I
107TH CONGRESS
1ST SESSION
H. R. 339
To amend title XVIII of the Social Security Act to provide for coverage
of outpatient prescription drugs under part B of the Medicare Program,
and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 31, 2001
Mr. ENGEL (for himself, Mr. FROST, Mr. HILLIARD, Mr. WEINER, Mr. NAD-
LER, and Mr. MCNULTY) introduced the following bill; which was referred
to the Committee on Energy and Commerce, and in addition to the Com-
mittee on Ways and Means, for a period to be subsequently 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 provide
for coverage of outpatient prescription drugs under part
B of the Medicare Program, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Medicare Outpatient
Prescription Drug Coverage Act of 2001’’.
SEC. 2. MEDICARE COVERAGE OF OUTPATIENT PRESCRIP-
TION DRUGS.
(a) 
DESCRIPTION
OF
COVERED
OUTPATIENT
DRUGS.—
(1) COVERAGE.—Section 1861(s)(2)(J) of the
Social Security Act (42 U.S.C. 1395x(s)(2)(J)) is
amended to read as follows:
‘‘(J) covered outpatient drugs (as defined in
subsection (t)(2));’’.
(2) DRUGS DEFINED.—Section 1861(t) of such
Act (42 U.S.C. 1395x(t)) is amended—
(A) in the heading, by adding at the end
the following: ‘‘; Covered Outpatient Drugs’’;
(B) in paragraph (1)—
(i) by striking ‘‘paragraph (2)’’ and
inserting ‘‘the succeeding paragraphs of
this subsection’’, and
(ii) by striking the period at the end
and inserting ‘‘, but only if used for a
medically accepted indication (as described
in paragraph (4)).’’; and
(C) by striking paragraph (2) and insert-
ing the following:
‘‘(2) Subject to paragraph (3), the term ‘covered out-
patient drug’ means—
‘‘(A) a drug which may be dispensed only upon
prescription and—
‘‘(i) which is approved for safety and effec-
tiveness as a prescription drug under section
505 or 507 of the Federal Food, Drug, and
Cosmetic Act or which is approved under sec-
tion 505(j) of such Act;
‘‘(ii)(I) which was commercially used or
sold in the United States before the date of the
enactment of the Drug Amendments of 1962 or
which is identical, similar, or related (within the
meaning of section 310.6(b)(1) of title 21 of the
Code of Federal Regulations) to such a drug,
and (II) which has not been the subject of a
final determination by the Secretary that it is
a ‘new drug’ (within the meaning of section
201(p) of the Federal Food, Drug, and Cos-
metic Act) or an action brought by the Sec-
retary under section 301, 302(a), or 304(a) of
such Act to enforce section 502(f) or 505(a) of
such Act; or
‘‘(iii)(I) which is described in section
107(c)(3) of the Drug Amendments of 1962
and for which the Secretary has determined
there is a compelling justification for its med-
ical need, or is identical, similar, or related
(within the meaning of section 310.6(b)(1) of
title 21 of the Code of Federal Regulations) to
such a drug, and (II) for which the Secretary
has not issued a notice of an opportunity for a
hearing under section 505(e) of the Federal
Food, Drug, and Cosmetic Act on a proposed
order of the Secretary to withdraw approval of
an application for such drug under such section
because the Secretary has determined that the
drug is less than effective for all conditions of
use prescribed, recommended, or suggested in
its labeling;
‘‘(B) a biological product which—
‘‘(i) may only be dispensed upon prescrip-
tion,
‘‘(ii) is licensed under section 351 of the
Public Health Service Act, and
‘‘(iii) is produced at an establishment li-
censed under such section to produce such
product; and
‘‘(C) insulin certified under section 506 of the
Federal Food, Drug, and Cosmetic Act.
‘‘(3) The term ‘covered outpatient drug’ does not in-
clude—
‘‘(A) any drug, biological product, or insulin
when furnished as part of, or as incident to, a diag-
nostic service or any other item or service for which
payment may be made under this title (other than
physicians’ services or services which would be physi-
cians’ services if furnished by a physician); or
‘‘(B) any drug that is intravenously adminis-
tered in a home setting.
‘‘(4) For purposes of paragraph (2), the term ‘medi-
cally accepted indication’, with respect to the use of an
outpatient drug, includes—
‘‘(A) any use which has been approved by the
Food and Drug Administration for the drug, and
‘‘(B) any other use of the drug, unless the Sec-
retary determines that such use is not medically ap-
propriate.’’.
(3) CONFORMING
AMENDMENTS
REPEALING
SEPARATE
COVERAGE
OF
CERTAIN
DRUGS
AND
PRODUCTS.—(A) Effective January 1, 2003, section
1861(s)(2) of such Act (42 U.S.C. 1395x(s)(2)) is
amended—
(i) in each of subparagraphs (A) and (B)
(as amended by section 112(a) of the Medicare,
Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000, as enacted into law
by section 1(a)(6) of Public Law 106–554), by
striking ‘‘(including drugs’’ and all that follows
through ‘‘patient)’’; and
(ii) by striking subparagraphs (G), (I),
(O), (Q), and (T).
(B) Effective January 1, 2003, section 1861 of
such Act (42 U.S.C. 1395x) is amended by striking
the subsection (kk).
(C) Effective January 1, 2003, section 1881(b)
of such Act (42 U.S.C. 1395rr(b)) is amended—
(i) in the first sentence of paragraph (1)—
(I) by striking ‘‘, (B)’’ and inserting
‘‘and (B)’’; and
(II) by striking ‘‘, and (C)’’ and all
that follows and inserting a period; and
(ii) in paragraph (11)—
(I) by striking ‘‘(11)(A)’’ and insert-
ing ‘‘(11)’’; and
(II) by striking subparagraphs (B)
and (C).
(b) DEDUCTIBLE
AND PAYMENT AMOUNTS.—(1)
Section 1833(a)(1) of such Act (42 U.S.C. 1395l(a)(1)),
as amended by sections 105(c) and 223(c) of the Medi-
care, Medicaid, and SCHIP Benefits Improvement and
Protection Act of 2000, as enacted into law by section
1(a)(6) of Public Law 106–554, is amended—
(A) by striking ‘‘and (U)’’ and inserting ‘‘(U)’’;
and
(B) by striking the semicolon at the end and in-
serting the following ‘‘, and (V) with respect to ex-
penses incurred for covered outpatient drugs, the
amounts paid shall be the amounts determined
under section 1834(e)(2);’’.
(2) Section 1833(a)(2) of such Act (42 U.S.C.
1395l(a)(2)) is amended—
(A) by inserting ‘‘(other than covered out-
patient drugs)’’ after ‘‘(2) in the case of services’’;
and
(B) by striking ‘‘(other than a covered
osteoporosis drug) (as defined in section 1861(kk))’’.
(3) Section 1833(b) of such Act (42 U.S.C. 1395l(b))
is amended—
(A) in clause (1), by inserting ‘‘or for covered
outpatient drugs’’ after ‘‘1861(s)(10)(A)’’, and
(B) in clause (2), by striking ‘‘ (other than a
covered osteoporosis drug (as defined in section
1861(kk)))’’.
(4) Section 1834 of such Act (42 U.S.C. 1395m) is
amended by inserting after subsection (d) the following
new subsection:
‘‘(e) 
PAYMENT
FOR
COVERED
OUTPATIENT
DRUGS.—
‘‘(1) DEDUCTIBLE.—
‘‘(A) APPLICATION.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clauses (ii) and (iii), payment
shall be made under paragraph (2) only
with respect to expenses incurred by an in-
dividual for covered outpatient drugs dur-
ing a calendar year on or after such date
in the year as the Secretary determines
that the individual has incurred expenses
in the year for covered outpatient drugs
(during a period in which the individual is
entitled to benefits under this part) equal
to the amount of the prescription drug de-
ductible specified in subparagraph (C) for
that year.
‘‘(ii) DEDUCTIBLE NOT APPLIED TO
1ST
YEAR
IMMUNOSUPPRESSIVES.—The
prescription drug deductible established
under this paragraph shall not apply to
drugs described in section 1861(t)(2)(A)
used in immunosuppressive therapy and
furnished, to an individual who receives an
organ transplant for which payment is
made under this title, within 1 year after
the date of the transplant.
‘‘(B) RESPONSE TO APPLICATION.—If the
system described in section 1842(u)(4) has not
been established and an individual applies to
the Secretary to establish that the individual
has met the requirement of subparagraph (A),
the Secretary shall promptly notify the indi-
vidual (and, if the application was submitted by
or through a participating pharmacy, the phar-
macy) as to the date (if any) as of which the
individual has met such requirement.
‘‘(C) PRESCRIPTION
DRUG
DEDUCTIBLE
AMOUNT.—The prescription drug deductible
specified in this subparagraph for—
‘‘(i) 2003 is $250, and
‘‘(ii) any succeeding year, is the pre-
scription drug deductible for the preceding
year, increased by the percentage by which
the monthly premium under section 1839
for months during the year exceeds the
monthly premium under such section for
months during the preceding year.
‘‘(2) PAYMENT AMOUNT.—
‘‘(A) IN
GENERAL.—Subject to the pre-
scription drug deductible established under
paragraph (1)(A) and except as provided in
subparagraph (B), the amounts payable under
this part with respect to a covered outpatient
drug is equal to 80 percent of the lesser of—
‘‘(i) the actual charge for the drug, or
‘‘(ii) the applicable payment limit es-
tablished under paragraph (3).
‘‘(B) TREATMENT
OF
CERTAIN
COST-
BASED PREPAID ORGANIZATIONS.—In applying
subparagraph 
(A) 
in 
the 
case 
of 
a
Medicare+Choice organization under part C, an
organization under a reasonable cost reimburse-
ment contract under section 1876, and in the
case of an organization receiving payment
under section 1833(a)(1)(A) and providing cov-
erage of covered outpatient drugs, the Secretary
shall provide for an appropriate adjustment in
the payment amounts otherwise made to reflect
the aggregate increase in payments that would
otherwise be made with respect to enrollees in
such an organization if payments were made
other than under such clause or such a contract
on an individual-by-individual basis.
‘‘(3) PAYMENT LIMITS.—
‘‘(A) PAYMENT LIMIT FOR NON-MULTIPLE
SOURCE DRUGS AND MULTIPLE-SOURCE DRUGS
WITH
RESTRICTIVE
PRESCRIPTIONS.—In the
case of a drug that either is not a multiple
source drug (as defined in paragraph (9)(A)) or
is a multiple source drug and has a restrictive
prescription (as defined in paragraph (9)(B)),
the payment limit for the drug under this para-
graph for a payment calculation period is equal
to the lesser of—
‘‘(i) the 90th percentile of the actual
charges (computed on a statewide basis,
carrier-wide basis, or other appropriate ge-
ographic area basis, as specified by the
Secretary) for the drug for the second pre-
vious payment calculation period, adjusted
(as the Secretary determines to be appro-
priate) to reflect the number of tablets (or
other dosage units) dispensed; or
‘‘(ii) the amount of the administrative
allowance (established under paragraph
(4)) plus the product of—
‘‘(I) the number of tablets (or
other dosage units) dispensed, and
‘‘(II) the per tablet or unit aver-
age wholesale price for such drug (as
determined under subparagraph (C)
for the period for purposes of this
subparagraph).
‘‘(B) PAYMENT
LIMIT
FOR
MULTIPLE
SOURCE
DRUGS
WITHOUT
RESTRICTIVE
PRE-
SCRIPTIONS.—In the case of a drug that is a
multiple source drug but does not have a re-
strictive prescription, the payment limit for the
drug under this paragraph for a payment cal-
culation period is equal to the amount of the
administrative allowance (established under
paragraph (4)) plus the product of—
‘‘(i) the number of tablets (or other
dosage units) dispensed, and
‘‘(ii) the unweighted median of the
per tablet or unit average wholesale prices
(determined under subparagraph (C) for
purposes of this subparagraph) for such
drug for the period.
‘‘(C) DETERMINATION OF UNIT PRICE.—
‘‘(i) IN
GENERAL.—For purposes of
this paragraph, the Secretary shall deter-
mine, with respect to the dispensing of a
covered outpatient drug in a payment cal-
culation period (beginning on or after Jan-
uary 1, 2003), the per tablet or unit aver-
age wholesale price for the drug.
‘‘(ii) BASIS FOR DETERMINATIONS.—
‘‘(I) DETERMINATION FOR NON-
MULTIPLE-SOURCE DRUGS.—For pur-
poses of subparagraph (A), such de-
termination shall be based on a bian-
nual survey conducted by the Sec-
retary of a representative sample of
direct sellers, wholesalers, or phar-
macies (as appropriate) of wholesale
(or comparable direct) prices (exclud-
ing discounts to pharmacies); except
that if, because of low volume of sales
for the drug or other appropriate rea-
sons or in the case of covered out-
patient drugs during 2003, the Sec-
clause, or deliberately provides infor-
mation that is false, the Secretary
may impose a civil money penalty of
not to exceed $10,000 for each such
refusal or provision of false informa-
tion. The provisions of section 1128A
(other than subsections (a) and (b))
shall apply to civil money penalties
under the previous sentence in the
same manner as such provisions apply
to a penalty or proceeding under sec-
tion 1128A(a). Information gathered
pursuant to the survey shall not be
disclosed except as the Secretary de-
termines to be necessary to carry out
the purposes of this part.
‘‘(iii) QUANTITY AND TIMING.—Such
determination shall be based on the price
or prices for purchases in reasonable quan-
tities and shall be made for a payment cal-
culation period based on prices for the first
day of the first month of the previous pay-
ment calculation period.
‘‘(iv) GEOGRAPHIC BASIS.—The Sec-
retary shall make such determination, and
calculate the payment limits under this
paragraph, on a national basis.
‘‘(v) ADJUSTMENT FOR GEOGRAPHIC
VARIATIONS
IN
COSTS.—The Secretary
shall adjust the payment limits under this
paragraph to take account of limitations
on the availability of drug products and
variations among regions in the average
wholesale prices for a drug product, using
an appropriate index as determined by the
Secretary.
‘‘(4) ADMINISTRATIVE ALLOWANCE FOR PUR-
POSES OF PAYMENT LIMITS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), for drugs dispensed in—
‘‘(i) 2003, the administrative allow-
ance under this paragraph is—
‘‘(I) $5 for drugs dispensed by a
participating pharmacy, or
‘‘(II) $3 for drugs dispensed by
another pharmacy; or
‘‘(ii) a subsequent year, the adminis-
trative allowance under this paragraph is
the administrative allowance under this
paragraph for the preceding year increased
by the percentage increase (if any) in the
implicit price deflator for gross national
product (as published by the Department
of Commerce in its ‘Survey of Current
Business’) over the 12-month period end-
ing with August of such preceding year.
Any allowance determined under the clause (ii)
which is not a multiple of 1 cent shall be round-
ed to the nearest multiple of 1 cent.
‘‘(B) ADJUSTMENT
IN
ALLOWANCE
FOR
MAIL
SERVICE
PHARMACIES.—The Secretary
may, by regulation and after consultation with
pharmacists, elderly groups, and private insur-
ers, reduce the administrative allowances estab-
lished under subparagraph (A) for any drug
dispensed by a mail service pharmacy (as de-
fined by the Secretary) based on differences be-
tween such pharmacies and other pharmacies
with respect to operating costs and other econo-
mies.
‘‘(5) ASSURING
APPROPRIATE
PRESCRIBING
AND DISPENSING PRACTICES.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish a program to identify (and to educate
physicians and pharmacists concerning)—
‘‘(i) instances or patterns of unneces-
sary or inappropriate prescribing or dis-
pensing practices for covered outpatient
drugs;
‘‘(ii) instances or patterns of sub-
standard care with respect to such drugs;
and
‘‘(iii) potential adverse reactions.
‘‘(B) STANDARDS.—In carrying out the
program under subparagraph (A), the Secretary
shall establish for each covered outpatient drug
standards for the prescribing of the drug which
are based on accepted medical practice. In es-
tablishing such standards, the Secretary shall
incorporate standards from such current au-
thoritative compendia as the Secretary may se-
lect; except that the Secretary may modify such
a standard by regulation on the basis of sci-
entific and medical information that such
standard is not consistent with the safe and ef-
fective use of the drug.
‘‘(C) 
PROHIBITION
OF
FORMULARY.—
Nothing in this title (other than section
1862(c)) shall be construed as authorizing the
Secretary to exclude from coverage or to deny
payment—
‘‘(i) for any specific covered out-
patient drug, or specific class of covered
outpatient drug; or
‘‘(ii) for any specific use of such a
drug for a specific indication unless such
exclusion is pursuant to section 1862(a)(1)
based on a finding by the Secretary that
such use is not safe or is not effective.
‘‘(6) TREATMENT OF CERTAIN PREPAID ORGA-
NIZATIONS.—
‘‘(A) GENERAL RULE COUNTING PREPAID
PLAN EXPENSES TOWARD THE PRESCRIPTION
DRUG
DEDUCTIBLE.—Except as provided in
subparagraph (B), expenses incurred by (or on
behalf of) a medicare beneficiary for covered
outpatient drugs shall be counted (consistent
with subparagraph (C)) toward the prescription
drug deductible established under paragraph
(1) whether or not, at the time the expenses
were incurred, the beneficiary was enrolled in a
plan 
under 
section 
1833(a)(1)(A), 
a
Medicare+Choice plan under part C, or under
section 1876.
‘‘(B) TREATMENT OF DRUG BUY-OUT PLAN
EXPENSES.—In the case of a medicare bene-
ficiary enrolled in a month in a drug buy-out
plan (as defined in subparagraph (D))—
‘‘(i) expenses incurred by the bene-
ficiary for covered outpatient drugs reim-
bursed under the plan shall not be counted
toward the prescription drug deductible,
but
‘‘(ii) if the individual disenrolls from
the plan during the year, the beneficiary is
deemed to have incurred, for each month
of such enrollment, expenses for covered
outpatient drugs in an amount equal to the
actuarial value (with respect to such
month) of the deductible for covered out-
patient drugs (as computed by the Sec-
retary for purposes of section 1876(e)(1))
applicable on the average to individuals in
the United States.
‘‘(C) TREATMENT OF EXPENSES FOR COV-
ERED
OUTPATIENT
DRUGS
INCURRED
WHILE
ENROLLED IN A PREPAID PLAN OTHER THAN A
DRUG BUY-OUT PLAN.—The Secretary may not
enter into a contract with a Medicare+Choice