SEC. 2. ESTABLISHMENT OF MEDICARE OPERATED PRE-
SCRIPTION DRUG PLAN OPTION. 
(a) IN GENERAL.—Subpart 2 of part D of title XVIII 
of the Social Security Act is amended by inserting after 
section 1860D–11 (42 U.S.C. 1395w–111) the following 
new section: 
‘‘MEDICARE OPERATED PRESCRIPTION DRUG PLAN 
OPTION 
‘‘SEC. 1860D–11A. (a) IN
GENERAL.—Notwith-
standing any other provision of this part, for each year 
(beginning with 2016), in addition to any plans offered 
under section 1860D–11, the Secretary shall offer one or 
more Medicare operated prescription drug plans (as de-
fined in subsection (c)) with a service area that consists 
of the entire United States and shall enter into negotia-
tions in accordance with subsection (b) with pharma-
ceutical manufacturers to reduce the purchase cost of cov-
ered part D drugs for eligible part D individuals who en-
roll in such a plan. 
‘‘(b) 
NEGOTIATIONS.—Notwithstanding 
section 
1860D–11(i), for purposes of offering a Medicare operated 
prescription drug plan under this section, the Secretary 
shall negotiate with pharmaceutical manufacturers with 
respect to the purchase price of covered part D drugs in 
a Medicare operated prescription drug plan and shall en-
courage the use of more affordable therapeutic equivalents 
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to the extent such practices do not override medical neces-
sity as determined by the prescribing physician. To the 
extent practicable and consistent with the previous sen-
tence, the Secretary shall implement strategies similar to 
those used by other Federal purchasers of prescription 
drugs, and other strategies, including the use of a for-
mulary and formulary incentives in subsection (e), to re-
duce the purchase cost of covered part D drugs. 
‘‘(c) MEDICARE OPERATED PRESCRIPTION DRUG 
PLAN DEFINED.—For purposes of this part, the term 
‘Medicare operated prescription drug plan’ means a pre-
scription drug plan that offers qualified prescription drug 
coverage and access to negotiated prices described in sec-
tion 1860D–2(a)(1)(A). Such a plan may offer supple-
mental prescription drug coverage in the same manner as 
other qualified prescription drug coverage offered by other 
prescription drug plans. 
‘‘(d) MONTHLY BENEFICIARY PREMIUM.— 
‘‘(1) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The monthly beneficiary premium for 
qualified prescription drug coverage and access to 
negotiated prices described in section 1860D– 
2(a)(1)(A) to be charged under a Medicare operated 
prescription drug plan shall be uniform nationally. 
Such premium for months in 2016 and each suc-
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ceeding year shall be based on the average monthly 
per capita actuarial cost of offering the Medicare op-
erated prescription drug plan for the year involved, 
including administrative expenses. 
‘‘(2) SUPPLEMENTAL PRESCRIPTION DRUG COV-
ERAGE.—Insofar as a Medicare operated prescrip-
tion drug plan offers supplemental prescription drug 
coverage, the Secretary may adjust the amount of 
the premium charged under paragraph (1). 
‘‘(e) USE OF A FORMULARY AND FORMULARY INCEN-
TIVES.— 
‘‘(1) IN GENERAL.—With respect to the oper-
ation of a Medicare operated prescription drug plan, 
the Secretary shall establish and apply a formulary 
(and may include formulary incentives described in 
paragraph (2)(C)(ii)) in accordance with this sub-
section in order to— 
‘‘(A) increase patient safety; 
‘‘(B) increase appropriate use and reduce 
inappropriate use of drugs; and 
‘‘(C) reward value. 
‘‘(2) DEVELOPMENT OF INITIAL FORMULARY.— 
‘‘(A) IN
GENERAL.—In selecting covered 
part D drugs for inclusion in a formulary, the 
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Secretary shall consider clinical benefit and 
price. 
‘‘(B) ROLE OF AHRQ.—The Director of the 
Agency for Healthcare Research and Quality 
shall be responsible for assessing the clinical 
benefit of covered part D drugs and making 
recommendations to the Secretary regarding 
which drugs should be included in the for-
mulary. In conducting such assessments and 
making such recommendations, the Director 
shall— 
‘‘(i) consider safety concerns including 
those identified by the Federal Food and 
Drug Administration; 
‘‘(ii) use available data and evalua-
tions, with priority given to randomized 
controlled trials, to examine clinical effec-
tiveness, comparative effectiveness, safety, 
and enhanced compliance with a drug regi-
men; 
‘‘(iii) use the same classes of drugs 
developed by United States Pharmacopeia 
for this part; 
‘‘(iv) consider evaluations made by— 
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‘‘(I) the Director under section 
1013 of the Medicare Prescription 
Drug, Improvement, and Moderniza-
tion Act of 2003; 
‘‘(II) other Federal entities, such 
as the Secretary of Veterans Affairs; 
and 
‘‘(III) other private and public 
entities, such as the Drug Effective-
ness Review Project and Medicaid 
programs; and 
‘‘(v) recommend to the Secretary— 
‘‘(I) those drugs in a class that 
provide a greater clinical benefit, in-
cluding fewer safety concerns or less 
risk of side-effects, than another drug 
in the same class that should be in-
cluded in the formulary; 
‘‘(II) those drugs in a class that 
provide less clinical benefit, including 
greater safety concerns or a greater 
risk of side-effects, than another drug 
in the same class that should be ex-
cluded from the formulary; and 
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‘‘(III) drugs in a class with same 
or similar clinical benefit for which it 
would be appropriate for the Sec-
retary to competitively bid (or nego-
tiate) for placement on the formulary. 
‘‘(C) CONSIDERATION
OF
AHRQ
REC-
OMMENDATIONS.— 
‘‘(i) IN
GENERAL.—The Secretary, 
after taking into consideration the rec-
ommendations under subparagraph (B)(v), 
shall establish a formulary, and formulary 
incentives, to encourage use of covered 
part D drugs that— 
‘‘(I) have a lower cost and pro-
vide a greater clinical benefit than 
other drugs; 
‘‘(II) have a lower cost than 
other drugs with same or similar clin-
ical benefit; and 
‘‘(III) have the same cost but 
provide greater clinical benefit than 
other drugs. 
‘‘(ii) FORMULARY
INCENTIVES.—The 
formulary incentives under clause (i) may 
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be in the form of one or more of the fol-
lowing: 
‘‘(I) Tiered copayments. 
‘‘(II) Reference pricing. 
‘‘(III) Prior authorization. 
‘‘(IV) Step therapy. 
‘‘(V) Medication therapy manage-
ment. 
‘‘(VI) Generic drug substitution. 
‘‘(iii) FLEXIBILITY.—In applying such 
formulary incentives the Secretary may de-
cide not to impose any cost-sharing for a 
covered part D drug for which— 
‘‘(I) the elimination of cost shar-
ing would be expected to increase 
compliance with a drug regimen; and 
‘‘(II) compliance would be ex-
pected to produce savings under part 
A or B or both. 
‘‘(3) LIMITATIONS
ON
FORMULARY.—In any 
formulary established under this subsection, the for-
mulary may not be changed during a year, except— 
‘‘(A) to add a generic version of a covered 
part D drug that entered the market; 
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‘‘(B) to remove such a drug for which a 
safety problem is found; and 
‘‘(C) to add a drug that the Secretary 
identifies as a drug which treats a condition for 
which there has not previously been a treatment 
option or for which a clear and significant ben-
efit has been demonstrated over other covered 
part D drugs. 
‘‘(4) ADDING
DRUGS
TO
THE
INITIAL
FOR-
MULARY.— 
‘‘(A) USE OF ADVISORY COMMITTEE.—The 
Secretary shall establish and appoint an advi-
sory committee (in this paragraph referred to 
as the ‘advisory committee’)— 
‘‘(i) to review petitions from drug 
manufacturers, health care provider orga-
nizations, patient groups, and other enti-
ties for inclusion of a drug in, or other 
changes to, such formulary; and 
‘‘(ii) to recommend any changes to the 
formulary established under this sub-
section. 
‘‘(B) COMPOSITION.—The advisory com-
mittee shall be composed of 9 members and 
shall include representatives of physicians, 
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pharmacists, and consumers and others with ex-
pertise in evaluating prescription drugs. The 
Secretary shall select members based on their 
knowledge of pharmaceuticals and the Medicare 
population. Members shall be deemed to be spe-
cial Government employees for purposes of ap-
plying the conflict of interest provisions under 
section 208 of title 18, United States Code, and 
no waiver of such provisions for such a member 
shall be permitted. 
‘‘(C) CONSULTATION.—The advisory com-
mittee shall consult, as necessary, with physi-
cians who are specialists in treating the disease 
for which a drug is being considered. 
‘‘(D) REQUEST FOR STUDIES.—The advi-
sory committee may request the Agency for 
Healthcare Research and Quality or an aca-
demic or research institution to study and make 
a report on a petition described in subpara-
graph (A)(ii) in order to assess— 
‘‘(i) clinical effectiveness; 
‘‘(ii) comparative effectiveness; 
‘‘(iii) safety; and 
‘‘(iv) enhanced compliance with a 
drug regimen. 
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‘‘(E) RECOMMENDATIONS.—The advisory 
committee shall make recommendations to the 
Secretary regarding— 
‘‘(i) whether a covered part D drug is 
found to provide a greater clinical benefit, 
including fewer safety concerns or less risk 
of side-effects, than another drug in the 
same class that is currently included in the 
formulary and should be included in the 
formulary; 
‘‘(ii) whether a covered part D drug is 
found to provide less clinical benefit, in-
cluding greater safety concerns or a great-
er risk of side-effects, than another drug in 
the same class that is currently included in 
the formulary and should not be included 
in the formulary; and 
‘‘(iii) whether a covered part D drug 
has the same or similar clinical benefit to 
a drug in the same class that is currently 
included in the formulary and whether the 
drug should be included in the formulary. 
‘‘(F) LIMITATIONS ON REVIEW OF MANU-
FACTURER
PETITIONS.—The advisory com-
mittee shall not review a petition of a drug 
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manufacturer under subparagraph (A)(ii) with 
respect to a covered part D drug unless the pe-
tition is accompanied by the following: 
‘‘(i) Raw data from clinical trials on 
the safety and effectiveness of the drug. 
‘‘(ii) Any data from clinical trials con-
ducted using active controls on the drug or 
drugs that are the current standard of 
care. 
‘‘(iii) Any available data on compara-
tive effectiveness of the drug. 
‘‘(iv) Any other information the Sec-
retary requires for the advisory committee 
to complete its review. 
‘‘(G) RESPONSE TO RECOMMENDATIONS.— 
The Secretary shall review the recommenda-
tions of the advisory committee and if the Sec-
retary accepts such recommendations the Sec-
retary shall modify the formulary established 
under this subsection accordingly. Nothing in 
this section shall preclude the Secretary from 
adding to the formulary a drug for which the 
Director of the Agency for Healthcare Research 
and Quality or the advisory committee has not 
made a recommendation. 
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‘‘(H) NOTICE
OF
CHANGES.—The Sec-
retary shall provide timely notice to bene-
ficiaries and health professionals about changes 
to the formulary or formulary incentives. 
‘‘(f) INFORMING
BENEFICIARIES.—The Secretary 
shall take steps to inform beneficiaries about the avail-
ability of a Medicare operated drug plan or plans including 
providing information in the annual handbook distributed 
to all beneficiaries and adding information to the official 
public Medicare Web site related to prescription drug cov-
erage available through this part. 
‘‘(g) APPLICATION OF ALL OTHER REQUIREMENTS 
FOR PRESCRIPTION DRUG PLANS.—Except as specifically 
provided in this section, any Medicare operated drug plan 
shall meet the same requirements as apply to any other 
prescription drug plan, including the requirements of sec-
tion 1860D–4(b)(1) relating to assuring pharmacy ac-
cess).’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 1860D–3(a) of the Social Security 
Act (42 U.S.C. 1395w–103(a)) is amended by add-
ing at the end the following new paragraph: 
‘‘(4) AVAILABILITY OF THE MEDICARE OPER-
ATED PRESCRIPTION DRUG PLAN.—A Medicare op-
erated prescription drug plan (as defined in section 
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(A) in subparagraph (C), by striking 
‘‘and’’ after the semicolon at the end; 
(B) in subparagraph (D), by striking the 
period at the end and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(E) payments for expenses incurred with 
respect to the operation of Medicare operated 
prescription drug plans under section 1860D– 
11A.’’. 
(5) Section 1860D–41(a) of the Social Security 
Act (42 U.S.C. 1395w–151(a)) is amended by add-
ing at the end the following new paragraph: 
‘‘(19) MEDICARE
OPERATED
PRESCRIPTION 
DRUG PLAN.—The term ‘Medicare operated prescrip-
tion drug plan’ has the meaning given such term in 
section 1860D–11A(c).’’. 
SEC. 3. IMPROVED APPEALS PROCESS UNDER THE MEDI-
CARE OPERATED PRESCRIPTION DRUG PLAN. 
Section 1860D–4(h) of the Social Security Act (42 
U.S.C. 1305w–104(h)) is amended by adding at the end 
the following new paragraph: 
‘‘(4) APPEALS PROCESS FOR MEDICARE OPER-
ATED PRESCRIPTION DRUG PLAN.— 
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‘‘(A) IN
GENERAL.—The Secretary shall 
develop a well-defined process for appeals for 
denials of benefits under this part under the 
Medicare operated prescription drug plan. Such 
process shall be efficient, impose minimal ad-
ministrative burdens, and ensure the timely 
procurement of non-formulary drugs or exemp-
tion from formulary incentives when medically 
necessary. Medical necessity shall be based on 
professional medical judgment, the medical con-
dition of the beneficiary, and other medical evi-
dence. Such appeals process shall include— 
‘‘(i) an initial review and determina-
tion made by the Secretary; and 
‘‘(ii) for appeals denied during the ini-
tial review and determination, the option of 
an external review and determination by 
an independent entity selected by the Sec-
retary. 
‘‘(B) CONSULTATION IN DEVELOPMENT OF 
PROCESS.—In developing the appeals process 
under subparagraph (A), the Secretary shall 
consult with consumer and patient groups, as 
well as other key stakeholders to ensure the 
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goals described in subparagraph (A) are 
achieved.’’. 
Æ 
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