(B) The possible courses of treatment for
the disease, injury, or advanced illness.
(C) The likely consequences of each such
course of treatment or of the decision not to
pursue any course of treatment.
(2) CONCLUDING STATEMENT.—Any such vid-
eotape presentation shall conclude with a statement
that the Medicare beneficiary may elect any course
of treatment or not to pursue any course of treat-
ment, that the Medicare beneficiary should consult
with a physician, and that the Medicare beneficiary
may seek a referral to a physician who furnishes
services consisting of the course of treatment that
the beneficiary elects.
(3) UPDATING OF VIDEOTAPE.—Any such vid-
eotape presentation shall be updated to reflect new
findings based on the best scientific evidence avail-
able, as determined by the Institute of Medicine, in
consultation with the National Institutes of Health
and such other medical experts, about the disease,
injury, or advanced illness, and various courses of
treatment.
(c) SELECTION OF DISEASE, INJURY, OR ADVANCED
ILLNESS.—
(1) IN GENERAL.—For purposes of selecting a
particular disease, injury, or advanced illness for
which an informational videotape shall be provided
under the projects, the Secretary shall identify dis-
eases, injuries, or advanced illnesses for which there
is a wide variation in treatment of that disease, in-
jury, or advanced illness throughout the United
States.
(2) MANDATORY
DESIGNATION
OF
PROSTATE
ENLARGEMENT FOR ONE PROJECT.—The disease, in-
jury, or advanced illness for which an informational
videotape is provided in one of the projects con-
ducted under this section shall be benign and malig-
nant prostate enlargement.
(d) PAYMENT.—(1) The Secretary shall establish a
payment amount to be made to a provider of services or
a physician under title XVIII of the Social Security Act
to reflect services consisting of the presentation of an in-
formational videotape to and consultation with a Medicare
beneficiary after such presentation.
(2) For purposes of the payment amount under para-
graph (1), no payment may be made for the purchase or
rental of equipment or office space for purposes of making
such presentation.
(e) WAIVER AUTHORITY.—The Secretary may waive
such requirements of title XVIII of such Act as may be
necessary for the purposes of carrying out the project.
(f) REPORTS.—Not later than June 1, 2006, the Sec-
retary shall submit to Congress a report on the following
matters:
(1) A description of courses of treatment for
the diseases, injuries, or advanced illnesses identified
under subsection (c) selected by Medicare bene-
ficiaries during the three year period ending on De-
cember 31, 2005.
(2) A comparison between courses of treatment
described in paragraph (1) and courses of treatment
selected by the Medicare beneficiaries participating
in the project.
(3) An analysis of the effect on costs to the
Medicare program due to any change in selection of
courses of treatment.
(g) DURATION.—A demonstration project under this
section shall be conducted for a 3-year period.
SEC. 117. ADMINISTRATION OF CERTAIN PRIVATE SECTOR
PURCHASING AND QUALITY IMPROVEMENT
PROGRAMS.
Title XVIII (42 U.S.C. 1395 et seq.), as amended
by this subtitle, is further amended by adding after section
1866E the following new section:
‘‘SEC. 1866F. GENERAL PROVISIONS FOR ADMINISTRATION
OF CERTAIN PRIVATE SECTOR PURCHASING
AND QUALITY IMPROVEMENT PROGRAMS.
‘‘(a) IN GENERAL.—Except as otherwise specifically
provided, the provisions of this section apply to the pro-
grams under the following provisions of this title:
‘‘(1) section 1866C (care coordination services);
‘‘(2) section 1866D (disease management serv-
ices);
‘‘(3) section 1866E (provider and physician col-
laborations);
‘‘(4) section 1866G (competitive acquisition of
items and services);
‘‘(5) section 1866H (preferred participants);
and
‘‘(6) section 1866I (program to improve out-
comes and reduce patient morbidity and mortality).
‘‘(b) PROVISIONS GENERALLY APPLICABLE TO DES-
IGNATED PROGRAMS.—The following provisions apply to
programs specified in subsection (a), except as otherwise
specifically provided:
‘‘(1) BENEFICIARY
ELIGIBILITY.—Except as
otherwise provided by the Secretary, an individual
shall only be eligible to receive benefits under a pro-
gram specified in subsection (a) if such individual—
‘‘(A) is enrolled in under the program
under part B;
‘‘(B) is not enrolled in a Medicare+Choice
plan under part C, an eligible organization
under a contract under section 1876 (or a simi-
lar organization operating under a demonstra-
tion project authority), an organization with an
agreement under section 1833(a)(1)(A), or a
PACE program under section 1894; and
‘‘(C) in the case of the programs specified
in paragraphs (1), (2), (4), and (6) of sub-
section (a), is entitled to benefits under part A.
‘‘(2) SECRETARY’S DISCRETION AS TO SCOPE
OF PROGRAM.—The Secretary may limit the imple-
mentation of a program specified in subsection (a)
to—
‘‘(A) a geographic area (or areas) that the
Secretary designates for purposes of the pro-
gram, based upon such criteria as the Secretary
finds appropriate;
‘‘(B) a subgroup (or subgroups) of bene-
ficiaries or individuals and entities furnishing
items or services (otherwise eligible to partici-
pate in the program), selected on the basis of
the number of such participants that the Sec-
retary finds consistent with the effective and ef-
ficient implementation of the program;
‘‘(C) an element (or elements) of the pro-
gram that the Secretary determines to be suit-
able for implementation; or
‘‘(D) any combination of any of the limits
described in subparagraphs (A) through (C).
‘‘(3) VOLUNTARY
RECEIPT
OF
ITEMS
AND
SERVICES.—Except as provided in the authority for
the program specified in subsection (a)(3), items and
services shall be furnished to an individual under the
programs specified in subsection (a) only at the indi-
vidual’s election.
‘‘(4) AGREEMENTS.—The Secretary is author-
ized to enter into agreements with individuals and
entities to furnish health care items and services to
beneficiaries under the programs specified in sub-
section (a).
‘‘(5) PROGRAM
STANDARDS
AND
CRITERIA.—
The Secretary shall establish performance standards
for the programs specified in subsection (a) includ-
ing, as applicable, standards for quality of health
care items and services, cost-effectiveness, bene-
ficiary satisfaction, and such other factors as the
Secretary finds appropriate. The eligibility of indi-
viduals or entities for the initial award, continuation,
and renewal of agreements to provide health care
items and services under the program shall be condi-
tioned, at a minimum, on performance that meets or
exceeds such standards.
‘‘(6) ADMINISTRATIVE
REVIEW
OF
ADVERSE
DECISION.—
‘‘(A) DECISIONS AFFECTING INDIVIDUALS
AND ENTITIES FURNISHING SERVICES UNDER
PROGRAMS.—An individual or entity furnishing
services under a program specified in subsection
(a) shall be entitled to a review by the program
administrator (or, if the Secretary has not con-
tracted with a program administrator, by the
Secretary) of a decision not to enter into, or to
terminate, or not to renew, an agreement with
the individual or entity to provide health care
items or services under such program.
‘‘(B) 
DECISIONS
AFFECTING
BENE-
FICIARIES UNDER CARE COORDINATION SERV-
ICES OR DISEASE MANAGEMENT SERVICES PRO-
GRAMS.—
‘‘(i) DETERMINATION
OF
INELIGI-
BILITY.—An individual shall be entitled to
a review by the program administrator (or,
if the Secretary has not contracted with a
program administrator, by the Secretary)
of a determination that the individual does
not meet the criteria for eligibility to par-
ticipate in a program specified in para-
graph (1) or (2) of subsection (a).
‘‘(ii) DENIAL OF PAYMENT FOR ITEMS
OR SERVICES.—A beneficiary shall be enti-
tled to a reconsideration or appeal of a de-
nial of payment under section 1866C(d)(2)
or 1866D(e) in accordance with the provi-
sions of section 1869, as if such section
applied to this clause.
‘‘(7) SECRETARY’S REVIEW OF MARKETING MA-
TERIALS.—An agreement with an individual or enti-
ty furnishing services under a program specified in
subsection (a) shall require the individual or entity
to guarantee that it will not distribute materials
marketing items or services under such program
without the Secretary’s prior review and approval;
‘‘(8) PAYMENT IN FULL.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), an individual or entity re-
ceiving payment from the Secretary under a
contract or agreement under a program speci-
fied in subsection (a) shall agree to accept such
payment as payment in full, and such payment
shall be in lieu of any payments to which the
individual or entity would otherwise be entitled
under this title.
‘‘(B) COLLECTION OF DEDUCTIBLES AND
COINSURANCE.—Such individual or entity may
collect any applicable deductible or coinsurance
amount from a beneficiary.
‘‘(c) CONTRACTS FOR PROGRAM ADMINISTRATION.—
‘‘(1) IN GENERAL.—The Secretary may admin-
ister a program specified in subsection (a) through
a contract with a program administrator in accord-
ance with the provisions of this subsection.
‘‘(2) SCOPE OF PROGRAM ADMINISTRATOR CON-
TRACTS.—A contract under this subsection may, at
the Secretary’s discretion, relate to administration of
any or all of the programs specified in subsection
(a). The Secretary may enter into such contracts for
a limited geographic area, or on a regional or na-
tional basis.
‘‘(3) ELIGIBLE CONTRACTORS.—The Secretary
may contract for the administration of the program
with—
‘‘(A) an entity that, under a contract
under section 1816 or 1842, determines the
amount of and makes payments for health care
items and services furnished under this title; or
‘‘(B) any other entity with substantial ex-
perience in managing the type of program con-
cerned.
‘‘(4) CONTRACT AWARD, DURATION, AND RE-
NEWAL.—
‘‘(A) IN GENERAL.—A contract under this
subsection shall be for an initial term of up to
three years, renewable for additional terms of
up to three years.
‘‘(B) NONCOMPETITIVE
AWARD
AND
RE-
NEWAL FOR ENTITIES ADMINISTERING PART A
OR
PART
B
PAYMENTS.—The Secretary may
enter or renew a contract under this subsection
with an entity described in paragraph (3)(A)
without regard to the requirements of section 5
of title 41, United States Code.
‘‘(5) APPLICABILITY OF FEDERAL ACQUISITION
REGULATION.—The Federal Acquisition Regulation
shall apply to program administration contracts
under this subsection.
‘‘(6) PERFORMANCE
STANDARDS.—The Sec-
retary shall establish performance standards for the
program administrator including, as applicable,
standards for the quality and cost-effectiveness of
the program administered, and such other factors as
the Secretary finds appropriate. The eligibility of en-
tities for the initial award, continuation, and renewal
of program administration contracts shall be condi-
tioned, at a minimum, on performance that meets or
exceeds such standards.
‘‘(7) 
FUNCTIONS
OF
PROGRAM
ADMINIS-
TRATOR.—A program administrator shall perform
any or all of the following functions, as specified by
the Secretary:
‘‘(A) AGREEMENTS WITH INDIVIDUALS OR
ENTITIES
FURNISHING
HEALTH
CARE
ITEMS
AND
SERVICES.—Determine the qualifications
of individuals or entities seeking to enter or
renew agreements to provide services under a
program specified in subsection (a), and as ap-
propriate enter or renew (or refuse to enter or
renew) such agreements on behalf of the Sec-
retary.
‘‘(B) 
ESTABLISHMENT
OF
PAYMENT
RATES.—Negotiate or otherwise establish, sub-
ject to the Secretary’s approval, payment rates
for covered health care items and services.
‘‘(C) PAYMENT OF CLAIMS OR FEES.—Ad-
minister payments for health care items or serv-
ices furnished under any such program.
‘‘(D) PAYMENT OF BONUSES.—Using such
guidelines as the Secretary shall establish, and
subject to the approval of the Secretary, make
bonus payments as described in subsection
(d)(2)(A)(ii) to individuals and entities fur-
nishing items or services for which payment
may be made under any such program.
‘‘(E) LIST OF PROGRAM PARTICIPANTS.—
Maintain and regularly update a list of individ-
uals or entities with agreements to provide
health care items and services under any such
program, and ensure that such list, in electronic
and hard copy formats, is readily available, as
applicable, to—
‘‘(i) individuals residing in the service
area who are entitled to benefits under
part A or enrolled in the program under
part B;
‘‘(ii) the entities responsible under
sections 1816 and 1842 for administering
payments for health care items and serv-
ices furnished; and
‘‘(iii) individuals and entities pro-
viding health care items and services in the
service area.
‘‘(F) BENEFICIARY ENROLLMENT.—Deter-
mine eligibility of individuals to enroll under a
program specified in subsection (a) and provide
enrollment-related services (but only if the Sec-
retary finds that the program administrator has
no conflict of interest caused by a financial re-
lationship with any individual or entity fur-
nishing items or services for which payment
may be made under any such program, or any
other conflict of interest with respect to such
function).
‘‘(G) OVERSIGHT.—Monitor the compli-
ance of individuals and entities with agreements
under any such program with the conditions of
participation.
‘‘(H) ADMINISTRATIVE REVIEW.—Conduct
reviews of adverse determinations specified in
subparagraph (A) and in subsection (b)(6).
‘‘(I) 
REVIEW
OF
MARKETING
MATE-
RIALS.—Conduct a review of marketing mate-
rials proposed by an individual or entity fur-
nishing services under any such program.
‘‘(J) ADDITIONAL
FUNCTIONS.—Perform
such other functions as the Secretary may
specify.
‘‘(8) LIMITATION
OF
LIABILITY.—The provi-
sions of section 1157(b) shall apply with respect to
activities of contractors and their officers, employ-
ees, and agents under a contract under this sub-
section.
‘‘(9) INFORMATION SHARING.—Notwithstanding
section 1106 and section 552a of title 5, United
States Code, the Secretary is authorized to disclose
to an entity with a program administration contract
under this subsection such information (including
medical information) on individuals receiving health
care items and services under the program as the
entity may require to carry out its responsibilities
under the contract. Nothing in this paragraph shall
be construed as exempting such an entity from
maintaining the confidentiality of such information
consistent with applicable privacy laws.
‘‘(d) RULES
APPLICABLE
TO
BOTH
PROGRAM
AGREEMENTS
AND
PROGRAM
ADMINISTRATION
CON-
TRACTS.—
‘‘(1) RECORDS, REPORTS, AND AUDITS.—The
Secretary is authorized to require individuals and
entities with agreements to provide health care items
or services under programs specified under sub-
section (a), and entities with program administration
contracts under subsection (c), to maintain adequate
records, to afford the Secretary access to such
records (including for audit purposes), and to fur-
nish such reports and other materials (including au-
dited financial statements and performance data) as
the Secretary may require for purposes of implemen-
tation, oversight, and evaluation of such program
and of individuals’ and entities’ effectiveness in per-
formance of such agreements or contracts.
‘‘(2) BONUSES.—Notwithstanding any other
provision of law, but subject to subparagraph
(B)(ii), the Secretary may make bonus payments
under a program specified in subsection (a) from the
Health Insurance and Supplementary Medical Insur-
ance Trust Funds in amounts that do not exceed 50
percent of the savings to such Trust Funds attrib-
utable to such programs (or in the case of the pro-
gram specified in subsection (a)(7), in amounts au-
thorized under such program), in accordance with
the following:
‘‘(A) PAYMENTS
TO
PROGRAM
ADMINIS-
TRATORS.—The Secretary may make bonus
payments under each program specified in sub-
section (a) to program administrators.
‘‘(B) PAYMENTS TO INDIVIDUALS AND EN-
TITIES FURNISHING SERVICES.—
‘‘(i) IN GENERAL.—Subject to clause
(ii), the Secretary may make bonus pay-
ments to individuals or entities furnishing
items or services for which payment may
be made under the programs specified in
paragraphs (1), (2), and (5) of subsection
(a), or may authorize a program adminis-
trator to make such bonus payments in ac-
cordance with such guidelines as the Sec-
retary shall establish and subject to the
Secretary’s approval.
‘‘(ii) LIMITATIONS.—The Secretary
may limit bonus payments under clause (i)
to particular service areas, types of individ-
uals or entities furnishing items or services
under a program, or kinds of items or
services, and may condition such payments
on the achievement of such standards re-
lated to efficiency, improvement in proc-
esses or outcomes of care, or such other
factors as the Secretary determines to be
appropriate.
‘‘(3) ANTIDISCRIMINATION LIMITATION.—
‘‘(A) IN
GENERAL.—The Secretary shall
not enter into an agreement with an individual
or entity to provide health care items or serv-
ices under a program specified under subsection
(a), or with an entity to administer such a pro-
gram, unless such individual or entity guaran-
tees that it will not deny, limit, or condition the
coverage or provision of benefits under such
program, for individuals eligible to be enrolled
under such program, based on any health sta-
tus-related 
factor 
described 
in 
section
2702(a)(1) of the Public Health Service Act.
‘‘(B) CONSTRUCTION.—Subparagraph (A)
shall not be construed to prohibit such indi-
vidual or entity from taking any action explic-
itly authorized by the provisions of section
1866C (care coordination services) or section
1866D (disease management services).
‘‘(e) LIMITATIONS ON JUDICIAL REVIEW.—The fol-
lowing actions and determinations with respect to a pro-
gram specified in subsection (a) shall not be subject to
review by a judicial or administrative tribunal:
‘‘(1) A limitation on the implementation of a
program under subsection (b)(2).
‘‘(2) The establishment of program participa-
tion standards under subsection (b)(5); or the denial
or termination of, or refusal to renew, an agreement
with an individual or entity to provide health care
items and services under the program.
‘‘(3) The determination of a beneficiary’s eligi-
bility under subsection (b)(6)(B).
‘‘(4) The establishment of program administra-
tion contract performance standards under sub-
section (c)(6); or the refusal to renew a program ad-
ministration contract; or the noncompetitive award
or renewal of a program administration contract
under subsection (c)(4)(B).
‘‘(5) The establishment of payment rates,
through negotiation or otherwise, under a program
agreement or a program administration contract.
‘‘(6) A determination with respect to a program
(where specifically authorized by the program au-
thority or by subsection (d)(2))—
‘‘(A) as to whether cost savings have been
achieved, and the amount of savings;
‘‘(B) as to whether, to whom, and in what
amounts bonuses will be paid; or
‘‘(C) as to whether to reduce or eliminate
beneficiary cost-sharing.
‘‘(f) APPLICATION LIMITED TO PARTS A AND B.—
None of the provisions of this section or of the programs
specified in subsection (a) shall apply to the programs
under parts C and D.’’.
(b) EXCEPTION TO LIMITS ON PHYSICIAN REFER-
RALS.—Section 1877(b) (42 U.S.C. 1395nn(b)) is
amended—
(1) by redesignating paragraph (4) as para-
graph (5); and
(2) by inserting after paragraph (3) the fol-
lowing new paragraph:
‘‘(4) PRIVATE SECTOR PURCHASING AND QUAL-
ITY
IMPROVEMENT
TOOLS
FOR
ORIGINAL
MEDI-
CARE.—In the case of a designated health service, if
the designated health service is—
‘‘(A) included in the services under section
1866C, 1866D, 1866E, or 1866I; and
‘‘(B) is provided by an individual or entity
meeting such criteria related to quality assur-
ance, financial disclosure, and other factors as
the Secretary may find appropriate.’’.
SEC. 118. REPORTS TO CONGRESS ON PRIVATE SECTOR
PURCHASING AND QUALITY IMPROVEMENT
PROGRAMS.
Not later than five years after the date of the enact-
ment of the Medicare Modernization and Solvency Act of
2001, and biennially thereafter for six years, the Secretary
of Health and Human Services shall report to the Con-
gress on the use of authorities enacted by sections 111,
114, 115, 121, 122, and 123 of this Act. Each report shall
address the impact of the use of those authorities on qual-
ity, access, and expenditures under the programs under
title XVIII of the Social Security Act.
Subtitle C—Immediate and Long-
term 
Payment 
Reforms 
for
Medicare Fee for Service
SEC. 121. COMPETITIVE ACQUISITION OF ITEMS AND SERV-
ICES.
(a) PROGRAM AUTHORIZED.—Title XVIII (42 U.S.C.
1395 et seq.), as previously amended by part B, is further
amended by inserting after section 1866F the following
new section:
‘‘SEC. 1866G. COMPETITIVE ACQUISITION OF ITEMS AND
SERVICES.
‘‘(a) IN GENERAL.—
‘‘(1) PROGRAM
AUTHORITY.—The Secretary
shall implement a program to purchase, on behalf of
individuals enrolled under this part certain competi-
tively priced quality items and services for which
payment may be made under part B.
‘‘(2) ADMINISTRATION BY CONTRACT.—Except
as otherwise specifically provided, the Secretary may
administer the program under this section in accord-
ance with section 1866F.
‘‘(b) ESTABLISHMENT
OF COMPETITIVE ACQUISI-
TION AREAS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish one or more competitive acquisition areas for
agreement award purposes for the furnishing under
part B of the items and services described in sub-
section (d) after 2004. The Secretary may establish
different competitive acquisition areas under this
subsection for different classes of items and services
or may establish a single, national competition for
non-complex items.
‘‘(2) CRITERIA
FOR
ESTABLISHMENT.—The
competitive acquisition areas established under para-
graph (1) shall be chosen based on the availability
and accessibility of individuals and entities able to
furnish items and services, and the estimated sav-
ings to be realized by the use of competitive acquisi-
tion in the furnishing of items and services in the
area.
‘‘(c) AWARDING OF AGREEMENTS IN COMPETITIVE
ACQUISITION AREAS.—
‘‘(1) IN GENERAL.—The Secretary shall con-
duct a competition among individuals and entities
supplying items and services described in subsection
(d) for each competitive acquisition area established
under subsection (b) for each class of items and
services.
‘‘(2) CONDITIONS
FOR
AWARDING
AGREE-
MENT.—The Secretary may not enter an agreement
with any entity under the competition conducted
pursuant to paragraph (1) to furnish an item or
service unless the Secretary finds that the entity
meets quality standards specified by the Secretary,
and that the aggregate amounts to be paid under
the agreement are expected to be less than the ag-
gregate amounts that would otherwise be paid.
‘‘(3) TERMS OF AGREEMENT.—An agreement
entered into with an entity under the competition
conducted pursuant to paragraph (1) is subject to
terms and conditions that the Secretary may specify.
‘‘(d) SERVICES DESCRIBED.—The items and services
to which this section applies are all items and services de-
scribed in paragraphs (5) through (9) of section 1861(s)
(other than custom fabricated prostheses, as defined by
the Secretary), and such other items or services reim-
bursed under this title as the Secretary may specify.’’.
(b) ITEMS AND SERVICES TO BE FURNISHED ONLY
THROUGH COMPETITIVE ACQUISITION.—Section 1862(a)
(42 U.S.C. 1395y(a)) is amended—
(1) by striking ‘‘or’’ at the end of paragraph
(20),
(2) by striking the period at the end of para-
graph (21) and inserting ‘‘; or’’, and
(3) by adding after paragraph (21) the fol-
lowing:
‘‘(22) where the expenses are for an item or
service furnished in a competitive acquisition area
(as established by the Secretary under section
1866G(a)) by an entity other than an entity with
which the Secretary has entered into an agreement
under section 1866G(c) for the furnishing of such
an item or service in that area, except in such cases
of emergency or urgent need as the Secretary shall
prescribe.’’.
(c) EFFECTIVE DATE.—The amendments made by
subsections (a) and (b) apply to items and services fur-
nished after 2004.
SEC. 122. PREFERRED PARTICIPANTS.
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et
seq.), as previously amended by this subtitle, is further
amended by inserting after section 1866G the following
new section:
‘‘SEC. 1866H. PREFERRED PARTICIPANTS.
‘‘(a) PROGRAM AUTHORITY.—
‘‘(1) IN GENERAL.—
‘‘(A) DISCRETIONARY AUTHORITY.—Begin-
ning in 2004, the Secretary may implement a
preferred participant program, under which the
Secretary enters into agreements for the fur-
nishing of health care items and services by in-
dividuals and entities participating in the pro-
gram under part A or B of this title that pro-
vide high-quality, efficient health care.
‘‘(B) MANDATORY IMPLEMENTATION.—Be-
ginning in 2010, the Secretary of Health and
Human Services shall implement such a pro-
gram in any geographic area (which may in-
clude a hospital referral region, as defined by
the latest determination of the Center for the
Evaluative Clinical Services of the Dartmouth
Medical School) where the intensity of pattern
of practice (represented by the number of serv-
ices) and cost of service is determined to be in
the most expensive 10 percent of the nation, as
adjusted for severity and other factors of the
population as the Secretary determines to be
appropriate.
‘‘(2) LIMITATION.—The Secretary shall not im-
plement the program under this section with respect
to a service area, or with respect to a category of in-
dividuals and entities furnishing items and services
in such service area, unless the Secretary estimates
that to do so will improve the quality and reduce the
cost of the programs under this title.
‘‘(3) ADMINISTRATION BY CONTRACT.—Except
as otherwise specifically provided, the Secretary shall
administer the program under this section in accord-
ance with section 1866F.
‘‘(b) PREFERRED PARTICIPANT AGREEMENT.—
‘‘(1) CRITERIA AND TERMS.—In order to be eli-
gible to participate in the program under part A or
B as a preferred participant, an individual or entity
shall meet the following conditions:
‘‘(A) PARTICIPATION CRITERIA.—The indi-
vidual or entity shall meet the criteria estab-
lished 
by 
the 
Secretary 
under 
section
1866F(b)(5) (relating to quality, cost-effective-
ness, categories of participants in service area,
and such other standards or criteria as the Sec-
retary may establish).
‘‘(B) PAYMENT RATE.—The individual or
entity shall agree to accept payment, for cov-
ered health care items and services furnished
during the term of the agreement, at the rates
established under this section (which may in-
clude rates in effect under part A or B, dis-
counted rates, or such other rates as the Sec-
retary may find appropriate).
‘‘(2) DURATION.—A preferred participant agreement
under this section shall be for a calendar year (or,
in the case of an agreement commencing after the
first day of January (or such later date as the Sec-
retary may specify), for the remainder of such cal-
endar year), and shall be annually renewable, at the
option of the participant, while the participant con-
tinues to meet all applicable conditions of participa-
tion.
‘‘(c) OPTION TO REDUCE COST SHARING.—Notwith-
standing any other provision of law, subject to the cost-
effectiveness criteria specified in subsection (a)(2), the
Secretary may—
‘‘(1) provide for the reduction or elimination of
beneficiary cost sharing (such as deductibles, copay-
ments, and coinsurance) with respect to any of the
items or services furnished under this section, and
may limit such reduction or elimination to particular
service areas; and
‘‘(2) permit individuals or entities under an
agreement under this section to waive part or all of
such beneficiary cost sharing.’’.
(b) DEFINITIONS.—Section 1861 (42 U.S.C. 1395x),
as amended by section 112, is amended by adding at the
end the following new subsection:
‘‘(xx) PREFERRED PARTICIPANT.—The term ‘pre-
ferred participant’ means an individual or entity that fur-
nishes health care items or services under part A or B
and that has in effect an agreement under section
1866H(b).’’.
SEC. 123. PROGRAM TO IMPROVE OUTCOMES AND REDUCE
PATIENT MORBIDITY AND MORTALITY.
Title XVIII (42 U.S.C. 1395 et seq.), as previously
amended by this subtitle, is further amended by inserting
after section 1866H the following new section:
‘‘SEC. 1866I. PROGRAM TO IMPROVE OUTCOMES AND RE-
DUCE PATIENT MORBIDITY AND MORTALITY.
‘‘(a) IN GENERAL.—
‘‘(1) COMPETITION
TO
FURNISH
BUNDLED
ITEMS AND SERVICES.—Beginning in 2004, the Sec-
retary shall use a competitive process to enter into
agreements with specific hospitals or other entities
for the furnishing of bundled groups of items and
services related to certain surgical procedures, and
of other bundled groups of items and services (unre-
lated to surgical procedures) specified by the Sec-
retary furnished during an episode of care (as de-
fined by the Secretary). Such items and services may
include any items or services covered under this title
that the Secretary determines to be appropriate. The
Secretary shall give special emphasis to including
under this program those procedures where the Sec-
retary determines evidence exists that morbidity and
mortality of beneficiaries can be reduced by the use
of the program.
‘‘(2) ADMINISTRATION BY CONTRACT.—Except
as otherwise specifically provided, the Secretary may
administer the program under this section in accord-
ance with section 1866F.
‘‘(b) ELIGIBILITY CRITERIA.—In order to be eligible
for an agreement under this section, an entity shall—
‘‘(1) meet quality standards established by the
Secretary;
‘‘(2) implement an ongoing quality assurance
program approved by the Secretary; and
‘‘(3) meet such other requirements as the Sec-
retary may establish.
‘‘(c) PAYMENT.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish criteria for identifying the health care items and
services furnished by a center with an agreement
under this section during an episode of care that are
to be bundled together and for which payment shall
be made on the basis of an all-inclusive rate.
‘‘(2) PAYMENT LIMITATION.—
‘‘(A) LIMITATION
ON
AGGREGATE
PAY-
MENTS TO ENTITIES.—The estimated amount
of aggregate payments to all entities under this
section for a year shall be less than the esti-
mated amount of aggregate payments that the
Secretary would otherwise have made for such
year, adjusted for changes in the number of in-
dividuals receiving services.
‘‘(B) LIMITATION ON PAYMENTS TO PAR-
TICULAR ENTITIES.—In no case shall the all-in-
clusive rate paid to an entity for items and
services furnished during an episode of care
under this section exceed the estimated amount
of the payments that the Secretary would other-
wise have made for such items and services.
‘‘(d) AGREEMENT PERIOD.—An agreement period
shall be for up to three years (subject to renewal).
‘‘(e) INCENTIVES FOR USE OF CENTERS.—Notwith-
standing any other provision of law, the Secretary may
permit entities under an agreement under this section to
furnish additional services (including family and caregiver
support services) or to waive part or all beneficiary cost
sharing (such as deductibles, copayments, and coinsur-
ance) with respect to any of the items or services furnished
under this section.
‘‘(f) BENEFICIARY ELECTION.—Notwithstanding any
other provision of this title, an individual who voluntarily
elects to receive items and services under an arrangement
described in subsection (a)(1) with respect to an episode
of care shall not be entitled to payment under this title
for any such item or service furnished with respect to such
episode of care other than through such arrangement, sub-
ject to such exceptions as the Secretary may prescribe for
emergency medical services as described in section
1852(d)(3) and other cases of urgent need.’’.
SEC. 124. AUTHORITY TO IMPOSE SUSTAINABLE GROWTH
RATE LIMITATIONS ON PAYMENT FOR CER-
TAIN MEDICARE ITEMS AND SERVICES.
(a) IN GENERAL.—In the case of unusual increases
in costs to the medicare program (as determined by the
Secretary of Health and Human Services) attributable to
unjustified increases in the amount or intensity of items
and services furnished under the program, the Secretary
shall modify the payment update and/or methodology with
respect to such items and services from the update and/
or methodology which permitted or resulted in such un-
usual increases in costs to an update and/or methodology
184
(A) by striking ‘‘and’’ at the end of sub-
paragraph (D);
(B) by striking the period at the end
of subparagraph (E) and inserting ‘‘;
and’’; and
(C) by adding at the end the fol-
lowing:
‘‘(F) the plan for part D benefits guaran-
tees coverage of any specifically named pre-
scription medicine for an enrollee, when pre-
scribed by a physician in accordance with the
provisions of such part, regardless of whether
such medicine would otherwise be covered under
an applicable formulary or discount arrange-
ment, but only to the extent that it would be re-
quired to be covered under part D.
In 
carrying 
out 
subparagraph 
(F), 
a
Medicare+Choice organization has the same author-
ity to establish formularies as contracting entities
have under part D, but subject to an independent
contractor appeal or other appeal process that would
be applicable to determinations by such a con-
tracting entity.’’.