I 
108TH CONGRESS 
1ST SESSION H. R. 2578
To amend title XVIII of the Social Security Act to establish a voluntary 
Medicare outpatient prescription drug discount and security program. 
IN THE HOUSE OF REPRESENTATIVES 
JUNE 24, 2003
Mr. BURR (for himself, Mr. BARTON of Texas, Mr. BUYER, Mr. NORWOOD, 
Mr. SHADEGG, Mr. AKIN, Mr. BARTLETT of Maryland, Mr. BURGESS, 
Mrs. CUBIN, Mr. HOEKSTRA, Mr. KING of Iowa, Mr. KLINE, Mr. OTTER, 
Mr. PITTS, Mr. TOOMEY, Mr. WELDON of Florida, Mr. GARRETT of New 
Jersey, and Mr. JONES of North Carolina) introduced the following bill; 
which was referred to the Committee on Energy and Commerce, and in 
addition to the Committee on Ways and Means, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such 
provisions as fall within the jurisdiction of the committee concerned 
A BILL 
To amend title XVIII of the Social Security Act to establish 
a voluntary Medicare outpatient prescription drug dis-
count and security program.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Medicare for the 21st Century Act’’.
(b) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows:
Sec. 1. Short title; table of contents. 
Sec. 2. Voluntary medicare outpatient prescription drug discount and security 
program. 
‘‘PART D—VOLUNTARY MEDICARE OUTPATIENT PRESCRIPTION DRUG 
DISCOUNT AND SECURITY PROGRAM 
‘‘Sec. 1860D–1. Establishment of program. 
‘‘Sec. 1860D–2. Enrollment. 
‘‘Sec. 1860D–3. Enrollee protections. 
‘‘Sec. 1860D–4. Benefits under the program. 
‘‘Sec. 1860D–5. Prescription drug accounts. 
‘‘Sec. 1860D–6. Definitions. 
Sec. 3. Exclusion of part D costs from determination of part B monthly pre-
mium. 
Sec. 4. Medicaid amendments.
SEC. 2. VOLUNTARY MEDICARE OUTPATIENT PRESCRIP-
TION DRUG DISCOUNT AND SECURITY PRO-
GRAM. 
(a) ESTABLISHMENT OF PROGRAM.—Title XVIII of 
the Social Security Act (42 U.S.C. 1395 et seq.) is amend-
ed by redesignating part D as part E and by inserting 
after part C the following new part: 
‘‘PART D—VOLUNTARY MEDICARE OUTPATIENT PRE-
SCRIPTION DRUG DISCOUNT AND SECURITY PRO-
GRAM 
‘‘ESTABLISHMENT OF PROGRAM 
‘‘SEC. 1860D–1. (a) PROVISION OF BENEFIT.—The 
Secretary shall establish a Medicare Outpatient Prescrip-
tion Drug Discount and Security Program under this part 
under which an eligible beneficiary who voluntarily enrolls 
under this part is provided—
‘‘(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 1860D–
5.
‘‘(c) IMPLEMENTATION
OF PROGRAM.—The Sec-
retary shall establish the program under this part in a 
manner so that—
‘‘(1) eligible beneficiaries may first enroll with 
eligible entities and obtain prescription drug dis-
counts not later than 90 days after the date of the 
enactment of this part; and 
‘‘(2) benefits with respect to contributions to a 
prescription drug account and catastrophic coverage 
shall begin with the month of September 2004, but 
there shall be no catastrophic coverage provided for 
any period before January 1, 2005.
‘‘(d) VOLUNTARY NATURE OF PROGRAM.—Nothing 
in this part shall be construed as requiring an eligible ben-
eficiary to enroll in the program under this part. 
‘‘(e) FINANCING.—The costs of providing benefits 
under this part shall be payable from the Federal Supple-
mentary Medical Insurance Trust Fund established under 
section 1841. 
‘‘ENROLLMENT; SELECTION OF ELIGIBLE ENTITY 
‘‘SEC. 1860D–2. (a) ENROLLMENT UNDER PART 
D.—
‘‘(1) ESTABLISHMENT OF PROCESS.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish a process through which an eligible 
beneficiary may make an election to enroll 
under this part. 
‘‘(B) REQUIREMENT
OF
ENROLLMENT.—
An eligible beneficiary must enroll under this 
part for a year in order to be eligible to receive 
the benefits under this part for that year. 
‘‘(C) LIMITATION ON ENROLLMENT.—
‘‘(i) IN
GENERAL.—Except as pro-
vided under this subparagraph and under 
such exceptional circumstances as the Sec-
retary may provide, an eligible individual 
shall only have 1 opportunity to enroll 
under this part. The Secretary shall speci-
fy the form, manner, and timing of such 
election but shall permit the exercise of
such election at the time the individual is 
eligible to so enroll.
‘‘(ii) LATE ENROLLMENT.—The Sec-
retary shall permit individuals to elect to 
enroll under this part at times other than 
as permitted under the previous provisions 
of this paragraph, except that in the case 
of such a late enrollment the amount of 
the premiums for catastrophic coverage 
otherwise 
established 
under 
section 
1860D–4(b)(3) shall be increased by such 
percentage as the Secretary shall specify in 
order to deter adverse selection. 
‘‘(C) TERMINATION OF ENROLLMENT.—An 
enrollee under this part shall be disenrolled—
‘‘(i) upon failure to pay the applicable 
enrollment fee under subsection (e) or the 
premium for catastrophic coverage under 
section 1860D–4(b); 
‘‘(ii) upon termination of coverage 
under part A or part B; or 
‘‘(iii) upon notice submitted to the 
Secretary 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 
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 
CURRENT BENEFICIARIES.—The Secretary shall 
establish a period, which shall begin on the date 
on which the Secretary first begins to accept 
elections for enrollment under this part and 
shall end on November 30, 2003, during which 
any eligible beneficiary may enroll under this 
part. 
‘‘(C) SPECIAL
ENROLLMENT
PERIOD
IN 
CASE OF TERMINATION OF COVERAGE UNDER A 
GROUP
HEALTH
PLAN.—The Secretary shall 
provide for a special enrollment period under 
this part in the same manner as is provided 
under section 1837(i) with respect to part B, 
except that for purposes of this subparagraph 
any reference to ‘by reason of the individual’s 
(or the individual’s spouse’s) current employ-
ment status’ shall be treated as being deleted.
‘‘(3) PERIOD OF COVERAGE.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B) and subject to subparagraph 
(C), an eligible beneficiary’s coverage under the 
program under this part shall be effective for 
the period provided under section 1838, as if 
that section applied to the program under this 
part. 
‘‘(B) ENROLLMENT
DURING
OPEN
AND 
SPECIAL
ENROLLMENT.—Subject to subpara-
graph (C), an eligible beneficiary who enrolls 
under the program under this part under sub-
paragraph (B) or (C) of paragraph (2) shall be 
entitled to the benefits under this part begin-
ning on the first day of the month following the 
month in which such enrollment occurs. 
‘‘(b) SELECTION OF AN ELIGIBLE ENTITY FOR AC-
CESS TO NEGOTIATED PRICES.—
‘‘(1) PROCESS.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish a process through which an eligible 
beneficiary who is enrolled under this part shall 
select any eligible entity, that has been awarded 
a contract under this part and serves the State 
in which the beneficiary resides, to provide ac-
cess to negotiated prices under section 1860D–
4(a). 
‘‘(B) RULES.—In establishing the process 
under subparagraph (A), the Secretary shall 
use rules similar to the rules for enrollment and 
disenrollment with a Medicare+Choice plan 
under section 1851 (including the special elec-
tion periods under subsection (e)(4) of such sec-
tion), 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 estab-
lishing such process, the Secretary shall provide 
an equitable method for the selection of an eli-
gible entity for individuals who enroll under this 
part and fail to make such a selection.
‘‘(2) COMPETITION.—Eligible entities with a 
contract under this part shall compete for bene-
ficiaries on the basis of discounts, formularies, phar-
macy networks, and other services provided for 
under the contract. 
‘‘(c) ENROLLMENT PERIOD
FOR BENEFITS.—The 
processes developed under subsections (a) and (b) shall en-
sure that eligible beneficiaries are permitted to enroll 
under this part and to select an eligible entity prior to 
90 days after the date of the enactment of this part, in 
order to ensure that prescription drug discount benefits 
are available under this part as of such date. 
‘‘(d) PROVIDING ENROLLMENT, SELECTION, AND 
COVERAGE INFORMATION TO BENEFICIARIES.—
‘‘(1) ACTIVITIES.—The Secretary shall provide 
for activities under this part to broadly disseminate 
information to eligible beneficiaries (and prospective 
eligible beneficiaries) regarding enrollment under 
this part, the selection of eligible entities, and the 
prescription drug coverage made available by eligible 
entities with a contract under this part. 
‘‘(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 in-
formation at least 60 days prior to the first enroll-
ment period described in section 1860D–2(c). 
‘‘(e) ENROLLMENT FEE.—
‘‘(1) AMOUNT.—
‘‘(A) IN GENERAL.—Except as provided in 
paragraph (3), enrollment under the program 
under this part 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), plus 
the premium for catastrophic coverage provided 
under section 1860D–4(b)(3). 
‘‘(B) ANNUAL PERCENTAGE INCREASE IN 
ENROLLMENT FEE.—
‘‘(i) IN GENERAL.—In the case of any 
calendar year beginning after 2004, the 
dollar amount of the enrollment fee in sub-
paragraph (A) shall be increased by an 
amount equal to—
‘‘(I) such dollar amount; multi-
plied by 
‘‘(II) the annual percentage in-
crease in the consumer price index for 
all urban consumers (all items; U.S.
city average) for the year ending in 
September of the previous year. 
‘‘(ii) ROUNDING.—If any increase de-
termined under clause (i)(II) is not a mul-
tiple 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, except 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 
establish an arrangement under which a State 
may provide for payment of some or all of the 
enrollment fee for some or all qualifying low in-
come enrollees in the State, as specified by the 
State under the arrangement. Insofar as such a 
payment arrangement is made with respect to 
an enrollee, the amount of the enrollment fee 
shall be paid directly by the State and shall not
be collected under paragraph (2). In carrying 
out this paragraph, the Secretary may apply 
procedures similar 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 expendi-
tures are for an enrollment fee under this sub-
section. 
‘‘(4) DISTRIBUTION OF PORTION OF ENROLL-
MENT FEE.—Of the enrollment fee collected by the 
Secretary under this paragraph with respect to a 
beneficiary, 2⁄3 of that fee shall be made available to 
the eligible entity selected by the eligible beneficiary. 
‘‘(f) ISSUANCE OF CARD AND COORDINATION.—Each 
eligible entity shall—
‘‘(1) issue, in a uniform standard format speci-
fied by the Secretary, to each enrolled beneficiary a 
card and an enrollment number that establishes 
proof of enrollment and that can be used in a coordi-
nated manner—
‘‘(A) to identify the eligible entity selected 
to provide access to negotiated prices under sec-
tion 1860D–4(a); 
‘‘(B) to identify the beneficiary for pur-
poses of the catastrophic coverage under section 
1860D–4(b) and, including tracking expendi-
tures that count against the catastrophic cov-
erage threshold; and 
‘‘(C) to make deposits to and withdrawals 
from a prescription drug account under section 
1860D–5; and 
‘‘(2) provide for electronic methods to coordi-
nate with such prescription drug accounts. 
‘‘ENROLLEE PROTECTIONS 
‘‘SEC. 1860D–3. (a) GUARANTEED ISSUE AND NON-
DISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible beneficiary 
who is eligible to select an eligible entity under 
section 1860D–2(b) for prescription drug cov-
erage under this part at a time during which 
selections are accepted under this part with re-
spect to the coverage shall not be denied selec-
tion based on any health status-related factor 
(described in section 2702(a)(1) of the Public 
Health Service Act) or any other factor and
may not be charged any selection or other fee 
as a condition of such acceptance. 
‘‘(B) 
MEDICARE+CHOICE
LIMITATIONS 
PERMITTED.—The provisions of paragraphs (2) 
and (3) (other than subparagraph (C)(i), relat-
ing to default enrollment) of section 1851(g) 
(relating to priority and limitation on termi-
nation of election) shall apply to selection of eli-
gible entities under this subsection. 
‘‘(2) NONDISCRIMINATION.—An eligible entity 
offering prescription drug coverage under this part 
shall not establish a service area in a manner that 
would discriminate based on health or economic sta-
tus of potential enrollees. 
‘‘(3) COVERAGE
OF
ALL
PORTIONS
OF
A 
STATE.—If an eligible entity with a contract under 
this part serves any part of a State it shall serve the 
entire State. 
‘‘(b) DISSEMINATION OF INFORMATION.—
‘‘(1) GENERAL INFORMATION.—An eligible enti-
ty with a contract under this part shall disclose, in 
a clear, accurate, and standardized form to each eli-
gible beneficiary who has selected the entity to pro-
vide access to negotiated prices under this part at 
the time of selection and at least annually there-
after, 
the 
information 
described 
in 
section 
1852(c)(1) relating to such prescription drug cov-
erage. Such information includes the following (in a 
manner designed to permit and promote competition 
among eligible entities and to be understood by eligi-
ble beneficiaries with mental impairments): 
‘‘(A) Summary information regarding ne-
gotiated prices (including discounts) for covered 
outpatient drugs. 
‘‘(B) Access to such prices through phar-
macy networks. 
‘‘(C) How any formulary used by the eligi-
ble entity functions. 
‘‘(D) Any use of tiered copayments. 
The eligible entity also shall notify enrolled bene-
ficiaries when there is a change in the formulary 
during the year. 
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL 
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an eligible beneficiary, the 
eligible entity shall provide the information described 
in section 1852(c)(2) (other than subparagraph (D)) 
to such beneficiary. 
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
Each eligible entity offering prescription drug cov-
erage under this part shall have a mechanism (in-
cluding a toll-free telephone number) for providing 
upon request specific information (such as nego-
tiated prices, including discounts) to individuals who 
have selected the entity. The entity shall make avail-
able, through an Internet website and in writing 
upon request, information on specific changes in its 
formulary. 
‘‘(4) COORDINATION WITH CATASTROPHIC COV-
ERAGE AND PRESCRIPTION DRUG ACCOUNT BENE-
FITS.—Each such eligible entity shall provide for co-
ordination of such information as the Secretary may 
specify to carry out sections 1860D–4(b) and 
1860D–5. 
‘‘(5) DISCLOSURE.—Each such eligible entity 
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 sec-
tion 1927(b)(3)(D) shall apply to information dis-
closed to the Secretary under this paragraph in the 
same manner as such provisions apply to informa-
tion disclosed under such section.
‘‘(c) ACCESS TO COVERED BENEFITS.—
‘‘(1) ENSURING PHARMACY ACCESS.—
‘‘(A) PARTICIPATION
OF
ANY
WILLING 
PHARMACY.—The eligible entity shall permit 
the participation of any pharmacy that meets 
terms and conditions that the entity has estab-
lished. 
‘‘(B) DISCOUNTS ALLOWED FOR NETWORK 
PHARMACIES.—An eligible entity may, notwith-
standing subparagraph (A), reduce coinsurance 
or copayments for its enrolled beneficiaries 
below the level otherwise provided for covered 
outpatient drugs dispensed through in-network 
pharmacies, but in no case shall such a reduc-
tion result in an increase in payments made by 
the Secretary under this part. 
‘‘(C) CONVENIENT ACCESS FOR NETWORK 
PHARMACIES.—The eligible entity shall secure 
the participation in its network of a sufficient 
number of pharmacies that dispense (other than 
by mail order) drugs directly to patients to en-
sure convenient access, consistent with rules of 
the Secretary. The Secretary shall establish 
convenient access rules under this subpara-
graph that are no less favorable to enrollees
than the rules for convenient access to phar-
macies of the Secretary of Defense established 
as of June 1, 2003, for purposes of the 
TRICARE Retail Pharmacy (TRRx) program. 
Such rules shall include adequate emergency ac-
cess for enrolled beneficiaries. 
‘‘(D) LEVEL PLAYING FIELD.—An eligible 
entity shall permit enrollees to receive benefits 
(which may include a 90-day supply of drugs or 
biologicals) through a community pharmacy, 
rather than through mail order, with any dif-
ferential in cost paid by such enrollees. 
‘‘(E) NOT REQUIRED TO ACCEPT INSUR-
ANCE RISK.—The terms and conditions under 
subparagraph (A) may not require participating 
pharmacies to accept insurance risk as a condi-
tion of participation. 
‘‘(2) ACCESS TO NEGOTIATED PRICES FOR PRE-
SCRIPTION
DRUGS.—For requirements relating to 
the access of an eligible beneficiary to negotiated 
prices (including applicable discounts), see section 
1860D–4(a). 
‘‘(3) REQUIREMENTS
ON
DEVELOPMENT
AND 
APPLICATION OF FORMULARIES.—Insofar as an eli-
gible entity with a contract under this part uses a 
formulary, the following requirements must be met: 
‘‘(A) PHARMACY AND THERAPEUTIC (P&T) 
COMMITTEE.—The entity must establish a 
pharmacy and therapeutic committee that de-
velops 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 stand-
ards of practice, including assessing peer-
reviewed medical literature, such as ran-
domized clinical trials, pharmacoeconomic 
studies, outcomes research data, and such 
other information as the committee deter-
mines 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 cat-
egories and classes). In establishing such class-
es, the committee shall take into account the 
standards published in the United States Phar-
macopeia-Drug Information. The committee 
shall make available to the enrollees under the 
plan through the Internet or otherwise the clin-
ical 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 OR 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 
beneficiaries and physicians. 
‘‘(F) PERIODIC
EVALUATION
OF
PROTO-
COLS.—In connection with the formulary, an el-
igible entity shall provide for the periodic eval-
uation and analysis of treatment protocols and 
procedures. 
‘‘(G) GRIEVANCES AND APPEALS RELAT-
ING TO APPLICATION OF FORMULARIES.—For 
provisions relating to grievances and appeals of 
coverage, see subsections (e) and (f). 
‘‘(d) COST AND UTILIZATION MANAGEMENT; QUAL-
ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT 
PROGRAM.—
‘‘(1) IN GENERAL.—For purposes of providing 
access to negotiated benefits under section 1860D–
4(a) and the catastrophic benefit described in sec-
tion 1860D–4(b), the eligible entity shall have in 
place—
‘‘(A) an effective cost and drug utilization 
management program, including appropriate in-
centives to use generic drugs, when appropriate; 
‘‘(B) quality assurance measures and sys-
tems to reduce medical errors and adverse drug
interactions, including a medication therapy 
management program described in paragraph 
(2); and 
‘‘(C) a program to control fraud, abuse, 
and waste. 
‘‘(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 manage-
ment and medication administration that may 
be furnished by a pharmacy provider and that 
is designed to assure, with respect to bene-
ficiaries at risk for potential medication prob-
lems, such as beneficiaries with complex or 
chronic diseases (such as diabetes, asthma, hy-
pertension, and congestive heart failure) or 
multiple prescriptions, that covered outpatient 
drugs under the plans under this part are ap-
propriately used to optimize therapeutic out-
comes through improved medication use and re-
duce the risk of adverse events, including ad-
verse 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 
physicians. 
‘‘(D) 
CONSIDERATIONS
IN
PHARMACY 
FEES.—Each eligible entity shall take into ac-
count, in establishing fees for pharmacists and
others providing services under the medication 
therapy management program, the resources 
and time used in implementing the program. 
Each such entity shall disclose to the Secretary 
upon request the amount of any such manage-
ment or dispensing fees. 
‘‘(3) TREATMENT OF ACCREDITATION.—Section 
1852(e)(4) (relating to treatment of accreditation) 
shall apply to prescription drug coverage provided 
under this part with respect to the following require-
ments, in the same manner as they apply to 
Medicare+Choice plans under part C with respect to 
the requirements described in a clause of section 
1852(e)(4)(B): 
‘‘(A) Subsection (c)(1) (relating to access 
to covered benefits). 
‘‘(B) Subsection (g) (relating to confiden-
tiality and accuracy of enrollee records). 
‘‘(4) PUBLIC DISCLOSURE OF PHARMACEUTICAL 
PRICES FOR EQUIVALENT DRUGS.—Each eligible en-
tity shall provide that each pharmacy or other dis-
penser that arranges for the dispensing of a covered 
outpatient drug shall inform the beneficiary 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 plan that is therapeutically 
equivalent and bioequivalent.
‘‘(e) GRIEVANCE MECHANISM, COVERAGE DETER-
MINATIONS, AND RECONSIDERATIONS.—
‘‘(1) IN GENERAL.—Each eligible entity shall 
provide meaningful procedures for hearing and re-
solving grievances between the entity (including any 
entity or individual through which the entity pro-
vides covered benefits) and enrollees in accordance 
with section 1852(f). 
‘‘(2) APPLICATION OF COVERAGE DETERMINA-
TION AND RECONSIDERATION PROVISIONS.—An eli-
gible entity shall meet the requirements of para-
graphs (1) through (3) of section 1852(g) with re-
spect to covered benefits under the 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 plan 
offered by an eligible entity 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 non-
preferred drug under the terms applicable for pre-
ferred drugs if the prescribing physician determines 
that the preferred drug for treatment of the same 
condition either would not be as effective for the in-
dividual or would have adverse effects for the indi-
vidual or both.
‘‘(f) APPEALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
an eligible entity shall meet the requirements of 
paragraphs (4) and (5) of section 1852(g) with re-
spect to drugs (including a determination related to 
the application of tiered cost-sharing described in 
subsection (e)(3)) in the same manner as such re-
quirements 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 plan offered by an eligible 
entity may appeal to obtain coverage for a covered 
outpatient drug that is not on a formulary of the en-
tity offering the plan if the prescribing physician de-
termines that the formulary 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.
‘‘(g) CONFIDENTIALITY
AND ACCURACY
OF EN-
ROLLEE RECORDS.—An eligible entity shall meet the re-
quirements of section 1852(h) with respect to enrollees 
under this section in the same manner as such require-
ments apply to a Medicare Advantage organization with 
respect to enrollees under part C. The eligible entity shall 
implement policies and procedures to safeguard the use 
and disclosure of enrollees’ individually identifiable health 
information in a manner consistent with the Federal regu-
lations (concerning the privacy of individually identifiable 
health information) promulgated under section 264(c) of 
the Health Insurance Portability and Accountability Act 
of 1996. The eligible entity 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 pur-
suant to the authority of the Secretary under section 
264(c) of the Health Insurance Portability and Account-
ability Act of 1996 (42 U.S. C. 1320d–2 note). 
‘‘(h) OVERSIGHT.—The Secretary shall provide ap-
propriate oversight to ensure compliance of eligible entities 
with 
the 
requirements 
of 
this 
section, 
including 
verification of the discounts and services provided. 
‘‘BENEFITS UNDER THE PROGRAM 
‘‘SEC. 1860D–4. (a) SAVINGS
TO
ENROLLEES 
THROUGH NEGOTIATED PRICES.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
each eligible entity with a contract under this part 
shall provide each eligible beneficiary enrolled with 
the entity with access to negotiated prices (including 
applicable discounts). For purposes of this para-
graph, 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 out-
patient drug. The prices negotiated by an eligible en-
tity under this paragraph shall (notwithstanding any 
other provision of law) not be taken into account for 
the purposes of establishing the best price under sec-
tion 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 available for drugs included in such for-
mulary. 
‘‘(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 part) may not charge a bene-
ficiary any amount for any services required to be 
provided by the entity under this part. 
‘‘(b) CATASTROPHIC COVERAGE.—
‘‘(1) THROUGH COMPETITION AMONG PRIVATE 
PLANS.—
‘‘(A) IN GENERAL.—Each enrollee under 
this part shall be entitled to catastrophic cov-
erage through a contract with a qualified pri-
vate entity under this subsection. 
‘‘(B) CONTRACT REQUIREMENTS TO PRO-
MOTE
COMPETITION.—The 
Secretary 
shall 
enter into contracts with qualified private enti-
ties to offer the catastrophic coverage under 
this subsection. To the maximum extent prac-
ticable, the Secretary shall enter into such con-
tracts in a manner so that enrollees in all areas 
have a choice among at least 3 such entities to 
obtain the catastrophic coverage. Such an entity 
may be an eligible entity with a contract under 
subsection (a). Each such entity shall meet 
such financial solvency and other requirements 
as the Secretary determines to be necessary to 
carry out the program under this subsection.
Such a contract shall provide for the prospec-
tive assumption of the maximum amount of risk 
under the contract as the Secretary may nego-
tiate. In providing catastrophic coverage under 
this subsection, the qualified private entities 
(and not the Secretary) shall establish the pay-
ment rates for drugs so covered. 
‘‘(C) CONTINGENCY.—If the Secretary is 
otherwise unable to enter into a contract with 
any qualified private entity under this para-
graph for the offering of catastrophic coverage 
for enrollees in an area, the Secretary shall oth-
erwise provide directly for the offering of the 
catastrophic coverage under this subsection to 
such enrollees. In such contingency, the pay-
ment rates for drugs so covered shall be the 
rates established by entities offering price dis-
counts under this part. 
‘‘(2) SCOPE OF COVERAGE.—
‘‘(A) SCOPE.—
‘‘(i) IN GENERAL.—Subject to para-
graph (4), the catastrophic coverage under 
this section shall consist of payment under 
this part for incurred expenses for covered 
outpatient drugs for an enrollee, less the
applicable copayment amount under para-
graph (4), after the enrollee has incurred 
in a year expenses that equal the cata-
strophic coverage threshold specified in 
subparagraph (C) or (D) for the enrollee 
and year involved. 
‘‘(ii) PAYMENT
RATE.—The rate of 
payment negotiated (or agreed to) by the 
eligible entity with the manufacturer for a 
covered outpatient drug shall be the 
amount paid under this part on behalf of 
the individual for the drug except as may 
otherwise be provided under the contract 
under paragraph (1). 
‘‘(B) 
COUNTING
ALL
INCURRED
EX-
PENSES.—
‘‘(i) IN GENERAL.—In applying sub-
paragraph (A), expenses shall be treated as 
incurred if they are paid directly from the 
prescription drug account of the individual 
or, subject to clause (ii), if they are paid 
by the individual or by any other person, 
including a family member, on behalf of 
the individual or otherwise, whether or not 
such expenses may otherwise be reim-
bursed through insurance or otherwise, a 
group health plan, or other third-party 
payment arrangement, but shall not in-
clude expenses insofar as payment is made 
for such expenses under part A or part B 
of this title. 
‘‘(ii) REQUIREMENT
FOR
ACCOUNT 
NUMBER
ON
ALL
COUNTABLE
TRANS-
ACTIONS.—Expenses that are not paid di-
rectly from a prescription drug account 
shall be counted under clause (i) only if, 
under such process as the Secretary shall 
recognize, the account number of the indi-
vidual’s prescription drug account is part 
of the transaction involved. 
‘‘(C) CATASTROPHIC COVERAGE THRESH-
OLDS.—
‘‘(i) 
INITIAL
CATASTROPHIC
COV-
ERAGE
THRESHOLD.—Subject to clause 
(ii), the catastrophic coverage threshold is 
$10,000. 
‘‘(ii) INFLATION
ADJUSTMENT.—The 
provisions of subsection (c)(2)(B) shall 
apply with respect to the catastrophic cov-
erage threshold under clause (i) for a year
after 2004 in the same manner as it ap-
plied to the annual Federal contribution 
amount for that year, except that, for pur-
poses of this subparagraph, any reference 
in subsection (c)(2)(B)(ii) to ‘$1’ is 
deemed a reference to ‘$100’. 
‘‘(3) PREMIUMS.—
‘‘(A) IN GENERAL.—The premium for cat-
astrophic 
coverage 
under 
this 
subsection 
through a qualified private entity shall be the 
rate negotiated by the Secretary with the entity 
reduced by the premium subsidy under this 
paragraph. Such rate shall be consistent with 
rules similar to the rules applied under section 
1860D–3(a) for eligible entities offering pre-
scription drug coverage (including guaranteed 
issue, community-rated premiums, and non-
discrimination). In the case described in para-
graph (1)(C), such premium shall be based on 
an actuarial basis specified by the Secretary. 
‘‘(B) SUBSIDIZED PREMIUMS.—
‘‘(i) FULL
PREMIUM
SUBSIDY
FOR 
QUALIFYING LOW INCOME ENROLLEES.—
In the case of an enrollee who is a quali-
fying low income enrollee (as defined in
section 1860D–6(5)) for a month, there 
shall be a premium subsidy equal to the 
average of the premiums under subpara-
graph (A) for catastrophic coverage under 
this subsection in the area in which the en-
rollee resides. 
‘‘(ii) SLIDING SCALE PREMIUM SUB-
SIDIES FOR OTHER ENROLLEES.—In the 
case of an enrollee who is not a qualifying 
low income enrollee (as so defined) but 
would be a qualifying low income enrollee 
(as defined in section 1860D–6(5)) for a 
month if 250 percent were substituted for 
175 percent in such section, there shall be 
a premium subsidy equal to a percentage 
of the average referred to in clause (i), 
with such percentage determined on a slid-
ing scale from—
‘‘(I) 75 percent for enrollees with 
income equal to 175 percent of the 
poverty line; to 
‘‘(II) 0 percent for enrollees with 
income equal to 250 percent of such 
poverty line.
‘‘(C) COLLECTION.—Premiums under this 
paragraph shall be collected in the manner 
specified in section 1860D–2(e)(2) but shall be 
paid over, in a manner specified by the Sec-
retary, to the entity that offers the catastrophic 
coverage. Premium subsidies under subpara-
graph (B) shall also be paid over in such a 
manner to such an entity. 
‘‘(4) APPLICABLE COPAYMENT AMOUNTS.—
‘‘(A) IN GENERAL.—For purposes of this 
subsection, subject to subparagraphs (D) and 
(E), the term ‘applicable copayment amount’, 
with respect to an enrollee that has selected an 
eligible entity under this part and for a covered 
outpatient drug that is—
‘‘(i) a multiple source or generic drug 
(as described in section 1927(k)(7)(A)(i)), 
means $3; 
‘‘(ii) a single source or brand-name 
drug 
(as 
described 
in 
section 
1927(k)(7)(A)(iv))) that is included in for-
mulary of that eligible entity, means $5; or 
‘‘(iii) any other drug, means $10. 
In the case of a private contract entered into 
under paragraph (1), the Secretary may provide
for the substitution of the qualifying private en-
tity offering such contract for the eligible entity 
under this subparagraph. 
‘‘(B) COLLECTION.—Nothing in this para-
graph shall be construed as preventing a phar-
macy from requiring, as a condition of sup-
plying covered outpatient drugs to any enrollee, 
that payment is made of the applicable copay-
ment amount under subparagraph (A). 
‘‘(C) NO FEDERAL MATCHING AVAILABLE 
UNDER MEDICAID OR SCHIP TO COVER COPAY-
MENT AMOUNTS.—No expenditure of a State 
that reimburses for, or otherwise covers, any co-
payment amounts established under this para-
graph may be treated as State expenditures for 
purposes of Federal matching payments under 
titles XIX and XXI. 
‘‘(D) ALTERNATIVE
TIERS
PERMITTED
FOR 
CATASTROPHIC
COVERAGE.—With respect to cata-
strophic coverage, an eligible entity may provide for 
tiered copayments that are different from the copay-
ments specified in subparagraph (A) so long as co-
payment amounts resulting from such application 
approximate the copayment amounts that would re-
sult from the application of the copayments under 
such subparagraph. 
‘‘(E) APPLICATION OF FORMULARY AT CATA-
STROPHIC COVERAGE LIMIT.—Once an eligible bene-
ficiary reaches the catastrophic coverage limit on 
prescription drug expenses, such beneficiary is sub-
ject to the formulary of the eligible entity and rules 
regarding catastrophic coverage. 
‘‘(5) ADMINISTRATION.—Insofar as the Sec-
retary does not provide for the catastrophic coverage 
under this subsection through a contract with a 
qualifying private entity, the Secretary is authorized 
to enter into such agreements with entities as may 
be required to provide for the benefits under this 
subsection. Such entities may be eligible entities, 
carriers under part B, fiscal intermediaries under 
part A, or other qualified entities. 
‘‘(6) SECONDARY
PAYER
PROVISIONS.—The 
provisions of section 1862(b) shall apply to the bene-
fits provided under this subsection. 
‘‘(c) CONTRIBUTION INTO PRESCRIPTION DRUG AC-
COUNT.—
‘‘(1) IN GENERAL.—In the case of an individual 
enrolled under this part—
‘‘(A) the Secretary shall establish a pre-
scription drug account for the individual under 
section 1860D–5; 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 
Federal contribution amount specified in para-
graph (2) for the enrollee involved. 
Amounts so deposited shall not be treated as income 
to the accountholder for purposes of the Internal 
Revenue Code of 1986. 
‘‘(2) 
ANNUAL
FEDERAL
CONTRIBUTION 
AMOUNT.—
‘‘(A) INITIAL
AMOUNT.—Subject to sub-
paragraph (B) and subsection (d), in the case 
of an accountholder whose modified adjusted 
gross income is—
‘‘(i) not more than 100 percent of the 
poverty line, the annual Federal contribu-
tion amount is $2,500; 
‘‘(ii) more than 100 percent, but less 
than 125 percent, of the poverty line, the 
annual Federal contribution amount is 
$1,500;
‘‘(iii) more than 125 percent, but less 
than 175 percent, of the poverty line, the 
annual Federal contribution amount is 
$1,100; 
‘‘(iv) at least 175 percent, but less 
than 250 percent, of the poverty line, the 
annual Federal contribution amount is 
$600; 
‘‘(v) at least 250 percent, but less 
than 350 percent, of the poverty line the 
annual Federal contribution amount is 
$300. 
‘‘(vi) at least 350 percent of the pov-
erty line (or who has not authorized in-
come verification under subsection (d)) the 
annual Federal contribution amount is 
$100. 
‘‘(B) INFLATION ADJUSTMENT.—
‘‘(i) IN GENERAL.—For a year after 
2004, the annual Federal contribution 
amount shall be the amount specified in 
subparagraph (A) increased by the per-
centage (if any) by which—
‘‘(I) the average per capita ag-
gregate expenditures for covered out-
patient drugs in the United States for 
medicare beneficiaries, as determined 
by the Secretary for the 12-month pe-
riod ending in July of the previous 
year; exceeds 
‘‘(II) such aggregate expendi-
tures for the 12-month period ending 
with July 2004. 
‘‘(ii) ROUNDING.—If an annual Fed-
eral contribution amount determined under 
clause (i) is not a multiple of $1, such in-
crease shall be rounded to the nearest mul-
tiple of $1. 
‘‘(C) 
AVAILABILITY
OF
ADDITIONAL 
AMOUNTS
FOR
VERY
LOW
INCOME
INDIVID-
UALS.—
‘‘(i) IN
GENERAL.—The Secretary 
shall make available an additional amount 
for accounts of individuals in subparagraph 
(A)(i) up to $7,500 in any year insofar as 
the accountholder incurs expenses in the 
year for which the balance in the account 
may be applied. 
‘‘(ii) CONDITION.—In the case of an 
individual described in clause (i) who is re-
siding in a State, upon the request of the 
State, the Secretary may condition the 
availability of an additional amount under 
such clause upon the individual’s enroll-
ment under this part with an eligible entity 
that is recognized or approved by that 
State. 
‘‘(iii) TREATMENT
AS
MEDICAL
AS-
SISTANCE.—For provisions providing for 
State participation with respect to addi-
tional amounts made available under 
clause (i), see section 1935(c)(1)(A)(ii). 
‘‘(d) REQUIREMENT FOR INCOME VERIFICATION TO 
OBTAIN INCREASED CONTRIBUTION AMOUNT OR FOR RE-
DUCED PREMIUM.—
‘‘(1) IN
GENERAL.—The provisions of sub-
sections (b)(2)(C)(iii), (b)(3)(B), and clauses (i) 
through (iii) of subsection (c)(2)(A) shall apply to 
an individual only if the individual—
‘‘(A) provides such information as the Sec-
retary may require in order to determine the 
appropriate category of benefits or subsidies 
under the respective provisions; and 
‘‘(B) authorizes in a form and manner 
specified by the Secretary the verification of the
individual’s modified adjusted gross income by 
the Secretary through arrangements with 
States. 
An arrangement with a State under subparagraph 
(B) shall provide for the payment by the Secretary 
under this part of the State’s reasonable costs of 
conducting income verifications under such arrange-
ment. 
‘‘(2) PENALTIES FOR UNDERSTATEMENT OF IN-
COME.—The provision of false information under 
paragraph (1)(A) is subject to criminal penalties 
under section 1128B. 
‘‘(3) PROCEDURES
FOR
DETERMINING
MODI-
FIED ADJUSTED GROSS INCOME.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish procedures for determining the modi-
fied adjusted gross income of enrollees. The 
Secretary shall consult with the Secretary of 
the Treasury in making such determinations. 
Income determinations under this subsection 
shall be valid for a period (of not less than 1 
year) specified by the Secretary. 
‘‘(B) DISCLOSURE
OF
INFORMATION.—
Notwithstanding section 6103(a) of the Internal 
Revenue Code of 1986, the Secretary of the
Treasury may, upon written request from the 
Secretary, disclose to the Secretary such return 
information as is necessary to make the deter-
minations described in subparagraph (A). Re-
turn information disclosed under the preceding 
sentence may be used by the Secretary only for 
the purposes of, and to the extent necessary in, 
making such determinations. 
‘‘(e) APPROPRIATION TO COVER NET PROGRAM EX-
PENDITURES.—There are authorized to be appropriated 
from time to time, out of any moneys in the Treasury not 
otherwise appropriated, to the Federal Supplementary 
Medical Insurance Trust Fund established under section 
1841, an amount equal to the amount by which the bene-
fits and administrative costs of providing the benefits 
under this part exceed the sum of the portion of the enroll-
ment fees retained by the Secretary and premiums col-
lected under subsection (b)(3). 
‘‘PRESCRIPTION DRUG ACCOUNTS 
‘‘SEC. 1860D–5. ‘‘(a) ESTABLISHMENT
OF
AC-
COUNTS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish and maintain for each eligible beneficiary who is 
enrolled under this part at the time of enrollment a 
prescription drug account (in this section 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 this part a reserve prescription drug ac-
count (in this section referred to as a ‘reserve ac-
count’). 
‘‘(3) ACCOUNTHOLDER DEFINED.—In this sec-
tion, the term ‘accountholder’ means an individual 
for whom an account or reserve account has been es-
tablished under this section. 
‘‘(4) EXPENDITURES
FROM
ACCOUNT.—Noth-
ing in this section shall be construed as requiring 
the Federal Government to obligate funds for 
amounts in any account until such time as a with-
drawal from such account is authorized under this 
section. 
‘‘(b) USE OF ACCOUNTS.—
‘‘(1) IN GENERAL.—Except as provided in this 
subsection, amounts credited to an account 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 expendi-
tures in succeeding years.
‘‘(2) ACCOUNT RULES FOR PUBLIC AND PRI-
VATE CONTRIBUTIONS.—The Secretary shall estab-
lish an ongoing process for the determination of the 
amount in each account that is attributable to public 
and private contributions (including spousal rollover 
contributions) based on the following rules: 
‘‘(A) TREATMENT
OF
EXPENDITURES.—
Expenditures from the account shall—
‘‘(i) first be counted against any pub-
lic 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 
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 be-
fore the time of death) shall be distributed as fol-
lows: 
‘‘(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 
credited 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 
becomes 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
DIS-
TRIBUTEE.—If 
the 
accountholder 
has 
made a designation, in a form and manner 
specified by the Secretary, for the distribu-
tion of some or all of such amount, such 
amount shall be distributed in accordance 
with the designation. Such designation 
may provide for the distribution into an 
account (including a reserve 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 
distributed as provided by law. 
‘‘(4) USE OF ACCOUNT FOR PREMIUMS.—
‘‘(A) FOR ENROLLMENT IN A MEDICARE 
PLAN.—During 
any 
period 
in 
which 
an 
accountholder is enrolled in a plan under part 
C, the balance in the account may be used and 
applied only to reimburse the amount of the 
premium (if any) established for enrollment 
under the plan. 
‘‘(B) FOR
CATASTROPHIC
COVERAGE.—
Amounts in an account of an accountholder 
may be used and applied to reimburse the
amount of the premium imposed for cata-
strophic coverage under section 1860D–4(b)(3). 
‘‘(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. 
‘‘(6) TREATMENT OF WITHDRAWALS.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the withdrawal of any 
amounts from an account in accordance with
this section shall not be subject to income or 
other tax. 
‘‘(B) DISTRIBUTION
OF
PRIVATE
CON-
TRIBUTIONS AT TIME OF DEATH.—Amounts in 
the account of an accountholder at the time of 
death of the accountholder that are not trans-
ferred to an account (including a reserve ac-
count) of a surviving spouse shall be includable 
in the estate of the accountholder and may be 
subject to taxation as part of such estate. 
‘‘(c) AMOUNTS CREDITED IN ACCOUNT.—The Sec-
retary shall credit to a prescription drug account of an 
eligible beneficiary the following amounts: 
‘‘(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 sub-
section (b)(3) (referred to in this section as a ‘spous-
al rollover contribution’).
‘‘(3) PRIVATE CONTRIBUTIONS.—The following 
contributions (each referred to in this section as a 
‘private contribution’): 
‘‘(A) TAX-FAVORED EMPLOYER AND INDI-
VIDUAL CONTRIBUTIONS.—Contributions made 
under subsection (e). 
‘‘(B) 
OTHER
INDIVIDUAL
CONTRIBU-
TIONS.—Contributions made by accountholder 
other than under subsection (e). 
‘‘(C) CONTRIBUTIONS BY NONPROFIT OR-
GANIZATIONS.—Contributions made by a chari-
table, not-for-profit organization (that may be a 
religious organization). 
Except as provided in this subsection, no amounts may 
be contributed to, or credited to, a prescription drug ac-
count. 
‘‘(d) FEDERAL CONTRIBUTION.—For Federal con-
tributions in the case of accountholders, see section 
1860D–4(c). Such contributions shall not be treated as 
income for purposes of chapter 1 of the Internal Revenue 
Code of 1986. 
‘‘(e) 
EMPLOYER
AND
INDIVIDUAL
CONTRIBU-
TIONS.—
‘‘(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). Amounts so con-
tributed shall be treated under the Internal 
Revenue Code of 1986 as employer-provided 
coverage under an accident or health plan (de-
scribed in section 106 of such Code). 
‘‘(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 this part with 
an eligible entity that is recognized or approved 
by that plan. 
‘‘(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. Notwithstanding any other pro-
vision of law, subject to subparagraph (B), the 
amount of income of an individual in a taxable 
year for purposes of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 shall be 
treated as being reduced by the amount contrib-
uted in the taxable year under the previous sen-
tence by that individual. 
‘‘(B) LIMITATION.—The total amount that 
may be contributed to an account under sub-
paragraph (A) and treated as a reduction in in-
come under the second sentence of such sub-
paragraph during any year may not exceed 
$5,000, regardless of who makes such contribu-
tion. Nothing in the previous sentence shall be 
treated as limiting the amount of non-tax-fa-
vored contributions that may be made to such 
an account. 
‘‘(3) NO
CONTRIBUTION
PERMITTED
TO
RE-
SERVE
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 
provisions of section 1860D–4(c)(2)(B) shall apply 
with respect to the limitation amounts specified in 
paragraphs (1)(B) and (2)(B) for a year after 2004 
in the same manner as it applied to the annual Fed-
eral contribution amount for that year, except that, 
for purposes of this paragraph, any reference in 
clause (ii) of such section to ‘$1’ is deemed a ref-
erence to ‘$100’. 
‘‘(f) STATE CONTRIBUTIONS.—
‘‘(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) 
TAX
AND
MEDICAID
TREATMENT.—
Amounts credited under this subsection—
‘‘(A) shall not be treated as income to the 
accountholder for purposes of the Internal Rev-
enue Code of 1986; and
‘‘(B) shall not be treated as medical assist-
ance for purposes of title XIX or child health 
assistance for purposes of title XXI for individ-
uals who are not qualifying low income enroll-
ees. 
‘‘DEFINITIONS 
‘‘SEC. 1860D–6. In this part: 
‘‘(1) COVERED OUTPATIENT DRUG.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the term ‘covered outpatient 
drug’ means—
‘‘(i) a drug that may be dispensed 
only upon a prescription and that is de-
scribed in clause (i) or (ii) of subparagraph 
(A) of section 1927(k)(2); or 
‘‘(ii) a biological product or insulin de-
scribed in subparagraph (B) or (C) of such 
section. 
‘‘(B) EXCLUSIONS.—
‘‘(i) IN GENERAL.—The term ‘covered 
outpatient drug’ does not include drugs or 
classes of drugs, or their medical uses, 
which may be excluded from coverage or 
otherwise 
restricted 
under 
section 
1927(d)(2), other than those restricted
under subparagraph (E) of such section 
(relating to smoking cessation agents). 
‘‘(ii) AVOIDANCE OF DUPLICATE COV-
ERAGE.—A drug prescribed for an indi-
vidual that would otherwise be a covered 
outpatient drug under this part shall not 
be considered to be such a drug if payment 
for the drug is available under part A or 
B (but such drug shall be so considered if 
such payment is not available because the 
eligible beneficiary has exhausted benefits 
under part A or B), without regard to 
whether the individual is entitled to bene-
fits under part A or enrolled under part B. 
‘‘(2) INCOME.—
‘‘(A) IN
GENERAL.—The term ‘income’ 
means, with respect to benefits under this part 
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 Rev-
enue Code of 1986), the income of the modified
adjusted 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 this title as having income that exceeds 350 
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 
benefits 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) appli-
cable to a family of the size involved. 
‘‘(5) QUALIFYING LOW INCOME; VERY LOW IN-
COME.—
‘‘(A) The term ‘qualifying low income’ 
means, 
with 
respect 
to 
an 
enrollee 
or 
accountholder, that the income of the enrollee 
or accountholder is under 175 percent of the 
poverty line, but only if the enrollee or 
accountholder 
has 
authorized 
income 
verification under section 1860D–4(d). 
‘‘(B) The term ‘very low income’ means, 
with respect to an enrollee or accountholder, 
that the income of the enrollee or accountholder 
is under 100 percent of the poverty line, but 
only if the enrollee or accountholder has author-
ized income verification under section 1860D–
4(d).’’. 
(b) CONFORMING REFERENCES TO PREVIOUS PART 
D.—
(1) IN GENERAL.—Any reference in law (in ef-
fect before the date of 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) SECRETARIAL SUBMISSION OF LEGISLATIVE 
PROPOSAL.—Not later than 6 months after the date 
of enactment of this section, the Secretary of Health 
and Human Services shall submit to the appropriate 
committees of Congress a legislative proposal pro-
viding for such technical and conforming amend-
ments in the law as are required by the provisions 
of this section. 
SEC. 3. EXCLUSION OF PART D COSTS FROM DETERMINA-
TION OF PART B MONTHLY PREMIUM. 
Section 1839(g) of the Social Security Act (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 
paragraph:
‘‘(2) the Voluntary Medicare Outpatient Pre-
scription Drug Discount and Security Program 
under part D.’’.
SEC. 4. MEDICAID AMENDMENTS. 
(a) VERIFICATION OF ELIGIBILITY FOR IMPROVED 
PART D BENEFITS.—
(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: 
‘‘(66) provide for verification of income under 
section 1860D–4(d)(1)(B).’’. 
(2) NEW
SECTION.—Title XIX is further 
amended—
(A) by redesignating section 1935 as sec-
tion 1936; and 
(B) by inserting after section 1934 the fol-
lowing new section: 
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE PART D 
BENEFITS 
‘‘SEC. 1935. (a) REQUIREMENT FOR VERIFICATION 
OF ELIGIBILITY DETERMINATIONS FOR IMPROVED PART
D BENEFITS.—As a condition of its State plan under this 
title under section 1902(a)(66) and receipt of any Federal 
financial assistance under section 1903(a), a State shall 
provide for verification of income statements in accordance 
with arrangements under section 1860D–4(d)(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 
section, the applicable Federal matching rates with 
respect 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 2004, the otherwise applicable 
Federal matching rate shall be increased by 10 
percent of the percentage otherwise payable 
(but for this subsection) by the State. 
‘‘(B)(i) For expenditures attributable to 
costs incurred during 2005 and each subse-
quent year through 2011, the otherwise applica-
ble Federal matching rate shall be increased by
the applicable percent (as defined in clause (ii)) 
of the percentage otherwise payable (but for 
this subsection) by the State. 
‘‘(ii) For purposes of clause (i), the ‘appli-
cable percent’ for—
‘‘(I) 2005 is 20 percent; or 
‘‘(II) a subsequent year is the applica-
ble percent under this clause for the pre-
vious year increased by 10 percentage 
points. 
‘‘(C) For expenditures attributable to costs 
incurred after 2011, the otherwise applicable 
Federal matching rate shall be increased to 100 
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.’’. 
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID 
RESPONSIBILITY
FOR PRESCRIPTION DRUG BENEFITS 
FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN
GENERAL.—Section 1903(a)(1) (42 
U.S.C. 1396b(a)(1)) is amended by inserting before 
the semicolon the following: ‘‘, reduced by the
amount computed 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: 
‘‘(c) FEDERAL ASSUMPTION
OF MEDICAID PRE-
SCRIPTION 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 2004) the amount com-
puted under this subsection is equal to the product 
of the following: 
‘‘(A) IMPROVED
MEDICARE
BENEFITS.—
The sum of—
‘‘(i) the total amount of reductions in 
catastrophic coverage premiums in the 
quarter under part D of title XVIII that 
are the result of applying a zero premium 
under section 1860D–4(b)(3)(D) for indi-
viduals who are residents of the State and 
are entitled to benefits with respect to pre-
scribed drugs under the State plan under 
this title (including such a plan operating
under a waiver under section 1115), multi-
plied by the phase-out proportion (as de-
fined in paragraph (2)) for the quarter; 
and 
‘‘(ii) the total amount of additional 
payments made to prescription drug ac-
counts in the quarter under such part D 
that are attributable to the application of 
section 1860D–4(c)(2)(C) to individuals 
residing in the State. 
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent 
the Federal medical assistance percentage (as 
defined in section 1905(b)) applicable to the 
State and the quarter. 
‘‘(2) PHASE-OUT PROPORTION.—For purposes 
of paragraph (1)(A)(i), the ‘phase-out proportion’ 
for a calendar quarter in—
‘‘(A) 2004 is 90 percent; 
‘‘(B) a subsequent year before 2012, is the 
phase-out proportion for calendar quarters in 
the previous year decreased by 10 percentage 
points; or 
‘‘(C) a year after 2011 is 0 percent.’’.
(c) MEDICAID PROVIDING WRAP-AROUND BENE-
FITS.—Section 1935, as so inserted and amended, is fur-
ther amended by adding at the end the following new sub-
section: 
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the 
case of an individual who is eligible to be enrolled 
under part D of title XVIII and is eligible for med-
ical assistance for prescribed drugs under this 
title—
‘‘(A) Federal financial participation is not 
available—
‘‘(i) for such medical assistance for 
very low income individuals (as defined in 
section 1860D–6(5)); or 
‘‘(ii) for other individuals to the ex-
tent payment may be made under such 
part for such assistance; and 
‘‘(B) subject to paragraph (2), Federal fi-
nancial participation shall continue to be avail-
able for prescribed drugs for such other individ-
uals described in subparagraph (A)(ii) to the 
extent payment may not be made under such 
part (including under a prescription drug ac-
count under such part).
‘‘(2) LIMITATION.—Federal financial participa-
tion shall not be available under paragraph (1)(B) 
for the following medical assistance: 
‘‘(A) 
For 
any 
applicable 
copayment 
amount under section 1860D–4(b)(4). 
‘‘(B) For the amount of any enrollment fee 
under section 1860D–2(e). 
‘‘(C) For any assistance for any individual 
who is not a qualifying low income individual 
(as defined in section 1860D–6(5)).’’. 
(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 Colum-
bia—