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(2) by adding at the end the following new sub-
section: 
‘‘(o) QUALITY BASED PAYMENT ADJUSTMENT.— 
‘‘(1) IN GENERAL.—In the case of a qualifying 
plan in a qualifying county with respect to a year 
beginning with 2011, the blended benchmark 
amount under subsection (n)(1) shall be increased— 
‘‘(A) for 2011, by 1.5 percent; 
‘‘(B) for 2012, by 3.0 percent; and 
‘‘(C) for a subsequent year, by 5.0 percent. 
‘‘(2) QUALIFYING
PLAN
AND
QUALIFYING 
COUNTY DEFINED.—For purposes of this subsection: 
‘‘(A) QUALIFYING PLAN.—The term ‘quali-
fying plan’ means, for a year and subject to 
paragraph (4), a plan that, in a preceding year 
specified by the Secretary, had a quality rank-
ing (based on the quality ranking system estab-
lished by the Centers for Medicare & Medicaid 
Services for Medicare Advantage plans) of 4 
stars or higher. 
‘‘(B) QUALIFYING
COUNTY.—The term 
‘qualifying county’ means, for a year, a coun-
ty— 
‘‘(i) that ranked within the lowest 
third of counties in the amount specified in 
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subsection (n)(2) for a year specified by 
the Secretary; and 
‘‘(ii) for which, as of June of a year 
specified by the Secretary, of the Medicare 
Advantage eligible individuals residing in 
the county at least 20 percent of such indi-
viduals were enrolled in Medicare Advan-
tage plans. 
‘‘(3) DETERMINATIONS OF QUALITY.— 
‘‘(A) QUALITY PERFORMANCE.—The Sec-
retary shall provide for the computation of a 
quality performance score for each Medicare 
Advantage plan to be applied for each year. 
‘‘(B) COMPUTATION OF SCORE.— 
‘‘(i) QUALITY PERFORMANCE SORE.— 
For years before a year specified by the 
Secretary, the quality performance score 
for a Medicare Advantage plan shall be 
computed based on a blend (as designated 
by the Secretary) of the plan’s perform-
ance on— 
‘‘(I) HEDIS effectiveness of care 
quality measures; 
‘‘(II) CAHPS quality measures; 
and 
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‘‘(III) such other measures of 
clinical quality as the Secretary may 
specify. 
Such measures shall be risk-adjusted as 
the Secretary deems appropriate. 
‘‘(ii) ESTABLISHMENT OF OUTCOME- 
BASED MEASURES.—By not later than for 
a year specified by the Secretary, the Sec-
retary shall implement reporting require-
ments for quality under this section on 
measures selected under clause (iii) that 
reflect the outcomes of care experienced by 
individuals enrolled in Medicare Advantage 
plans (in addition to measures described in 
clause (i)). Such measures may include— 
‘‘(I) measures of rates of admis-
sion and readmission to a hospital; 
‘‘(II) measures of prevention 
quality, such as those established by 
the Agency for Healthcare Research 
and Quality (that include hospital ad-
mission rates for specified conditions); 
‘‘(III) measures of patient mor-
tality and morbidity following surgery; 
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‘‘(IV) measures of health func-
tioning (such as limitations on activi-
ties of daily living) and survival for 
patients with chronic diseases; 
‘‘(V) measures of patient safety; 
and 
‘‘(VI) other measure of outcomes 
and patient quality of life as deter-
mined by the Secretary. 
Such measures shall be risk-adjusted as 
the Secretary deems appropriate. In deter-
mining the quality measures to be used 
under this clause, the Secretary shall take 
into consideration the recommendations of 
the Medicare Payment Advisory Commis-
sion in its report to Congress under section 
168 of the Medicare Improvements for Pa-
tients and Providers Act of 2008 (Public 
Law 110–275) and shall provide pref-
erence to measures collected on and com-
parable to measures used in measuring 
quality under parts A and B. 
‘‘(iii) RULES
FOR
SELECTION
OF 
MEASURES.—The Secretary shall select 
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measures for purposes of clause (ii) con-
sistent with the following: 
‘‘(I) The Secretary shall provide 
preference to clinical quality measures 
that have been endorsed by the entity 
with a contract with the Secretary 
under section 1890(a). 
‘‘(II) Prior to any measure being 
selected under this clause, the Sec-
retary shall publish in the Federal 
Register such measure and provide for 
a period of public comment on such 
measure. 
‘‘(iv) 
TRANSITIONAL
USE
OF 
BLEND.—For payments for years specified 
by the Secretary, the Secretary may com-
pute the quality performance score for a 
Medicare Advantage plan based on a blend 
of the measures specified in clause (i) and 
the measures described in clause (ii) and 
selected under clause (iii). 
‘‘(v) USE
OF
QUALITY
OUTCOMES 
MEASURES.—For payments beginning with 
a year specified by the Secretary (begin-
ning after the years specified for section 
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(iv)), the preponderance of measures used 
under this paragraph shall be quality out-
comes measures described in clause (ii) 
and selected under clause (iii). 
‘‘(C) REPORTING OF DATA.—Each Medi-
care Advantage organization shall provide for 
the reporting to the Secretary of quality per-
formance data described in this paragraph (in 
order to determine a quality performance score 
under this paragraph) in such time and manner 
as the Secretary shall specify. 
‘‘(4) NOTIFICATION.—The Secretary, in the an-
nual 
announcement 
required 
under 
subsection 
(b)(1)(B) in 2010 and each succeeding year, shall 
notify the Medicare Advantage organization that is 
offering a qualifying plan in a qualifying county of 
such identification for the year. The Secretary shall 
provide for publication on the website for the Medi-
care program of the information described in the 
previous sentence. 
‘‘(5) AUTHORITY
TO
DISQUALIFY
DEFICIENT 
PLANS.—The Secretary may determine that a Medi-
care Advantage plan is not a qualifying plan if the 
Secretary has identified deficiencies in the plan’s 
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compliance with rules for Medicare Advantage plans 
under this part.’’. 
SEC. 1162. AUTHORITY FOR SECRETARIAL CODING INTEN-
SITY ADJUSTMENT AUTHORITY. 
Section 1853(a)(1)(C)(ii) of the Social Security Act 
(42 U.S.C. 1395w–23(a)(1)(C)(ii) is amended— 
(1) in the matter before subclause (I), by strik-
ing ‘‘through 2010’’ and inserting ‘‘and each subse-
quent year’’; and 
(2) in subclause (II)— 
(A) by inserting ‘‘periodically’’ before ‘‘con-
duct an analysis’’; 
(B) by inserting ‘‘on a timely basis’’ after 
‘‘are incorporated’’; and 
(C) by striking ‘‘only for 2008, 2009, and 
2010’’ and inserting ‘‘for 2008 and subsequent 
years’’. 
SEC. 1163. SIMPLIFICATION OF ANNUAL BENEFICIARY 
ELECTION PERIODS. 
(a) 2 WEEK PROCESSING PERIOD FOR ANNUAL EN-
ROLLMENT PERIOD (AEP).—Paragraph (3)(B) of section 
1851(e) of the Social Security Act (42 U.S.C. 1395w– 
21(e)) is amended— 
(1) by striking ‘‘and’’ at the end of clause (iii); 
(2) in clause (iv)— 
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(A) by striking ‘‘and succeeding years’’ 
and inserting ‘‘, 2008, 2009, and 2010’’; and 
(B) by striking the period at the end and 
inserting ‘‘; and’’; and 
(3) by adding at the end the following new 
clause: 
‘‘(v) with respect to 2011 and suc-
ceeding years, the period beginning on No-
vember 1 and ending on December 15 of 
the year before such year.’’. 
(b) ELIMINATION OF 3-MONTH ADDITIONAL OPEN 
ENROLLMENT PERIOD (OEP).—Effective for plan years 
beginning with 2011, paragraph (2) of such section is 
amended by striking subparagraph (C). 
SEC. 1164. EXTENSION OF REASONABLE COST CONTRACTS. 
Section 1876(h)(5)(C) of the Social Security Act (42 
U.S.C. 1395mm(h)(5)(C)) is amended— 
(1) in clause (ii), by striking ‘‘January 1, 
2010’’ and inserting ‘‘January 1, 2012’’; and 
(2) in clause (iii), by striking ‘‘the service area 
for the year’’ and inserting ‘‘the portion of the 
plan’s service area for the year that is within the 
service area of a reasonable cost reimbursement con-
tract’’. 
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SEC. 1165. LIMITATION OF WAIVER AUTHORITY FOR EM-
PLOYER GROUP PLANS. 
(a) IN GENERAL.—The first sentence of each of para-
graphs (1) and (2) of section 1857(i) of the Social Secu-
rity Act (42 U.S.C. 1395w–27(i)) is amended by inserting 
before the period at the end the following: ‘‘, but only if 
90 percent of the Medicare Advantage eligible individuals 
enrolled under such plan reside in a county in which the 
MA organization offers an MA local plan’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply for plan years beginning on or 
after January 1, 2011, and shall not apply to plans which 
were in effect as of December 31, 2010. 
SEC. 1166. IMPROVING RISK ADJUSTMENT FOR PAYMENTS. 
(a) REPORT TO CONGRESS.—Not later than 1 year 
after the date of the enactment of this Act, the Secretary 
of Health and Human Services shall submit to Congress 
a report that evaluates the adequacy of the risk adjust-
ment system under section 1853(a)(1)(C) of the Social Se-
curity Act (42 U.S.C. 1395–23(a)(1)(C)) in predicting 
costs for beneficiaries with chronic or co-morbid condi-
tions, beneficiaries dually-eligible for Medicare and Med-
icaid, and non-Medicaid eligible low-income beneficiaries; 
and the need and feasibility of including further grada-
tions of diseases or conditions and multiple years of bene-
ficiary data. 
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(b) IMPROVEMENTS
TO RISK ADJUSTMENT.—Not 
later than January 1, 2012, the Secretary shall implement 
necessary improvements to the risk adjustment system 
under section 1853(a)(1)(C) of the Social Security Act (42 
U.S.C. 1395–23(a)(1)(C)), taking into account the evalua-
tion under subsection (a). 
SEC. 1167. ELIMINATION OF MA REGIONAL PLAN STA-
BILIZATION FUND. 
(a) IN GENERAL.—Section 1858 of the Social Secu-
rity Act (42 U.S.C. 1395w–27a) is amended by striking 
subsection (e). 
(b) TRANSITION.—Any amount contained in the MA 
Regional Plan Stabilization Fund as of the date of the 
enactment of this Act shall be transferred to the Federal 
Supplementary Medical Insurance Trust Fund. 
SEC. 1168. STUDY REGARDING THE EFFECTS OF CALCU-
LATING MEDICARE ADVANTAGE PAYMENT 
RATES ON A REGIONAL AVERAGE OF MEDI-
CARE FEE FOR SERVICE RATES. 
(a) IN GENERAL.—The Administrator of the Centers 
for Medicare and Medicaid Services shall conduct a study 
to determine the potential effects of calculating Medicare 
Advantage payment rates on a more aggregated geo-
graphic basis (such as metropolitan statistical areas or 
other regional delineations) rather than using county 
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boundaries. In conducting such study, the Administrator 
shall consider the effect of such alternative geographic 
basis on the following: 
(1) The quality of care received by Medicare 
Advantage enrollees. 
(2) The networks of Medicare Advantage plans, 
including any implications for providers contracting 
with Medicare Advantage plans. 
(3) The predictability of benchmark amounts 
for Medicare advantage plans. 
(b) CONSULTATIONS.—In conducting the study, the 
Administrator shall consult with the following: 
(1) Experts in health care financing. 
(2) Representatives of foundations and other 
nonprofit entities that have conducted or supported 
research on Medicare financing issues. 
(3) Representatives from Medicare Advantage 
plans. 
(4) Such other entities or people as determined 
by the Secretary. 
(c) REPORT.—Not later than 1 year after the date 
of the enactment of this Act, the Administrator shall 
transmit a report to the Congress on the study conducted 
under this section. The report shall contain a detailed 
statement of findings and conclusions of the study, to-
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gether with its recommendations for such legislation and 
administrative actions as the Administrator considers ap-
propriate. 
PART 2—BENEFICIARY PROTECTIONS AND ANTI- 
FRAUD 
SEC. 1171. LIMITATION ON COST-SHARING FOR INDIVIDUAL 
HEALTH SERVICES. 
(a) IN GENERAL.—Section 1852(a)(1) of the Social 
Security Act (42 U.S.C. 1395w–22(a)(1)) is amended— 
(1) in subparagraph (A), by inserting before the 
period at the end the following: ‘‘with cost-sharing 
that is no greater (and may be less) than the cost- 
sharing that would otherwise be imposed under such 
program option’’; 
(2) in subparagraph (B)(i), by striking ‘‘or an 
actuarially equivalent level of cost-sharing as deter-
mined in this part’’; and 
(3) by amending clause (ii) of subparagraph 
(B) to read as follows: 
‘‘(ii) PERMITTING USE OF FLAT CO-
PAYMENT OR PER DIEM RATE.—Nothing in 
clause (i) shall be construed as prohibiting 
a Medicare Advantage plan from using a 
flat copayment or per diem rate, in lieu of 
the cost-sharing that would be imposed 
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under part A or B, so long as the amount 
of the cost-sharing imposed does not ex-
ceed the amount of the cost-sharing that 
would be imposed under the respective part 
if the individual were not enrolled in a plan 
under this part.’’. 
(b) LIMITATION FOR DUAL ELIGIBLES AND QUALI-
FIED MEDICARE BENEFICIARIES.—Section 1852(a)(7) of 
such Act is amended to read as follows: 
‘‘(7) LIMITATION ON COST-SHARING FOR DUAL 
ELIGIBLES
AND
QUALIFIED
MEDICARE
BENE-
FICIARIES.—In the case of a individual who is a full- 
benefit dual eligible individual (as defined in section 
1935(c)(6)) or a qualified medicare beneficiary (as 
defined in section 1905(p)(1)) who is enrolled in a 
Medicare Advantage plan, the plan may not impose 
cost-sharing that exceeds the amount of cost-sharing 
that would be permitted with respect to the indi-
vidual under this title and title XIX if the individual 
were not enrolled with such plan.’’. 
(c) EFFECTIVE DATES.— 
(1) The amendments made by subsection (a) 
shall apply to plan years beginning on or after Janu-
ary 1, 2011. 
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(2) The amendments made by subsection (b) 
shall apply to plan years beginning on or after Janu-
ary 1, 2011. 
SEC. 1172. CONTINUOUS OPEN ENROLLMENT FOR ENROLL-
EES IN PLANS WITH ENROLLMENT SUSPEN-
SION. 
Section 1851(e)(4) of the Social Security Act (42 
U.S.C. 1395w(e)(4)) is amended— 
(1) in subparagraph (C), by striking at the end 
‘‘or’’; 
(2) in subparagraph (D)— 
(A) by inserting ‘‘, taking into account the 
health or well-being of the individual’’ before 
the period; and 
(B) by redesignating such subparagraph as 
subparagraph (E); and 
(3) by inserting after subparagraph (C) the fol-
lowing new subparagraph: 
‘‘(D) the individual is enrolled in an MA 
plan and enrollment in the plan is suspended 
under paragraph (2)(B) or (3)(C) of section 
1857(g) because of a failure of the plan to meet 
applicable requirements; or’’. 
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SEC. 1173. INFORMATION FOR BENEFICIARIES ON MA PLAN 
ADMINISTRATIVE COSTS. 
(a) DISCLOSURE OF MEDICAL LOSS RATIOS AND 
OTHER EXPENSE DATA.—Section 1851 of the Social Se-
curity Act (42 U.S.C. 1395w–21), as previously amended 
by this subtitle, is amended by adding at the end the fol-
lowing new subsection: 
‘‘(p) PUBLICATION OF MEDICAL LOSS RATIOS AND 
OTHER COST-RELATED INFORMATION.— 
‘‘(1) IN GENERAL.—The Secretary shall pub-
lish, not later than November 1 of each year (begin-
ning with 2011), for each MA plan contract, the 
medical loss ratio of the plan in the previous year. 
‘‘(2) SUBMISSION OF DATA.— 
‘‘(A) IN GENERAL.—Each MA organization 
shall submit to the Secretary, in a form and 
manner specified by the Secretary, data nec-
essary for the Secretary to publish the medical 
loss ratio on a timely basis. 
‘‘(B) DATA FOR 2010 AND 2011.—The data 
submitted under subparagraph (A) for 2010 
and for 2011 shall be consistent in content with 
the data reported as part of the MA plan bid 
in June 2009 for 2010. 
‘‘(C) USE OF STANDARDIZED ELEMENTS 
AND DEFINITIONS.—The data to be submitted 
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under subparagraph (A) relating to medical loss 
ratio for a year, beginning with 2012, shall be 
submitted based on the standardized elements 
and definitions developed under paragraph (3). 
‘‘(3) DEVELOPMENT
OF
DATA
REPORTING 
STANDARDS.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
develop and implement standardized data ele-
ments and definitions for reporting under this 
subsection, for contract years beginning with 
2012, of data necessary for the calculation of 
the medical loss ratio for MA plans. Not later 
than December 31, 2010, the Secretary shall 
publish a report describing the elements and 
definitions so developed. 
‘‘(B) 
CONSULTATION.—The 
Secretary 
shall consult with the Health Choices Commis-
sioner, representatives of MA organizations, ex-
perts on health plan accounting systems, and 
representatives of the National Association of 
Insurance Commissioners, in the development 
of such data elements and definitions. 
‘‘(4) MEDICAL LOSS RATIO TO BE DEFINED.— 
For purposes of this part, the term ‘medical loss 
ratio’ has the meaning given such term by the Sec-
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retary, taking into account the meaning given such 
term by the Health Choices Commissioner under 
section 116 of the Affordable Health Care for Amer-
ica Act.’’. 
(b) MINIMUM
MEDICAL
LOSS
RATIO.—Section 
1857(e) of the Social Security Act (42 U.S.C. 1395w– 
27(e)) is amended by adding at the end the following new 
paragraph: 
‘‘(4) REQUIREMENT
FOR
MINIMUM
MEDICAL 
LOSS RATIO.—If the Secretary determines for a con-
tract year (beginning with 2014) that an MA plan 
has failed to have a medical loss ratio (as defined in 
section 1851(p)(4)) of at least .85— 
‘‘(A) the Secretary shall require the Medi-
care Advantage organization offering the plan 
to give enrollees a rebate (in the second suc-
ceeding contract year) of premiums under this 
part (or part B or part D, if applicable) by 
such amount as would provide for a benefits 
ratio of at least .85; 
‘‘(B) for 3 consecutive contract years, the 
Secretary shall not permit the enrollment of 
new enrollees under the plan for coverage dur-
ing the second succeeding contract year; and 
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‘‘(C) the Secretary shall terminate the plan 
contract if the plan fails to have such a medical 
loss ratio for 5 consecutive contract years.’’. 
SEC. 1174. STRENGTHENING AUDIT AUTHORITY. 
(a) FOR PART C PAYMENTS RISK ADJUSTMENT.— 
Section 1857(d)(1) of the Social Security Act (42 U.S.C. 
1395w–27(d)(1)) is amended by inserting after ‘‘section 
1858(c))’’ the following: ‘‘, and data submitted with re-
spect to risk adjustment under section 1853(a)(3)’’. 
(b) 
ENFORCEMENT
OF
AUDITS
AND
DEFI-
CIENCIES.— 
(1) IN GENERAL.—Section 1857(e) of such Act, 
as amended by section 1173, is amended by adding 
at the end the following new paragraph: 
‘‘(5) ENFORCEMENT
OF
AUDITS
AND
DEFI-
CIENCIES.— 
‘‘(A) INFORMATION
IN
CONTRACT.—The 
Secretary shall require that each contract with 
an MA organization under this section shall in-
clude terms that inform the organization of the 
provisions in subsection (d). 
‘‘(B) ENFORCEMENT
AUTHORITY.—The 
Secretary is authorized, in connection with con-
ducting audits and other activities under sub-
section (d), to take such actions, including pur-
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suit of financial recoveries, necessary to address 
deficiencies identified in such audits or other 
activities.’’. 
(2) APPLICATION UNDER PART D.—For provi-
sion applying the amendment made by paragraph 
(1) to prescription drug plans under part D, see sec-
tion 1860D–12(b)(3)(D) of the Social Security Act. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on the date of the enactment 
of this Act and shall apply to audits and activities con-
ducted for contract years beginning on or after January 
1, 2011. 
SEC. 1175. AUTHORITY TO DENY PLAN BIDS. 
(a) IN GENERAL.—Section 1854(a)(5) of the Social 
Security Act (42 U.S.C. 1395w–24(a)(5)) is amended by 
adding at the end the following new subparagraph: 
‘‘(C) REJECTION
OF
BIDS.—Nothing in 
this section shall be construed as requiring the 
Secretary to accept any or every bid by an MA 
organization under this subsection.’’. 
(b) APPLICATION UNDER PART D.—Section 1860D– 
11(d) of such Act (42 U.S.C. 1395w–111(d)) is amended 
by adding at the end the following new paragraph: 
‘‘(3) REJECTION OF BIDS.—Paragraph (5)(C) 
of section 1854(a) shall apply with respect to bids 
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under this section in the same manner as it applies 
to bids by an MA organization under such section.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to bids for contract years begin-
ning on or after January 1, 2011. 
SEC. 1175A. STATE AUTHORITY TO ENFORCE STANDARD-
IZED MARKETING REQUIREMENTS. 
Section 1856(b)(3) of the Social Security Act (42 
U.S.C. 1395w–26(b)(3)) is amended— 
(1) by striking ‘‘The standards’’ and inserting 
‘‘(A) IN
GENERAL.—The standards’’ with appro-
priate indentation that is the same as for the sub-
paragraph (B) added by paragraph (2); and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(B) ENFORCEMENT OF FEDERAL STAND-
ARDS PERMITTED.— 
‘‘(i) IN
GENERAL.—Subject to the 
subsequent provision of this subparagraph, 
nothing in this title shall be construed to 
prohibit a State from conducting a market 
conduct examination or from imposing civil 
monetary penalties, in accordance with 
laws and procedures of the State, against 
Medicare Advantage organizations, PDP 
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sponsors, or agents or brokers of such or-
ganizations or sponsors for violations of 
the marketing requirements under sub-
sections (h)(4), (h)(6), and (j) of section 
1851 and section 1857(g)(1)(E). 
‘‘(ii) ADDITIONAL REMEDIES RESULT-
ING
FROM
FEDERAL-STATE
COOPERA-
TION.— 
‘‘(I) 
STATE
RECOMMENDA-
TION.—A State may recommend to 
the Secretary the imposition of an in-
termediate sanction not described in 
clause (i) (such as those available 
under section 1857(g)) against a 
Medicare 
Advantage 
organization, 
PDP sponsor, or agent or broker of 
such an organization or sponsor for a 
violation described in such clause. 
‘‘(II) 
RESPONSE
TO
REC-
OMMENDATION.—Not later than 30 
days after receipt of a recommenda-
tion under subclause (I) from a State, 
with respect to a violation described in 
clause (i), the Secretary shall respond 
in writing to the State indicating the 
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pursuant to such action, after such 
period; and 
‘‘(II) in the case such action has 
been initiated by a State, the Sec-
retary may not bring an action under 
such applicable subsection or section 
against such organization, sponsor, 
agent, or broker with respect to such 
violation during the pendency period 
of the action initiated by the Sec-
retary and, if a penalty is imposed 
pursuant to such action, after such 
period. 
Nothing in this clause shall be construed 
as limiting the ability of the Secretary to 
impose any sanction other than a civil 
monetary penalty under section 1857 
against a Medicare Advantage organiza-
tion, PDP sponsor, or agent or broker of 
such an organization or sponsor for a vio-
lation described in clause (i). 
‘‘(iv) 
CONSTRUCTION.—Nothing 
in 
this subparagraph shall be construed as af-
fecting any State authority to regulate bro-
kers described in this paragraph or any 
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other conduct of a Medicare Advantage or-
ganization or PDP sponsor.’’. 
PART 3—TREATMENT OF SPECIAL NEEDS PLANS 
SEC. 1176. LIMITATION ON ENROLLMENT OUTSIDE OPEN 
ENROLLMENT PERIOD OF INDIVIDUALS INTO 
CHRONIC CARE SPECIALIZED MA PLANS FOR 
SPECIAL NEEDS INDIVIDUALS. 
Section 1859(f)(4) of the Social Security Act (42 
U.S.C. 1395w–28(f)(4)) is amended by adding at the end 
the following new subparagraph: 
‘‘(C) The plan does not enroll an individual 
on or after January 1, 2011, other than— 
‘‘(i) during an annual, coordinated 
open enrollment period; or 
‘‘(ii) during a special election period 
consisting of the period for which the indi-
vidual has a chronic condition that quali-
fies the individual as an individual de-
scribed in subsection (b)(6)(B)(iii) for such 
plan and ending on the date on which the 
individual enrolls in such a plan on the 
basis of such condition. 
If an individual is enrolled in such a plan on 
the basis of a chronic condition and becomes el-
igible for another such plan on the basis of an-
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other chronic condition, the other plan may en-
roll the individual on the basis of such other 
chronic condition during a special enrollment 
period described in clause (ii). An individual is 
eligible to apply such clause only once on the 
basis of any specific chronic condition.’’. 
SEC. 1177. EXTENSION OF AUTHORITY OF SPECIAL NEEDS 
PLANS TO RESTRICT ENROLLMENT; SERVICE 
AREA MORATORIUM FOR CERTAIN SNPS. 
(a) IN GENERAL.—Section 1859(f)(1) of the Social 
Security Act (42 U.S.C. 1395w–28(f)(1)) is amended by 
striking ‘‘January 1, 2011’’ and inserting ‘‘January 1, 
2013 (or January 1, 2016, in the case of a plan described 
in section 1177(b)(1) of the Affordable Health Care for 
America Act)’’. 
(b) EXTENSION OF CERTAIN PLANS.— 
(1) PLANS DESCRIBED.—For purposes of Sec-
tion 1859(f)(1) of the Social Security Act (42 
U.S.C. 1395w–28(f)(1)), a plan described in this 
paragraph is a Medicare Advantage dual eligible spe-
cial needs plan that— 
(A) whose sponsoring Medicare Advantage 
organization, as of the date enactment of the 
Affordable Health Care for America Act, has a 
contract with a State Medicaid Agency that 
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participated in the ‘‘Demonstrations Serving 
Those Dually-Eligible for Medicare and Med-
icaid’’ under the Medicare program; and 
(B) that has been approved by the Centers 
for Medicare & Medicaid Services as a dual eli-
gible special needs plan and that offers inte-
grated Medicare and Medicaid services under a 
contract with the State Medicaid agency. 
(2) ANALYSIS; REPORT.— 
(A) ANALYSIS.—The Secretary of Health 
and Human Services shall provide, through a 
contract with an independent health services 
evaluation organization, for an analysis of the 
plans described in paragraph (1) with regard to 
the impact of such plans on cost, quality of 
care, patient satisfaction, and other subjects 
specified by the Secretary. Such report also will 
identify statutory changes needed to simplify 
access to needed services, improve coordination 
of benefits and services and ensure protection 
for dual eligibles as appropriate. 
(B) REPORT.—Not later than December 
31, 2011, the Secretary shall submit to the 
Congress a report on the analysis under sub-
paragraph (A) and shall include in such report 
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such recommendations with regard to the treat-
ment of such plans as the Secretary deems ap-
propriate. 
(c) EXTENSION OF SERVICE AREA MORATORIUM FOR 
CERTAIN SNPS.—Section 164(c)(2) of the Medicare Im-
provements for Patients and Providers Act of 2008 is 
amended by striking ‘‘December 31, 2010’’ and inserting 
‘‘December 31, 2012’’. 
SEC. 1178. EXTENSION OF MEDICARE SENIOR HOUSING 
PLANS. 
Section 1859 of the Social Security Act (42 U.S.C. 
1395w–28) is amended by adding at the end the following 
new subsection: 
‘‘(g) SPECIAL RULES FOR SENIOR HOUSING FACIL-
ITY PLANS.— 
‘‘(1) IN GENERAL.—Notwithstanding any other 
provision of this part, in the case of a Medicare Ad-
vantage senior housing facility plan described in 
paragraph (2) and for periods before January 1, 
2013— 
‘‘(A) the service area of such plan may be 
limited to a senior housing facility in a geo-
graphic area; 
‘‘(B) the service area of such plan may not 
be expanded; and 
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‘‘(C) additional senior housing facilities 
may not be serviced by such plan. 
‘‘(2) MEDICARE ADVANTAGE SENIOR HOUSING 
FACILITY PLAN DESCRIBED.—For purposes of this 
subsection, a Medicare Advantage senior housing fa-
cility plan is a Medicare Advantage plan that— 
‘‘(A)(i) restricts enrollment of individuals 
under this part to individuals who reside in a 
continuing care retirement community (as de-
fined in section 1852(l)(4)(B)); 
‘‘(ii) provides primary care services onsite 
and has a ratio of accessible providers to bene-
ficiaries that the Secretary determines is ade-
quate, taking into consideration the number of 
residents onsite, the health needs of those resi-
dents, and the accessibility of providers offsite; 
and 
‘‘(iii) provides transportation services for 
beneficiaries to providers outside of the facility; 
and 
‘‘(B) is offered by a Medicare Advantage 
organization that has offered at least 1 plan de-
scribed in subparagraph (A) for at least 1 year 
prior to January 1, 2010, under a demonstra-
tion project established by the Secretary.’’. 
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Subtitle E—Improvements to 
Medicare Part D 
SEC. 1181. ELIMINATION OF COVERAGE GAP. 
(a) IMMEDIATE REDUCTION IN COVERAGE GAP IN 
2010.—Section 1860D–2(b) of the Social Security Act 
(42 U.S.C. 1395w–102(b)) is amended— 
(1) in paragraph (3)(A), by striking ‘‘paragraph 
(4)’’ and inserting ‘‘paragraphs (4) and (7)’’; and 
(2) by adding at the end the following new 
paragraph: 
‘‘(7) INCREASE IN INITIAL COVERAGE LIMIT IN 
2010.— 
‘‘(A) IN GENERAL.—For plan years begin-
ning during 2010, the initial coverage limit de-
scribed in paragraph (3)(B) otherwise applica-
ble shall be increased by $500. 
‘‘(B) APPLICATION.—In applying subpara-
graph (A)— 
‘‘(i) except as otherwise provided in 
this subparagraph, there shall be no 
change in the premiums, bids, or any other 
parameters under this part or part C; 
‘‘(ii) costs that would be treated as in-
curred costs for purposes of applying para-
graph (4) but for the application of sub-
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paragraph (A) shall continue to be treated 
as incurred costs; 
‘‘(iii) the Secretary shall establish pro-
cedures, which may include a reconciliation 
process, to fully reimburse PDP sponsors 
with respect to prescription drug plans and 
MA organizations with respect to MA–PD 
plans for the reduction in beneficiary cost 
sharing associated with the application of 
subparagraph (A); 
‘‘(iv) the Secretary shall develop an 
estimate of the additional increased costs 
attributable to the application of this para-
graph for increased drug utilization and fi-
nancing and administrative costs and shall 
use such estimate to adjust payments to 
PDP sponsors with respect to prescription 
drug plans under this part and MA organi-
zations with respect to MA–PD plans 
under part C; and 
‘‘(v) the Secretary shall establish pro-
cedures for retroactive reimbursement of 
part D eligible individuals who are covered 
under such a plan for costs which are in-
curred before the date of initial implemen-
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tation of subparagraph (A) and which 
would be reimbursed under such a plan if 
such implementation occurred as of Janu-
ary 1, 2010.’’. 
(b) ADDITIONAL CLOSURE IN GAP BEGINNING IN 
2011.—Section 1860D–2(b) of such Act (42 U.S.C. 
1395w–102(b)) as amended by subsection (a), is further 
amended— 
(1) in paragraph (3)(A), by striking ‘‘and (7)’’ 
and inserting ‘‘, (7), and (8)’’; 
(2) in paragraph (4)(B)(i), by inserting ‘‘sub-
ject to paragraph (8)’’ after ‘‘purposes of this part’’; 
and 
(3) by adding at the end the following new 
paragraph: 
‘‘(8) PHASED-IN
ELIMINATION
OF
COVERAGE 
GAP.— 
‘‘(A) IN GENERAL.—For each year begin-
ning with 2011, the Secretary shall consistent 
with this paragraph progressively increase the 
initial coverage limit (described in subsection 
(b)(3)) and decrease the annual out-of-pocket 
threshold from the amounts otherwise computed 
until, beginning in 2019, there is a continuation 
of coverage from the initial coverage limit for 
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expenditures incurred through the total amount 
of expenditures at which benefits are available 
under paragraph (4). 
‘‘(B) INCREASE
IN
INITIAL
COVERAGE 
LIMIT.— 
‘‘(i) IN GENERAL.—For a year begin-
ning with 2011, subject to clause (ii), the 
initial coverage limit otherwise computed 
without regard to this paragraph shall be 
increased by the cumulative ICL phase-in 
percentage (as defined in clause (iii) for 
the year) times the out-of-pocket gap 
amount (as defined in subparagraph (D)) 
for the year. 
‘‘(ii) MAINTENANCE OF 2010 INITIAL 
COVERAGE LIMIT LEVEL.—If for a year the 
initial coverage limit otherwise computed 
under this paragraph would be less than 
the initial coverage limit applied during 
2010, taking into account paragraph (7), 
the initial coverage limit for that year shall 
be such initial coverage limit as so applied 
during 2010. 
‘‘(iii) CUMULATIVE
PHASE-IN
PER-
CENTAGE.— 
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‘‘(I) IN GENERAL.—For purposes 
of this paragraph, subject to sub-
clause (II), the term ‘cumulative ICL 
phase-in percentage’ means for a year 
the sum of the annual ICL phase-in 
percentage (as defined in clause (iv)) 
for the year and the annual ICL 
phase-in percentages for each previous 
year beginning with 2011. 
‘‘(II) LIMITATION.—If the sum 
of the cumulative ICL phase-in per-
centage and the cumulative OPT 
phase-in percentage (as defined in 
subparagraph (C)(iii)) for a year 
would otherwise exceed 100 percent, 
each such percentage shall be reduced 
in a proportional amount so the sum 
does not exceed 100 percent. 
‘‘(iv) ANNUAL
ICL
PHASE-IN
PER-
CENTAGE.—For purposes of this para-
graph, the term ‘annual ICL phase-in per-
centage’ means— 
‘‘(I) for 2011, 8.25 percent; 
‘‘(II) for 2012, 2013, and 2014, 
4.5 percent; 
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‘‘(III) for 2015 and 2016, 6 per-
cent; 
‘‘(IV) for 2017, 7.5 percent; 
‘‘(V) for 2018, 8 percent; and 
‘‘(VI) for 2019, 8 percent, or 
such other percent as may be nec-
essary to provide for a full continu-
ation of coverage as described in sub-
paragraph (A) in that year. 
‘‘(C) DECREASE IN ANNUAL OUT-OF-POCK-
ET THRESHOLD.— 
‘‘(i) IN GENERAL.—For a year begin-
ning with 2011, subject to clause (ii), the 
annual out-of-pocket threshold otherwise 
computed without regard to this paragraph 
shall be decreased by the cumulative OPT 
phase-in percentage (as defined in clause 
(iii) for the year) of the out-of-pocket gap 
amount for the year multiplied by 1.75. 
‘‘(ii) MAINTENANCE.—The Secretary 
shall adjust the annual out-of-pocket 
threshold for a year to the extent nec-
essary to ensure that the sum of the initial 
coverage limit described in subparagraph 
(A) and the out-of-pocket gap amount (de-
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fined in subparagraph (D)), as determined 
for the year pursuant to the provisions of 
this paragraph for such year, does not ex-
ceed such sum that would have applied if 
this paragraph did not apply. 
‘‘(iii) CUMULATIVE
OPT
PHASE-IN 
PERCENTAGE.—For purposes of this para-
graph, subject to subparagraph (B)(iii)(II), 
the term ‘cumulative OPT phase-in per-
centage’ means for a year the sum of the 
annual OPT phase-in percentage (as de-
fined in clause (iv)) for the year and the 
annual OPT phase-in percentages for each 
previous year beginning with 2011. 
‘‘(iv) ANNUAL
OPT
PHASE-IN
PER-
CENTAGE.—For purposes of this para-
graph, the term ‘annual OPT phase-in per-
centage’ means— 
‘‘(I) for 2011, 0 percent; 
‘‘(II) for 2012, 2013, and 2014, 
4.5 percent; 
‘‘(III) for 2015 and 2016, 6 per-
cent; 
‘‘(IV) for 2017, 7.5 percent; and 
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‘‘(V) for 2018 and 2019, 8 per-
cent. 
‘‘(D) OUT-OF-POCKET GAP AMOUNT.—For 
purposes of this paragraph, the term ‘out-of- 
pocket gap amount’ means for a year the 
amount by which— 
‘‘(i) the annual out-of-pocket thresh-
old specified in paragraph (4)(B) for the 
year (as determined as if this paragraph 
did not apply), exceeds 
‘‘(ii) the sum of— 
‘‘(I) the annual deductible under 
paragraph (1) for the year; and 
‘‘(II) 1⁄4 of the amount by which 
the initial coverage limit under para-
graph (3) for the year (as determined 
as if this paragraph did not apply) ex-
ceeds such annual deductible. 
‘‘(E) RELATION TO AAHCA TRANSITIONAL 
INCREASE.—Except as otherwise specifically 
provided, this paragraph shall be applied as if 
no increase had been made in the initial cov-
erage limit under paragraph (7).’’. 
(c) REQUIRING DRUG MANUFACTURERS TO PROVIDE 
DRUG REBATES FOR REBATE ELIGIBLE INDIVIDUALS.— 
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(1) IN GENERAL.—Section 1860D–2 of the So-
cial Security Act (42 U.S.C. 1395w–102) is amend-
ed— 
(A) in subsection (e)(1), in the matter be-
fore subparagraph (A), by inserting ‘‘and sub-
section (f)’’ after ‘‘this subsection’’; and 
(B) by adding at the end the following new 
subsection: 
‘‘(f) PRESCRIPTION DRUG REBATE AGREEMENT FOR 
REBATE ELIGIBLE INDIVIDUALS.— 
‘‘(1) REQUIREMENT.— 
‘‘(A) IN GENERAL.—For plan years begin-
ning on or after January 1, 2011, in this part, 
the term ‘covered part D drug’ does not include 
any drug or biological product that is manufac-
tured by a manufacturer that has not entered 
into and have in effect a rebate agreement de-
scribed in paragraph (2). 
‘‘(B) 2010 PLAN YEAR REQUIREMENT.— 
Any drug or biological product manufactured by 
a manufacturer that declines to enter into a re-
bate agreement described in paragraph (2) for 
the period beginning on January 1, 2010, and 
ending on December 31, 2010, shall not be in-
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cluded as a ‘covered part D drug ‘ for the sub-
sequent plan year. 
‘‘(2) REBATE
AGREEMENT.—A rebate agree-
ment under this subsection shall require the manu-
facturer to provide to the Secretary a rebate for 
each rebate period (as defined in paragraph (6)(B)) 
ending after December 31, 2009, in the amount 
specified in paragraph (3) for any covered part D 
drug of the manufacturer dispensed after December 
31, 2009, to any rebate eligible individual (as de-
fined in paragraph (6)(A)) for which payment was 
made by a PDP sponsor under part D or a MA or-
ganization under part C for such period, including 
payments passed through the low-income and rein-
surance subsidies under sections 1860D–14 and 
1860D–15(b), respectively. Such rebate shall be paid 
by the manufacturer to the Secretary not later than 
30 days after the date of receipt of the information 
described in section 1860D–12(b)(7), including as 
such section is applied under section 1857(f)(3), or 
30 days after the receipt of information under sub-
paragraph (D) of paragraph (3), as determined by 
the Secretary. Insofar as not inconsistent with this 
subsection, the Secretary shall establish terms and 
conditions of such agreement relating to compliance, 
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penalties, and program evaluations, investigations, 
and audits that are similar to the terms and condi-
tions for rebate agreements under paragraphs (3) 
and (4) of section 1927(b). 
‘‘(3) REBATE FOR REBATE ELIGIBLE MEDICARE 
DRUG PLAN ENROLLEES.— 
‘‘(A) IN GENERAL.—The amount of the re-
bate specified under this paragraph for a manu-
facturer for a rebate period, with respect to 
each dosage form and strength of any covered 
part D drug provided by such manufacturer 
and dispensed to a rebate eligible individual, 
shall be equal to the product of— 
‘‘(i) the total number of units of such 
dosage form and strength of the drug so 
provided and dispensed for which payment 
was made by a PDP sponsor under part D 
or a MA organization under part C for the 
rebate period, including payments passed 
through the low-income and reinsurance 
subsidies under sections 1860D–14 and 
1860D–15(b), respectively; and 
‘‘(ii) the amount (if any) by which— 
‘‘(I) the Medicaid rebate amount 
(as defined in subparagraph (B)) for 
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poses of this subsection, the term ‘average 
Medicare drug program rebate eligible rebate 
amount’ means, with respect to each dosage 
form and strength of a covered part D drug 
provided by a manufacturer for a rebate period, 
the sum, for all PDP sponsors under part D 
and MA organizations administering a MA–PD 
plan under part C, of— 
‘‘(i) the product, for each such spon-
sor or organization, of— 
‘‘(I) the sum of all rebates, dis-
counts, or other price concessions (not 
taking into account any rebate pro-
vided under paragraph (2) for such 
dosage form and strength of the drug 
dispensed, calculated on a per-unit 
basis, but only to the extent that any 
such rebate, discount, or other price 
concession applies equally to drugs 
dispensed to rebate eligible Medicare 
drug plan enrollees and drugs dis-
pensed to PDP and MA–PD enrollees 
who are not rebate eligible individuals; 
and 
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‘‘(II) the number of the units of 
such dosage and strength of the drug 
dispensed during the rebate period to 
rebate eligible individuals enrolled in 
the prescription drug plans adminis-
tered by the PDP sponsor or the MA– 
PD plans administered by the MA or-
ganization; divided by 
‘‘(ii) the total number of units of such 
dosage and strength of the drug dispensed 
during the rebate period to rebate eligible 
individuals enrolled in all prescription drug 
plans administered by PDP sponsors and 
all MA–PD plans administered by MA or-
ganizations. 
‘‘(D) USE OF ESTIMATES.—The Secretary 
may establish a methodology for estimating the 
average Medicare drug program rebate eligible 
rebate amounts for each rebate period based on 
bid and utilization information under this part 
and may use these estimates as the basis for 
determining the rebates under this section. If 
the Secretary elects to estimate the average 
Medicare drug program rebate eligible rebate 
amounts, the Secretary shall establish a rec-
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onciliation process for adjusting manufacturer 
rebate payments not later than 3 months after 
the date that manufacturers receive the infor-
mation 
collected 
under 
section 
1860D– 
12(b)(7)(B). 
‘‘(4) LENGTH OF AGREEMENT.—The provisions 
of paragraph (4) of section 1927(b) (other than 
clauses (iv) and (v) of subparagraph (B)) shall apply 
to rebate agreements under this subsection in the 
same manner as such paragraph applies to a rebate 
agreement under such section. 
‘‘(5) OTHER
TERMS
AND
CONDITIONS.—The 
Secretary shall establish other terms and conditions 
of the rebate agreement under this subsection, in-
cluding terms and conditions related to compliance, 
that are consistent with this subsection. 
‘‘(6) DEFINITIONS.—In this subsection and sec-
tion 1860D–12(b)(7): 
‘‘(A) REBATE ELIGIBLE INDIVIDUAL.—The 
term ‘rebate eligible individual’— 
‘‘(i) means a full-benefit dual eligible 
individual 
(as 
defined 
in 
section 
1935(c)(6)); and 
‘‘(ii) includes, for drugs dispensed 
after December 31, 2014, a subsidy eligi-
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ble individual (as defined in section 
1860D–14(a)(3)(A)). 
‘‘(B) REBATE PERIOD.—The term ‘rebate 
period’ has the meaning given such term in sec-
tion 1927(k)(8). 
‘‘(7) WAIVER.—Chapter 35 of title 44, United 
States Code, shall not apply to the requirements 
under this subsection for the period beginning on 
January 1, 2010, and ending on December 31, 
2010.’’. 
(2) REPORTING REQUIREMENT FOR THE DE-
TERMINATION AND PAYMENT OF REBATES BY MANU-
FACTURES RELATED TO REBATE FOR REBATE ELIGI-
BLE MEDICARE DRUG PLAN ENROLLEES.— 
(A) 
REQUIREMENTS
FOR
PDP
SPON-
SORS.—Section 1860D–12(b) of the Social Se-
curity Act (42 U.S.C. 1395w–112(b)) is amend-
ed by adding at the end the following new para-
graph: 
‘‘(7) REPORTING REQUIREMENT FOR THE DE-
TERMINATION AND PAYMENT OF REBATES BY MANU-
FACTURERS RELATED TO REBATE FOR REBATE ELI-
GIBLE MEDICARE DRUG PLAN ENROLLEES.— 
‘‘(A) IN GENERAL.—For purposes of the 
rebate under section 1860D–2(f) for contract 
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years beginning on or after January 1, 2011, 
each contract entered into with a PDP sponsor 
under this part with respect to a prescription 
drug plan shall require that the sponsor comply 
with subparagraphs (B) and (C). 
‘‘(B) REPORT FORM AND CONTENTS.—Not 
later than a date specified by the Secretary, a 
PDP sponsor of a prescription drug plan under 
this part shall report to each manufacturer— 
‘‘(i) information (by National Drug 
Code number) on the total number of units 
of each dosage, form, and strength of each 
drug of such manufacturer dispensed to re-
bate eligible Medicare drug plan enrollees 
under any prescription drug plan operated 
by the PDP sponsor during the rebate pe-
riod; 
‘‘(ii) information on the price dis-
counts, price concessions, and rebates for 
such drugs for such form, strength, and 
period; 
‘‘(iii) information on the extent to 
which such price discounts, price conces-
sions, and rebates apply equally to rebate 
eligible Medicare drug plan enrollees and 
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PDP enrollees who are not rebate eligible 
Medicare drug plan enrollees; and 
‘‘(iv) any additional information that 
the Secretary determines is necessary to 
enable the Secretary to calculate the aver-
age Medicare drug program rebate eligible 
rebate amount (as defined in paragraph 
(3)(C) of such section), and to determine 
the amount of the rebate required under 
this section, for such form, strength, and 
period. 
Such report shall be in a form consistent with 
a standard reporting format established by the 
Secretary. 
‘‘(C) SUBMISSION TO SECRETARY.—Each 
PDP sponsor shall promptly transmit a copy of 
the information reported under subparagraph 
(B) to the Secretary for the purpose of audit 
oversight and evaluation. 
‘‘(D) 
CONFIDENTIALITY
OF
INFORMA-
TION.—The provisions of subparagraph (D) of 
section 1927(b)(3), relating to confidentiality of 
information, shall apply to information reported 
by PDP sponsors under this paragraph in the 
same manner that such provisions apply to in-
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formation disclosed by manufacturers or whole-
salers under such section, except— 
‘‘(i) that any reference to ‘this sec-
tion’ in clause (i) of such subparagraph 
shall be treated as being a reference to this 
section; 
‘‘(ii) the reference to the Director of 
the Congressional Budget Office in clause 
(iii) of such subparagraph shall be treated 
as including a reference to the Medicare 
Payment Advisory Commission; and 
‘‘(iii) clause (iv) of such subparagraph 
shall not apply. 
‘‘(E) OVERSIGHT.—Information reported 
under this paragraph may be used by the In-
spector General of the Department of Health 
and Human Services for the statutorily author-
ized purposes of audit, investigation, and eval-
uations. 
‘‘(F) PENALTIES
FOR
FAILURE
TO
PRO-
VIDE TIMELY INFORMATION AND PROVISION OF 
FALSE INFORMATION.—In the case of a PDP 
sponsor— 
‘‘(i) that fails to provide information 
required under subparagraph (B) on a 
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timely basis, the sponsor is subject to a 
civil money penalty in the amount of 
$10,000 for each day in which such infor-
mation has not been provided; or 
‘‘(ii) that knowingly (as defined in 
section 1128A(i)) provides false informa-
tion under such subparagraph, the sponsor 
is subject to a civil money penalty in an 
amount not to exceed $100,000 for each 
item of false information. 
Such civil money penalties are in addition to 
other penalties as may be prescribed by law. 
The provisions of section 1128A (other than 
subsections (a) and (b)) shall apply to a civil 
money penalty under this subparagraph in the 
same manner as such provisions apply to a pen-
alty or proceeding under section 1128A(a).’’. 
(B) 
APPLICATION
TO
MA
ORGANIZA-
TIONS.—Section 1857(f)(3) of the Social Secu-
rity Act (42 U.S.C. 1395w–27(f)(3)) is amend-
ed by adding at the end the following: 
‘‘(D) REPORTING REQUIREMENT RELATED 
TO REBATE FOR REBATE ELIGIBLE MEDICARE 
DRUG
PLAN
ENROLLEES.—Section 1860D– 
12(b)(7).’’. 
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(3) DEPOSIT OF REBATES INTO MEDICARE PRE-
SCRIPTION DRUG ACCOUNT.—Section 1860D–16(c) 
of such Act (42 U.S.C. 1395w–116(c)) is amended 
by adding at the end the following new paragraph: 
‘‘(6) REBATE FOR REBATE ELIGIBLE MEDICARE 
DRUG PLAN ENROLLEES.—Amounts paid under a re-
bate agreement under section 1860D–2(f) shall be 
deposited into the Account and shall be used to pay 
for all or part of the gradual elimination of the cov-
erage gap under section 1860D–2(b)(7).’’. 
SEC. 1182. DISCOUNTS FOR CERTAIN PART D DRUGS IN 
ORIGINAL COVERAGE GAP. 
Section 1860D–2 of the Social Security Act (42 
U.S.C. 1395w–102), as amended by section 1181, is 
amended— 
(1) in subsection (b)(4)(C)(ii), by inserting 
‘‘subject to subsection (g)(2)(C),’’ after ‘‘(ii)’’; 
(2) in subsection (e)(1), in the matter before 
subparagraph (A), by striking ‘‘subsection (f)’’ and 
inserting ‘‘subsections (f) and (g)’’ after ‘‘this sub-
section’’; and 
(3) by adding at the end the following new sub-
section: 
‘‘(g) REQUIREMENT FOR MANUFACTURER DISCOUNT 
AGREEMENT FOR CERTAIN QUALIFYING DRUGS.— 
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‘‘(1) IN GENERAL.—In this part, the term ‘cov-
ered part D drug’ does not include any drug or bio-
logical product that is manufactured by a manufac-
turer that has not entered into and have in effect for 
all qualifying drugs (as defined in paragraph (5)(A)) 
a discount agreement described in paragraph (2). 
‘‘(2) DISCOUNT AGREEMENT.— 
‘‘(A) PERIODIC
DISCOUNTS.—A discount 
agreement under this paragraph shall require 
the manufacturer involved to provide, to each 
PDP sponsor with respect to a prescription 
drug plan or each MA organization with respect 
to each MA–PD plan, a discount in an amount 
specified in paragraph (3) for qualifying drugs 
(as defined in paragraph (5)(A)) of the manu-
facturer dispensed to a qualifying enrollee after 
January 1, 2010, insofar as the individual is in 
the original gap in coverage (as defined in para-
graph (5)(E)). 
‘‘(B) DISCOUNT AGREEMENT.—Insofar as 
not inconsistent with this subsection, the Sec-
retary shall establish terms and conditions of 
such agreement, including terms and conditions 
relating to compliance, similar to the terms and 
conditions for rebate agreements under para-
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graphs (2), (3), and (4) of section 1927(b), ex-
cept that— 
‘‘(i) discounts shall be applied under 
this subsection to prescription drug plans 
and MA–PD plans instead of State plans 
under title XIX; 
‘‘(ii) PDP sponsors and MA organiza-
tions shall be responsible, instead of 
States, for provision of necessary utiliza-
tion information to drug manufacturers; 
and 
‘‘(iii) sponsors and MA organizations 
shall be responsible for reporting informa-
tion on drug-component negotiated price. 
‘‘(C) COUNTING DISCOUNT TOWARD TRUE 
OUT-OF-POCKET
COSTS.—Under the discount 
agreement, in applying subsection (b)(4), with 
regard to subparagraph (C)(i) of such sub-
section, if a qualified enrollee purchases the 
qualified drug insofar as the enrollee is in an 
actual gap of coverage (as defined in paragraph 
(5)(D)), the amount of the discount under the 
agreement shall be treated and counted as costs 
incurred by the plan enrollee. 
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‘‘(3) DISCOUNT AMOUNT.—The amount of the 
discount specified in this paragraph for a discount 
period for a plan is equal to 50 percent of the 
amount of the drug-component negotiated price (as 
defined in paragraph (5)(C)) for qualifying drugs for 
the period involved. 
‘‘(4) ADDITIONAL TERMS.—In the case of a dis-
count provided under this subsection with respect to 
a prescription drug plan offered by a PDP sponsor 
or an MA–PD plan offered by an MA organization, 
if a qualified enrollee purchases the qualified drug— 
‘‘(A) insofar as the enrollee is in an actual 
gap of coverage (as defined in paragraph 
(5)(D)), the sponsor or plan shall provide the 
discount to the enrollee at the time the enrollee 
pays for the drug; and 
‘‘(B) insofar as the enrollee is in the por-
tion of the original gap in coverage (as defined 
in paragraph (5)(E)) that is not in the actual 
gap in coverage, the discount shall not be ap-
plied against the negotiated price (as defined in 
subsection (d)(1)(B)) for the purpose of calcu-
lating the beneficiary payment. 
‘‘(5) DEFINITIONS.—In this subsection: 
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‘‘(A) 
QUALIFYING
DRUG.—The 
term 
‘qualifying drug’ means, with respect to a pre-
scription drug plan or MA–PD plan, a drug or 
biological product that— 
‘‘(i)(I) is a drug produced or distrib-
uted under an original new drug applica-
tion approved by the Food and Drug Ad-
ministration, including a drug product 
marketed by any cross-licensed producers 
or distributors operating under the new 
drug application; 
‘‘(II) is a drug that was originally 
marketed under an original new drug ap-
plication approved by the Food and Drug 
Administration; or 
‘‘(III) is a biological product as ap-
proved under section 351(a) of the Public 
Health Services Act; 
‘‘(ii) is covered under the formulary of 
the plan or is treated as covered under the 
formulary of the plan as a result of a cov-
erage determination or appeal under sub-
section (g) or (h) of section 1860D–4; and 
‘‘(iii) is dispensed to an individual 
who is in the original gap in coverage. 
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‘‘(B) QUALIFYING ENROLLEE.—The term 
‘qualifying enrollee’ means an individual en-
rolled in a prescription drug plan or MA–PD 
plan other than such an individual who is a 
subsidy-eligible individual (as defined in section 
1860D–14(a)(3)). 
‘‘(C) 
DRUG-COMPONENT
NEGOTIATED 
PRICE.—The term ‘drug-component negotiated 
price’ means, with respect to a qualifying drug, 
the negotiated price (as defined in section 
423.100 of title 42, Code of Federal Regula-
tions, as in effect on the date of enactment of 
this subsection), as determined without regard 
to any dispensing fee, of the drug under the 
prescription drug plan or MA–PD plan in-
volved. 
‘‘(D) ACTUAL
GAP
IN
COVERAGE.—The 
term ‘actual gap in coverage’ means the gap in 
prescription drug coverage that occurs between 
the initial coverage limit (as modified under 
paragraph (7) and subparagraph (B) of para-
graph (8) of subsection (b)) and the annual 
out-of-pocket threshold (as modified under sub-
paragraph (C) of such subsection). 
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‘‘(E) ORIGINAL GAP IN COVERAGE.—The 
term ‘original in gap coverage’ means the gap 
in prescription drug coverage that would occur 
between the initial coverage limit (described in 
subsection (b)(3)) and the out-of-pocket thresh-
old (as defined in subsection (b)(4)(B)) if sub-
sections (b)(7) and (b)(8) did not apply. 
‘‘(6) SPECIAL RULE FOR 2010.—For the period 
beginning January 1, 2010, and ending December 
31, 2010, the Secretary may— 
‘‘(A) enter into agreements with manufac-
turers to directly receive the discount amount 
described in paragraph (3); 
‘‘(B) collect the necessary information 
from prescription drug plans and MA-PD plans 
to calculate the discount amount described in 
such paragraph; and 
‘‘(C) provide the discount described in such 
paragraph to beneficiaries as close as prac-
ticable after the point of sale. 
‘‘(7) WAIVER.—Chapter 35 of title 44, United 
States Code, shall not apply to the requirements 
under this subsection for the period beginning on 
January 1, 2010, and ending on December 31, 
2010.’’. 
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SEC. 1183. REPEAL OF PROVISION RELATING TO SUBMIS-
SION OF CLAIMS BY PHARMACIES LOCATED 
IN OR CONTRACTING WITH LONG-TERM CARE 
FACILITIES. 
(a) PART D SUBMISSION.—Section 1860D–12(b) of 
the Social Security Act (42 U.S.C. 1395w–112(b)), as 
amended by section 172(a)(1) of Public Law 110–275, is 
amended by striking paragraph (5) and redesignating 
paragraph (6) and paragraph (7), as added by section 
1181(c)(2)(A), as paragraph (5) and paragraph (6), re-
spectively. 
(b) SUBMISSION
TO
MA–PD PLANS.—Section 
1857(f)(3) of the Social Security Act (42 U.S.C. 1395w– 
27(f)(3)), as added by section 171(b) of Public Law 110– 
275 and amended by section 172(a)(2) of such Public Law 
and section 1181 of this Act, is amended by striking sub-
paragraph (B) and redesignating subparagraphs (C) and 
(D) as subparagraphs (B) and (C) respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply for contract years beginning with 
2010. 
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SEC. 1184. INCLUDING COSTS INCURRED BY AIDS DRUG AS-
SISTANCE PROGRAMS AND INDIAN HEALTH 
SERVICE 
IN 
PROVIDING 
PRESCRIPTION 
DRUGS TOWARD THE ANNUAL OUT-OF-POCK-
ET THRESHOLD UNDER PART D. 
(a) IN GENERAL.—Section 1860D–2(b)(4)(C) of the 
Social Security Act (42 U.S.C. 1395w–102(b)(4)(C)) is 
amended— 
(1) in clause (i), by striking ‘‘and’’ at the end; 
(2) in clause (ii)— 
(A) by striking ‘‘such costs shall be treated 
as incurred only if’’ and inserting ‘‘and subject 
to clause (iii), such costs shall be treated as in-
curred only if’’; 
(B) by striking ‘‘, under section 1860D– 
14, or under a State Pharmaceutical Assistance 
Program’’; and 
(C) by striking the period at the end and 
inserting ‘‘; and’’; and 
(3) by inserting after clause (ii) the following 
new clause: 
‘‘(iii) such costs shall be treated as in-
curred and shall not be considered to be 
reimbursed under clause (ii) if such costs 
are borne or paid— 
‘‘(I) under section 1860D–14; 
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‘‘(II) under a State Pharma-
ceutical Assistance Program; 
‘‘(III) by the Indian Health Serv-
ice, an Indian tribe or tribal organiza-
tion, or an urban Indian organization 
(as defined in section 4 of the Indian 
Health Care Improvement Act); or 
‘‘(IV) under an AIDS Drug As-
sistance Program under part B of 
title XXVI of the Public Health Serv-
ice Act.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to costs incurred on or after 
January 1, 2011. 
SEC. 1185. NO MID-YEAR FORMULARY CHANGES PER-
MITTED. 
(a) IN GENERAL.—Section 1860D–4(b)(3)(E) of the 
Social Security Act (42 U.S.C. 1395w–104(b)(3)(E)) is 
amended— 
(1) in the heading, by inserting ‘‘; CERTAIN 
FORMULARY
CHANGES
ONLY
BEFORE
INITIATING 
MARKETING FOR A PLAN YEAR’’ after ‘‘STATUS OF 
DRUG’’; 
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(2) by striking ‘‘Any removal’’ and inserting 
‘‘(i) NOTICE.—Any removal’’ with the same indenta-
tion as the clause added by paragraph (2); 
(3) by adding at the end the following new 
clause: 
‘‘(ii) CERTAIN
CHANGES
IN
FOR-
MULARY ONLY BEFORE INITIATING MAR-
KETING FOR A PLAN YEAR.—Any removal 
of a covered part D drug from a formulary 
used by a PDP sponsor of a prescription 
drug plan (or MA organization of a MA– 
PD plan) or any other material change to 
the formulary so as to reduce the coverage 
(or increase the cost-sharing) of the drug 
under the plan for a plan year shall take 
effect by a date specified by the Secretary 
but no later than the start of plan mar-
keting activities for the plan year. In addi-
tion to any exceptions to the previous sen-
tence specified by the Secretary, the pre-
vious sentence shall not apply in the case 
that a drug is removed from the formulary 
of a plan because of a recall or withdrawal 
of the drug issued by the Food and Drug 
Administration, because the drug is re-
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placed with a generic drug that is a thera-
peutic equivalent, or because of utilization 
management applied to— 
‘‘(I) a drug whose labeling in-
cludes a boxed warning required by 
the Food and Drug Administration 
under section 201.57(c)(1) of title 21, 
Code of Federal Regulations (or a 
successor regulation); or 
‘‘(II) a drug required under sub-
section (c)(2) of section 505–1 of the 
Federal Food, Drug, and Cosmetic 
Act to have a Risk Evaluation and 
Management Strategy that includes 
elements under subsection (f) of such 
section.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply to contract years beginning on 
or after January 1, 2011. 
SEC. 1186. NEGOTIATION OF LOWER COVERED PART D 
DRUG PRICES ON BEHALF OF MEDICARE 
BENEFICIARIES. 
(a) NEGOTIATION BY SECRETARY.—Section 1860D– 
11 of the Social Security Act (42 U.S.C. 1395w–111) is 
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amended by striking subsection (i) (relating to noninter-
ference) and inserting the following: 
‘‘(i) NEGOTIATION OF LOWER DRUG PRICES.— 
‘‘(1) IN GENERAL.—Notwithstanding any other 
provision of law, the Secretary shall negotiate with 
pharmaceutical manufacturers the prices (including 
discounts, rebates, and other price concessions) that 
may be charged to PDP sponsors and MA organiza-
tions for covered part D drugs for part D eligible in-
dividuals who are enrolled under a prescription drug 
plan or under an MA-PD plan. 
‘‘(2) 
NO
CHANGE
IN
RULES
FOR 
FORMULARIES.— 
‘‘(A) IN GENERAL.—Nothing in paragraph 
(1) shall be construed to authorize the Sec-
retary to establish or require a particular for-
mulary. 
‘‘(B) CONSTRUCTION.—Subparagraph (A) 
shall not be construed as affecting the Sec-
retary’s authority to ensure appropriate and 
adequate access to covered part D drugs under 
prescription drug plans and under MA-PD 
plans, including compliance of such plans with 
formulary requirements under section 1860D– 
4(b)(3). 
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‘‘(3) CONSTRUCTION.—Nothing in this sub-
section shall be construed as preventing the sponsor 
of a prescription drug plan, or an organization offer-
ing an MA-PD plan, from obtaining a discount or 
reduction of the price for a covered part D drug 
below the price negotiated under paragraph (1). 
‘‘(4) ANNUAL
REPORTS
TO
CONGRESS.—Not 
later than June 1, 2011, and annually thereafter, 
the Secretary shall submit to the Committees on 
Ways and Means, Energy and Commerce, and Over-
sight and Government Reform of the House of Rep-
resentatives and the Committee on Finance of the 
Senate a report on negotiations conducted by the 
Secretary to achieve lower prices for Medicare bene-
ficiaries, and the prices and price discounts achieved 
by the Secretary as a result of such negotiations.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect on the date of the enact-
ment of this Act and shall first apply to negotiations and 
prices for plan years beginning on January 1, 2011. 
SEC. 1187. ACCURATE DISPENSING IN LONG-TERM CARE 
FACILITIES. 
Section 1860D–4(c) of the Social Security Act (42 
U.S.C. 1395w–104(c)) is amended by adding at the end 
the following new paragraph: 
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‘‘(3) REDUCTION OF WASTEFUL DISPENSING.— 
‘‘(A) IN GENERAL.—For plan years begin-
ning on or after January 1, 2012, a PDP spon-
sor offering a prescription drug plan and MA 
organization offering a MA–PD plan under part 
C shall have in place the utilization manage-
ment techniques established under subpara-
graph (B). 
‘‘(B) 
REQUIREMENTS.—The 
Secretary 
shall establish utilization management tech-
niques, such as daily, weekly, or automated 
dose dispensing, to apply to PDP sponsors and 
MA organizations to reduce the quantities of 
covered part D drugs dispensed to enrollees 
who are residing in long-term care facilities in 
order to reduce waste associated with unused 
medications. 
‘‘(C) CONSULTATION.—In establishing the 
requirements under subparagraph (A), the Sec-
retary shall consult with the Administrator of 
the Environmental Protection Agency, Adminis-
trator of the Food and Drug Administration, 
Administrator of the Drug Enforcement Admin-
istration, State Boards of Pharmacy, pharmacy 
and physician organizations, and other appro-
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priate stakeholders to study and determine ad-
ditional methods for prescription drug plans to 
reduce waste associated with unused prescrip-
tion drugs.’’. 
SEC. 1188. FREE GENERIC FILL. 
(a) IN GENERAL.—Section 1128A(i)(6) of the Social 
Security Act (42 U.S.C. 1320a–7a(i)(6)) is amended— 
(1) in subparagraph (C), by striking ‘‘of 1996’’ 
and all that follows and inserting ‘‘of 1996;’’; 
(2) in the first subparagraph (D), by striking 
‘‘promulgated’’ and all that follows and inserting 
‘‘promulgated;’’; 
(3) by redesignating the second subparagraph 
(D) as a subparagraph (E) and by striking the pe-
riod at the end of such subparagraph and inserting 
‘‘; and’’; and 
(4) by adding at the end the following new sub-
paragraph: 
‘‘(F) with regard to a prescription drug 
plan offered by a PDP sponsor or an MA–PD 
plan offered by an MA organization, a reduc-
tion in or waiver of the copayment amount 
under the plan given to an individual to induce 
the individual to switch to a generic, bioequiva-
lent drug, or biosimilar.’’. 
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(b) EFFECTIVE DATE.—The amendments made by 
this subsection shall take effect on the date of the enact-
ment of this Act and shall first apply with respect to remu-
neration offered, paid, solicited, or received on or after 
January 1, 2011. 
SEC. 1189. STATE CERTIFICATION PRIOR TO WAIVER OF LI-
CENSURE REQUIREMENTS UNDER MEDICARE 
PRESCRIPTION DRUG PROGRAM. 
(a) IN GENERAL.—Section 1860D–12(c) of the So-
cial Security Act (42 U.S.C. 1395w–112(c)) is amended— 
(1) in paragraph (1)(A), by striking ‘‘In the 
case’’ and inserting ‘‘Subject to paragraph (5), in 
the case’’; and 
(2) by adding at the end the following new 
paragraph: 
‘‘(5) STATE CERTIFICATION REQUIRED.— 
‘‘(A) IN GENERAL.—Except as provided in 
section 1860D–21(f)(4), the Secretary may only 
grant a waiver under paragraph (1)(A) if the 
Secretary has received a certification from the 
State insurance commissioner that the prescrip-
tion drug plan has a substantially complete ap-
plication pending in the State. 
‘‘(B) REVOCATION OF WAIVER UPON FIND-
ING
OF
FRAUD
AND
ABUSE.—The Secretary 
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(ii) EXEMPTIONS.—The requirements 
of clause (i) shall not apply— 
(I) in the case of a Medicare ben-
eficiary who is limited English pro-
ficient (who has been informed in the 
beneficiary’s primary language of the 
availability of free interpreter and 
translation services) and who requests 
the use of family, friends, or other 
persons untrained in interpretation or 
translation and the grantee documents 
the request in the beneficiary’s record; 
and 
(II) in the case of a medical 
emergency where the delay directly as-
sociated with obtaining a competent 
interpreter or translation services 
would jeopardize the health of the pa-
tient. 
Nothing in clause (ii)(II) shall be con-
strued to exempt emergency rooms or simi-
lar entities that regularly provide health 
care services in medical emergencies from 
having in place systems to provide com-
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‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), qualifying independence at home 
medical practices are eligible to receive an in-
centive payment under this section if aggregate 
expenditures for a year for applicable bene-
ficiaries are less than the target spending level 
for qualifying independence at home medical 
practices for such year. An incentive payment 
for such year shall be equal to a portion (as de-
termined by the Secretary) of the amount by 
which total payments for applicable bene-
ficiaries under parts A and B for such year are 
estimated to be less than 5 percent less than 
the target spending level for such year, as de-
termined by the Secretary. 
‘‘(B) APPORTIONMENT OF SAVINGS.—The 
Secretary shall designate how, and to what ex-
tent, an incentive payment under this section is 
to be apportioned among qualifying independ-
ence at home medical practices, taking into ac-
count the size of the practice, characteristics of 
the individuals enrolled in each practice, per-
formance on quality performance measures, and 
such other factors as the Secretary determines 
appropriate. 
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medical facilities and services between the Service, 
Indian Tribes, and Tribal Organizations and the De-
partment of Veterans Affairs and the Department of 
Defense. 
‘‘(2) 
CONSULTATION
BY
SECRETARY
RE-
QUIRED.—The Secretary may not finalize any ar-
rangement between the Service and a Department 
described in paragraph (1) without first consulting 
with the Indian Tribes which will be significantly af-
fected by the arrangement. 
‘‘(b) LIMITATIONS.—The Secretary shall not take 
any action under this section or under subchapter IV of 
chapter 81 of title 38, United States Code, which would 
impair— 
‘‘(1) the priority access of any Indian to health 
care services provided through the Service and the 
eligibility of any Indian to receive health services 
through the Service; 
‘‘(2) the quality of health care services provided 
to any Indian through the Service; 
‘‘(3) the priority access of any veteran to health 
care services provided by the Department of Vet-
erans Affairs; 
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