFS-eligible individuals residing in the region. 
‘‘(2) ASSURING ACCESS TO SERVICES.—The plan 
shall comply with the requirements of section 
1852(d)(4). 
‘‘(c) BENEFITS.—
‘‘(1) IN GENERAL.—Each EFFS plan shall pro-
vide to members enrolled in the plan under this part 
benefits, through providers and other persons that 
meet the applicable requirements of this title and part 
A of title XI—
178
‘‘(A) for the items and services described in 
section 1852(a)(1); 
‘‘(B) that are uniform for the plan for all 
EFFS eligible individuals residing in the same 
EFFS region; 
‘‘(C) that include a single deductible appli-
cable to benefits under parts A and B and in-
clude a catastrophic limit on out-of-pocket ex-
penditures for such covered benefits; and 
‘‘(D) that include benefits for prescription 
drug coverage for each enrollee who elects under 
part D to be provided qualified prescription 
drug coverage through the plan.
‘‘(2) DISAPPROVAL AUTHORITY.—The Adminis-
trator shall not approve a plan of an EFFS organi-
zation if the Administrator determines (pursuant to 
the last sentence of section 1852(b)(1)(A)) that the 
benefits are designed to substantially discourage en-
rollment by certain EFFS eligible individuals with 
the organization. 
‘‘(d) OUTPATIENT PRESCRIPTION DRUG COVERAGE.—
For rules concerning the offering of prescription drug cov-
erage under EFFS plans, see the amendment made by sec-
tion 102(b) of the Medicare Prescription Drug and Mod-
ernization Act of 2003.
179
‘‘(e) OTHER ADDITIONAL PROVISIONS.—The provi-
sions of section 1852 (other than subsection (a)(1)) shall 
apply under this part to EFFS plans. For the application 
of chronic care improvement provisions, see the amendment 
made by section 722(b). 
‘‘SUBMISSION OF BIDS; BENEFICIARY SAVINGS; PAYMENT 
OF PLANS 
‘‘SEC. 1860E–3. (a) SUBMISSION OF BIDS.—
‘‘(1) REQUIREMENT.—
‘‘(A) EFFS MONTHLY BID AMOUNT.—For 
each year (beginning with 2006), an EFFS orga-
nization shall submit to the Administrator an 
EFFS monthly bid amount for each EFFS plan 
offered in each region. Each such bid is referred 
to in this section as the ‘EFFS monthly bid 
amount’. 
‘‘(B) FORM.—Such bid amounts shall be 
submitted for each such plan and region in a 
form and manner and time specified by the Ad-
ministrator, and shall include information de-
scribed in paragraph (3)(A).
‘‘(2) UNIFORM
BID
AMOUNTS.—Each EFFS 
monthly bid amount submitted under paragraph (1) 
by an EFFS organization under this part for an 
EFFS plan in an EFFS region may not vary among
180
EFFS eligible individuals residing in the EFFS re-
gion involved. 
‘‘(3) SUBMISSION OF BID AMOUNT INFORMATION 
BY EFFS ORGANIZATIONS.—
‘‘(A) INFORMATION
TO
BE
SUBMITTED.—
The information described in this subparagraph 
is as follows: 
‘‘(i) The EFFS monthly bid amount 
for provision of all items and services under 
this part, which amount shall be based on 
average costs for a typical beneficiary resid-
ing in the region, and the actuarial basis 
for determining such amount. 
‘‘(ii) The proportions of such bid 
amount that are attributable to—
‘‘(I) the provision of statutory 
non-drug benefits (such portion re-
ferred 
to 
in 
this 
part 
as 
the 
‘unadjusted EFFS statutory non-drug 
monthly bid amount’); 
‘‘(II) the provision of statutory 
prescription drug benefits; and 
‘‘(III) the provision of non-statu-
tory benefits;
181
and the actuarial basis for determining 
such proportions. 
‘‘(iii) Such additional information as 
the Administrator may require to verify the 
actuarial bases described in clauses (i) and 
(ii). 
‘‘(B) STATUTORY BENEFITS DEFINED.—For 
purposes of this part: 
‘‘(i) The term ‘statutory non-drug ben-
efits’ 
means 
benefits 
under 
section 
1852(a)(1). 
‘‘(ii) The term ‘statutory prescription 
drug benefits’ means benefits under part D. 
‘‘(iii) The term ‘statutory benefits’ 
means statutory prescription drug benefits 
and statutory non-drug benefits.
‘‘(C) ACCEPTANCE
AND
NEGOTIATION
OF 
BID AMOUNTS.—The Administrator has the au-
thority to negotiate regarding monthly bid 
amounts submitted under subparagraph (A) 
(and the proportion described in subparagraph 
(A)(ii)), and for such purpose, the Administrator 
has negotiation authority that the Director of the 
Office of Personnel Management has with respect 
to health benefits plans under chapter 89 of title
182
5, United States Code. The Administrator may 
reject such a bid amount or proportion if the Ad-
ministrator determines that such amount or pro-
portion is not supported by the actuarial bases 
provided under subparagraph (A). 
‘‘(D) CONTRACT AUTHORITY.—The Admin-
istrator may, taking into account the unadjusted 
EFFS statutory non-drug monthly bid amounts 
accepted under subparagraph (C), enter into con-
tracts for the offering of up to 3 EFFS plans in 
any region.
‘‘(b) PROVISION OF BENEFICIARY SAVINGS FOR CER-
TAIN PLANS.—
‘‘(1) BENEFICIARY REBATE RULE.—
‘‘(A) REQUIREMENT.—The EFFS plan shall 
provide to the enrollee a monthly rebate equal to 
75 percent of the average per capita savings (if 
any) described in paragraph (2) applicable to 
the plan and year involved. 
‘‘(B) FORM OF REBATE.—A rebate required 
under this paragraph shall be provided—
‘‘(i) through the crediting of the 
amount of the rebate towards the EFFS 
monthly prescription drug beneficiary pre-
mium (as defined in section 1860E–
183
4(a)(3)(B)) and the EFFS monthly supple-
mental beneficiary premium (as defined in 
section 1860E–4(a)(3)(C)); 
‘‘(ii) through a direct monthly pay-
ment (through electronic funds transfer or 
otherwise); or 
‘‘(iii) through other means approved by 
the Medicare Benefits Administrator, 
or any combination thereof. 
‘‘(2) COMPUTATION
OF
AVERAGE
PER
CAPITA 
MONTHLY
SAVINGS.—For purposes of paragraph 
(1)(A), the average per capita monthly savings re-
ferred to in such paragraph for an EFFS plan and 
year is computed as follows: 
‘‘(A) DETERMINATION OF REGION-WIDE AV-
ERAGE RISK ADJUSTMENT.—
‘‘(i) IN GENERAL.—The Medicare Ben-
efits Administrator shall determine, at the 
same time rates are promulgated under sec-
tion 1853(b)(1) (beginning with 2006), for 
each EFFS region the average of the risk 
adjustment factors described in subsection 
(c)(3) to be applied to enrollees under this 
part in that region. In the case of an EFFS 
region in which an EFFS plan was offered
184
in the previous year, the Administrator 
may compute such average based upon risk 
adjustment factors applied under subsection 
(c)(3) in that region in a previous year. 
‘‘(ii) TREATMENT OF NEW REGIONS.—
In the case of a region in which no EFFS 
plan was offered in the previous year, the 
Administrator shall estimate such average. 
In making such estimate, the Administrator 
may use average risk adjustment factors ap-
plied to comparable EFFS regions or ap-
plied on a national basis. 
‘‘(B) DETERMINATION OF RISK ADJUSTED 
BENCHMARK
AND
RISK-ADJUSTED
BID.—For 
each EFFS plan offered in an EFFS region, the 
Administrator shall—
‘‘(i) adjust the EFFS region-specific 
non-drug monthly benchmark amount (as 
defined in paragraph (3)) by the applicable 
average risk adjustment factor computed 
under subparagraph (A); and 
‘‘(ii) adjust the unadjusted EFFS stat-
utory non-drug monthly bid amount by 
such applicable average risk adjustment fac-
tor.