108TH CONGRESS 
1ST SESSION 
H. R. 1
AN ACT 
To amend title XVIII of the Social Security Act to 
provide for a voluntary program for prescription 
drug coverage under the Medicare Program, to 
modernize the Medicare Program, to amend the 
Internal Revenue Code of 1986 to allow a deduc-
tion to individuals for amounts contributed to 
health savings security accounts and health sav-
ings accounts, to provide for the disposition of 
unused health benefits in cafeteria plans and 
flexible spending arrangements, and for other 
purposes.
108TH CONGRESS 
1ST SESSION 
H. R. 1
AN ACT 
To amend title XVIII of the Social Security Act to provide 
for a voluntary program for prescription drug coverage 
under the Medicare Program, to modernize the Medicare 
Program, to amend the Internal Revenue Code of 1986 
to allow a deduction to individuals for amounts contrib-
uted to health savings security accounts and health sav-
ings accounts, to provide for the disposition of unused 
health benefits in cafeteria plans and flexible spending 
arrangements, 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 TITLES. 
(a) DIVISION A.—Division A of this Act may be cited 
as the ‘‘Medicare Prescription Drug and Modernization 
Act of 2003’’. 
(b) DIVISION B.—Division B of this Act may be cited 
as the ‘‘Health Savings and Affordability Act of 2003’’. 
SEC. 2. ORGANIZATION OF ACT INTO DIVISIONS; AMEND-
MENTS TO SOCIAL SECURITY ACT; REF-
ERENCES TO BIPA AND SECRETARY; TABLE 
OF CONTENTS. 
(a) DIVISIONS.—This Act is organized into two divi-
sions as follows: 
(1) DIVISION A—Medicare Prescription Drug 
and Modernization Act of 2003. 
(2) DIVISION B—Health Savings and Afford-
ability Act of 2003. 
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex-
cept as otherwise specifically provided, whenever in divi-
sion A of this Act an amendment is expressed in terms 
of an amendment to or repeal of a section or other provi-
sion, the reference shall be considered to be made to that 
section or other provision of the Social Security Act. 
(c) BIPA; SECRETARY.—In division A of this Act:
(1) BIPA.—The term ‘‘BIPA’’ means the 
Medicare, Medicaid, and SCHIP Benefits Improve-
ment and Protection Act of 2000, as enacted into 
law by section 1(a)(6) of Public Law 106–554. 
(2) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of Health and Human Services. 
(d) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows:
Sec. 1. Short titles. 
Sec. 2. Organization of Act into divisions; amendments to Social Security Act; 
references to BIPA and Secretary; table of contents. 
DIVISION A—MEDICARE PRESCRIPTION DRUG AND 
MODERNIZATION ACT OF 2003
TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT 
Sec. 101. Establishment of a medicare prescription drug benefit. 
Sec. 102. Offering of qualified prescription drug coverage under Medicare Ad-
vantage and enhanced fee-for-service (EFFS) program. 
Sec. 103. Medicaid amendments. 
Sec. 104. Medigap transition. 
Sec. 105. Medicare prescription drug discount card and assistance program. 
Sec. 106. Disclosure of return information for purposes of carrying out medi-
care catastrophic prescription drug program. 
Sec. 107. State Pharmaceutical Assistance Transition Commission. 
Sec. 108. Additional requirements for annual financial report and oversight on 
medicare program, including prescription drug spending. 
TITLE II—MEDICARE ENHANCED FEE-FOR-SERVICE AND 
MEDICARE ADVANTAGE PROGRAMS; MEDICARE COMPETITION 
Sec. 200. Medicare modernization and revitalization. 
Subtitle A—Medicare Enhanced Fee-for-Service Program 
Sec. 201. Establishment of enhanced fee-for-service (EFFS) program under 
medicare. 
Subtitle B—Medicare Advantage Program 
CHAPTER 1—IMPLEMENTATION OF PROGRAM 
Sec. 211. Implementation of medicare advantage program. 
Sec. 212. Medicare advantage improvements. 
CHAPTER 2—IMPLEMENTATION OF COMPETITION PROGRAM
Sec. 221. Competition program beginning in 2006. 
CHAPTER 3—ADDITIONAL REFORMS 
Sec. 231. Making permanent change in medicare advantage reporting deadlines 
and annual, coordinated election period. 
Sec. 232. Avoiding duplicative State regulation. 
Sec. 233. Specialized medicare advantage plans for special needs beneficiaries. 
Sec. 234. Medicare MSAs. 
Sec. 235. Extension of reasonable cost contracts. 
Sec. 236. Extension of municipal health service demonstration projects. 
Sec. 237. Study of performance-based payment systems. 
Subtitle C—Application of FEHBP-Style Competitive Reforms 
Sec. 241. Application of FEHBP-style competitive reform beginning in 2010. 
TITLE III—COMBATTING WASTE, FRAUD, AND ABUSE 
Sec. 301. Medicare secondary payor (MSP) provisions. 
Sec. 302. Competitive acquisition of certain items and services. 
Sec. 303. Competitive acquisition of covered outpatient drugs and biologicals. 
Sec. 304. Demonstration project for use of recovery audit contractors. 
TITLE IV—RURAL HEALTH CARE IMPROVEMENTS 
Sec. 401. Enhanced disproportionate share hospital (DSH) treatment for rural 
hospitals and urban hospitals with fewer than 100 beds. 
Sec. 402. Immediate establishment of uniform standardized amount in rural 
and small urban areas. 
Sec. 403. Establishment of essential rural hospital classification. 
Sec. 404. More frequent update in weights used in hospital market basket. 
Sec. 405. Improvements to critical access hospital program. 
Sec. 406. Redistribution of unused resident positions. 
Sec. 407. Two-year extension of hold harmless provisions for small rural hos-
pitals and sole community hospitals under prospective payment 
system for hospital outpatient department services. 
Sec. 408. Exclusion of certain rural health clinic and federally qualified health 
center services from the prospective payment system for skilled 
nursing facilities. 
Sec. 409. Recognition of attending nurse practitioners as attending physicians 
to serve hospice patients. 
Sec. 410. Improvement in payments to retain emergency capacity for ambu-
lance services in rural areas. 
Sec. 411. Two-year increase for home health services furnished in a rural area. 
Sec. 412. Providing safe harbor for certain collaborative efforts that benefit 
medically underserved populations. 
Sec. 413. GAO study of geographic differences in payments for physicians’ 
services. 
Sec. 414. Treatment of missing cost reporting periods for sole community hos-
pitals. 
Sec. 415. Extension of telemedicine demonstration project. 
Sec. 416. Adjustment to the medicare inpatient hospital PPS wage index to re-
vise the labor-related share of such index. 
Sec. 417. Medicare incentive payment program improvements for physician 
scarcity. 
Sec. 418. Rural hospice demonstration project.
TITLE V—PROVISIONS RELATING TO PART A 
Subtitle A—Inpatient Hospital Services 
Sec. 501. Revision of acute care hospital payment updates. 
Sec. 502. Recognition of new medical technologies under inpatient hospital 
PPS. 
Sec. 503. Increase in Federal rate for hospitals in Puerto Rico. 
Sec. 504. Wage index adjustment reclassification reform . 
Sec. 505. MedPAC report on specialty hospitals. 
Subtitle B—Other Provisions 
Sec. 511. Payment for covered skilled nursing facility services. 
Sec. 512. Coverage of hospice consultation services. 
Sec. 513. Correction of Trust Fund holdings. 
TITLE VI—PROVISIONS RELATING TO PART B 
Subtitle A—Physicians’ Services 
Sec. 601. Revision of updates for physicians’ services. 
Sec. 602. Studies on access to physicians’ services. 
Sec. 603. MedPAC report on payment for physicians’ services. 
Sec. 604. Inclusion of podiatrists and dentists under private contracting au-
thority. 
Sec. 605. Establishment of floor on work geographic adjustment. 
SUBTITLE B—PREVENTIVE SERVICES 
Sec. 611. Coverage of an initial preventive physical examination. 
Sec. 612. Coverage of cholesterol and blood lipid screening. 
Sec. 613. Waiver of deductible for colorectal cancer screening tests. 
Sec. 614. Improved payment for certain mammography services. 
Subtitle C—Other Services 
Sec. 621. Hospital outpatient department (HOPD) payment reform. 
Sec. 622. Payment for ambulance services. 
Sec. 623. Renal dialysis services. 
Sec. 624. One-year moratorium on therapy caps; provisions relating to reports. 
Sec. 625. Adjustment to payments for services furnished in ambulatory surgical 
centers. 
Sec. 626. Payment for certain shoes and inserts under the fee schedule for 
orthotics and prosthetics. 
Sec. 627. Waiver of part B late enrollment penalty for certain military retirees; 
special enrollment period. 
Sec. 628. Part B deductible. 
Sec. 629. Extension of coverage of intravenous immune globulin (IVIG) for the 
treatment of primary immune deficiency diseases in the home. 
Sec. 630. Medicare coverage of diabetes laboratory diagnostic tests. 
Sec. 631. Demonstration project for coverage of certain prescription drugs and 
biologics. 
TITLE VII—PROVISIONS RELATING TO PARTS A AND B 
Subtitle A—Home Health Services
Sec. 701. Update in home health services. 
Sec. 702. Establishment of reduced copayment for a home health service epi-
sode of care for certain beneficiaries. 
Sec. 703. MedPAC study on medicare margins of home health agencies. 
Sec. 704. Demonstration project to clarify the definition of homebound. 
Subtitle B—Direct Graduate Medical Education 
Sec. 711. Extension of update limitation on high cost programs. 
Subtitle C—Chronic Care Improvement 
Sec. 721. Voluntary chronic care improvement under traditional fee-for-service. 
Sec. 722. Chronic care improvement under medicare advantage and enhanced 
fee-for-service programs. 
Sec. 723. Institute of Medicine report. 
Sec. 724. MedPAC report. 
Subtitle D—Other Provisions 
Sec. 731. Modifications to medicare payment advisory commission (MedPAC). 
Sec. 732. Demonstration project for medical adult day care services. 
Sec. 733. Improvements in national and local coverage determination process to 
respond to changes in technology. 
Sec. 734. Treatment of certain physician pathology services. 
Sec. 735. Clinical investigation of medicare pancreatic islet cell transplants. 
Sec. 736. Demonstration project for consumer-directed chronic outpatient serv-
ices. 
TITLE VIII—MEDICARE BENEFITS ADMINISTRATION 
Sec. 801. Establishment of Medicare Benefits Administration. 
TITLE IX—REGULATORY REDUCTION AND CONTRACTING 
REFORM 
Subtitle A—Regulatory Reform 
Sec. 901. Construction; definition of supplier. 
Sec. 902. Issuance of regulations. 
Sec. 903. Compliance with changes in regulations and policies. 
Sec. 904. Reports and studies relating to regulatory reform. 
Subtitle B—Contracting Reform 
Sec. 911. Increased flexibility in medicare administration. 
Sec. 912. Requirements for information security for medicare administrative 
contractors. 
Subtitle C—Education and Outreach 
Sec. 921. Provider education and technical assistance. 
Sec. 922. Small provider technical assistance demonstration program. 
Sec. 923. Medicare Provider Ombudsman; Medicare Beneficiary Ombudsman. 
Sec. 924. Beneficiary outreach demonstration program. 
Sec. 925. Inclusion of additional information in notices to beneficiaries about 
skilled nursing facility benefits. 
Sec. 926. Information on medicare-certified skilled nursing facilities in hospital 
discharge plans.
Subtitle D—Appeals and Recovery 
Sec. 931. Transfer of responsibility for medicare appeals. 
Sec. 932. Process for expedited access to review. 
Sec. 933. Revisions to medicare appeals process. 
Sec. 934. Prepayment review. 
Sec. 935. Recovery of overpayments. 
Sec. 936. Provider enrollment process; right of appeal. 
Sec. 937. Process for correction of minor errors and omissions without pur-
suing appeals process. 
Sec. 938. Prior determination process for certain items and services; advance 
beneficiary notices. 
Subtitle V—Miscellaneous Provisions 
Sec. 941. Policy development regarding evaluation and management (E & M) 
documentation guidelines. 
Sec. 942. Improvement in oversight of technology and coverage. 
Sec. 943. Treatment of hospitals for certain services under medicare secondary 
payor (MSP) provisions. 
Sec. 944. EMTALA improvements. 
Sec. 945. Emergency Medical Treatment and Active Labor Act (EMTALA) 
technical advisory group. 
Sec. 946. Authorizing use of arrangements to provide core hospice services in 
certain circumstances. 
Sec. 947. Application of OSHA bloodborne pathogens standard to certain hos-
pitals. 
Sec. 948. BIPA-related technical amendments and corrections. 
Sec. 949. Conforming authority to waive a program exclusion. 
Sec. 950. Treatment of certain dental claims. 
Sec. 951. Furnishing hospitals with information to compute dsh formula. 
Sec. 952. Revisions to reassignment provisions. 
Sec. 953. Other provisions. 
Sec. 954. Temporary suspension of OASIS requirement for collection of data 
on non-medicare and non-medicaid patients. 
TITLE X—MEDICAID 
Sec. 1001. Medicaid disproportionate share hospital (DSH) payments. 
Sec. 1002. Clarification of inclusion of inpatient drug prices charged to certain 
public hospitals in the best price exemptions for the medicaid 
drug rebate program. 
TITLE XI—ACCESS TO AFFORDABLE PHARMACEUTICALS 
Subtitle A—Access to Affordable Pharmaceuticals 
Sec. 1101. 30-month stay-of-effectiveness period. 
Sec. 1102. Forfeiture of 180-day exclusivity period. 
Sec. 1103. Bioavailability and bioequivalence. 
Sec. 1104. Conforming amendments. 
Subtitle B—Federal Trade Commission Review 
Sec. 1111. Definitions. 
Sec. 1112. Notification of agreements. 
Sec. 1113. Filing deadlines.
Sec. 1114. Disclosure exemption. 
Sec. 1115. Enforcement. 
Sec. 1116. Rulemaking. 
Sec. 1117. Savings clause. 
Sec. 1118. Effective date. 
Subtitle C—Importation of Prescription Drugs 
Sec. 1121. Importation of prescription drugs. 
DIVISION B—HEALTH SAVINGS AND AFFORDABILITY ACT 
OF 2003
TITLE XII—HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH 
SAVINGS ACCOUNTS 
Sec. 1201. Short title. 
Sec. 1202. Health savings security accounts and health savings accounts. 
Sec. 1203. Disposition of unused health benefits in cafeteria plans and flexible 
spending arrangements. 
Sec. 1204. Exception to information reporting requirements related to certain 
health arrangements.
DIVISION 
A—MEDICARE 
PRE-
SCRIPTION DRUG AND MOD-
ERNIZATION ACT OF 2003
TITLE I—MEDICARE 
PRESCRIPTION DRUG BENEFIT 
SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION 
DRUG BENEFIT. 
(a) IN GENERAL.—Title XVIII is amended—
(1) by redesignating part D as part F; and 
(2) by inserting after part C the following new 
part:
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT 
PROGRAM 
‘‘SEC. 1860D–1. BENEFITS; ELIGIBILITY; ENROLLMENT; AND 
COVERAGE PERIOD. 
‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG 
COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject 
to the succeeding provisions of this part, each individual 
who is entitled to benefits under part A or is enrolled 
under part B is entitled to obtain qualified prescription 
drug coverage (described in section 1860D–2(a)) as fol-
lows:
‘‘(1) MEDICARE-RELATED PLANS.—
‘‘(A) MEDICARE ADVANTAGE.—If the indi-
vidual is eligible to enroll in a Medicare Advan-
tage plan that provides qualified prescription 
drug coverage under section 1851(j), the indi-
vidual may enroll in such plan and obtain cov-
erage through such plan. 
‘‘(B) EFFS PLANS.—If the individual is 
eligible to enroll in an EFFS plan that provides 
qualified prescription drug coverage under part 
E under section 1860E–2(d), the individual 
may enroll in such plan and obtain coverage 
through such plan.
‘‘(C) MA-EFFS 
PLAN; MA-EFFS RX 
PLAN.—For purposes of this part, the term 
‘MA-EFFS plan’ means a Medicare Advantage 
plan under part C and an EFFS plan under 
part E and the term ‘MA-EFFS Rx plan’ 
means a MA-EFFS plan insofar as such plan 
provides qualified prescription drug coverage. 
‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi-
vidual is not enrolled in a MA-EFFS plan, the indi-
vidual may enroll under this part in a prescription 
drug plan (as defined in section 1860D–10(a)(5)). 
Such individuals shall have a choice of such plans under 
section 1860D–5(d). 
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN
GENERAL.—An individual eligible to 
make an election under subsection (a) may elect to 
enroll in a prescription drug plan under this part, or 
elect the option of qualified prescription drug cov-
erage under a MA-EFFS Rx plan under part C or 
part E, and to change such election only in such 
manner and form as may be prescribed by regula-
tions of the Administrator of the Medicare Benefits 
Administration (appointed under section 1809(b)) 
(in this part referred to as the ‘Medicare Benefits
Administrator’) and only during an election period 
prescribed in or under this subsection. 
‘‘(2) ELECTION PERIODS.—
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, the election periods under this 
subsection shall be the same as the coverage 
election periods under the Medicare Advantage 
and EFFS programs under section 1851(e), in-
cluding—
‘‘(i) annual coordinated election peri-
ods; and 
‘‘(ii) special election periods. 
In applying the last sentence of section 
1851(e)(4) (relating to discontinuance of an 
election during the first year of eligibility) 
under this subparagraph, in the case of an elec-
tion described in such section in which the indi-
vidual had elected or is provided qualified pre-
scription drug coverage at the time of such first 
enrollment, the individual shall be permitted to 
enroll in a prescription drug plan under this 
part at the time of the election of coverage 
under the original fee-for-service plan. 
‘‘(B) INITIAL ELECTION PERIODS.—
‘‘(i) INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who is 
entitled to benefits under part A or en-
rolled under part B as of October 1, 2005, 
there shall be an initial election period of 
6 months beginning on that date. 
‘‘(ii) INDIVIDUAL
COVERED
IN
FU-
TURE.—In the case of an individual who is 
first entitled to benefits under part A or 
enrolled under part B after such date, 
there shall be an initial election period 
which is the same as the initial enrollment 
period under section 1837(d). 
‘‘(C) ADDITIONAL SPECIAL ELECTION PE-
RIODS.—The Administrator shall establish spe-
cial election periods—
‘‘(i) in cases of individuals who have 
and involuntarily lose prescription drug 
coverage described in subsection (c)(2)(C); 
‘‘(ii) in cases described in section 
1837(h) (relating to errors in enrollment), 
in the same manner as such section applies 
to part B; 
‘‘(iii) in the case of an individual who 
meets such exceptional conditions (includ-
ing conditions provided under section 
1851(e)(4)(D)) as the Administrator may 
provide; and 
‘‘(iv) in cases of individuals (as deter-
mined by the Administrator) who become 
eligible for prescription drug assistance 
under title XIX under section 1935(d). 
‘‘(3) INFORMATION
ON
PLANS.—Information 
described in section 1860D–3(b)(1) on prescription 
drug plans and MA-EFFS Rx plans shall be made 
available during election periods. 
‘‘(4) ADDITIONAL INFORMATION.—In order to 
promote the efficient marketing of prescription drug 
plans and MA-EFFS plans, the Administrator may 
provide information to the sponsors and organiza-
tions offering such plans about individuals eligible to 
enroll in such plans. 
‘‘(c) GUARANTEED ISSUE; COMMUNITY RATING; AND 
NONDISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible individual 
who is eligible to elect qualified prescription 
drug coverage under a prescription drug plan or 
MA-EFFS Rx plan at a time during which elec-
tions are accepted under this part with respect
to the plan shall not be denied enrollment based 
on any health status-related factor (described in 
section 2702(a)(1) of the Public Health Service 
Act) or any other factor. 
‘‘(B) MEDICARE ADVANTAGE LIMITATIONS 
PERMITTED.—The provisions of paragraphs (2) 
and (3) (other than subparagraph (C)(i), relat-
ing to default enrollment) of section 1851(g) 
(relating to priority and limitation on termi-
nation of election) shall apply to PDP sponsors 
under this subsection. 
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who enrolls under a prescription drug 
plan or in a MA-EFFS Rx plan during the in-
dividual’s initial enrollment period under this 
part or maintains (as determined under sub-
paragraph (C)) continuous prescription drug 
coverage since the date the individual first 
qualifies to elect prescription drug coverage 
under this part, a PDP sponsor or entity offer-
ing a prescription drug plan or MA-EFFS Rx 
plan and in which the individual is enrolled may 
not deny, limit, or condition the coverage or 
provision of covered prescription drug benefits
or vary or increase the premium under the plan 
based on any health status-related factor de-
scribed in section 2702(a)(1) of the Public 
Health Service Act or any other factor. 
‘‘(B) LATE
ENROLLMENT
PENALTY.—In 
the case of an individual who does not maintain 
such continuous prescription drug coverage (as 
described in subparagraph (C)), a PDP sponsor 
or an entity offering a MA-EFFS Rx plan may 
(notwithstanding any provision in this title) ad-
just the premium otherwise applicable with re-
spect to qualified prescription drug coverage in 
a manner that reflects additional actuarial risk 
involved. Such a risk shall be established 
through an appropriate actuarial opinion of the 
type described in subparagraphs (A) through 
(C) of section 2103(c)(4). The Administrator 
shall provide a mechanism for assisting such 
sponsors and entities in identifying eligible indi-
viduals who have (or have not) maintained such 
continuous prescription drug coverage. 
‘‘(C) CONTINUOUS
PRESCRIPTION
DRUG 
COVERAGE.—An individual is considered for 
purposes of this part to be maintaining contin-
uous prescription drug coverage on and after
the date the individual first qualifies to elect 
prescription drug coverage under this part if 
the individual establishes that as of such date 
the individual is covered under any of the fol-
lowing prescription drug coverage and before 
the date that is the last day of the 63-day pe-
riod that begins on the date of termination of 
the particular prescription drug coverage in-
volved (regardless of whether the individual 
subsequently obtains any of the following pre-
scription drug coverage): 
‘‘(i) COVERAGE UNDER PRESCRIPTION 
DRUG PLAN OR MA-EFFS RX PLAN.—Quali-
fied prescription drug coverage under a 
prescription drug plan or under a MA-
EFFS Rx plan. 
‘‘(ii) MEDICAID PRESCRIPTION DRUG 
COVERAGE.—Prescription drug coverage 
under a medicaid plan under title XIX, in-
cluding through the Program of All-inclu-
sive Care for the Elderly (PACE) under 
section 1934, or through a demonstration 
project under part C that demonstrates the 
application of capitation payment rates for 
frail elderly medicare beneficiaries through
the use of an interdisciplinary team and 
through the provision of primary care serv-
ices to such beneficiaries by means of such 
a team at the nursing facility involved. 
‘‘(iii) PRESCRIPTION DRUG COVERAGE 
UNDER GROUP HEALTH PLAN.—Any out-
patient prescription drug coverage under a 
group health plan, including a health bene-
fits plan under the Federal Employees 
Health Benefit Plan under chapter 89 of 
title 5, United States Code, and a qualified 
retiree prescription drug plan as defined in 
section 1860D–8(f)(1), but only if (subject 
to subparagraph (E)(ii)) the coverage pro-
vides benefits at least equivalent to the 
benefits under a qualified prescription drug 
plan. 
‘‘(iv) PRESCRIPTION DRUG COVERAGE 
UNDER
CERTAIN
MEDIGAP
POLICIES.—
Coverage under a medicare supplemental 
policy under section 1882 that provides 
benefits for prescription drugs (whether or 
not such coverage conforms to the stand-
ards for packages of benefits under section 
1882(p)(1)), but only if the policy was in
effect on January 1, 2006, and if (subject 
to subparagraph (E)(ii)) the coverage pro-
vides benefits at least equivalent to the 
benefits under a qualified prescription drug 
plan. 
‘‘(v) STATE PHARMACEUTICAL ASSIST-
ANCE PROGRAM.—Coverage of prescription 
drugs under a State pharmaceutical assist-
ance program, but only if (subject to sub-
paragraph (E)(ii)) the coverage provides 
benefits at least equivalent to the benefits 
under a qualified prescription drug plan. 
‘‘(vi) VETERANS’ COVERAGE OF PRE-
SCRIPTION DRUGS.—Coverage of prescrip-
tion drugs for veterans under chapter 17 
of title 38, United States Code, but only if 
(subject to subparagraph (E)(ii)) the cov-
erage provides benefits at least equivalent 
to the benefits under a qualified prescrip-
tion drug plan. 
‘‘(D) CERTIFICATION.—For purposes of 
carrying out this paragraph, the certifications 
of the type described in sections 2701(e) of the 
Public Health Service Act and in section 
9801(e) of the Internal Revenue Code shall also
include a statement for the period of coverage 
of whether the individual involved had prescrip-
tion drug coverage described in subparagraph 
(C). 
‘‘(E) DISCLOSURE.—
‘‘(i) IN GENERAL.—Each entity that 
offers coverage of the type described in 
clause (iii), (iv), (v), or (vi) of subpara-
graph (C) shall provide for disclosure, con-
sistent with standards established by the 
Administrator, of whether such coverage 
provides benefits at least equivalent to the 
benefits under a qualified prescription drug 
plan. 
‘‘(ii) WAIVER
OF
LIMITATIONS.—An 
individual may apply to the Administrator 
to waive the requirement that coverage of 
such type provide benefits at least equiva-
lent to the benefits under a qualified pre-
scription drug plan, if the individual estab-
lishes that the individual was not ade-
quately informed that such coverage did 
not provide such level of benefits. 
‘‘(F) CONSTRUCTION.—Nothing in this 
section shall be construed as preventing the
disenrollment of an individual from a prescrip-
tion drug plan or a MA-EFFS Rx plan based 
on the termination of an election described in 
section 1851(g)(3), including for non-payment 
of premiums or for other reasons specified in 
subsection (d)(3), which takes into account a 
grace 
period 
described 
in 
section 
1851(g)(3)(B)(i). 
‘‘(3) NONDISCRIMINATION.—A PDP sponsor 
that offers a prescription drug plan in an area des-
ignated under section 1860D–4(b)(5) shall make 
such plan available to all eligible individuals residing 
in the area without regard to their health or eco-
nomic status or their place of residence within the 
area. 
‘‘(d) EFFECTIVE DATE OF ELECTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this 
section, the Administrator shall provide that elec-
tions under subsection (b) take effect at the same 
time as the Administrator provides that similar elec-
tions under section 1851(e) take effect under section 
1851(f). 
‘‘(2) NO ELECTION EFFECTIVE BEFORE 2006.—
In no case shall any election take effect before Janu-
ary 1, 2006.
‘‘(3) TERMINATION.—The Administrator shall 
provide for the termination of an election in the case 
of—
‘‘(A) termination of coverage under both 
part A and part B; and 
‘‘(B) termination of elections described in 
section 1851(g)(3) (including failure to pay re-
quired premiums). 
‘‘SEC. 1860D–2. REQUIREMENTS FOR QUALIFIED PRESCRIP-
TION DRUG COVERAGE. 
‘‘(a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part 
and part C and part E, the term ‘qualified prescrip-
tion drug coverage’ means either of the following: 
‘‘(A) STANDARD COVERAGE WITH ACCESS 
TO
NEGOTIATED
PRICES.—Standard coverage 
(as defined in subsection (b)) and access to ne-
gotiated prices under subsection (d). 
‘‘(B) ACTUARIALLY
EQUIVALENT
COV-
ERAGE
WITH
ACCESS
TO
NEGOTIATED 
PRICES.—Coverage of covered outpatient drugs 
which meets the alternative coverage require-
ments of subsection (c) and access to negotiated 
prices under subsection (d), but only if it is ap-
proved by the Administrator, as provided under 
subsection (c). 
‘‘(2) PERMITTING
ADDITIONAL
OUTPATIENT 
PRESCRIPTION DRUG COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), nothing in this part shall be con-
strued as preventing qualified prescription drug 
coverage from including coverage of covered 
outpatient drugs that exceeds the coverage re-
quired under paragraph (1), but any such addi-
tional coverage shall be limited to coverage of 
covered outpatient drugs. 
‘‘(B) DISAPPROVAL AUTHORITY.—The Ad-
ministrator shall review the offering of qualified 
prescription drug coverage under this part or 
part C or E. If the Administrator finds, in the 
case of a qualified prescription drug coverage 
under a prescription drug plan or a MA-EFFS 
Rx plan, that the organization or sponsor offer-
ing the coverage is engaged in activities in-
tended to discourage enrollment of classes of el-
igible medicare beneficiaries obtaining coverage 
through the plan on the basis of their higher 
likelihood of utilizing prescription drug cov-
erage, the Administrator may terminate the
contract with the sponsor or organization under 
this part or part C or E. 
‘‘(3) APPLICATION OF SECONDARY PAYOR PRO-
VISIONS.—The provisions of section 1852(a)(4) shall 
apply under this part in the same manner as they 
apply under part C. 
‘‘(b) STANDARD COVERAGE.—For purposes of this 
part, the ‘standard coverage’ is coverage of covered out-
patient drugs (as defined in subsection (f)) that meets the 
following requirements: 
‘‘(1) DEDUCTIBLE.—The coverage has an an-
nual deductible—
‘‘(A) for 2006, that is equal to $250; or 
‘‘(B) for a subsequent year, that is equal 
to the amount specified under this paragraph 
for the previous year increased by the percent-
age specified in paragraph (5) for the year in-
volved. 
Any amount determined under subparagraph (B) 
that is not a multiple of $10 shall be rounded to the 
nearest multiple of $10. 
‘‘(2) 80:20 BENEFIT STRUCTURE.—
‘‘(A) 20 PERCENT
COINSURANCE.—The 
coverage has cost-sharing (for costs above the 
annual deductible specified in paragraph (1)
and up to the initial coverage limit under para-
graph (3)) that is—
‘‘(i) equal to 20 percent; or 
‘‘(ii) is actuarially equivalent (using 
processes established under subsection (e)) 
to an average expected payment of 20 per-
cent of such costs. 
‘‘(B) USE OF TIERS.—Nothing in this part 
shall be construed as preventing a PDP sponsor 
from applying tiered copayments, so long as 
such tiered copayments are consistent with sub-
paragraph (A).
‘‘(3) INITIAL
COVERAGE
LIMIT.—Subject to 
paragraph (4), the coverage has an initial coverage 
limit on the maximum costs that may be recognized 
for payment purposes—
‘‘(A) for 2006, that is equal to $2,000; or 
‘‘(B) for a subsequent year, that is equal 
to the amount specified in this paragraph for 
the previous year, increased by the annual per-
centage increase described in paragraph (5) for 
the year involved. 
Any amount determined under subparagraph (B) 
that is not a multiple of $25 shall be rounded to the 
nearest multiple of $25.
‘‘(4) CATASTROPHIC PROTECTION.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (3), the coverage provides benefits with 
no cost-sharing after the individual has in-
curred costs (as described in subparagraph (C)) 
for covered outpatient drugs in a year equal to 
the annual out-of-pocket threshold specified in 
subparagraph (B). 
‘‘(B) ANNUAL
OUT-OF-POCKET
THRESH-
OLD.—
‘‘(i) IN
GENERAL.—For purposes of 
this part, the ‘annual out-of-pocket thresh-
old’ specified in this subparagraph is equal 
to $3,500 (subject to adjustment under 
clause (ii) and subparagraph (D)). 
‘‘(ii) INFLATION
INCREASE.—For a 
year after 2006, the dollar amount speci-
fied in clause (i) shall be increased by the 
annual percentage increase described in 
paragraph (5) for the year involved. Any 
amount determined under the previous 
sentence that is not a multiple of $100 
shall be rounded to the nearest multiple of 
$100.
‘‘(C) APPLICATION.—In applying subpara-
graph (A)—
‘‘(i) incurred costs shall only include 
costs incurred for the annual deductible 
(described in paragraph (1)), cost-sharing 
(described in paragraph (2)), and amounts 
for which benefits are not provided because 
of the application of the initial coverage 
limit described in paragraph (3); and 
‘‘(ii) such costs shall be treated as in-
curred only if they are paid by the indi-
vidual (or by another individual, such as a 
family member, on behalf of the indi-
vidual), under section 1860D–7, under title 
XIX, or under a State pharmaceutical as-
sistance program and the individual (or 
other individual) is not reimbursed through 
insurance or otherwise, a group health 
plan, or other third-party payment ar-
rangement (other than under such title or 
such program) for such costs. 
‘‘(D) ADJUSTMENT
OF
ANNUAL
OUT-OF-
POCKET THRESHOLDS.—
‘‘(i) IN GENERAL.—Subject to clause 
(vii), for each enrollee in a prescription
drug plan or in a MA-EFFS Rx plan 
whose adjusted gross income exceeds the 
income threshold as defined in clause (ii) 
for a year, the annual out-of-pocket thresh-
old otherwise determined under subpara-
graph (B) for such year shall be increased 
by an amount equal to the percentage 
specified in clause (iii), multiplied by the 
lesser of—
‘‘(I) the amount of such excess; 
or 
‘‘(II) the amount by which the 
income threshold limit exceeds the in-
come threshold. 
Any amount determined under the previous 
sentence that is not a multiple of $100 
shall be rounded to the nearest multiple of 
$100. 
‘‘(ii) INCOME THRESHOLD.—For pur-
poses of clause (i)—
‘‘(I) IN
GENERAL.—Subject to 
subclause (II), the term ‘income 
threshold’ means $60,000 and the 
term ‘income threshold limit’ means 
$200,000.
‘‘(II) INCOME
INFLATION
AD-
JUSTMENT.—In the case of a year be-
ginning after 2006, each of the dollar 
amounts in subclause (I) shall be in-
creased by an amount equal to such 
dollar amount multiplied by the cost-
of-living adjustment determined under 
section 1(f)(3) of the Internal Rev-
enue Code of 1986 for such year, de-
termined by substituting ‘calendar 
year 2005’ for ‘calendar year 1992’. 
If any amount increased under the 
previous sentence is not a multiple of 
$100, such amount shall be rounded 
to the nearest multiple of $100. 
‘‘(iii) PERCENTAGE.—The percentage 
specified in this clause for a year is a frac-
tion (expressed as a percentage) equal to—
‘‘(I) the annual out-of-pocket 
threshold for a year under subpara-
graph (B) (determined without regard 
to this subparagraph), divided by 
‘‘(II) the income threshold under 
clause (ii) for that year.
If any percentage determined under the 
previous sentence that is not a multiple of 
1⁄10th of 1 percentage point, such percent-
age shall be rounded to the nearest mul-
tiple of 1⁄10th of 1 percentage point. 
‘‘(iv) USE OF MOST RECENT RETURN 
INFORMATION.—For purposes of clause (i) 
for an enrollee for a year, except as pro-
vided in clause (v), the adjusted gross in-
come of an individual shall be based on the 
most recent information disclosed to the 
Secretary under section 6109(l)(19) of the 
Internal Revenue Code of 1986 before the 
beginning of that year. 
‘‘(v) 
INDIVIDUAL
ELECTION
TO 
PRESENT MOST RECENT INFORMATION RE-
GARDING
INCOME.—The Secretary shall 
provide, in coordination with the Secretary 
of the Treasury, a procedure under which, 
for purposes of applying this subparagraph 
for a calendar year, instead of using the 
information described in clause (iv), an en-
rollee may elect to use more recent infor-
mation, including information with respect
to a taxable year ending in such calendar 
year. Such process shall—
‘‘(I) require the enrollee to pro-
vide the Secretary with a copy of the 
relevant portion of the more recent re-
turn to be used under this clause; 
‘‘(II) provide for the Medicare 
Beneficiary Ombudsman (under sec-
tion 1810) offering assistance to such 
enrollees in presenting such informa-
tion and the toll-free number under 
such section being a point of contact 
for beneficiaries to inquire as to how 
to present such information; 
‘‘(III) provide for the verification 
of the information in such return by 
the Secretary of the Treasury under 
section 6103(l)(19) of the Internal 
Revenue Code of 1986; and 
‘‘(IV) provide for the payment by 
the Secretary (in a manner specified 
by the Secretary) to the enrollee of an 
amount equal to the excess of the ben-
efit payments that would have been 
payable under the plan if the more re-
cent return information were used, 
over the benefit payments that were 
made under the plan. 
In the case of a payment under subclause 
(III) for an enrollee under a prescription 
drug plan, the PDP sponsor of the plan 
shall pay to the Secretary the amount so 
paid, 
less 
the 
applicable 
reinsurance 
amount that would have applied under sec-
tion 1860D–8(c)(1)(B) if such payment 
had been treated as an allowable cost 
under such section. Such plan payment 
shall be deposited in the Treasury to the 
credit of the Medicare Prescription Drug 
Account in the Federal Supplementary 
Medical Insurance Trust Fund (under sec-
tion 1841). 
‘‘(vi) DISSEMINATION
OF
INFORMA-
TION
ON
PROCESS.—The Secretary shall 
provide, through the annual medicare 
handbook under section 1804(a), for a 
general description of the adjustment of 
annual out-of-pocket thresholds provided 
under this subparagraph, including the 
process for adjustment based upon more
recent information and the confidentiality 
provisions of subparagraph (F), and shall 
provide for dissemination of a table for 
each year that sets forth the amount of the 
adjustment that is made under clause (i) 
based on the amount of an enrollee’s ad-
justed gross income. 
‘‘(vii) ENROLLEE OPT-OUT.—The Sec-
retary shall provide a procedure whereby, 
if an enrollee elects to have the maximum 
annual out-of-pocket threshold applied 
under this subparagraph for a year, the 
Secretary shall not request any informa-
tion regarding the enrollee under subpara-
graph (E) for that year. 
‘‘(E) REQUESTING INFORMATION ON EN-
ROLLEES.—
‘‘(i) IN
GENERAL.—The Secretary 
shall, periodically as required to carry out 
subparagraph (D), transmit to the Sec-
retary of the Treasury a list of the names 
and TINs of enrollees in prescription drug 
plans (or in MA-EFFS Rx plans) and re-
quest that such Secretary disclose to the 
Secretary information under subparagraph
(A) of section 6103(l)(19) of the Internal 
Revenue Code of 1986 with respect to 
those enrollees for a specified taxable year 
for application in a particular calendar 
year. 
‘‘(ii) DISCLOSURE
TO
PLAN
SPON-
SORS.—In the case of a specified taxpayer 
(as defined in section 6103(l)(19)(B) of 
the Internal Revenue Code of 1986) who is 
enrolled in a prescription drug plan or in 
an MA-EFFS Rx plan or an individual 
who makes an election under subparagraph 
(D)(vii), the Secretary shall disclose to the 
entity that offers the plan the annual out-
of-pocket threshold applicable to such indi-
vidual under subparagraph (D). 
‘‘(F) MAINTAINING CONFIDENTIALITY OF 
INFORMATION.—
‘‘(i) IN
GENERAL.—The amount of 
any increase in an annual out-of-pocket 
threshold under subparagraph (D) may not 
be disclosed by the Secretary except to a 
PDP sponsor or entity that offers a MA-
EFFS Rx plan to the extent necessary to 
carry out this part.
‘‘(ii) CRIMINAL AND CIVIL PENALTIES 
FOR UNAUTHORIZED DISCLOSURE.—A per-
son who makes an unauthorized disclosure 
of information disclosed under section 
6103(l)(19) of the Internal Revenue Code 
of 1986 (including disclosure of any in-
crease in an annual out-of-pocket threshold 
under subparagraph (D)) shall be subject 
to penalty to the extent provided under—
‘‘(I) section 7213 of such Code 
(relating to criminal penalty for unau-
thorized disclosure of information); 
‘‘(II) section 7213A of such Code 
(relating to criminal penalty for unau-
thorized inspection of returns or re-
turn information); 
‘‘(III) section 7431 of such Code 
(relating to civil damages for unau-
thorized inspection or disclosure of re-
turns and return information); 
‘‘(IV) any other provision of the 
Internal Revenue Code of 1986; or 
‘‘(V) any other provision of law. 
‘‘(iii) APPLICATION
OF
ADDITIONAL 
CIVIL
MONETARY
PENALTY
FOR
UNAU-
THORIZED
DISCLOSURES.—In addition to 
any penalty otherwise provided under law, 
any person who makes an unauthorized 
disclosure of such information shall be sub-
ject to a civil monetary penalty of not to 
exceed $10,000 for each such unauthorized 
disclosure. The provisions of section 1128A 
(other than subsections (a) and (b)) shall 
apply to civil money penalties under this 
subparagraph in the same manner as they 
apply to a penalty or proceeding under sec-
tion 1128A(a). 
‘‘(G) INFORMATION
REGARDING
THIRD-
PARTY REIMBURSEMENT.—In order to ensure 
compliance with the requirements of subpara-
graph (C)(ii), the Administrator is authorized 
to establish procedures, in coordination with the 
Secretary of Treasury and the Secretary of 
Labor, for determining whether costs for indi-
viduals are being reimbursed through insurance 
or otherwise, a group health plan, or other 
third-party payment arrangement, and for 
alerting the sponsors and organization that 
offer the plans in which such individuals are en-
rolled about such reimbursement arrangements.
A PDP sponsor or Medicare Advantage or 
EFFS organization may also periodically ask 
individuals enrolled in a prescription drug plan 
or MA-EFFS Rx plan offered by the sponsor or 
organization whether the individuals have or ex-
pect to receive such third-party reimbursement. 
A material misrepresentation of the information 
described in the preceding sentence by an indi-
vidual (as defined in standards set by the Ad-
ministrator and determined through a process 
established by the Administrator) shall con-
stitute grounds for termination of enrollment 
under section 1860D–1(d)(3).
‘‘(5) ANNUAL
PERCENTAGE
INCREASE.—For 
purposes of this part, the annual percentage increase 
specified in this paragraph for a year is equal to the 
annual percentage increase in average per capita ag-
gregate expenditures for covered outpatient drugs in 
the United States for medicare beneficiaries, as de-
termined by the Administrator for the 12-month pe-
riod ending in July of the previous year.
‘‘(c) ALTERNATIVE COVERAGE REQUIREMENTS.—A 
prescription drug plan or MA-EFFS Rx plan may provide 
a different prescription drug benefit design from the 
standard coverage described in subsection (b) so long as
the Administrator determines (based on an actuarial anal-
ysis approved by the Administrator) that the following re-
quirements are met and the plan applies for, and receives, 
the approval of the Administrator for such benefit design: 
‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIV-
ALENT COVERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE
OF 
TOTAL COVERAGE.—The actuarial value of the 
total coverage (as determined under subsection 
(e)) is at least equal to the actuarial value (as 
so determined) of standard coverage. 
‘‘(B) 
ASSURING
EQUIVALENT
UNSUB-
SIDIZED
VALUE
OF
COVERAGE.—The unsub-
sidized value of the coverage is at least equal to 
the unsubsidized value of standard coverage. 
For purposes of this subparagraph, the unsub-
sidized value of coverage is the amount by 
which the actuarial value of the coverage (as 
determined under subsection (e)) exceeds the 
actuarial value of the subsidy payments under 
section 1860D–8 with respect to such coverage. 
‘‘(C) ASSURING STANDARD PAYMENT FOR 
COSTS AT INITIAL COVERAGE LIMIT.—The cov-
erage is designed, based upon an actuarially 
representative pattern of utilization (as deter-
limit (described in subsection (b)(3)). Insofar as a 
State elects to provide medical assistance under title 
XIX to a beneficiary enrolled under such title and 
under a prescription drug plan or MA-EFFS Rx 
plan for a drug based on the prices negotiated by a 
prescription drug plan or MA-EFFS Rx plan under 
this part, the requirements of section 1927 shall not 
apply to such drugs. The prices negotiated by a pre-
scription drug plan under this part, by a MA-EFFS 
Rx plan with respect to covered outpatient drugs, or 
by a qualified retiree prescription drug plan (as de-
fined in section 1860D–8(f)(1)) with respect to such 
drugs on behalf of individuals entitled to benefits 
under part A or enrolled under part B, shall (not-
withstanding any other provision of law) not be 
taken into account for the purposes of establishing 
the best price under section 1927(c)(1)(C). 
‘‘(2) DISCLOSURE.—The PDP sponsor or entity 
offering a MA-EFFS Rx plan shall disclose to the 
Administrator (in a manner specified by the Admin-
istrator) the extent to which discounts or rebates or 
other remuneration or price concessions made avail-
able to the sponsor or organization by a manufac-
turer are passed through to enrollees through phar-
macies and other dispensers or otherwise. The provi-
sions of section 1927(b)(3)(D) shall apply to infor-
mation disclosed to the Administrator under this 
paragraph in the same manner as such provisions 
apply to information disclosed under such section. 
‘‘(3) 
AUDITS
AND
REPORTS.—To 
protect 
against fraud and abuse and to ensure proper disclo-
sures and accounting under this part, in addition to 
any protections against fraud and abuse provided 
under section 1860D–4(b)(3)(C), the Administrator 
may periodically audit the financial statements and 
records of PDP sponsor or entities offering a MA-
EFFS Rx plan.
‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF 
ANNUAL PERCENTAGE INCREASES.—
‘‘(1) PROCESSES.—For purposes of this section, 
the Administrator shall establish processes and 
methods—
‘‘(A) for determining the actuarial valu-
ation of prescription drug coverage, including—
‘‘(i) an actuarial valuation of standard 
coverage and of the reinsurance subsidy 
payments under section 1860D–8; 
‘‘(ii) the use of generally accepted ac-
tuarial principles and methodologies; and
‘‘(iii) applying the same methodology 
for determinations of alternative coverage 
under subsection (c) as is used with re-
spect to determinations of standard cov-
erage under subsection (b); and 
‘‘(B) for determining annual percentage in-
creases described in subsection (b)(5). 
Such methods for determining actuarial valuation 
shall take into account effects of alternative coverage 
on drug utilization. 
‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the 
processes under paragraph (1)(A), PDP sponsors 
and entities offering MA-EFFS Rx plans may use 
actuarial opinions certified by independent, qualified 
actuaries to establish actuarial values, but the Ad-
ministrator shall determine whether such actuarial 
values meet the requirements under subsection 
(c)(1). 
‘‘(f) COVERED OUTPATIENT DRUGS DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in this 
subsection, for purposes of this part, the term ‘cov-
ered outpatient drug’ means—
‘‘(A) a drug that may be dispensed only 
upon a prescription and that is described in
subparagraph (A)(i) or (A)(ii) of section 
1927(k)(2); or 
‘‘(B) a biological product described in 
clauses (i) through (iii) of subparagraph (B) of 
such section or insulin described in subpara-
graph (C) of such section and medical supplies 
associated with the injection of insulin (as de-
fined in regulations of the Secretary), 
and such term includes a vaccine licensed under sec-
tion 351 of the Public Health Service Act and any 
use of a covered outpatient drug for a medically ac-
cepted indication (as defined in section 1927(k)(6)). 
‘‘(2) EXCLUSIONS.—
‘‘(A) IN GENERAL.—Such term does not 
include drugs or classes of drugs, or their med-
ical uses, which may be excluded from coverage 
or 
otherwise 
restricted 
under 
section 
1927(d)(2), other than subparagraph (E) there-
of (relating to smoking cessation agents), or 
under section 1927(d)(3). 
‘‘(B) AVOIDANCE
OF
DUPLICATE
COV-
ERAGE.—A drug prescribed for an individual 
that would otherwise be a covered outpatient 
drug under this part shall not be so considered 
if payment for such drug is available under part
A or B for an individual entitled to benefits 
under part A and enrolled under part B. 
‘‘(3) APPLICATION
OF
FORMULARY
RESTRIC-
TIONS.—A drug prescribed for an individual that 
would otherwise be a covered outpatient drug under 
this part shall not be so considered under a plan if 
the plan excludes the drug under a formulary and 
such exclusion is not successfully appealed under 
section 1860D–3(f)(2). 
‘‘(4) APPLICATION
OF
GENERAL
EXCLUSION 
PROVISIONS.—A prescription drug plan or MA-
EFFS Rx plan may exclude from qualified prescrip-
tion drug coverage any covered outpatient drug—
‘‘(A) for which payment would not be 
made if section 1862(a) applied to part D; or 
‘‘(B) which are not prescribed in accord-
ance with the plan or this part. 
Such exclusions are determinations subject to recon-
sideration and appeal pursuant to section 1860D–
3(f). 
‘‘SEC. 1860D–3. BENEFICIARY PROTECTIONS FOR QUALI-
FIED PRESCRIPTION DRUG COVERAGE. 
‘‘(a) GUARANTEED ISSUE, COMMUNITY-RATED PRE-
MIUMS, ACCESS
TO NEGOTIATED PRICES, AND NON-
DISCRIMINATION.—For provisions requiring guaranteed
issue, community-rated premiums, access to negotiated 
prices, and nondiscrimination, see sections 1860D–
1(c)(1), 1860D–1(c)(2), 1860D–2(d), and 1860D–6(b), 
respectively. 
‘‘(b) DISSEMINATION OF INFORMATION.—
‘‘(1) GENERAL INFORMATION.—A PDP sponsor 
shall disclose, in a clear, accurate, and standardized 
form to each enrollee with a prescription drug plan 
offered by the sponsor under this part at the time 
of enrollment and at least annually thereafter, the 
information described in section 1852(c)(1) relating 
to such plan. Such information includes the fol-
lowing: 
‘‘(A) Access to specific covered outpatient 
drugs, including access through pharmacy net-
works. 
‘‘(B) How any formulary used by the spon-
sor functions, including the drugs included in 
the formulary. 
‘‘(C) Co-payments and deductible require-
ments, including the identification of the tiered 
or other co-payment level applicable to each 
drug (or class of drugs). 
‘‘(D) Grievance and appeals procedures.
Such information shall also be made available upon 
request to prospective enrollees. 
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL 
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an individual eligible to en-
roll under a prescription drug plan, the PDP spon-
sor shall provide the information described in section 
1852(c)(2) (other than subparagraph (D)) to such 
individual. 
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
Each PDP sponsor offering a prescription drug plan 
shall have a mechanism for providing specific infor-
mation to enrollees upon request. The sponsor shall 
make available on a timely basis, through an Inter-
net website and in writing upon request, information 
on specific changes in its formulary. 
‘‘(4) CLAIMS INFORMATION.—Each PDP spon-
sor offering a prescription drug plan must furnish to 
each enrollee in a form easily understandable to such 
enrollees an explanation of benefits (in accordance 
with section 1806(a) or in a comparable manner) 
and a notice of the benefits in relation to initial cov-
erage limit and the annual out-of-pocket threshold 
applicable to such enrollee for the current year, 
whenever prescription drug benefits are provided
under this part (except that such notice need not be 
provided more often than monthly).
‘‘(c) ACCESS TO COVERED BENEFITS.—
‘‘(1) ASSURING PHARMACY ACCESS.—
‘‘(A) PARTICIPATION
OF
ANY
WILLING 
PHARMACY.—A PDP sponsor and an entity of-
fering a MA-EFFS Rx plan shall permit the 
participation of any pharmacy that meets terms 
and conditions that the plan has established. 
‘‘(B) DISCOUNTS ALLOWED FOR NETWORK 
PHARMACIES.—A prescription drug plan and a 
MA-EFFS Rx plan may, notwithstanding sub-
paragraph (A), reduce coinsurance or copay-
ments for its enrolled beneficiaries below the 
level otherwise provided for covered outpatient 
drugs dispensed through in-network phar-
macies, but in no case shall such a reduction re-
sult in an increase in payments made by the 
Administrator under section 1860D–8 to a 
plan. 
‘‘(C) CONVENIENT ACCESS FOR NETWORK 
PHARMACIES.—The PDP sponsor of the pre-
scription drug plan and the entity offering a 
MA-EFFS Rx plan shall secure the participa-
tion in its network of a sufficient number of
pharmacies that dispense (other than by mail 
order) drugs directly to patients to ensure con-
venient access (consistent with rules of the Ad-
ministrator). The Administrator shall establish 
convenient access rules under this subpara-
graph that are no less favorable to enrollees 
than the rules for convenient access to phar-
macies of the Secretary of Defense established 
as of June 1, 2003, for purposes of the 
TRICARE Retail Pharmacy (TRRx) program. 
Such rules shall include adequate emergency ac-
cess for enrolled beneficiaries. 
‘‘(D) LEVEL
PLAYING
FIELD.—Such a 
sponsor shall permit enrollees to receive benefits 
(which may include a 90-day supply of drugs or 
biologicals) through a community pharmacy, 
rather than through mail order, with any dif-
ferential in charge paid by such enrollees. 
‘‘(E) NOT REQUIRED TO ACCEPT INSUR-
ANCE RISK.—The terms and conditions under 
subparagraph (A) may not require participating 
pharmacies to accept insurance risk as a condi-
tion of participation. 
‘‘(2) USE OF STANDARDIZED TECHNOLOGY.—
‘‘(A) IN GENERAL.—The PDP sponsor of 
a prescription drug plan and an entity offering 
a MA-EFFS Rx plan shall issue (and reissue, 
as appropriate) such a card (or other tech-
nology) that may be used by an enrollee to as-
sure access to negotiated prices under section 
1860D–2(d) for the purchase of prescription 
drugs for which coverage is not otherwise pro-
vided under the plan. 
‘‘(B) STANDARDS.—
‘‘(i) DEVELOPMENT.—The Adminis-
trator shall provide for the development or 
utilization of uniform standards relating to 
a standardized format for the card or 
other technology referred to in subpara-
graph (A). Such standards shall be com-
patible with standards established under 
part C of title XI. 
‘‘(ii) APPLICATION OF ADVISORY TASK 
FORCE.—The advisory task force estab-
lished under subsection (d)(3)(B)(ii) shall 
provide recommendations to the Adminis-
trator under such subsection regarding the 
standards developed under clause (i).
‘‘(3) REQUIREMENTS
ON
DEVELOPMENT
AND 
APPLICATION OF FORMULARIES.—If a PDP sponsor 
of a prescription drug plan or an entity offering a 
MA-EFFS Rx plan uses a formulary, the following 
requirements must be met: 
‘‘(A) PHARMACY AND THERAPEUTIC (P&T) 
COMMITTEE.—The sponsor or entity must es-
tablish a pharmacy and therapeutic committee 
that develops and reviews the formulary. Such 
committee shall include at least one practicing 
physician and at least one practicing phar-
macist independent and free of conflict with re-
spect to the committee both with expertise in 
the care of elderly or disabled persons and a 
majority of its members shall consist of individ-
uals who are practicing physicians or practicing 
pharmacists (or both). 
‘‘(B) FORMULARY DEVELOPMENT.—In de-
veloping and reviewing the formulary, the com-
mittee shall—
‘‘(i) base clinical decisions on the 
strength of scientific evidence and stand-
ards of practice, including assessing peer-
reviewed medical literature, such as ran-
domized clinical trials, pharmacoeconomic
studies, outcomes research data, and on 
such other information as the committee 
determines to be appropriate; and 
‘‘(ii) shall take into account whether 
including in the formulary particular cov-
ered outpatient drugs has therapeutic ad-
vantages in terms of safety and efficacy. 
‘‘(C) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES.—The formulary must in-
clude drugs within each therapeutic category 
and class of covered outpatient drugs (although 
not necessarily for all drugs within such cat-
egories and classes). In establishing such class-
es, the committee shall take into account the 
standards published in the United States Phar-
macopeia-Drug Information. The committee 
shall make available to the enrollees under the 
plan through the Internet or otherwise the 
bases for the exclusion of coverage of any drug 
from the formulary. 
‘‘(D) 
PROVIDER
AND
PATIENT
EDU-
CATION.—The committee shall establish policies 
and procedures to educate and inform health 
care providers and enrollees concerning the for-
mulary.
‘‘(E) NOTICE
BEFORE
REMOVING
DRUG 
FROM FORMULARY FOR CHANGING PREFERRED 
OR TIER STATUS OF DRUG.—Any removal of a 
covered outpatient drug from a formulary and 
any change in the preferred or tier cost-sharing 
status of such a drug shall take effect only 
after appropriate notice is made available to 
beneficiaries and physicians. 
‘‘(F) PERIODIC
EVALUATION
OF
PROTO-
COLS.—In connection with the formulary, a pre-
scription drug plan shall provide for the peri-
odic evaluation and analysis of treatment proto-
cols and procedures. 
‘‘(G) GRIEVANCES AND APPEALS RELAT-
ING TO APPLICATION OF FORMULARIES.—For 
provisions relating to grievances and appeals of 
coverage, see subsections (e) and (f). 
‘‘(d) COST AND UTILIZATION MANAGEMENT; QUAL-
ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT 
PROGRAM.—
‘‘(1) IN GENERAL.—The PDP sponsor or entity 
offering a MA-EFFS Rx plan shall have in place, di-
rectly or through appropriate arrangements, with re-
spect to covered outpatient drugs—
‘‘(A) an effective cost and drug utilization 
management program, including medically ap-
propriate incentives to use generic drugs and 
therapeutic interchange, when appropriate; 
‘‘(B) quality assurance measures and sys-
tems to reduce medical errors and adverse drug 
interactions, including side-effects, and improve 
medication use, including a medication therapy 
management program described in paragraph 
(2) and for years beginning with 2007, an elec-
tronic prescription program described in para-
graph (3); and 
‘‘(C) a program to control fraud, abuse, 
and waste. 
Nothing in this section shall be construed as impair-
ing a PDP sponsor or entity from utilizing cost 
management tools (including differential payments) 
under all methods of operation. 
‘‘(2) MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(A) IN GENERAL.—A medication therapy 
management program described in this para-
graph is a program of drug therapy manage-
ment and medication administration that may 
be furnished by a pharmacy provider and that
is designed to assure, with respect to bene-
ficiaries at risk for potential medication prob-
lems, such as beneficiaries with complex or 
chronic diseases (such as diabetes, asthma, hy-
pertension, and congestive heart failure) or 
multiple prescriptions, that covered outpatient 
drugs under the prescription drug plan are ap-
propriately used to optimize therapeutic out-
comes through improved medication use and re-
duce the risk of adverse events, including ad-
verse drug interactions. Such programs may 
distinguish between services in ambulatory and 
institutional settings. 
‘‘(B) ELEMENTS.—Such program may in-
clude—
‘‘(i) 
enhanced 
beneficiary 
under-
standing to promote the appropriate use of 
medications by beneficiaries and to reduce 
the risk of potential adverse events associ-
ated with medications, through beneficiary 
education, counseling, case management, 
disease state management programs, and 
other appropriate means; 
‘‘(ii) increased beneficiary adherence 
with 
prescription 
medication 
regimens
through medication refill reminders, special 
packaging, and other compliance programs 
and other appropriate means; and 
‘‘(iii) detection of patterns of overuse 
and underuse of prescription drugs. 
‘‘(C) DEVELOPMENT OF PROGRAM IN CO-
OPERATION
WITH
LICENSED
PHARMACISTS.—
The program shall be developed in cooperation 
with licensed and practicing pharmacists and 
physicians. 
‘‘(D) 
CONSIDERATIONS
IN
PHARMACY 
FEES.—The PDP sponsor of a prescription 
drug program and an entity offering a MA-
EFFS Rx plan shall take into account, in es-
tablishing fees for pharmacists and others pro-
viding services under the medication therapy 
management program, the resources and time 
used in implementing the program. Each such 
sponsor or entity shall disclose to the Adminis-
trator upon request the amount of any such 
management or dispensing fees and such fees 
shall be confidential in the same manner as pro-
vided under section 1927(b)(3)(D) for informa-
tion disclosed under section 1927(b)(3)(A). 
‘‘(3) ELECTRONIC PRESCRIPTION PROGRAM.—
‘‘(A) IN GENERAL.—An electronic prescrip-
tion drug program described in this paragraph 
is a program that includes at least the following 
components, consistent with uniform standards 
established under subparagraph (B): 
‘‘(i) ELECTRONIC
TRANSMITTAL
OF 
PRESCRIPTIONS.—Prescriptions must be 
written 
and 
transmitted 
electronically 
(other than by facsimile), except in emer-
gency cases and other exceptional cir-
cumstances recognized by the Adminis-
trator. 
‘‘(ii) PROVISION OF INFORMATION TO 
PRESCRIBING
HEALTH
CARE
PROFES-
SIONAL.—The program provides for the 
electronic transmittal to the prescribing 
health care professional of information 
that includes—
‘‘(I) information (to the extent 
available and feasible) on the drug or 
drugs being prescribed for that pa-
tient and other information relating to 
the medical history or condition of the 
patient that may be relevant to the
appropriate prescription for that pa-
tient; 
‘‘(II) cost-effective alternatives (if 
any) for the use of the drug pre-
scribed; and 
‘‘(III) information on the drugs 
included in the applicable formulary. 
To the extent feasible, such program shall 
permit the prescribing health care profes-
sional to provide (and be provided) related 
information on an interactive, real-time 
basis. 
‘‘(B) STANDARDS.—
‘‘(i) DEVELOPMENT.—The Adminis-
trator shall provide for the development of 
uniform standards relating to the elec-
tronic prescription drug program described 
in subparagraph (A). Such standards shall 
be compatible with standards established 
under part C of title XI. 
‘‘(ii) ADVISORY TASK FORCE.—In de-
veloping such standards and the standards 
described in subsection (c)(2)(B)(i) the Ad-
ministrator shall establish a task force that 
includes representatives of physicians, hos-
pitals, pharmacies, beneficiaries, pharmacy 
benefit managers, individuals with exper-
tise in information technology, and phar-
macy benefit experts of the Departments 
of Veterans Affairs and Defense and other 
appropriate Federal agencies to provide 
recommendations to the Administrator on 
such standards, including recommenda-
tions relating to the following: 
‘‘(I) The range of available com-
puterized prescribing software and 
hardware and their costs to develop 
and implement. 
‘‘(II) The extent to which such 
standards and systems reduce medica-
tion errors and can be readily imple-
mented by physicians, pharmacies, 
and hospitals. 
‘‘(III) Efforts to develop uniform 
standards and a common software 
platform for the secure electronic 
communication of medication history, 
eligibility, benefit, and prescription in-
formation.
‘‘(IV) Efforts to develop and pro-
mote universal connectivity and inter-
operability for the secure electronic 
exchange of such information.
‘‘(V) The cost of implementing 
such systems in the range of hospital 
and physician office settings and 
pharmacies, including hardware, soft-
ware, and training costs. 
‘‘(VI) Implementation issues as 
they relate to part C of title XI, and 
current Federal and State prescribing 
laws and regulations and their impact 
on implementation of computerized 
prescribing. 
‘‘(iii) DEADLINES.—
‘‘(I) The Administrator shall con-
stitute the task force under clause (ii) 
by not later than April 1, 2004. 
‘‘(II) Such task force shall sub-
mit recommendations to Adminis-
trator by not later than January 1, 
2005. 
‘‘(III) The Administrator shall 
provide for the development and pro-
mulgation, by not later than January 
1, 2006, of national standards relat-
ing to the electronic prescription drug 
program described in clause (ii). Such 
standards shall be issued by a stand-
ards organization accredited by the 
American National Standards Insti-
tute (ANSI) and shall be compatible 
with standards established under part 
C of title XI. 
‘‘(4) TREATMENT OF ACCREDITATION.—Section 
1852(e)(4) (relating to treatment of accreditation) 
shall apply to prescription drug plans under this 
part with respect to the following requirements, in 
the same manner as they apply to plans under part 
C with respect to the requirements described in a 
clause of section 1852(e)(4)(B): 
‘‘(A) Paragraph (1) (including quality as-
surance), including medication therapy manage-
ment program under paragraph (2). 
‘‘(B) Subsection (c)(1) (relating to access 
to covered benefits). 
‘‘(C) Subsection (g) (relating to confiden-
tiality and accuracy of enrollee records).
‘‘(5) PUBLIC DISCLOSURE OF PHARMACEUTICAL 
PRICES FOR EQUIVALENT DRUGS.—Each PDP spon-
sor and each entity offering a MA-EFFS Rx plan 
shall provide that each pharmacy or other dispenser 
that arranges for the dispensing of a covered out-
patient drug shall inform the beneficiary at the time 
of purchase of the drug of any differential between 
the price of the prescribed drug to the enrollee and 
the price of the lowest cost available generic drug 
covered under the plan that is therapeutically equiv-
alent and bioequivalent.
‘‘(e) GRIEVANCE MECHANISM, COVERAGE DETER-
MINATIONS, AND RECONSIDERATIONS.—
‘‘(1) IN GENERAL.—Each PDP sponsor shall 
provide meaningful procedures for hearing and re-
solving grievances between the organization (includ-
ing any entity or individual through which the spon-
sor provides covered benefits) and enrollees with pre-
scription drug plans of the sponsor under this part 
in accordance with section 1852(f). 
‘‘(2) APPLICATION OF COVERAGE DETERMINA-
TION AND RECONSIDERATION PROVISIONS.—A PDP 
sponsor shall meet the requirements of paragraphs 
(1) through (3) of section 1852(g) with respect to 
covered benefits under the prescription drug plan it
offers under this part in the same manner as such 
requirements apply to an organization with respect 
to benefits it offers under a plan under part C. 
‘‘(3) REQUEST FOR REVIEW OF TIERED FOR-
MULARY DETERMINATIONS.—In the case of a pre-
scription drug plan offered by a PDP sponsor or a 
MA-EFFS Rx plan that provides for tiered cost-
sharing for drugs included within a formulary and 
provides lower cost-sharing for preferred drugs in-
cluded within the formulary, an individual who is en-
rolled in the plan may request coverage of a nonpre-
ferred drug under the terms applicable for preferred 
drugs if the prescribing physician determines that 
the preferred drug for treatment of the same condi-
tion either would not be as effective for the indi-
vidual or would have adverse effects for the indi-
vidual or both.
‘‘(f) APPEALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), a 
PDP sponsor shall meet the requirements of para-
graphs (4) and (5) of section 1852(g) with respect 
to drugs (including a determination related to the 
application of tiered cost-sharing described in sub-
section (e)(3)) in the same manner as such require-
ments apply to an organization with respect to bene-
fits it offers under a plan under part C. 
‘‘(2) FORMULARY DETERMINATIONS.—An indi-
vidual who is enrolled in a prescription drug plan of-
fered by a PDP sponsor or in a MA-EFFS Rx plan 
may appeal to obtain coverage for a covered out-
patient drug that is not on a formulary of the spon-
sor or entity offering the plan if the prescribing phy-
sician determines that the formulary drug for treat-
ment of the same condition either would not be as 
effective for the individual or would have adverse ef-
fects for the individual or both. 
‘‘(g) CONFIDENTIALITY
AND ACCURACY
OF EN-
ROLLEE RECORDS.—A PDP sponsor that offers a pre-
scription drug plan shall meet the requirements of section 
1852(h) with respect to enrollees under the plan in the 
same manner as such requirements apply to an organiza-
tion with respect to enrollees under part C. A PDP spon-
sor shall be treated as a business associate for purposes 
of the provisions of subpart E of part 164 of title 45, Code 
of Federal Regulations, adopted pursuant to the authority 
of the Secretary under section 264(c) of the Health Insur-
ance Portability and Accountability Act of 1996 (42 U.S. 
C. 1320d-2 note).
‘‘SEC. 1860D–4. REQUIREMENTS FOR AND CONTRACTS WITH 
PRESCRIPTION DRUG PLAN (PDP) SPONSORS. 
‘‘(a) GENERAL REQUIREMENTS.—Each PDP sponsor 
of a prescription drug plan shall meet the following re-
quirements: 
‘‘(1) LICENSURE.—Subject to subsection (c), 
the sponsor is organized and licensed under State 
law as a risk-bearing entity eligible to offer health 
insurance or health benefits coverage in each State 
in which it offers a prescription drug plan. 
‘‘(2) ASSUMPTION OF FINANCIAL RISK FOR UN-
SUBSIDIZED COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B) and section 1860D–5(d)(2), the enti-
ty assumes full financial risk on a prospective 
basis for qualified prescription drug coverage 
that it offers under a prescription drug plan 
and that is not covered under section 1860D–
8. 
‘‘(B) REINSURANCE PERMITTED.—The en-
tity may obtain insurance or make other ar-
rangements for the cost of coverage provided to 
any enrollee. 
‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—
In the case of a sponsor that is not described in 
paragraph (1), the sponsor shall meet solvency
standards established by the Administrator under 
subsection (d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN
GENERAL.—The Administrator shall 
not permit the election under section 1860D–1 of a 
prescription drug plan offered by a PDP sponsor 
under this part, and the sponsor shall not be eligible 
for payments under section 1860D–7 or 1860D–8, 
unless the Administrator has entered into a contract 
under this subsection with the sponsor with respect 
to the offering of such plan. Such a contract with 
a sponsor may cover more than one prescription 
drug plan. Such contract shall provide that the spon-
sor agrees to comply with the applicable require-
ments and standards of this part and the terms and 
conditions of payment as provided for in this part. 
‘‘(2) NEGOTIATION
REGARDING
TERMS
AND 
CONDITIONS.—The Administrator shall have the 
same authority to negotiate the terms and conditions 
of prescription drug plans under this part as the Di-
rector of the Office of Personnel Management has 
with respect to health benefits plans under chapter 
89 of title 5, United States Code. In negotiating the 
terms and conditions regarding premiums for which 
information is submitted under section 1860D–
6(a)(2), the Administrator shall take into account 
the subsidy payments under section 1860D–8. 
‘‘(3) INCORPORATION
OF
CERTAIN
MEDICARE 
ADVANTAGE
CONTRACT
REQUIREMENTS.—The fol-
lowing provisions of section 1857 shall apply, subject 
to subsection (c)(5), to contracts under this section 
in the same manner as they apply to contracts under 
section 1857(a): 
‘‘(A) 
MINIMUM
ENROLLMENT.—Para-
graphs (1) and (3) of section 1857(b), except 
that the requirement of such paragraph (1) 
shall be waived during the first contract year 
with respect to an organization in a region. 
‘‘(B) CONTRACT PERIOD AND EFFECTIVE-
NESS.—Paragraphs (1) through (3) and (5) of 
section 1857(c). 
‘‘(C) PROTECTIONS AGAINST FRAUD AND 
BENEFICIARY PROTECTIONS.—Section 1857(d). 
‘‘(D) ADDITIONAL
CONTRACT
TERMS.—
Section 1857(e); except that in applying section 
1857(e)(2) under this part—
‘‘(i) such section shall be applied sepa-
rately to costs relating to this part (from 
costs under part C and part E);
‘‘(ii) in no case shall the amount of 
the fee established under this subpara-
graph for a plan exceed 20 percent of the 
maximum amount of the fee that may be 
established under subparagraph (B) of 
such section; and 
‘‘(iii) no fees shall be applied under 
this subparagraph with respect to MA-
EFFS Rx plans. 
‘‘(E) INTERMEDIATE SANCTIONS.—Section 
1857(g). 
‘‘(F) PROCEDURES
FOR
TERMINATION.—
Section 1857(h). 
‘‘(4) RULES
OF
APPLICATION
FOR
INTER-
MEDIATE
SANCTIONS.—In 
applying 
paragraph 
(3)(E)—
‘‘(A) 
the 
reference 
in 
section 
1857(g)(1)(B) to section 1854 is deemed a ref-
erence to this part; and 
‘‘(B) 
the 
reference 
in 
section 
1857(g)(1)(F) to section 1852(k)(2)(A)(ii) shall 
not be applied. 
‘‘(5) SERVICE AREA REQUIREMENT.—For pur-
poses of this part, the Administrator shall designate 
at least 10 areas covering the entire United States
and to the extent practicable shall be consistent with 
EFFS regions established under section 1860E–
1(a)(2). 
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EX-
PAND CHOICE.—
‘‘(1) IN GENERAL.—In the case of an entity 
that seeks to offer a prescription drug plan in a 
State, the Administrator shall waive the requirement 
of subsection (a)(1) that the entity be licensed in 
that State if the Administrator determines, based on 
the application and other evidence presented to the 
Administrator, that any of the grounds for approval 
of the application described in paragraph (2) have 
been met. 
‘‘(2) GROUNDS FOR APPROVAL.—The grounds 
for approval under this paragraph are the grounds 
for approval described in subparagraph (B), (C), 
and (D) of section 1855(a)(2), and also include the 
application by a State of any grounds other than 
those required under Federal law. 
‘‘(3) APPLICATION OF WAIVER PROCEDURES.—
With respect to an application for a waiver (or a 
waiver granted) under this subsection, the provisions 
of subparagraphs (E), (F), and (G) of section 
1855(a)(2) shall apply.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR 
OR CONSTITUTE CERTIFICATION.—The fact that an 
entity is licensed in accordance with subsection 
(a)(1) does not deem the entity to meet other re-
quirements imposed under this part for a PDP spon-
sor. 
‘‘(5) REFERENCES TO CERTAIN PROVISIONS.—
For purposes of this subsection, in applying provi-
sions of section 1855(a)(2) under this subsection to 
prescription drug plans and PDP sponsors—
‘‘(A) any reference to a waiver application 
under section 1855 shall be treated as a ref-
erence to a waiver application under paragraph 
(1); and 
‘‘(B) any reference to solvency standards 
shall be treated as a reference to solvency 
standards established under subsection (d). 
‘‘(d) SOLVENCY STANDARDS
FOR NON-LICENSED 
SPONSORS.—
‘‘(1) 
ESTABLISHMENT.—The 
Administrator 
shall establish, by not later than October 1, 2004, 
financial solvency and capital adequacy standards 
that an entity that does not meet the requirements 
of subsection (a)(1) must meet to qualify as a PDP 
sponsor under this part.
‘‘(2) COMPLIANCE
WITH
STANDARDS.—Each 
PDP sponsor that is not licensed by a State under 
subsection (a)(1) and for which a waiver application 
has been approved under subsection (c) shall meet 
solvency and capital adequacy standards established 
under paragraph (1). The Administrator shall estab-
lish certification procedures for such PDP sponsors 
with respect to such solvency standards in the man-
ner described in section 1855(c)(2). 
‘‘(e) RELATION TO STATE LAWS.—
‘‘(1) IN GENERAL.—The standards established 
under this part shall supersede any State law or reg-
ulation (other than State licensing laws or State 
laws relating to plan solvency, except as provided in 
subsection (d)) with respect to prescription drug 
plans which are offered by PDP sponsors under this 
part. 
‘‘(2) PROHIBITION OF STATE IMPOSITION OF 
PREMIUM TAXES.—No State may impose a premium 
tax or similar tax with respect to premiums paid to 
PDP sponsors for prescription drug plans under this 
part, or with respect to any payments made to such 
a sponsor by the Administrator under this part.
‘‘SEC. 1860D–5. PROCESS FOR BENEFICIARIES TO SELECT 
QUALIFIED PRESCRIPTION DRUG COVERAGE. 
‘‘(a) IN GENERAL.—The Administrator shall estab-
lish a process for the selection of the prescription drug 
plan or MA-EFFS Rx plan through which eligible individ-
uals elect qualified prescription drug coverage under this 
part. 
‘‘(b) ELEMENTS.—Such process shall include the fol-
lowing: 
‘‘(1) Annual, coordinated election periods, in 
which such individuals can change the qualifying 
plans through which they obtain coverage, in accord-
ance with section 1860D–1(b)(2). 
‘‘(2) Active dissemination of information to pro-
mote an informed selection among qualifying plans 
based upon price, quality, and other features, in the 
manner described in (and in coordination with) sec-
tion 1851(d), including the provision of annual com-
parative information, maintenance of a toll-free hot-
line, and the use of non-Federal entities. 
‘‘(3) Coordination of elections through filing 
with the entity offering a MA-EFFS Rx plan or a 
PDP sponsor, in the manner described in (and in co-
ordination with) section 1851(c)(2). 
‘‘(4) Informing each enrollee before the begin-
ning of each year of the annual out-of-pocket thresh-
old applicable to the enrollee for that year under sec-
tion 1860D–2(b)(4) at such time. 
‘‘(c) MA-EFFS RX ENROLLEE MAY ONLY OBTAIN 
BENEFITS THROUGH THE PLAN.—An individual who is 
enrolled under a MA-EFFS Rx plan may only elect to re-
ceive qualified prescription drug coverage under this part 
through such plan. 
‘‘(d) ASSURING ACCESS TO A CHOICE OF QUALIFIED 
PRESCRIPTION DRUG COVERAGE.—
‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH 
AREA.—
‘‘(A) IN
GENERAL.—The Administrator 
shall assure that each individual who is entitled 
to benefits under part A or enrolled under part 
B and who is residing in an area in the United 
States has available, consistent with subpara-
graph (B), a choice of enrollment in at least 
two qualifying plans (as defined in paragraph 
(5)) in the area in which the individual resides, 
at least one of which is a prescription drug 
plan. 
‘‘(B) 
REQUIREMENT
FOR
DIFFERENT 
PLAN SPONSORS.—The requirement in subpara-
graph (A) is not satisfied with respect to an 
area if only one PDP sponsor or one entity that
offers a MA-EFFS Rx plan offers all the quali-
fying plans in the area. 
‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—
In order to assure access under paragraph (1) and 
consistent with paragraph (3), the Administrator 
may provide partial underwriting of risk for a PDP 
sponsor to expand the service area under an existing 
prescription drug plan to adjoining or additional 
areas or to establish such a plan (including offering 
such a plan on a regional or nationwide basis), but 
only so long as (and to the extent) necessary to as-
sure the access guaranteed under paragraph (1). 
‘‘(3) LIMITATION
ON
AUTHORITY.—In exer-
cising authority under this subsection, the Adminis-
trator—
‘‘(A) shall not provide for the full under-
writing of financial risk for any PDP sponsor; 
and 
‘‘(B) shall seek to maximize the assump-
tion of financial risk by PDP sponsors or enti-
ties offering a MA-EFFS Rx plan. 
‘‘(4) REPORTS.—The Administrator shall, in 
each annual report to Congress under section 
1809(f), include information on the exercise of au-
thority under this subsection. The Administrator
also shall include such recommendations as may be 
appropriate to minimize the exercise of such author-
ity, including minimizing the assumption of financial 
risk. 
‘‘(5) QUALIFYING
PLAN
DEFINED.—For pur-
poses of this subsection, the term ‘qualifying plan’ 
means a prescription drug plan or a MA-EFFS Rx 
plan. 
‘‘SEC. 1860D–6. SUBMISSION OF BIDS AND PREMIUMS. 
‘‘(a) SUBMISSION
OF BIDS, PREMIUMS, AND RE-
LATED INFORMATION.—
‘‘(1) IN GENERAL.—Each PDP sponsor shall 
submit to the Administrator the information de-
scribed in paragraph (2) in the same manner as in-
formation is submitted by an organization under sec-
tion 1854(a)(1). 
‘‘(2) INFORMATION SUBMITTED.—The informa-
tion described in this paragraph is the following: 
‘‘(A) COVERAGE
PROVIDED.—Information 
on the qualified prescription drug coverage to 
be provided. 
‘‘(B) ACTUARIAL VALUE.—Information on 
the actuarial value of the coverage.
‘‘(C) BID AND PREMIUM.—Information on 
the bid and the premium for the coverage, in-
cluding an actuarial certification of—
‘‘(i) the actuarial basis for such bid 
and premium; 
‘‘(ii) the portion of such bid and pre-
mium attributable to benefits in excess of 
standard coverage; 
‘‘(iii) the reduction in such bid result-
ing from the reinsurance subsidy payments 
provided under section 1860D–8(a)(2); 
and 
‘‘(iv) the reduction in such premium 
resulting from the direct and reinsurance 
subsidy payments provided under section 
1860D–8. 
‘‘(D) ADDITIONAL
INFORMATION.—Such 
other information as the Administrator may re-
quire to carry out this part. 
‘‘(3) REVIEW OF INFORMATION; NEGOTIATION 
AND APPROVAL OF PREMIUMS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the Administrator shall review the 
information filed under paragraph (2) for the 
purpose of conducting negotiations under sec-
tion 1860D–4(b)(2) (relating to using OPM-like 
authority under the FEHBP). The Adminis-
trator, using the information provided (includ-
ing the actuarial certification under paragraph 
(2)(C)) shall approve the premium submitted 
under this subsection only if the premium accu-
rately reflects both (i) the actuarial value of the 
benefits provided, and (ii) the 73 percent aver-
age subsidy provided under section 1860D–8 
for the standard benefit. The Administrator 
shall apply actuarial principles to approval of a 
premium under this part in a manner similar to 
the manner in which those principles are ap-
plied in establishing the monthly part B pre-
mium under section 1839. 
‘‘(B) EXCEPTION.—In the case of a plan 
described in section 1851(a)(2)(C), the provi-
sions of subparagraph (A) shall not apply and 
the provisions of paragraph (5)(B) of section 
1854(a), prohibiting the review, approval, or 
disapproval of amounts described in such para-
graph, shall apply to the negotiation and rejec-
tion of the monthly bid amounts and proportion 
referred to in subparagraph (A). 
‘‘(b) UNIFORM BID AND PREMIUM.—
‘‘(1) IN GENERAL.—The bid and premium for 
a prescription drug plan under this section may not 
vary among enrollees in the plan in the same service 
area. 
‘‘(2) CONSTRUCTION.—Nothing in paragraph 
(1) shall be construed as preventing the imposition 
of a late enrollment penalty under section 1860D–
1(c)(2)(B).
‘‘(c) COLLECTION.—
‘‘(1) BENEFICIARY’S
OPTION
OF
PAYMENT 
THROUGH
WITHHOLDING
FROM
SOCIAL
SECURITY 
PAYMENT OR USE OF ELECTRONIC FUNDS TRANS-
FER MECHANISM.—In accordance with regulations, a 
PDP sponsor shall permit each enrollee, at the en-
rollee’s option, to make payment of premiums under 
this part to the sponsor through withholding from 
benefit payments in the manner provided under sec-
tion 1840 with respect to monthly premiums under 
section 1839 or through an electronic funds transfer 
mechanism (such as automatic charges of an ac-
count at a financial institution or a credit or debit 
card account) or otherwise. All premium payments 
that are withheld under this paragraph shall be 
credited to the Medicare Prescription Drug Trust
Fund and shall be paid to the PDP sponsor in-
volved. 
‘‘(2) OFFSETTING.—Reductions in premiums 
for coverage under parts A and B as a result of a 
selection of a MA-EFFS Rx plan may be used to re-
duce the premium otherwise imposed under para-
graph (1). 
‘‘(d) 
ACCEPTANCE
OF
REFERENCE
PREMIUM 
AMOUNT AS FULL PREMIUM FOR SUBSIDIZED LOW-IN-
COME INDIVIDUALS IF NO STANDARD (OR EQUIVALENT) 
COVERAGE IN AN AREA.—
‘‘(1) IN GENERAL.—If there is no standard pre-
scription drug coverage (as defined in paragraph 
(2)) offered in an area, in the case of an individual 
who is eligible for a premium subsidy under section 
1860D–7 and resides in the area, the PDP sponsor 
of any prescription drug plan offered in the area 
(and any entity offering a MA-EFFS Rx plan in the 
area) shall accept the reference premium amount 
(under paragraph (3)) as payment in full for the 
premium charge for qualified prescription drug cov-
erage. 
‘‘(2) STANDARD
PRESCRIPTION
DRUG
COV-
ERAGE DEFINED.—For purposes of this subsection, 
the term ‘standard prescription drug coverage’
means qualified prescription drug coverage that is 
standard coverage or that has an actuarial value 
equivalent to the actuarial value for standard cov-
erage. 
‘‘(3) 
REFERENCE
PREMIUM
AMOUNT
DE-
FINED.—For purposes of this subsection, the term 
‘reference premium amount’ means, with respect to 
qualified prescription drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the 
actuarial value is equivalent to that of 
standard coverage), the plan’s PDP pre-
mium; or 
‘‘(ii) provides alternative prescription 
drug coverage the actuarial value of which 
is greater than that of standard coverage, 
the plan’s PDP premium multiplied by the 
ratio of (I) the actuarial value of standard 
coverage, to (II) the actuarial value of the 
alternative coverage; 
‘‘(B) an EFFS plan, the EFFS monthly 
prescription drug beneficiary premium (as de-
fined in section 1860E–4(a)(3)(B)); or
‘‘(C) a Medicare Advantage, the Medicare 
Advantage monthly prescription drug bene-
ficiary 
premium 
(as 
defined 
in 
section 
1854(b)(2)(B)). 
For purposes of subparagraph (A), the term ‘PDP 
premium’ means, with respect to a prescription drug 
plan, the premium amount for enrollment under the 
plan under this part (determined without regard to 
any low-income subsidy under section 1860D–7 or 
any late enrollment penalty under section 1860D–
1(c)(2)(B)).
‘‘SEC. 1860D–7. PREMIUM AND COST-SHARING SUBSIDIES 
FOR LOW-INCOME INDIVIDUALS.
‘‘(a) INCOME-RELATED SUBSIDIES FOR INDIVIDUALS 
WITH INCOME BELOW 150 PERCENT OF FEDERAL POV-
ERTY LEVEL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION 
OF COST-SHARING FOR INDIVIDUALS WITH INCOME 
BELOW
135
PERCENT
OF
FEDERAL
POVERTY 
LEVEL.—In the case of a subsidy eligible individual 
(as defined in paragraph (4)) who is determined to 
have income that does not exceed 135 percent of the 
Federal poverty level, the individual is entitled under 
this section—
‘‘(A) to an income-related premium subsidy 
equal to 100 percent of the amount described in 
subsection (b)(1); and 
‘‘(B) subject to subsection (c), to the sub-
stitution for the beneficiary cost-sharing de-
scribed in paragraphs (1) and (2) of section 
1860D–2(b) (up to the initial coverage limit 
specified in paragraph (3) of such section) of 
amounts that do not exceed $2 for a multiple 
source or generic drug (as described in section 
1927(k)(7)(A)) and $5 for a non-preferred 
drug.
‘‘(2) SLIDING
SCALE
PREMIUM
SUBSIDY
FOR 
INDIVIDUALS WITH INCOME ABOVE 135, BUT BELOW 
150
PERCENT, OF
FEDERAL
POVERTY
LEVEL.—In 
the case of a subsidy eligible individual who is deter-
mined to have income that exceeds 135 percent, but 
does not exceed 150 percent, of the Federal poverty 
level, the individual is entitled under this section to 
an income-related premium subsidy determined on a 
linear sliding scale ranging from 100 percent of the 
amount described in subsection (b)(1) for individuals 
with incomes at 135 percent of such level to 0 per-
cent of such amount for individuals with incomes at 
150 percent of such level.
‘‘(3) CONSTRUCTION.—Nothing in this section 
shall be construed as preventing a PDP sponsor or 
entity offering a MA-EFFS Rx plan from reducing 
to 0 the cost-sharing otherwise applicable to generic 
drugs. 
‘‘(4) DETERMINATION OF ELIGIBILITY.—
‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL DE-
FINED.—For purposes of this section, subject 
to subparagraph (D), the term ‘subsidy eligible 
individual’ means an individual who—
‘‘(i) is eligible to elect, and has elect-
ed, to obtain qualified prescription drug 
coverage under this part; 
‘‘(ii) has income below 150 percent of 
the Federal poverty line; and 
‘‘(iii) meets the resources requirement 
described in subparagraph (D). 
‘‘(B) DETERMINATIONS.—The determina-
tion of whether an individual residing in a State 
is a subsidy eligible individual and the amount 
of such individual’s income shall be determined 
under the State medicaid plan for the State 
under section 1935(a) or by the Social Security 
Administration. In the case of a State that does 
not operate such a medicaid plan (either under
title XIX or under a statewide waiver granted 
under section 1115), such determination shall 
be made under arrangements made by the Ad-
ministrator. There are authorized to be appro-
priated to the Social Security Administration 
such sums as may be necessary for the deter-
mination of eligibility under this subparagraph. 
‘‘(C) INCOME DETERMINATIONS.—For pur-
poses of applying this section—
‘‘(i) income shall be determined in the 
manner 
described 
in 
section 
1905(p)(1)(B); and 
‘‘(ii) the term ‘Federal poverty line’ 
means the official poverty line (as defined 
by the Office of Management and Budget, 
and revised annually in accordance with 
section 673(2) of the Omnibus Budget 
Reconciliation Act of 1981) applicable to a 
family of the size involved. 
‘‘(D) RESOURCE
STANDARD
APPLIED
TO 
BE
BASED
ON
THREE
TIMES
SSI
RESOURCE 
STANDARD.—The resource requirement of this 
subparagraph is that an individual’s resources 
(as determined under section 1613 for purposes
of the supplemental security income program) 
do not exceed—
‘‘(i) for 2006 three times the max-
imum amount of resources that an indi-
vidual may have and obtain benefits under 
that program; and 
‘‘(ii) for a subsequent year the re-
source limitation established under this 
clause for the previous year increased by 
the annual percentage increase in the con-
sumer price index (all items; U.S. city av-
erage) as of September of such previous 
year. 
Any resource limitation established under clause 
(ii) that is not a multiple of $10 shall be round-
ed to the nearest multiple of $10. 
‘‘(E) TREATMENT OF TERRITORIAL RESI-
DENTS.—In the case of an individual who is not 
a resident of the 50 States or the District of 
Columbia, the individual is not eligible to be a 
subsidy eligible individual but may be eligible 
for financial assistance with prescription drug 
expenses under section 1935(e). 
‘‘(F) 
TREATMENT
OF
CONFORMING 
MEDIGAP POLICIES.—For purposes of this sec-
tion, the term ‘qualified prescription drug cov-
erage’ includes a medicare supplemental policy 
described in section 1860D–8(b)(4). 
‘‘(5) INDEXING DOLLAR AMOUNTS.—
‘‘(A) FOR 2007.—The dollar amounts ap-
plied under paragraphs (1)(B) for 2007 shall be 
the dollar amounts specified in such paragraph 
increased by the annual percentage increase de-
scribed in section 1860D–2(b)(5) for 2007. 
‘‘(B) FOR SUBSEQUENT YEARS.—The dol-
lar amounts applied under paragraph (1)(B) for 
a year after 2007 shall be the amounts (under 
this paragraph) applied under paragraph (1)(B) 
for the preceding year increased by the annual 
percentage 
increase 
described 
in 
section 
1860D–2(b)(5) (relating to growth in medicare 
prescription drug costs per beneficiary) for the 
year involved. 
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) IN
GENERAL.—The premium subsidy 
amount described in this subsection for an individual 
residing in an area is the benchmark premium 
amount (as defined in paragraph (2)) for qualified 
prescription drug coverage offered by the prescrip-
tion drug plan or the MA-EFFS Rx plan in which 
the individual is enrolled. 
‘‘(2) BENCHMARK
PREMIUM
AMOUNT
DE-
FINED.—For purposes of this subsection, the term 
‘benchmark premium amount’ means, with respect 
to qualified prescription drug coverage offered 
under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the 
actuarial value of which is equivalent to 
that of standard coverage), the premium 
amount for enrollment under the plan 
under this part (determined without regard 
to any subsidy under this section or any 
late enrollment penalty under section 
1860D–1(c)(2)(B)); or 
‘‘(ii) provides alternative prescription 
drug coverage the actuarial value of which 
is greater than that of standard coverage, 
the premium amount described in clause 
(i) multiplied by the ratio of (I) the actu-
arial value of standard coverage, to (II) 
the actuarial value of the alternative cov-
erage; or
‘‘(B) a MA-EFFS Rx plan, the portion of 
the premium amount that is attributable to 
statutory drug benefits (described in section 
1853(a)(1)(A)(ii)(II)). 
‘‘(c) RULES
IN
APPLYING
COST-SHARING
SUB-
SIDIES.—
‘‘(1) IN
GENERAL.—In applying subsection 
(a)(1)(B), nothing in this part shall be construed as 
preventing a plan or provider from waiving or reduc-
ing the amount of cost-sharing otherwise applicable. 
‘‘(2) LIMITATION ON CHARGES.—In the case of 
an individual receiving cost-sharing subsidies under 
subsection (a)(1)(B), the PDP sponsor or entity of-
fering a MA-EFFS Rx plan may not charge more 
than $5 per prescription. 
‘‘(3) APPLICATION OF INDEXING RULES.—The 
provisions of subsection (a)(5) shall apply to the dol-
lar amount specified in paragraph (2) in the same 
manner as they apply to the dollar amounts specified 
in subsections (a)(1)(B). 
‘‘(d) ADMINISTRATION OF SUBSIDY PROGRAM.—The 
Administrator shall provide a process whereby, in the case 
of an individual who is determined to be a subsidy eligible 
individual and who is enrolled in prescription drug plan 
or is enrolled in a MA-EFFS Rx plan—
‘‘(1) the Administrator provides for a notifica-
tion of the PDP sponsor or the entity offering the 
MA-EFFS Rx plan involved that the individual is el-
igible for a subsidy and the amount of the subsidy 
under subsection (a); 
‘‘(2) the sponsor or entity involved reduces the 
premiums or cost-sharing otherwise imposed by the 
amount of the applicable subsidy and submits to the 
Administrator information on the amount of such 
reduction; and 
‘‘(3) the Administrator periodically and on a 
timely basis reimburses the sponsor or entity for the 
amount of such reductions. 
The reimbursement under paragraph (3) with respect to 
cost-sharing subsidies may be computed on a capitated 
basis, taking into account the actuarial value of the sub-
sidies and with appropriate adjustments to reflect dif-
ferences in the risks actually involved. 
‘‘(e) RELATION TO MEDICAID PROGRAM.—
‘‘(1) IN
GENERAL.—For provisions providing 
for eligibility determinations, and additional financ-
ing, under the medicaid program, see section 1935. 
‘‘(2) MEDICAID PROVIDING WRAP AROUND BEN-
EFITS.—The coverage provided under this part is 
primary payor to benefits for prescribed drugs pro-
vided under the medicaid program under title XIX 
consistent with section 1935(d)(1). 
‘‘(3) COORDINATION.—The Administrator shall 
develop and implement a plan for the coordination 
of prescription drug benefits under this part with 
the benefits provided under the medicaid program 
under title XIX, with particular attention to insur-
ing coordination of payments and prevention of 
fraud and abuse. In developing and implementing 
such plan, the Administrator shall involve the Sec-
retary, the States, the data processing industry, 
pharmacists, and pharmaceutical manufacturers, 
and other experts.
‘‘SEC. 1860D–8. SUBSIDIES FOR ALL MEDICARE BENE-
FICIARIES FOR QUALIFIED PRESCRIPTION 
DRUG COVERAGE. 
‘‘(a) SUBSIDY PAYMENT.—In order to reduce pre-
mium levels applicable to qualified prescription drug cov-
erage for all medicare beneficiaries consistent with an 
overall subsidy level of 73 percent, to reduce adverse selec-
tion among prescription drug plans and MA-EFFS Rx 
plans, and to promote the participation of PDP sponsors 
under this part, the Administrator shall provide in accord-
ance with this section for payment to a qualifying entity 
(as defined in subsection (b)) of the following subsidies:
‘‘(1) DIRECT SUBSIDY.—In the case of an en-
rollee enrolled for a month in a prescription drug 
plan or a MA-EFFS Rx plan, a direct subsidy equal 
to 43 percent of the national average monthly bid 
amount (computed under subsection (g)) for that 
month.
‘‘(2) SUBSIDY
THROUGH
REINSURANCE.—In 
the case of an enrollee enrolled for a month in a pre-
scription drug plan or a MA-EFFS Rx plan, the re-
insurance payment amount (as defined in subsection 
(c)), which in the aggregate is 30 percent of the 
total payments made by qualifying entities for stand-
ard coverage under the respective plan, for excess 
costs incurred in providing qualified prescription 
drug coverage—
‘‘(A) for enrollees with a prescription drug 
plan under this part; and 
‘‘(B) for enrollees with a MA-EFFS Rx 
plan. 
‘‘(3) EMPLOYER AND UNION FLEXIBILITY.—In 
the case of an individual who is a participant or ben-
eficiary in a qualified retiree prescription drug plan 
(as defined in subsection (f)(1)) and who is not en-
rolled in a prescription drug plan or in a MA-EFFS
Rx plan, the special subsidy payments under sub-
section (f)(3). 
This section constitutes budget authority in advance of ap-
propriations Acts and represents the obligation of the Ad-
ministrator to provide for the payment of amounts pro-
vided under this section. 
‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes 
of this section, the term ‘qualifying entity’ means any of 
the following that has entered into an agreement with the 
Administrator to provide the Administrator with such in-
formation as may be required to carry out this section: 
‘‘(1) A PDP sponsor offering a prescription 
drug plan under this part. 
‘‘(2) An entity that offers a MA-EFFS Rx plan. 
‘‘(3) The sponsor of a qualified retiree prescrip-
tion drug plan (as defined in subsection (f)). 
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) IN
GENERAL.—Subject to subsection 
(d)(1)(B) and paragraph (4), the reinsurance pay-
ment amount under this subsection for a qualifying 
covered individual (as defined in paragraph (5)) for 
a coverage year (as defined in subsection (h)(2)) is 
equal to the sum of the following: 
‘‘(A) REINSURANCE BETWEEN INITIAL RE-
INSURANCE THRESHOLD AND THE INITIAL COV-
ERAGE LIMIT.—For the portion of the individ-
ual’s gross covered prescription drug costs (as 
defined in paragraph (3)) for the year that ex-
ceeds the initial reinsurance threshold specified 
in paragraph (4), but does not exceed the initial 
coverage limit specified in section 1860D–
2(b)(3), an amount equal to 20 percent of the 
allowable costs (as defined in paragraph (2)) at-
tributable to such gross covered prescription 
drug costs. 
‘‘(B) REINSURANCE ABOVE ANNUAL OUT-
OF-POCKET
THRESHOLD.—For the portion of 
the individual’s gross covered prescription drug 
costs for the year that exceeds the annual out-
of-pocket 
threshold 
specified 
in 
1860D–
2(b)(4)(B), an amount equal to 80 percent of 
the allowable costs attributable to such gross 
covered prescription drug costs. 
‘‘(2) ALLOWABLE COSTS.—For purposes of this 
section, the term ‘allowable costs’ means, with re-
spect to gross covered prescription drug costs under 
a plan described in subsection (b) offered by a quali-
fying entity, the part of such costs that are actually 
paid (net of discounts, chargebacks, and average 
percentage rebates) under the plan, but in no case
more than the part of such costs that would have 
been paid under the plan if the prescription drug 
coverage under the plan were standard coverage. 
‘‘(3) GROSS
COVERED
PRESCRIPTION
DRUG 
COSTS.—For purposes of this section, the term 
‘gross covered prescription drug costs’ means, with 
respect to an enrollee with a qualifying entity under 
a plan described in subsection (b) during a coverage 
year, the costs incurred under the plan (including 
costs attributable to administrative costs) for cov-
ered prescription drugs dispensed during the year, 
including costs relating to the deductible, whether 
paid by the enrollee or under the plan, regardless of 
whether the coverage under the plan exceeds stand-
ard coverage and regardless of when the payment 
for such drugs is made. 
‘‘(4) INITIAL REINSURANCE THRESHOLD.—The 
initial reinsurance threshold specified in this para-
graph—
‘‘(A) for 2006, is equal to $1,000; or 
‘‘(B) for a subsequent year, is equal to the 
payment threshold specified in this paragraph 
for the previous year, increased by the annual 
percentage 
increase 
described 
in 
section 
1860D–2(b)(5) for the year involved.
Any amount determined under subparagraph (B) 
that is not a multiple of $10 shall be rounded to the 
nearest multiple of $10.
‘‘(5) QUALIFYING
COVERED
INDIVIDUAL
DE-
FINED.—For purposes of this subsection, the term 
‘qualifying covered individual’ means an individual 
who—
‘‘(A) is enrolled with a prescription drug 
plan under this part; or 
‘‘(B) is enrolled with a MA-EFFS Rx plan. 
‘‘(d) ADJUSTMENT OF PAYMENTS.—
‘‘(1) ADJUSTMENT
OF
REINSURANCE
PAY-
MENTS TO ASSURE 30 PERCENT LEVEL OF SUBSIDY 
THROUGH REINSURANCE.—
‘‘(A) ESTIMATION
OF
PAYMENTS.—The 
Administrator shall estimate—
‘‘(i) the total payments to be made 
(without regard to this subsection) during 
a year under subsections (a)(2) and (c); 
and 
‘‘(ii) the total payments to be made by 
qualifying entities for standard coverage 
under plans described in subsection (b) 
during the year.
‘‘(B) ADJUSTMENT.—The Administrator 
shall proportionally adjust the payments made 
under subsections (a)(2) and (c) for a coverage 
year in such manner so that the total of the 
payments made under such subsections for the 
year is equal to 30 percent of the total pay-
ments described in subparagraph (A)(ii). 
‘‘(2) RISK
ADJUSTMENT
FOR
DIRECT
SUB-
SIDIES.—To the extent the Administrator deter-
mines it appropriate to avoid risk selection, the pay-
ments made for direct subsidies under subsection 
(a)(1) are subject to adjustment based upon risk 
factors specified by the Administrator. Any such risk 
adjustment shall be designed in a manner as to not 
result in a change in the aggregate payments made 
under such subsection. 
‘‘(e) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this sec-
tion shall be based on such a method as the Admin-
istrator determines. The Administrator may estab-
lish a payment method by which interim payments 
of amounts under this section are made during a 
year based on the Administrator’s best estimate of 
amounts that will be payable after obtaining all of 
the information.
‘‘(2) SOURCE OF PAYMENTS.—Payments under 
this section shall be made from the Medicare Pre-
scription Drug Trust Fund. 
‘‘(f) RULES RELATING TO QUALIFIED RETIREE PRE-
SCRIPTION DRUG PLAN.—
‘‘(1) DEFINITION.—For purposes of this sec-
tion, the term ‘qualified retiree prescription drug 
plan’ means employment-based retiree health cov-
erage (as defined in paragraph (4)(A)) if, with re-
spect to an individual who is a participant or bene-
ficiary under such coverage and is eligible to be en-
rolled in a prescription drug plan or a MA-EFFS Rx 
plan under this part, the following requirements are 
met: 
‘‘(A) ACTUARIAL EQUIVALENCE TO STAND-
ARD
COVERAGE.—The Administrator deter-
mines (based on an actuarial analysis approved 
by the Administrator) that coverage provides at 
least the same actuarial value as standard cov-
erage. Such determination may be made on an 
annual basis. 
‘‘(B) AUDITS.—The sponsor (or the ad-
ministrator, if designated by the sponsor) and 
the plan shall maintain, and afford the Admin-
istrator access to, such records as the Adminis-
trator may require for purposes of audits and 
other oversight activities necessary to ensure 
the adequacy of prescription drug coverage and 
the accuracy of payments made. 
‘‘(C) PROVISION
OF
CERTIFICATION
OF 
PRESCRIPTION DRUG COVERAGE.—The sponsor 
of the plan shall provide for issuance of certifi-
cations of the type described in section 1860D–
1(c)(2)(D). 
‘‘(2) LIMITATION ON BENEFIT ELIGIBILITY.—
No payment shall be provided under this section 
with respect to a participant or beneficiary in a 
qualified retiree prescription drug plan unless the in-
dividual is—
‘‘(A) is covered under the plan; and 
‘‘(B) is eligible to obtain qualified prescrip-
tion drug coverage under section 1860D–1 but 
did not elect such coverage under this part (ei-
ther through a prescription drug plan or 
through a MA-EFFS Rx plan). 
‘‘(3) EMPLOYER AND UNION SPECIAL SUBSIDY 
AMOUNTS.—
‘‘(A) IN GENERAL.—For purposes of sub-
section (a), the special subsidy payment amount 
under this paragraph for a qualifying covered
retiree(as defined in paragraph (6)) for a cov-
erage year (as defined in subsection (h)) en-
rolled in a qualifying entity described in sub-
section (b)(3) under a qualified retiree prescrip-
tion drug plan is, for the portion of the individ-
ual’s gross covered prescription drug costs for 
the year that exceeds the deductible amount 
specified in subparagraph (B), an amount equal 
to, subject to subparagraph (D), 28 percent of 
the allowable costs attributable to such gross 
covered prescription drug costs, but only to the 
extent such costs exceed the deductible under 
subparagraph (B) and do not exceed the cost 
limit under such subparagraph in the case of 
any such individual for the plan year. 
‘‘(B) DEDUCTIBLE AND COST LIMIT APPLI-
CABLE.—Subject to subparagraph (C)—
‘‘(i) the deductible under this sub-
paragraph is equal to $250 for plan years 
that end in 2006; and 
‘‘(ii) the cost limit under this subpara-
graph is equal to $5,000 for plan years 
that end in 2006. 
‘‘(C) INDEXING.—The deductible and cost 
limit amounts specified in subparagraphs (B)
for a plan year that ends after 2006 shall be 
adjusted in the same manner as the annual de-
ductible under section 1860D–2(b)(1) is annu-
ally adjusted under such section.
‘‘(4) RELATED DEFINITIONS.—As used in this 
section: 
‘‘(A) 
EMPLOYMENT-BASED
RETIREE 
HEALTH
COVERAGE.—The term ‘employment-
based retiree health coverage’ means health in-
surance or other coverage of health care costs 
for individuals eligible to enroll in a prescription 
drug plan or MA-EFFS Rx plan under this 
part (or for such individuals and their spouses 
and dependents) under a group health plan (in-
cluding such a plan that is established or main-
tained under or pursuant to one or more collec-
tive bargaining agreements or that is offered 
under chapter 89 of title 5, United States 
Code) based on their status as retired partici-
pants in such plan. 
‘‘(B) QUALIFYING
COVERED
RETIREE.—
The term ‘qualifying covered retiree’ means an 
individual who is eligible to obtain qualified pre-
scription drug coverage under section 1860D–1 
but did not elect such coverage under this part
(either through a prescription drug plan or 
through a MA-EFFS Rx plan) but is covered 
under a qualified retiree prescription drug plan. 
‘‘(C) 
SPONSOR.—The 
term 
‘sponsor’ 
means a plan sponsor, as defined in section 
3(16)(B) of the Employee Retirement Income 
Security Act of 1974. 
‘‘(5) CONSTRUCTION.—Nothing in this sub-
section shall be construed as—
‘‘(A) precluding an individual who is cov-
ered under employment-based retiree health 
coverage from enrolling in a prescription drug 
plan or in a MA-EFFS plan; 
‘‘(B) precluding such employment-based 
retiree health coverage or an employer or other 
person from paying all or any portion of any 
premium required for coverage under such a 
prescription drug plan or MA-EFFS plan on 
behalf of such an individual; or 
‘‘(C) preventing such employment-based 
retiree health coverage from providing coverage 
for retirees—
‘‘(i) who are covered under a qualified 
retiree prescription plan that is better than 
standard coverage; or
100
‘‘(ii) who are not covered under a 
qualified retiree prescription plan but who 
are enrolled in a prescription drug plan or 
a MA-EFFS Rx plan, that is supplemental 
to the benefits provided under such pre-
scription drug plan or MA-EFFS Rx plan, 
except that any such supplemental cov-
erage (not including payment of any pre-
mium referred to in subparagraph (B)) 
shall be treated as primary coverage to 
which section 1862(b)(2)(A)(i) is deemed 
to apply. 
‘‘(g) COMPUTATION OF NATIONAL AVERAGE MONTH-
LY BID AMOUNT.—
‘‘(1) IN GENERAL.—For each year (beginning 
with 2006) the Administrator shall compute a na-
tional average monthly bid amount equal to the av-
erage of the benchmark bid amounts for each pre-
scription drug plan and for each MA-EFFS Rx plan 
(as computed under paragraph (2), but excluding 
plans described in section 1851(a)(2)(C))) adjusted 
under paragraph (4) to take into account reinsur-
ance payments. 
‘‘(2) BENCHMARK BID AMOUNT DEFINED.—For 
purposes of this subsection, the term ‘benchmark bid
101
amount’ means, with respect to qualified prescrip-
tion drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the 
actuarial value of which is equivalent to 
that of standard coverage), the PDP bid; 
or 
‘‘(ii) provides alternative prescription 
drug coverage the actuarial value of which 
is greater than that of standard coverage, 
the PDP bid multiplied by the ratio of (I) 
the actuarial value of standard coverage, to 
(II) the actuarial value of the alternative 
coverage; or 
‘‘(B) a MA-EFFS Rx plan, the portion of 
the bid amount that is attributable to statutory 
drug 
benefits 
(described 
in 
section 
1853(a)(1)(A)(ii)(II)). 
For purposes of subparagraph (A), the term ‘PDP 
bid’ means, with respect to a prescription drug plan, 
the bid amount for enrollment under the plan under 
this part (determined without regard to any low-in-
come subsidy under section 1860D–7 or any late en-
rollment penalty under section 1860D–1(c)(2)(B)).
102
‘‘(3) WEIGHTED AVERAGE.—
‘‘(A) IN GENERAL.—The monthly national 
average monthly bid amount computed under 
paragraph (1) shall be a weighted average, with 
the weight for each plan being equal to the av-
erage number of beneficiaries enrolled under 
such plan in the previous year. 
‘‘(B) SPECIAL RULE FOR 2006.—For pur-
poses of applying this subsection for 2006, the 
Administrator shall establish procedures for de-
termining the weighted average under subpara-
graph (A) for 2005. 
‘‘(4) ADJUSTMENT TO ADD BACK IN VALUE OF 
REINSURANCE
SUBSIDIES.—The adjustment under 
this paragraph, to take into account reinsurance 
payments under subsection (c) making up 30 per-
cent of total payments, is such an adjustment as will 
make the national average monthly bid amount rep-
resent represent 100 percent, instead of representing 
70 percent, of average payments under this part.
‘‘(h) COVERAGE YEAR DEFINED.—For purposes of 
this section, the term ‘coverage year’ means a calendar 
year in which covered outpatient drugs are dispensed if 
a claim for payment is made under the plan for such 
drugs, regardless of when the claim is paid.
103
‘‘SEC. 1860D–9. MEDICARE PRESCRIPTION DRUG TRUST 
FUND. 
‘‘(a) IN GENERAL.—There is created on the books 
of the Treasury of the United States a trust fund to be 
known as the ‘Medicare Prescription Drug Trust Fund’ 
(in this section referred to as the ‘Trust Fund’). The 
Trust Fund shall consist of such gifts and bequests as 
may be made as provided in section 201(i)(1), and such 
amounts as may be deposited in, or appropriated to, such 
fund as provided in this part. Except as otherwise pro-
vided in this section, the provisions of subsections (b) 
through (i) of section 1841 shall apply to the Trust Fund 
in the same manner as they apply to the Federal Supple-
mentary Medical Insurance Trust Fund under such sec-
tion. 
‘‘(b) PAYMENTS FROM TRUST FUND.—
‘‘(1) IN
GENERAL.—The Managing Trustee 
shall pay from time to time from the Trust Fund 
such amounts as the Administrator certifies are nec-
essary to make—
‘‘(A) payments under section 1860D–7 (re-
lating to low-income subsidy payments); 
‘‘(B) payments under section 1860D–8 (re-
lating to subsidy payments); and
104
‘‘(C) payments with respect to administra-
tive expenses under this part in accordance with 
section 201(g). 
‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR 
INCREASED
ADMINISTRATIVE
COSTS.—The Man-
aging Trustee shall transfer from time to time from 
the Trust Fund to the Grants to States for Medicaid 
account amounts the Administrator certifies are at-
tributable to increases in payment resulting from the 
application of a higher Federal matching percentage 
under section 1935(b). 
‘‘(c) DEPOSITS INTO TRUST FUND.—
‘‘(1) LOW-INCOME TRANSFER.—There is hereby 
transferred to the Trust Fund, from amounts appro-
priated for Grants to States for Medicaid, amounts 
equivalent to the aggregate amount of the reductions 
in payments under section 1903(a)(1) attributable to 
the application of section 1935(c). 
‘‘(2) APPROPRIATIONS TO COVER GOVERNMENT 
CONTRIBUTIONS.—There are authorized to be appro-
priated from time to time, out of any moneys in the 
Treasury not otherwise appropriated, to the Trust 
Fund, an amount equivalent to the amount of pay-
ments made from the Trust Fund under subsection
105
(b), reduced by the amount transferred to the Trust 
Fund under paragraph (1). 
‘‘(d) RELATION
TO SOLVENCY REQUIREMENTS.—
Any provision of law that relates to the solvency of the 
Trust Fund under this part shall take into account the 
Trust Fund and amounts receivable by, or payable from, 
the Trust Fund. 
‘‘SEC. 1860D–10. DEFINITIONS; APPLICATION TO MEDICARE 
ADVANTAGE AND EFFS PROGRAMS; TREAT-
MENT OF REFERENCES TO PROVISIONS IN 
PART C. 
‘‘(a) DEFINITIONS.—For purposes of this part: 
‘‘(1) COVERED OUTPATIENT DRUGS.—The term 
‘covered outpatient drugs’ is defined in section 
1860D–2(f). 
‘‘(2) INITIAL COVERAGE LIMIT.—The term ‘ini-
tial coverage limit’ means such limit as established 
under section 1860D–2(b)(3), or, in the case of cov-
erage that is not standard coverage, the comparable 
limit (if any) established under the coverage. 
‘‘(3) MEDICARE
PRESCRIPTION
DRUG
TRUST 
FUND.—The term ‘Medicare Prescription Drug 
Trust Fund’ means the Trust Fund created under 
section 1860D–9(a).
106
‘‘(4) PDP SPONSOR.—The term ‘PDP sponsor’ 
means an entity that is certified under this part as 
meeting the requirements and standards of this part 
for such a sponsor. 
‘‘(5) PRESCRIPTION
DRUG
PLAN.—The term 
‘prescription drug plan’ means health benefits cov-
erage that—
‘‘(A) is offered under a policy, contract, or 
plan by a PDP sponsor pursuant to, and in ac-
cordance with, a contract between the Adminis-
trator and the sponsor under section 1860D–
4(b); 
‘‘(B) provides qualified prescription drug 
coverage; and 
‘‘(C) meets the applicable requirements of 
the section 1860D–3 for a prescription drug 
plan. 
‘‘(6) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘qualified prescription drug cov-
erage’ is defined in section 1860D–2(a). 
‘‘(7) STANDARD COVERAGE.—The term ‘stand-
ard coverage’ is defined in section 1860D–2(b). 
‘‘(8) INSURANCE
RISK.—The term ‘insurance 
risk’ means, with respect to a participating phar-
macy, risk of the type commonly assumed only by
107
insurers licensed by a State and does not include 
payment variations designed to reflect performance-
based measures of activities within the control of the 
pharmacy, such as formulary compliance and generic 
drug substitution. 
‘‘(b) OFFER OF QUALIFIED PRESCRIPTION DRUG 
COVERAGE UNDER MEDICARE ADVANTAGE AND EFFS 
PROGRAMS.—
‘‘(1) AS
PART
OF
MEDICARE
ADVANTAGE 
PLAN.—Medicare Advantage organizations are re-
quired to offer Medicare Advantage plans that in-
clude qualified prescription drug coverage under part 
C pursuant to section 1851(j). 
‘‘(2) AS PART OF EFFS PLAN.—EFFS organi-
zations are required to offer EFFS plans that in-
clude qualified prescription drug coverage under part 
E pursuant to section 1860E–2(d). 
‘‘(c) APPLICATION OF PART C PROVISIONS UNDER 
THIS PART.—For purposes of applying provisions of part 
C under this part with respect to a prescription drug plan 
and a PDP sponsor, unless otherwise provided in this part 
such provisions shall be applied as if—
‘‘(1) any reference to a Medicare Advantage or 
other plan included a reference to a prescription 
drug plan;
108
‘‘(2) any reference to a provider-sponsored or-
ganization included a reference to a PDP sponsor; 
‘‘(3) any reference to a contract under section 
1857 included a reference to a contract under sec-
tion 1860D–4(b); and 
‘‘(4) any reference to part C included a ref-
erence to this part. 
‘‘(d) REPORT ON PHARMACY SERVICES PROVIDED TO 
LONG-TERM CARE FACILITY PATIENTS.—
‘‘(1) REVIEW.—Within 6 months after the date 
of the enactment of this section, the Secretary shall 
review the current standards of practice for phar-
macy services provided to patients in nursing facili-
ties and other long-term care facilities. 
‘‘(2) EVALUATIONS AND RECOMMENDATIONS.—
Specifically in the review under paragraph (1), the 
Secretary shall—
‘‘(A) assess the current standards of prac-
tice, clinical services, and other service require-
ments generally utilized for pharmacy services 
in the long-term care setting; 
‘‘(B) evaluate the impact of those stand-
ards with respect to patient safety, reduction of 
medication errors and quality of care; and
109
‘‘(C) recommend (in the Secretary’s report 
under paragraph (3)) necessary actions and ap-
propriate reimbursement to ensure the provision 
of prescription drugs to medicare beneficiaries 
residing in nursing facilities and other long-
term care facilities in a manner consistent with 
existing patient safety and quality of care 
standards under applicable State and Federal 
laws. 
‘‘(3) REPORT.—The Secretary shall submit a 
report to the Congress on the Secretary’s findings 
and recommendations under this subsection, includ-
ing a detailed description of the Secretary’s plans to 
implement this part in a manner consistent with ap-
plicable State and Federal laws designed to protect 
the safety and quality of care of patients of nursing 
facilities and other long-term care facilities.’’. 
(b) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS 
PART D.—Any reference in law (in effect before the 
date of the enactment of this Act) to part D of title 
XVIII of the Social Security Act is deemed a ref-
erence to part F of such title (as in effect after such 
date).
110
(2) CONFORMING
AMENDMENT
PERMITTING 
WAIVER
OF
COST-SHARING.—Section 1128B(b)(3) 
(42 U.S.C. 1320a–7b(b)(3)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (E); 
(B) by striking the period at the end of 
subparagraph (F) and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(G) the waiver or reduction of any cost-shar-
ing imposed under part D of title XVIII.’’. 
(3) SUBMISSION OF LEGISLATIVE PROPOSAL.—
Not later than 6 months after the date of the enact-
ment of this Act, the Secretary of Health and 
Human Services shall submit to the appropriate 
committees of Congress a legislative proposal pro-
viding for such technical and conforming amend-
ments in the law as are required by the provisions 
of this subtitle. 
(c) STUDY ON TRANSITIONING PART B PRESCRIP-
TION DRUG COVERAGE.—Not later than January 1, 2005, 
the Medicare Benefits Administrator shall submit a report 
to Congress that makes recommendations regarding meth-
ods for providing benefits under part D of title XVIII of
111
the Social Security Act for outpatient prescription drugs 
for which benefits are provided under part B of such title. 
SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG 
COVERAGE UNDER MEDICARE ADVANTAGE 
AND ENHANCED FEE-FOR-SERVICE (EFFS) 
PROGRAM. 
(a) MEDICARE
ADVANTAGE.—Section 1851 (42 
U.S.C. 1395w–21) is amended by adding at the end the 
following new subsection: 
‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENE-
FITS AND SUBSIDIES.—
‘‘(1) OFFERING OF QUALIFIED PRESCRIPTION 
DRUG COVERAGE.—A Medicare Advantage organiza-
tion on and after January 1, 2006—
‘‘(A) may not offer a Medicare Advantage 
plan described in section 1851(a)(2)(A) in an 
area unless either that plan (or another Medi-
care Advantage plan offered by the organization 
in that area) includes qualified prescription 
drug coverage; and 
‘‘(B) may not offer the prescription drug 
coverage (other than that required under parts 
A and B) to an enrollee under a Medicare Ad-
vantage plan, unless such drug coverage is at 
least qualified prescription drug coverage and
112
unless the requirements of this subsection with 
respect to such coverage are met. 
‘‘(2) REQUIREMENT FOR ELECTION OF PART D 
COVERAGE
TO
OBTAIN
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE.—For purposes of this part, an in-
dividual who has not elected qualified prescription 
drug coverage under section 1860D–1(b) shall be 
treated as being ineligible to enroll in a Medicare 
Advantage plan under this part that offers such cov-
erage. 
‘‘(3) COMPLIANCE WITH CERTAIN ADDITIONAL 
BENEFICIARY
PROTECTIONS
FOR
PRESCRIPTION 
DRUG COVERAGE.—With respect to the offering of 
qualified prescription drug coverage by a Medicare 
Advantage organization under this part on and after 
January 1, 2006, the organization and plan shall 
meet the requirements of subsections (a) through (d) 
of section 1860D–3 in the same manner as they 
apply to a PDP sponsor and a prescription drug 
plan under part D and shall submit to the Adminis-
trator the information described in section 1860D–
6(a)(2). The Administrator shall waive such require-
ments to the extent the Administrator determines 
that such requirements duplicate requirements oth-
113
erwise applicable to the organization or plan under 
this part. 
‘‘(4) AVAILABILITY
OF
PREMIUM
AND
COST-
SHARING SUBSIDIES.—In the case of low-income in-
dividuals who are enrolled in a Medicare Advantage 
plan that provides qualified prescription drug cov-
erage, premium and cost-sharing subsidies are pro-
vided for such coverage under section 1860D–7. 
‘‘(5) AVAILABILITY OF DIRECT AND REINSUR-
ANCE
SUBSIDIES
TO
REDUCE
BIDS
AND
PRE-
MIUMS.—Medicare Advantage organizations are pro-
vided direct and reinsurance subsidy payments for 
providing qualified prescription drug coverage under 
this part under section 1860D–8. 
‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG 
PREMIUMS.—In the case of a Medicare Advantage 
plan that includes qualified prescription drug cov-
erage, with respect to an enrollee in such plan there 
shall be a single premium for both drug and non-
drug coverage provided under the plan. 
‘‘(7) TRANSITION IN INITIAL ENROLLMENT PE-
RIOD.—Notwithstanding any other provision of this 
part, the annual, coordinated election period under 
subsection (e)(3)(B) for 2006 shall be the 6-month 
period beginning with November 2005.
114
‘‘(8) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE; STANDARD
COVERAGE.—For purposes of 
this part, the terms ‘qualified prescription drug cov-
erage’ and ‘standard coverage’ have the meanings 
given such terms in section 1860D–2. 
‘‘(9) SPECIAL RULES FOR PRIVATE FEE-FOR-
SERVICE PLANS.—With respect to a Medicare Ad-
vantage plan described in section 1851(a)(2)(C) that 
offers qualified prescription drug coverage—
‘‘(A) REQUIREMENTS
REGARDING
NEGO-
TIATED PRICES.—Subsections (a)(1) and (d)(1) 
of section 1860D–2 shall not be construed to 
require the plan to negotiate prices or discounts 
but shall apply to the extent the plan does so. 
‘‘(B) MODIFICATION OF PHARMACY PAR-
TICIPATION
REQUIREMENT.—If the plan pro-
vides access, without charging additional copay-
ments, to all pharmacies without regard to 
whether they are participating pharmacies in a 
network, section 1860D-3(c)(1)(A)(iii) shall not 
apply to the plan. 
‘‘(C) DRUG
UTILIZATION
MANAGEMENT 
PROGRAM
NOT
REQUIRED.—The requirements 
of section 1860D-3(d)(1)(A) shall not apply to 
the plan.
115
‘‘(D) NON-PARTICIPATING PHARMACY DIS-
CLOSURE
EXCEPTION.—If the plan provides 
coverage for drugs purchased from all phar-
macies, without entering into contracts or 
agreements with pharmacies to provide drugs to 
enrollees covered by the plan, section 1860D-
3(d)(5) shall not apply to the plan.’’. 
(b) APPLICATION TO EFFS PLANS.—Subsection (d) 
of section 1860E–2, as added by section 201(a), is amend-
ed to read as follows: 
‘‘(d) AVAILABILITY OF PRESCRIPTION DRUG BENE-
FITS AND SUBSIDIES.—
‘‘(1) OFFERING OF QUALIFIED PRESCRIPTION 
DRUG COVERAGE.—An EFFS organization—
‘‘(A) may not offer an EFFS plan in an 
area unless either that plan (or another EFFS 
plan offered by the organization in that area) 
includes qualified prescription drug coverage; 
and 
‘‘(B) may not offer the prescription drug 
coverage (other than that required under parts 
A and B) to an enrollee under an EFFS plan, 
unless such drug coverage is at least qualified 
prescription drug coverage and unless the re-
116
quirements of this subsection with respect to 
such coverage are met. 
‘‘(2) REQUIREMENT FOR ELECTION OF PART D 
COVERAGE
TO
OBTAIN
QUALIFIED
PRESCRIPTION 
DRUG COVERAGE.—For purposes of this part, an in-
dividual who has not elected qualified prescription 
drug coverage under section 1860D–1(b) shall be 
treated as being ineligible to enroll in an EFFS plan 
under this part that offers such coverage. 
‘‘(3) COMPLIANCE WITH CERTAIN ADDITIONAL 
BENEFICIARY
PROTECTIONS
FOR
PRESCRIPTION 
DRUG COVERAGE.—With respect to the offering of 
qualified prescription drug coverage by an EFFS or-
ganization under this part, the organization and 
plan shall meet the requirements of subsections (a) 
through (d) of section 1860D–3 in the same manner 
as they apply to a PDP sponsor and a prescription 
drug plan under part D and shall submit to the Ad-
ministrator the information described in section 
1860D–6(a)(2). The Administrator shall waive such 
requirements to the extent the Administrator deter-
mines that such requirements duplicate requirements 
otherwise applicable to the organization or plan 
under this part.
117
‘‘(4) AVAILABILITY
OF
PREMIUM
AND
COST-
SHARING SUBSIDIES.—In the case of low-income in-
dividuals who are enrolled in an EFFS plan that 
provides qualified prescription drug coverage, pre-
mium and cost-sharing subsidies are provided for 
such coverage under section 1860D–7. 
‘‘(5) AVAILABILITY OF DIRECT AND REINSUR-
ANCE
SUBSIDIES
TO
REDUCE
BIDS
AND
PRE-
MIUMS.—EFFS organizations are provided direct 
and reinsurance subsidy payments for providing 
qualified prescription drug coverage under this part 
under section 1860D–8. 
‘‘(6) CONSOLIDATION OF DRUG AND NON-DRUG 
PREMIUMS.—In the case of an EFFS plan that in-
cludes qualified prescription drug coverage, with re-
spect to an enrollee in such plan there shall be a sin-
gle premium for both drug and non-drug coverage 
provided under the plan. 
‘‘(7) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE; STANDARD
COVERAGE.—For purposes of 
this part, the terms ‘qualified prescription drug cov-
erage’ and ‘standard coverage’ have the meanings 
given such terms in section 1860D–2.’’. 
(c) CONFORMING AMENDMENTS.—Section 1851 (42 
U.S.C. 1395w–21) is amended—
118
(1) in subsection (a)(1)—
(A) by inserting ‘‘(other than qualified pre-
scription drug benefits)’’ after ‘‘benefits’’; 
(B) by striking the period at the end of 
subparagraph (B) and inserting a comma; and 
(C) by adding after and below subpara-
graph (B) the following: 
‘‘and may elect qualified prescription drug coverage 
in accordance with section 1860D–1.’’; and 
(2) in subsection (g)(1), by inserting ‘‘and sec-
tion 1860D–1(c)(2)(B)’’ after ‘‘in this subsection’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section apply to coverage provided on or after January 
1, 2006.
SEC. 103. MEDICAID AMENDMENTS. 
(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN-
COME SUBSIDIES.—
(1) 
REQUIREMENT.—Section 
1902(a) 
(42 
U.S.C. 1396a(a)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (64); 
(B) by striking the period at the end of 
paragraph (65) and inserting ‘‘; and’’; and 
(C) by inserting after paragraph (65) the 
following new paragraph:
119
‘‘(66) provide for making eligibility determina-
tions under section 1935(a).’’. 
(2) NEW
SECTION.—Title XIX is further 
amended—
(A) by redesignating section 1935 as sec-
tion 1936; and 
(B) by inserting after section 1934 the fol-
lowing new section: 
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE 
PRESCRIPTION DRUG BENEFIT 
‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI-
BILITY
DETERMINATIONS
FOR
LOW-INCOME
SUB-
SIDIES.—As a condition of its State plan under this title 
under section 1902(a)(66) and receipt of any Federal fi-
nancial assistance under section 1903(a), a State shall—
‘‘(1) make determinations of eligibility for pre-
mium and cost-sharing subsidies under (and in ac-
cordance with) section 1860D–7; 
‘‘(2) inform the Administrator of the Medicare 
Benefits Administration of such determinations in 
cases in which such eligibility is established; and 
‘‘(3) otherwise provide such Administrator with 
such information as may be required to carry out 
part D of title XVIII (including section 1860D–7). 
‘‘(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE 
COSTS.—
120
‘‘(1) IN GENERAL.—The amounts expended by 
a State in carrying out subsection (a) are, subject to 
paragraph (2), expenditures reimbursable under the 
appropriate paragraph of section 1903(a); except 
that, notwithstanding any other provision of such 
section, the applicable Federal matching rates with 
respect to such expenditures under such section shall 
be increased as follows (but in no case shall the rate 
as so increased exceed 100 percent): 
‘‘(A) For expenditures attributable to costs 
incurred during 2005, the otherwise applicable 
Federal matching rate shall be increased by 6-
2⁄3 percent of the percentage otherwise payable 
(but for this subsection) by the State. 
‘‘(B)(i) For expenditures attributable to 
costs incurred during 2006 and each subse-
quent year through 2018, the otherwise applica-
ble Federal matching rate shall be increased by 
the applicable percent (as defined in clause (ii)) 
of the percentage otherwise payable (but for 
this subsection) by the State. 
‘‘(ii) For purposes of clause (i), the ‘appli-
cable percent’ for—
‘‘(I) 2006 is 13-1⁄3 percent; or
121
‘‘(II) a subsequent year is the applica-
ble percent under this clause for the pre-
vious year increased by 6-2⁄3 percentage 
points. 
‘‘(C) For expenditures attributable to costs 
incurred after 2018, the otherwise applicable 
Federal matching rate shall be increased to 100 
percent.
‘‘(2) COORDINATION.—The State shall provide 
the Administrator with such information as may be 
necessary to properly allocate administrative expend-
itures described in paragraph (1) that may otherwise 
be made for similar eligibility determinations.’’. 
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID 
RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB-
SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN
GENERAL.—Section 1903(a)(1) (42 
U.S.C. 1396b(a)(1)) is amended by inserting before 
the semicolon the following: ‘‘, reduced by the 
amount computed under section 1935(c)(1) for the 
State and the quarter’’. 
(2) AMOUNT DESCRIBED.—Section 1935, as in-
serted by subsection (a)(2), is amended by adding at 
the end the following new subsection:
122
‘‘(c) FEDERAL ASSUMPTION
OF MEDICAID PRE-
SCRIPTION DRUG COSTS FOR DUALLY-ELIGIBLE BENE-
FICIARIES.—
‘‘(1) IN
GENERAL.—For purposes of section 
1903(a)(1), for a State that is one of the 50 States 
or the District of Columbia for a calendar quarter 
in a year (beginning with 2005) the amount com-
puted under this subsection is equal to the product 
of the following: 
‘‘(A) MEDICARE
SUBSIDIES.—The total 
amount of payments made in the quarter under 
section 1860D–7 (relating to premium and 
cost-sharing prescription drug subsidies for low-
income medicare beneficiaries) that are attrib-
utable to individuals who are residents of the 
State and are entitled to benefits with respect 
to prescribed drugs under the State plan under 
this title (including such a plan operating under 
a waiver under section 1115). 
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent 
the Federal medical assistance percentage (as 
defined in section 1905(b)) applicable to the 
State and the quarter.
123
‘‘(C) 
PHASE-OUT
PROPORTION.—The 
phase-out proportion (as defined in paragraph 
(2)) for the quarter. 
‘‘(2) PHASE-OUT PROPORTION.—For purposes 
of paragraph (1)(C), the ‘phase-out proportion’ for 
a calendar quarter in—
‘‘(A) 2006 is 93-1⁄3 percent; 
‘‘(B) a subsequent year before 2021, is the 
phase-out proportion for calendar quarters in 
the previous year decreased by 6-2⁄3 percentage 
points; or 
‘‘(C) a year after 2020 is 0 percent.’’. 
(c) MEDICAID PROVIDING WRAP-AROUND BENE-
FITS.—Section 1935, as so inserted and amended, is fur-
ther amended by adding at the end the following new sub-
section: 
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the 
case of an individual who is entitled to qualified pre-
scription drug coverage under a prescription drug 
plan under part D of title XVIII (or under a MA-
EFFS Rx plan under part C or E of such title) and 
medical assistance for prescribed drugs under this 
title, medical assistance shall continue to be provided 
under this title (other than for copayment amounts
124
specified in section 1860D–7(a)(1)(B), notwith-
standing section 1916) for prescribed drugs to the 
extent payment is not made under the prescription 
drug plan or MA-EFFS Rx plan selected by the in-
dividual. 
‘‘(2) CONDITION.—A State may require, as a 
condition for the receipt of medical assistance under 
this title with respect to prescription drug benefits 
for an individual eligible to obtain qualified prescrip-
tion drug coverage described in paragraph (1), that 
the individual elect qualified prescription drug cov-
erage under section 1860D–1.’’. 
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1935, as so inserted 
and amended, is further amended—
(A) in subsection (a) in the matter pre-
ceding paragraph (1), by inserting ‘‘subject to 
subsection (e)’’ after ‘‘section 1903(a)’’; 
(B) in subsection (c)(1), by inserting ‘‘sub-
ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and 
(C) by adding at the end the following new 
subsection: 
‘‘(e) TREATMENT OF TERRITORIES.—
125
‘‘(1) IN
GENERAL.—In the case of a State, 
other than the 50 States and the District of Colum-
bia—
‘‘(A) the previous provisions of this section 
shall not apply to residents of such State; and 
‘‘(B) if the State establishes a plan de-
scribed in paragraph (2) (for providing medical 
assistance with respect to the provision of pre-
scription drugs to medicare beneficiaries), the 
amount otherwise determined under section 
1108(f) (as increased under section 1108(g)) 
for the State shall be increased by the amount 
specified in paragraph (3). 
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of covered outpatient 
drugs (as defined in section 1860D–2(f)) to 
low-income medicare beneficiaries; and 
‘‘(B) assures that additional amounts re-
ceived by the State that are attributable to the 
operation of this subsection are used only for 
such assistance. 
‘‘(3) INCREASED AMOUNT.—
126
‘‘(A) IN GENERAL.—The amount specified 
in this paragraph for a State for a year is equal 
to the product of—
‘‘(i) the aggregate amount specified in 
subparagraph (B); and 
‘‘(ii) the amount specified in section 
1108(g)(1) for that State, divided by the 
sum of the amounts specified in such sec-
tion for all such States. 
‘‘(B) AGGREGATE
AMOUNT.—The aggre-
gate amount specified in this subparagraph 
for—
‘‘(i) 2006, is equal to $25,000,000; or 
‘‘(ii) a subsequent year, is equal to the 
aggregate amount specified in this sub-
paragraph for the previous year increased 
by annual percentage increase specified in 
section 1860D–2(b)(5) for the year in-
volved. 
‘‘(4) REPORT.—The Administrator shall submit 
to Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Administrator deems appro-
priate.’’.
127
(2) 
CONFORMING
AMENDMENT.—Section 
1108(f) (42 U.S.C. 1308(f)) is amended by inserting 
‘‘and section 1935(e)(1)(B)’’ after ‘‘Subject to sub-
section (g)’’. 
(e) 
AMENDMENT
TO
BEST
PRICE.—Section 
1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)) is 
amended—
(1) by striking ‘‘and’’ at the end of subclause 
(III); 
(2) by striking the period at the end of sub-
clause (IV) and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
clause: 
‘‘(V) any prices charged which 
are negotiated by a prescription drug 
plan under part D of title XVIII, by 
a MA-EFFS Rx plan under part C or 
E of such title with respect to covered 
outpatient drugs, or by a qualified re-
tiree prescription drug plan (as de-
fined in section 1860D–8(f)(1)) with 
respect to such drugs on behalf of in-
dividuals entitled to benefits under 
part A or enrolled under part B of 
such title.’’.
128
SEC. 104. MEDIGAP TRANSITION. 
(a) IN GENERAL.—Section 1882 (42 U.S.C. 1395ss) 
is amended by adding at the end the following new sub-
section: 
‘‘(v) COVERAGE OF PRESCRIPTION DRUGS.—
‘‘(1) IN GENERAL.—Notwithstanding any other 
provision of law, except as provided in paragraph (3) 
no new medicare supplemental policy that provides 
coverage of expenses for prescription drugs may be 
issued under this section on or after January 1, 
2006, to an individual unless it replaces a medicare 
supplemental policy that was issued to that indi-
vidual and that provided some coverage of expenses 
for prescription drugs. Nothing in this subsection 
shall be construed as preventing the policy holder of 
a medicare supplemental policy issued before Janu-
ary 1, 2006, from continuing to receive benefits 
under such policy on and after such date. 
‘‘(2) ISSUANCE OF SUBSTITUTE POLICIES FOR 
BENEFICIARIES
ENROLLED
WITH
A
PLAN
UNDER 
PART D.—
‘‘(A) IN GENERAL.—The issuer of a medi-
care supplemental policy—
‘‘(i) may not deny or condition the 
issuance or effectiveness of a medicare 
supplemental policy that has a benefit
129
package classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’, 
‘F’, or ‘G’ (under the standards estab-
lished under subsection (p)(2)) and that is 
offered and is available for issuance to new 
enrollees by such issuer; 
‘‘(ii) may not discriminate in the pric-
ing of such policy, because of health sta-
tus, claims experience, receipt of health 
care, or medical condition; and 
‘‘(iii) may not impose an exclusion of 
benefits based on a pre-existing condition 
under such policy, 
in the case of an individual described in sub-
paragraph (B) who seeks to enroll under the 
policy not later than 63 days after the date of 
the termination of enrollment described in such 
paragraph and who submits evidence of the 
date of termination or disenrollment along with 
the application for such medicare supplemental 
policy. 
‘‘(B) INDIVIDUAL
COVERED.—An indi-
vidual described in this subparagraph is an in-
dividual who—
‘‘(i) enrolls in a prescription drug plan 
under part D; and
130
‘‘(ii) at the time of such enrollment 
was enrolled and terminates enrollment in 
a medicare supplemental policy which has 
a benefit package classified as ‘H’, ‘I’, or 
‘J’ under the standards referred to in sub-
paragraph (A)(i) or terminates enrollment 
in a policy to which such standards do not 
apply but which provides benefits for pre-
scription drugs. 
‘‘(C) ENFORCEMENT.—The provisions of 
paragraph (4) of subsection (s) shall apply with 
respect to the requirements of this paragraph in 
the same manner as they apply to the require-
ments of such subsection. 
‘‘(3) NEW STANDARDS.—In applying subsection 
(p)(1)(E) (including permitting the NAIC to revise 
its model regulations in response to changes in law) 
with respect to the change in benefits resulting from 
title I of the Medicare Prescription Drug and Mod-
ernization Act of 2003, with respect to policies 
issued to individuals who are enrolled in a plan 
under part D, the changes in standards shall only 
provide for substituting (for the benefit packages de-
scribed in paragraph (2)(B)(ii) that included cov-
erage for prescription drugs) two benefit packages
131
that may provide for coverage of cost-sharing (other 
than the prescription drug deductible) with respect 
to qualified prescription drug coverage under such 
part. The two benefit packages shall be consistent 
with the following: 
‘‘(A) FIRST NEW POLICY.—The policy de-
scribed in this subparagraph has the following 
benefits, notwithstanding any other provision of 
this section relating to a core benefit package: 
‘‘(i) Coverage of 50 percent of the 
cost-sharing otherwise applicable under 
parts A and B, except coverage of 100 per-
cent of any cost-sharing otherwise applica-
ble for preventive benefits. 
‘‘(ii) No coverage of the part B de-
ductible. 
‘‘(iii) Coverage for all hospital coin-
surance for long stays (as in the current 
core benefit package). 
‘‘(iv) A limitation on annual out-of-
pocket expenditures under parts A and B 
to $4,000 in 2005 (or, in a subsequent 
year, to such limitation for the previous 
year increased by an appropriate inflation 
adjustment specified by the Secretary).
132
‘‘(B) SECOND
NEW
POLICY.—The policy 
described in this subparagraph has the same 
benefits as the policy described in subparagraph 
(A), except as follows: 
‘‘(i) Substitute ‘75 percent’ for ‘50 
percent’ in clause (i) of such subpara-
graph. 
‘‘(ii) Substitute ‘$2,000’ for ‘$4,000’ 
in clause (iv) of such subparagraph. 
‘‘(4) CONSTRUCTION.—Any provision in this 
section or in a medicare supplemental policy relating 
to guaranteed renewability of coverage shall be 
deemed to have been met through the offering of 
other coverage under this subsection.’’. 
(b) NAIC REPORT TO CONGRESS ON MEDIGAP MOD-
ERNIZATION.—The Secretary shall request the National 
Association of Insurance Commissioners to submit to Con-
gress, not later than 18 months after the date of the en-
actment of this Act, a report that includes recommenda-
tions on the modernization of coverage under the medigap 
program under section 1882 of the Social Security Act (42 
U.S.C. 1395ss).
133
SEC. 105. MEDICARE PRESCRIPTION DRUG DISCOUNT 
CARD AND ASSISTANCE PROGRAM. 
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1806 the following new sections: 
‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD 
ENDORSEMENT AND ASSISTANCE PROGRAM 
‘‘SEC. 1807. (a) ESTABLISHMENT OF PROGRAM.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a program—
‘‘(A) to endorse prescription drug discount 
card programs (each such program referred to 
as an ‘endorsed program’) that meet the re-
quirements of this section in order to provide 
access to prescription drug discounts through 
eligible 
entities 
for 
medicare 
beneficiaries 
throughout the United States; and 
‘‘(B) to provide for prescription drug ac-
counts and public contributions into such ac-
counts. 
The Secretary shall make available to medicare 
beneficiaries information regarding endorsed pro-
grams and accounts under this section. 
‘‘(2) LIMITED
PERIOD
OF
OPERATION.—The 
Secretary shall begin—
‘‘(A) the card endorsement part of the pro-
gram under paragraph (1)(A) as soon as pos-
134
sible, but in no case later than 90 days after 
the date of the enactment of this section; and 
‘‘(B) the prescription drug account part of 
the program under paragraph (1)(B) as soon as 
possible, but in no case later than September 
2004. 
‘‘(3) TRANSITION.—The program under this 
section shall continue through 2005 throughout the 
United States. The Secretary shall provide for an 
appropriate transition and termination of such pro-
gram on January 1, 2006. 
‘‘(4) VOLUNTARY
NATURE
OF
PROGRAM.—
Nothing in this section shall be construed as requir-
ing an eligible beneficiary to enroll in the program 
under this section. 
‘‘(b) ELIGIBLE BENEFICIARY; ELIGIBLE ENTITY; 
PRESCRIPTION DRUG ACCOUNT.—For purposes of this 
section: 
‘‘(1) ELIGIBLE BENEFICIARY.—The term ‘eligi-
ble beneficiary’ means an individual who is eligible 
for benefits under part A or enrolled under part B 
and who is not enrolled in a Medicare Advantage 
plan that offers qualified prescription drug coverage. 
‘‘(2) ELIGIBLE ENTITY.—The term ‘eligible en-
tity’ means any entity that the Secretary determines
135
to be appropriate to provide the benefits under this 
section, including—
‘‘(A) pharmaceutical benefit management 
companies; 
‘‘(B) wholesale and retail pharmacy deliv-
ery systems; 
‘‘(C) insurers; 
‘‘(D) Medicare Advantage organizations; 
‘‘(E) other entities; or 
‘‘(F) any combination of the entities de-
scribed in subparagraphs (A) through (E). 
‘‘(3) PRESCRIPTION
DRUG
ACCOUNT.—The 
term ‘prescription drug account’ means, with respect 
to an eligible beneficiary, an account established for 
the benefit of that beneficiary under section 1807A. 
‘‘(c) ENROLLMENT IN ENDORSED PLAN.—
‘‘(1) ESTABLISHMENT OF PROCESS.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish a process through which an eligible 
beneficiary may make an election to enroll 
under this section with an endorsed program. 
‘‘(B) REQUIREMENT
OF
ENROLLMENT.—
An eligible beneficiary must enroll under this 
section for a year in order to be eligible to re-
136
ceive the benefits under this section for that 
year. 
‘‘(C) LIMITATION ON ENROLLMENT.—
‘‘(i) IN
GENERAL.—Except as pro-
vided under this subparagraph and under 
such exceptional circumstances as the Sec-
retary may provide, an eligible individual 
shall have the opportunity to enroll under 
this section during an initial, general en-
rollment period as soon as possible after 
the date of the enactment of this section 
and annually thereafter. The Secretary 
shall specify the form, manner, and timing 
of such election but shall permit the exer-
cise of such election at the time the indi-
vidual is eligible to enroll. The annual open 
enrollment periods shall be coordinated 
with those provided under the Medicare 
Advantage program under part C. 
‘‘(ii) 
REELECTION
AFTER
TERMI-
NATION OF ENROLLMENT IN A MEDICARE 
ADVANTAGE PLAN.—In the case of an indi-
vidual who is enrolled under this section 
and who subsequently enrolls in a Medi-
care Advantage plan that provides quali-
137
fied prescription drug coverage under part 
C, the individual shall be given the oppor-
tunity to reenroll under this section at the 
time the individual discontinues the enroll-
ment under such part. 
‘‘(iii) LATE ENROLLMENT.—The Sec-
retary shall permit individuals to elect to 
enroll under this section at times other 
than as permitted under the previous pro-
visions of this paragraph. 
‘‘(D) TERMINATION
OF
ENROLLMENT.—
An enrollee under this section shall be 
disenrolled—
‘‘(i) upon enrollment in a Medicare 
Advantage plan under part C that provides 
qualified prescription drug coverage; 
‘‘(ii) upon failure to pay the applicable 
enrollment fee under subsection (f); 
‘‘(iii) upon termination of coverage 
under part A or part B; or 
‘‘(iv) upon notice submitted to the 
Secretary in such form, manner, and time 
as the Secretary shall provide.
138
Terminations of enrollment under this subpara-
graph shall be effective as specified by the Sec-
retary in regulations. 
‘‘(2) ENROLLMENT PERIODS.—
‘‘(A) IN
GENERAL.—Except as provided 
under this paragraph, an eligible beneficiary 
may not enroll in the program under this part 
during any period after the beneficiary’s initial 
enrollment period under part B (as determined 
under section 1837). 
‘‘(B) OPEN
ENROLLMENT
PERIOD
FOR 
CURRENT BENEFICIARIES.—The Secretary shall 
establish a period, which shall begin on the date 
on which the Secretary first begins to accept 
elections for enrollment under this section and 
shall end not earlier than 3 months later, dur-
ing which any eligible beneficiary may enroll 
under this section. 
‘‘(C) SPECIAL
ENROLLMENT
PERIOD
IN 
CASE OF TERMINATION OF COVERAGE UNDER A 
GROUP
HEALTH
PLAN.—The Secretary shall 
provide for a special enrollment period under 
this section in the same manner as is provided 
under section 1837(i) with respect to part B, 
except that for purposes of this subparagraph
139
any reference to ‘by reason of the individual’s 
(or the individual’s spouse’s) current employ-
ment status’ shall be treated as being deleted. 
‘‘(3) PERIOD OF COVERAGE.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B) and subject to subparagraph 
(C), an eligible beneficiary’s coverage under the 
program under this section shall be effective for 
the period provided under section 1838, as if 
that section applied to the program under this 
section. 
‘‘(B) ENROLLMENT
DURING
OPEN
AND 
SPECIAL
ENROLLMENT.—Subject to subpara-
graph (C), an eligible beneficiary who enrolls 
under the program under this section under 
subparagraph (B) or (C) of paragraph (2) shall 
be entitled to the benefits under this section be-
ginning on the first day of the month following 
the month in which such enrollment occurs. 
‘‘(d) SELECTION OF AN ELIGIBLE ENTITY FOR AC-
CESS TO NEGOTIATED PRICES.—
‘‘(1) PROCESS.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish a process through which an eligible 
beneficiary who is enrolled under this section
140
shall select any eligible entity, that has been 
awarded a contract under this section and 
serves the State in which the beneficiary re-
sides, to provide access to negotiated prices 
under subsection (i). 
‘‘(B) RULES.—In establishing the process 
under subparagraph (A), the Secretary shall 
use rules similar to the rules for enrollment and 
disenrollment with a Medicare Advantage plan 
under section 1851 (including the special elec-
tion periods under subsection (e)(4) of such sec-
tion), including that—
‘‘(i) an individual may not select more 
than one eligible entity at any time; and 
‘‘(ii) an individual shall only be per-
mitted (except for unusual circumstances) 
to change the selection of the entity once 
a year. 
In carrying out clause (ii), the Secretary may 
consider a change in residential setting (such as 
placement in a nursing facility) to be an un-
usual circumstance. 
‘‘(C) DEFAULT
SELECTION.—In estab-
lishing such process, the Secretary shall provide 
an equitable method for selecting an eligible en-
141
tity for individuals who enroll under this section 
and fail to make such a selection. 
‘‘(2) COMPETITION.—Eligible entities with a 
contract under this section shall compete for bene-
ficiaries on the basis of discounts, formularies, phar-
macy networks, and other services provided for 
under the contract. 
‘‘(e) PROVIDING ENROLLMENT, SELECTION, AND 
COVERAGE INFORMATION TO BENEFICIARIES.—
‘‘(1) ACTIVITIES.—The Secretary shall provide 
for activities under this section to broadly dissemi-
nate information to eligible beneficiaries (and pro-
spective eligible beneficiaries) regarding enrollment 
under this section, the selection of eligible entities, 
and the prescription drug coverage made available 
by eligible entities with a contract under this section. 
‘‘(2) SPECIAL RULE FOR FIRST ENROLLMENT 
UNDER THE PROGRAM.—To the extent practicable, 
the activities described in paragraph (1) shall ensure 
that eligible beneficiaries are provided with such in-
formation at least 60 days prior to the first enroll-
ment period described in subsection (c). 
‘‘(f) ENROLLMENT FEE.—
‘‘(1) AMOUNT.—Except as provided in para-
graph (3), enrollment under the program under this
142
section is conditioned upon payment of an annual 
enrollment fee of $30. Such fee for 2004 shall in-
clude any portion of 2003 in which the program is 
implemented under this section. 
‘‘(2) COLLECTION OF ENROLLMENT FEE.—The 
annual enrollment fee shall be collected and credited 
to the Federal Supplementary Medical Insurance 
Trust Fund in the same manner as the monthly pre-
mium determined under section 1839 is collected 
and credited to such Trust Fund under section 
1840, except that it shall be collected only 1 time 
per year. 
‘‘(3) PAYMENT OF ENROLLMENT FEE BY STATE 
FOR CERTAIN BENEFICIARIES.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish an arrangement under which a State 
may provide for payment of some or all of the 
enrollment fee for some or all low income en-
rollees in the State, as specified by the State 
under the arrangement. Insofar as such a pay-
ment arrangement is made with respect to an 
enrollee, the amount of the enrollment fee shall 
be paid directly by the State and shall not be 
collected under paragraph (2). In carrying out 
this paragraph, the Secretary may apply proce-
143
dures similar to that applied under state agree-
ments under section 1843. 
‘‘(B) NO FEDERAL MATCHING AVAILABLE 
UNDER
MEDICAID
OR
SCHIP.—Expenditures 
made by a State described in subparagraph (A) 
shall not be treated as State expenditures for 
purposes of Federal matching payments under 
titles XIX and XXI insofar as such expendi-
tures are for an enrollment fee under this sub-
section. 
‘‘(4) DISTRIBUTION OF PORTION OF ENROLL-
MENT FEE.—Of the enrollment fee collected by the 
Secretary under this subsection with respect to a 
beneficiary, 2⁄3 of that fee shall be made available to 
the eligible entity selected by the eligible beneficiary. 
‘‘(g) ISSUANCE
OF CARD
AND COORDINATION.—
Each eligible entity shall—
‘‘(1) issue, in a uniform standard format 
specified by the Secretary, to each enrolled ben-
eficiary a card and an enrollment number that 
establishes proof of enrollment and that can be 
used in a coordinated manner—
‘‘(A) to identify the eligible entity selected 
to provide access to negotiated prices under 
subsection (i); and
144
‘‘(B) to make deposits to and withdrawals 
from a prescription drug account under section 
1807A; and 
‘‘(2) provide for electronic methods to coordi-
nate with the accounts established under section 
1807A. 
‘‘(h) ENROLLEE PROTECTIONS.—
‘‘(1) GUARANTEED ISSUE AND NONDISCRIMINA-
TION.—
‘‘(A) GUARANTEED ISSUE.—
‘‘(i) IN GENERAL.—An eligible bene-
ficiary who is eligible to select an eligible 
entity under subsection (b) for prescription 
drug coverage under this section at a time 
during which selections are accepted under 
this section with respect to the coverage 
shall not be denied selection based on any 
health status-related factor (described in 
section 2702(a)(1) of the Public Health 
Service Act) or any other factor and may 
not be charged any selection or other fee 
as a condition of such acceptance. 
‘‘(ii) MEDICARE ADVANTAGE LIMITA-
TIONS
PERMITTED.—The provisions of 
paragraphs (2) and (3) (other than sub-
145
paragraph (C)(i), relating to default enroll-
ment) of section 1851(g) (relating to pri-
ority and limitation on termination of elec-
tion) shall apply to selection of eligible en-
tities under this paragraph. 
‘‘(B) NONDISCRIMINATION.—An eligible 
entity offering prescription drug coverage under 
this section shall not establish a service area in 
a manner that would discriminate based on 
health or economic status of potential enrollees. 
‘‘(C) COVERAGE OF ALL PORTIONS OF A 
STATE.—If an eligible entity with a contract 
under this section serves any part of a State it 
shall serve the entire State. 
‘‘(2) DISSEMINATION OF INFORMATION.—
‘‘(A) GENERAL INFORMATION.—An eligible 
entity with a contract under this section shall 
disclose, in a clear, accurate, and standardized 
form to each eligible beneficiary who has se-
lected the entity to provide access to negotiated 
prices under this section at the time of selection 
and at least annually thereafter, the informa-
tion described in section 1852(c)(1) relating to 
such prescription drug coverage. Such informa-
tion includes the following (in a manner de-
146
signed to permit and promote competition 
among eligible entities): 
‘‘(i) Summary information regarding 
negotiated prices (including discounts) for 
covered outpatient drugs. 
‘‘(ii) Access to such prices through 
pharmacy networks. 
‘‘(iii) How any formulary used by the 
eligible entity functions. 
‘‘(B) DISCLOSURE
UPON
REQUEST
OF 
GENERAL COVERAGE, UTILIZATION, AND GRIEV-
ANCE INFORMATION.—Upon request of an eligi-
ble beneficiary, the eligible entity shall provide 
the information described in section 1852(c)(2) 
(other than subparagraph (D)) to such bene-
ficiary. 
‘‘(C) RESPONSE
TO
BENEFICIARY
QUES-
TIONS.—Each eligible entity offering prescrip-
tion drug coverage under this section shall have 
a mechanism (including a toll-free telephone 
number) for providing upon request specific in-
formation (such as negotiated prices, including 
discounts) to individuals who have selected the 
entity. The entity shall make available, through 
an Internet website and in writing upon re-
147
quest, information on specific changes in its 
formulary. 
‘‘(D) COORDINATION WITH PRESCRIPTION 
DRUG ACCOUNT BENEFITS.—Each such eligible 
entity shall provide for coordination of such in-
formation as the Secretary may specify to carry 
out section 1807A. 
‘‘(3) ACCESS TO COVERED BENEFITS.—
‘‘(A) ENSURING PHARMACY ACCESS.—The 
provisions of subsection (c)(1) of section 
1860D–3 (other than payment provisions under 
section 1860D–8 with respect to sponsors under 
such subsection) shall apply to an eligible entity 
under this section in the same manner as they 
apply to a PDP sponsor under such section. 
‘‘(B) ACCESS TO NEGOTIATED PRICES FOR 
PRESCRIPTION
DRUGS.—For requirements re-
lating to the access of an eligible beneficiary to 
negotiated prices (including applicable dis-
counts), see subsection (i). 
‘‘(C) REQUIREMENTS
ON
DEVELOPMENT 
AND APPLICATION OF FORMULARIES.—Insofar 
as an eligible entity with a contract under this 
part uses a formulary, the entity shall comply 
with the requirements of section 1860D–
148
3(c)(3), insofar as the Secretary determines 
that such requirements can be implemented on 
a timely basis. 
‘‘(4) COST
AND
UTILIZATION
MANAGEMENT; 
QUALITY ASSURANCE; MEDICATION THERAPY MAN-
AGEMENT PROGRAM.—
‘‘(A) IN GENERAL.—For purposes of pro-
viding access to negotiated benefits under sub-
section (i), the eligible entity shall have in place 
the programs and measure described in section 
1860D–3(d), including an effective cost and 
drug utilization management program, quality 
assurance measures and systems, and a pro-
gram to control fraud, abuse, and waste, inso-
far as the Secretary determines that such provi-
sions can be implemented on a timely basis. 
‘‘(B) TREATMENT
OF
ACCREDITATION.—
Section 1852(e)(4) (relating to treatment of ac-
creditation) shall apply to the requirements for 
an endorsed program under this section with 
respect to the following requirements, in the 
same manner as they apply to Medicare Advan-
tage plans under part C with respect to the re-
quirements described in a clause of section 
1852(e)(4)(B):
149
‘‘(i) Paragraph (3)(A) (relating to ac-
cess to covered benefits). 
‘‘(ii) Paragraph (7) (relating to con-
fidentiality 
and 
accuracy 
of 
enrollee 
records). 
‘‘(5) GRIEVANCE
MECHANISM.—Each eligible 
entity shall provide meaningful procedures for hear-
ing and resolving grievances between the organiza-
tion consistent with the requirements of section 
1860D–3(e) insofar as they relate to PDP sponsors 
of prescription drug plans. 
‘‘(6) BENEFICIARY SERVICES.—An eligible enti-
ty shall provide for its enrollees pharmaceutical sup-
port services, such as education and counseling, and 
services to prevent adverse drug interactions. 
‘‘(7) COVERAGE DETERMINATIONS AND RECON-
SIDERATIONS.—An eligible entity shall meet the re-
quirements of paragraphs (1) through (3) of section 
1852(g) with respect to covered benefits under the 
prescription drug coverage it offers under this sec-
tion in the same manner as such requirements apply 
to a Medicare Advantage organization with respect 
to benefits it offers under a Medicare Advantage 
plan under part C.
150
‘‘(8) CONFIDENTIALITY AND ACCURACY OF EN-
ROLLEE RECORDS.—An eligible entity shall meet the 
requirements of section 1852(h) with respect to en-
rollees under this section in the same manner as 
such requirements apply to a Medicare Advantage 
organization with respect to enrollees under part C. 
The eligible entity shall implement policies and pro-
cedures to safeguard the use and disclosure of en-
rollees’ individually identifiable health information in 
a manner consistent with the Federal regulations 
(concerning the privacy of individually identifiable 
health information) promulgated under section 
264(c) of the Health Insurance Portability and Ac-
countability Act of 1996. The eligible entity shall be 
treated as a covered entity for purposes of the provi-
sions of subpart E of part 164 of title 45, Code of 
Federal Regulations, adopted pursuant to the au-
thority of the Secretary under section 264(c) of the 
Health Insurance Portability and Accountability Act 
of 1996 (42 U.S. C. 1320d-2 note). 
‘‘(9) PERIODIC
REPORTS
AND
OVERSIGHT.—
The eligible entity shall submit to the Secretary peri-
odic reports on performance, utilization, finances, 
and such other matters as the Secretary may speci-
fy. The Secretary shall provide appropriate oversight
151
to ensure compliance of eligible entities with the re-
quirements of this subsection, including verification 
of the discounts and services provided. 
‘‘(10) 
ADDITIONAL
BENEFICIARY
PROTEC-
TIONS.—The eligible entity meets such additional re-
quirements as the Secretary identifies to protect and 
promote the interest of enrollees, including require-
ments that ensure that enrollees are not charged 
more than the lower of the negotiated retail price or 
the usual and customary price. 
‘‘(i) BENEFITS UNDER
THE PROGRAM THROUGH 
SAVINGS
TO
ENROLLEES
THROUGH
NEGOTIATED 
PRICES.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
each eligible entity with a contract under this section 
shall provide each eligible beneficiary enrolled with 
the entity with access to negotiated prices (including 
applicable discounts). For purposes of this para-
graph, the term ‘prescription drugs’ is not limited to 
covered outpatient drugs, but does not include any 
over-the-counter drug that is not a covered out-
patient drug. The prices negotiated by an eligible en-
tity under this paragraph shall (notwithstanding any 
other provision of law) not be taken into account for
152
the purposes of establishing the best price under sec-
tion 1927(c)(1)(C). 
‘‘(2) FORMULARY
RESTRICTIONS.—Insofar as 
an eligible entity with a contract under this part 
uses a formulary, the negotiated prices (including 
applicable discounts) for prescription drugs shall 
only be available for drugs included in such for-
mulary. 
‘‘(3) PROHIBITION ON APPLICATION ONLY TO 
MAIL ORDER.—The negotiated prices under this sub-
section shall apply to prescription drugs that are 
available other than solely through mail order. 
‘‘(4) PROHIBITION ON CHARGES FOR REQUIRED 
SERVICES.—An eligible entity (and any pharmacy 
contracting with such entity for the provision of a 
discount under this section) may not charge a bene-
ficiary any amount for any services required to be 
provided by the entity under this section. 
‘‘(5) DISCLOSURE.—The eligible entity offering 
the endorsed program shall disclose to the Secretary 
(in a manner specified by the Secretary) the extent 
to which discounts or rebates or other remuneration 
or price concessions made available to the entity by 
a manufacturer are passed through to enrollees 
through pharmacies and other dispensers or other-
153
wise. The provisions of section 1927(b)(3)(D) shall 
apply to information disclosed to the Secretary 
under this paragraph in the same manner as such 
provisions apply to information disclosed under such 
section. 
‘‘(6) PUBLIC DISCLOSURE OF PHARMACEUTICAL 
PRICES FOR EQUIVALENT DRUGS.—Each eligible en-
tity shall provide that each pharmacy or other dis-
penser that arranges for the dispensing of a covered 
outpatient drug in connection with its endorsed pro-
gram shall inform the enrollee in that program at 
the time of purchase of the drug of any differential 
between the price of the prescribed drug to the en-
rollee and the price of the lowest cost available ge-
neric drug covered under the program that is thera-
peutically equivalent and bioequivalent. 
‘‘(j) CONTRIBUTION INTO PRESCRIPTION DRUG AC-
COUNT.—
‘‘(1) IN GENERAL.—In the case of an individual 
enrolled under this section, the Secretary shall—
‘‘(A) establish a prescription drug account 
for the individual under section 1807A; and 
‘‘(B) subject to paragraph (5), deposit into 
such account on a monthly or other periodic 
basis an amount that, on an annual basis, is
154
equivalent to the annual Federal contribution 
amount specified in paragraph (2) for the en-
rollee involved. 
‘‘(2) 
ANNUAL
FEDERAL
CONTRIBUTION 
AMOUNT.—Subject to paragraph (3), in the case of 
an accountholder whose income is—
‘‘(A) not more than 135 percent of the 
poverty line, the annual Federal contribution 
amount for a year is $800; 
‘‘(B) more than 135 percent, but not more 
than 150 percent, of the poverty line, the an-
nual Federal contribution amount for a year is 
$500; or 
‘‘(C) more than 150 percent of the poverty 
line, the annual Federal contribution amount 
for a year is $100. 
‘‘(3) INCOME ELIGIBILITY DETERMINATIONS.—
The determination of whether an individual residing 
in a State is a eligible for a contribution under para-
graph (1) shall be determined under the State med-
icaid plan for the State under section 1935(a) or by 
the Social Security Administration. In the case of a 
State that does not operate such a medicaid plan 
(either under title XIX or under a statewide waiver 
granted under section 1115), such determination
155
shall be made under arrangements made by the Sec-
retary. There are authorized to be appropriated to 
the Social Security Administration such sums as 
may be necessary for the determination of eligibility 
under this paragraph. 
‘‘(4) PARTIAL YEAR.—Insofar as the provisions 
of this subsection and section 1807A are not imple-
mented for all months in 2004, the annual contribu-
tion amount under this subsection for 2004 shall be 
prorated to reflect the portion of that year in which 
such provisions are in effect. 
‘‘(5) RESTRICTION ON CONTRIBUTIONS.—There 
shall only be an annual Federal contribution under 
paragraph (1) for an individual if the individual is 
not eligible for coverage of, or assistance for, out-
patient prescription drugs under any of the fol-
lowing: 
‘‘(A) A medicaid plan under title XIX (in-
cluding under any waiver approved under sec-
tion 1115). 
‘‘(B) Enrollment under a group health 
plan or health insurance coverage. 
‘‘(C) Enrollment under a medicare supple-
mental insurance policy.
156
‘‘(D) Chapter 55 of title 10, United States 
Code (relating to medical and dental care for 
members of the uniformed services). 
‘‘(E) Chapter 17 of title 38, United States 
Code (relating to Veterans’ medical care). 
‘‘(F) Enrollment under a plan under chap-
ter 89 of title 5, United States Code (relating 
to the Federal employees’ health benefits pro-
gram). 
‘‘(G) The Indian Health Care Improve-
ment Act (25 U.S.C. 1601 et seq.). 
‘‘(6) APPROPRIATION TO COVER NET PROGRAM 
EXPENDITURES.—There are authorized to be appro-
priated from time to time, out of any moneys in the 
Treasury not otherwise appropriated, to the Federal 
Supplementary Medical Insurance Trust Fund es-
tablished under section 1841, an amount equal to 
the amount by which the benefits and administrative 
costs of providing the benefits under this section ex-
ceed the sum of the portion of the enrollment fees 
retained by the Secretary. 
‘‘(k) DEFINITIONS.—In this part and section 1807A: 
‘‘(1) COVERED OUTPATIENT DRUG.—
157
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, for purposes of this section, the 
term ‘covered outpatient drug’ means—
‘‘(i) a drug that may be dispensed 
only upon a prescription and that is de-
scribed in subparagraph (A)(i) or (A)(ii) of 
section 1927(k)(2); or 
‘‘(ii) a biological product described in 
clauses (i) through (iii) of subparagraph 
(B) of such section or insulin described in 
subparagraph (C) of such section and med-
ical supplies associated with the injection 
of insulin (as defined in regulations of the 
Secretary), 
and such term includes a vaccine licensed under 
section 351 of the Public Health Service Act 
and any use of a covered outpatient drug for a 
medically accepted indication (as defined in sec-
tion 1927(k)(6)). 
‘‘(B) EXCLUSIONS.—
‘‘(i) IN
GENERAL.—Such term does 
not include drugs or classes of drugs, or 
their medical uses, which may be excluded 
from coverage or otherwise restricted 
under section 1927(d)(2), other than sub-
159
‘‘(i) for which payment would not be 
made if section 1862(a) applied to part D; 
or 
‘‘(ii) which are not prescribed in ac-
cordance with the program or this section. 
Such exclusions are determinations subject to 
review pursuant to subsection (h)(5). 
‘‘(2) POVERTY LINE.—The term ‘poverty line’ 
means the income official poverty line (as defined by 
the Office of Management and Budget, and revised 
annually in accordance with section 673(2) of the 
Omnibus Budget Reconciliation Act of 1981) appli-
cable to a family of the size involved. 
‘‘(l) AUTHORIZATION OF APPROPRIATIONS.—There 
are authorized to be appropriated such sums as may be 
necessary to carry out this section and section 1807A. 
‘‘(m) INTERIM, FINAL REGULATORY AUTHORITY.—
In order to carry out this section and section 1807A in 
a timely manner, the Secretary may promulgate regula-
tions that take effect on an interim basis, after notice and 
pending opportunity for public comment. 
‘‘PRESCRIPTION DRUG ACCOUNTS 
‘‘SEC. 1807A. ‘‘(a) ESTABLISHMENT
OF
AC-
COUNTS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish and maintain for each eligible beneficiary who is
160
enrolled under section 1807 at the time of enroll-
ment a prescription drug account (in this section 
and section 1807 referred to as an ‘account’). 
‘‘(2) RESERVE ACCOUNTS.—In cases described 
in 
subsections 
(b)(3)(A), 
(b)(3)(B)(i), 
and 
(b)(3)(B)(ii)(I), the Secretary shall establish and 
maintain for each surviving spouse who is not en-
rolled under section 1807 a reserve prescription drug 
account (in this section referred to as an ‘reserve ac-
count’). 
‘‘(3) ACCOUNTHOLDER DEFINED.—In this sec-
tion and section 1807A, the term ‘accountholder’ 
means an individual for whom an account or reserve 
account has been established under this section. 
‘‘(4) EXPENDITURES
FROM
ACCOUNT.—Noth-
ing in this section shall be construed as requiring 
the Federal Government to obligate funds for 
amounts in any account until such time as a with-
drawal from such account is authorized under this 
section. 
‘‘(b) USE OF ACCOUNTS.—
‘‘(1) APPLICATION
OF
ACCOUNT.—Except as 
provided in this subsection, amounts credited to an 
account shall only be used for the purchase of cov-
ered outpatient drugs for the accountholder. Any
161
amounts remaining at the end of a year remain 
available for expenditures in succeeding years. 
‘‘(2) ACCOUNT RULES FOR PUBLIC AND PRI-
VATE CONTRIBUTIONS.—The Secretary shall estab-
lish a ongoing process for the determination of the 
amount in each account that is attributable to public 
and private contributions (including spousal rollover 
contributions) based on the following rules: 
‘‘(A) TREATMENT
OF
EXPENDITURES.—
Expenditures from the account shall—
‘‘(i) first be counted against any pub-
lic contribution; and 
‘‘(ii) next be counted against private 
contributions. 
‘‘(B) TREATMENT OF SPOUSAL ROLLOVER 
CONTRIBUTIONS.—With respect to any spousal 
rollover contribution, the portions of such con-
tribution that were attributable to public and 
private contributions at the time of its distribu-
tion under subsection (b)(3) shall be treated 
under this paragraph as if it were a direct pub-
lic or private contribution, respectively, into the 
account of the spouse. 
‘‘(3) DEATH OF ACCOUNTHOLDER.—In the case 
of the death of an accountholder, the balance in any
162
account (taking into account liabilities accrued be-
fore the time of death) shall be distributed as fol-
lows: 
‘‘(A) TREATMENT OF PUBLIC CONTRIBU-
TIONS.—If the accountholder is married at the 
time of death, the amount in the account that 
is attributable to public contributions shall be 
credited to the account (if any) of the surviving 
spouse of the accountholder (or, if the surviving 
spouse is not an eligible beneficiary, into a re-
serve account to be held for when that spouse 
becomes an eligible beneficiary). 
‘‘(B) TREATMENT OF PRIVATE CONTRIBU-
TIONS.—The amount in the account that is at-
tributable to private contributions shall be dis-
tributed as follows: 
‘‘(i) 
DESIGNATION
OF
DIS-
TRIBUTEE.—If 
the 
accountholder 
has 
made a designation, in a form and manner 
specified by the Secretary, for the distribu-
tion of some or all of such amount, such 
amount shall be distributed in accordance 
with the designation. Such designation 
may provide for the distribution into an
163
account (including a reserve account) of a 
surviving spouse. 
‘‘(ii) ABSENCE OF DESIGNATION.—In-
sofar as the accountholder has not made 
such a designation—
‘‘(I) SURVIVING SPOUSE.—If the 
accountholder was married at the time 
of death, the remainder shall be cred-
ited to an account (including a reserve 
account) of the accountholder’s sur-
viving spouse. 
‘‘(II) NO SURVIVING SPOUSE.—If 
the accountholder was not so married, 
the remainder shall be distributed to 
the estate of the accountholder and 
distributed as provided by law. 
‘‘(4) USE OF ACCOUNT FOR PREMIUMS FOR EN-
ROLLMENT
IN
A
MEDICARE
ADVANTAGE
PLAN.—
During any period in which an accountholder is en-
rolled in a Medicare Advantage plan under part C, 
the balance in the account may be used and applied 
only to reimburse the amount of the premium (if 
any) established for enrollment under the plan. 
‘‘(5) APPLICATION TO MEDICAID EXPENSES IN 
CERTAIN CASES.—
164
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, an account shall be treated as 
an asset for purposes of establishing eligibility 
for medical assistance under title XIX. 
‘‘(B) 
APPLICATION
TOWARDS 
SPENDDOWN.—In the case of an accountholder 
who is applying for such medical assistance and 
who would, but for the application of subpara-
graph (A), be eligible for such assistance—
‘‘(i) subparagraph (A) shall not apply; 
and 
‘‘(ii) the account shall be available (in 
accordance with a procedure established by 
the Secretary) to the State to reimburse 
the State for any expenditures made under 
the plan for such medical assistance. 
‘‘(c) AMOUNTS CREDITED IN ACCOUNT.—The Sec-
retary shall credit to a prescription drug account of an 
eligible beneficiary the following amounts: 
‘‘(1) PUBLIC
CONTRIBUTIONS.—The following 
contributions (each referred to in this section as a 
‘public contribution’): 
‘‘(A) FEDERAL CONTRIBUTIONS.—Federal 
contributions provided under subsection (d).
165
‘‘(B) STATE
CONTRIBUTIONS.—Contribu-
tions made by a State under subsection (f). 
‘‘(2) SPOUSAL
ROLLOVER
CONTRIBUTION.—A 
distribution from a deceased spouse under sub-
section (b)(3) (referred to in this section as a ‘spous-
al rollover contribution’). 
‘‘(3) PRIVATE CONTRIBUTIONS.—The following 
contributions (each referred to in this section as a 
‘private contribution’): 
‘‘(A) EMPLOYER
AND
INDIVIDUAL
CON-
TRIBUTIONS.—Contributions made under sub-
section (e). 
‘‘(B) 
OTHER
INDIVIDUAL
CONTRIBU-
TIONS.—Contributions made by accountholder 
other than under subsection (e). 
‘‘(C) CONTRIBUTIONS BY NONPROFIT OR-
GANIZATIONS.—Contributions made by a chari-
table, not-for-profit organization (that may be a 
religious organization). 
Except as provided in this subsection, no amounts may 
be contributed to, or credited to, a prescription drug ac-
count. 
‘‘(d) FEDERAL CONTRIBUTION.—For Federal con-
tributions in the case of accountholders, see section 
1807(j).
166
‘‘(e) 
EMPLOYER
AND
INDIVIDUAL
CONTRIBU-
TIONS.—
‘‘(1) EMPLOYMENT-RELATED CONTRIBUTION.—
‘‘(A) IN
GENERAL.—In the case of any 
accountholder who is a beneficiary or partici-
pant in a group health plan (including a multi-
employer plan), whether as an employee, former 
employee or otherwise, including as a dependent 
of an employee or former employee, the plan 
may 
make 
a 
contribution 
into 
the 
accountholder’s account (but not into a reserve 
account of the accountholder). 
‘‘(B) LIMITATION.—The total amount that 
may be contributed under subparagraph (A) 
under a plan to an account during any year 
may not exceed $5,000. 
‘‘(C) CONDITION.—A group health plan 
may condition a contribution with respect to an 
accountholder under this paragraph on the 
accountholder’s enrollment under section 1807 
with an eligible entity that is recognized or ap-
proved by that plan. 
‘‘(2) OTHER INDIVIDUALS.—
‘‘(A) IN
GENERAL.—Any individual may 
also contribute to the account of that individual
167
or the account of any other individual under 
this subsection. 
‘‘(B) LIMITATION.—The total amount that 
may be contributed to an account under sub-
paragraph (A) during any year may not exceed 
$5,000, regardless of who makes such contribu-
tion. 
‘‘(3) NO
CONTRIBUTION
PERMITTED
TO
RE-
SERVE
ACCOUNT.—No contribution may be made 
under this subsection to a reserve account. 
‘‘(4) FORM AND MANNER OF CONTRIBUTION.—
The Secretary shall specify the form and manner of 
contributions under this subsection. 
‘‘(f) STATE CONTRIBUTIONS.—
‘‘(1) IN GENERAL.—A State may enter into ar-
rangements with the Secretary for the crediting of 
amounts for accountholders. 
‘‘(2) FORM AND MANNER OF CONTRIBUTION.—
The Secretary shall specify the form and manner of 
contributions under this subsection. 
‘‘(3) MEDICAID
TREATMENT.—Amounts cred-
ited under this subsection shall not be treated as 
medical assistance for purposes of title XIX or child 
health assistance for purposes of title XXI for indi-
168
viduals who are not qualifying low income enroll-
ees.’’. 
(b) EXCLUSION OF COSTS FROM DETERMINATION OF 
PART B MONTHLY PREMIUM.—Section 1839(g) (42 
U.S.C. 1395r(g)) is amended—
(1) by striking ‘‘attributable to the application 
of section’’ and inserting ‘‘attributable to—
‘‘(1) the application of section’’; 
(2) by striking the period and inserting ‘‘; 
and’’; and 
(3) by adding at the end the following new 
paragraph: 
‘‘(2) the Voluntary Medicare Outpatient Pre-
scription Drug Discount and Security Program 
under sections 1807 and 1807A.’’. 
(c) STATE ELIGIBILITY DETERMINATIONS.—Section 
1935, as added by section 103(a)(2), is amended—
(1) in subsection (a)(1), by inserting ‘‘and of 
eligibility for an annual Federal contribution amount 
under section 1807A(j)(2)’’ before the semicolon; 
and 
(2) in subsection (a)(3), by inserting ‘‘and sec-
tions 1807 and 1807A’’ after ‘‘1860D–7)’’.
(d) REPORT ON PROGRESS IN IMPLEMENTATION OF 
PRESCRIPTION DRUG BENEFIT.—Not later than March 1,
169
2005, the Administrator shall submit a report to Congress 
on the progress that has been made in implementing the 
prescription drug benefit under this title. The Adminis-
trator shall include in the report specific steps that have 
been taken, and that need to be taken, to ensure a timely 
start of the program on January 1, 2006. 
SEC. 106. DISCLOSURE OF RETURN INFORMATION FOR 
PURPOSES OF CARRYING OUT MEDICARE 
CATASTROPHIC PRESCRIPTION DRUG PRO-
GRAM. 
(a) DISCLOSURE.—
(1) IN
GENERAL.—Subsection (l) of section 
6103 of the Internal Revenue Code of 1986 (relating 
to disclosure of returns and return information for 
purposes other than tax administration) is amended 
by adding at the end the following new paragraph: 
‘‘(19) DISCLOSURE OF RETURN INFORMATION 
FOR PURPOSES OF CARRYING OUT MEDICARE CATA-
STROPHIC PRESCRIPTION DRUG PROGRAM.—
‘‘(A) IN
GENERAL.—The Secretary may, 
upon written request from the Secretary of 
Health and Human Services under section 
1860D–2(b)(4)(E)(i) of the Social Security Act, 
disclose to officers and employees of the De-
partment of Health and Human Services with
170
respect to a specified taxpayer for the taxable 
year specified by the Secretary of Health and 
Human Services in such request—
‘‘(i) the taxpayer identity information 
with respect to such taxpayer, and 
‘‘(ii) the adjusted gross income of 
such taxpayer for the taxable year (or, if 
less, the income threshold limit specified in 
section 1860D–2(b)(4)(D)(ii) for the cal-
endar year specified by such Secretary in 
such request). 
‘‘(B) SPECIFIED
TAXPAYER.—For pur-
poses of this paragraph, the term ‘specified tax-
payer’ means any taxpayer who—
‘‘(i) is identified by the Secretary of 
Health and Human Services in the request 
referred to in subparagraph (A), and 
‘‘(ii) either—
‘‘(I) has an adjusted gross in-
come for the taxable year referred to 
in subparagraph (A) in excess of the 
income threshold specified in section 
1860D–2(b)(4)(D)(ii) of such Act for 
the calendar year referred to in such 
subparagraph, or
171
‘‘(II) is identified by such Sec-
retary under subparagraph (A) as 
being an individual who elected to use 
more recent information under section 
1860D–2(b)(4)(D)(v) of such Act. 
‘‘(C) JOINT RETURNS.—In the case of a 
joint return, the Secretary shall, for purposes of 
applying this paragraph, treat each spouse as a 
separate taxpayer having an adjusted gross in-
come equal to one-half of the adjusted gross in-
come determined with respect to such return. 
‘‘(D) RESTRICTION ON USE OF DISCLOSED 
INFORMATION.—Return information disclosed 
under subparagraph (A) may be used by offi-
cers and employees of the Department of 
Health and Human Services only for the pur-
pose of administering the prescription drug ben-
efit under title XVIII of the Social Security 
Act. Such officers and employees may disclose 
the annual out-of-pocket threshold which ap-
plies to an individual under such part to the en-
tity that offers the plan referred to in section 
1860D–2(b)(4)(E)(ii) of such Act in which such 
individual is enrolled. Such sponsor may use
172
such information only for purposes of admin-
istering such benefit.’’. 
(2) JOINT
RETURN
PERMITTED
IN
CASE
OF 
SURVIVING SPOUSES.—Under section 6103(a)(3) of 
the Internal Revenue Code of 1986, a surviving 
spouse may file a joint return for the taxable year 
in which one spouse dies. 
(b) CONFIDENTIALITY.—Paragraph (3) of section 
6103(a) of such Code is amended by striking ‘‘or (16)’’ 
and inserting ‘‘(16), or (19)’’. 
(c) PROCEDURES AND RECORDKEEPING RELATED 
TO DISCLOSURES.—Subsection (p)(4) of section 6103 of 
such Code is amended by striking ‘‘any other person de-
scribed in subsection (l)(16) or (17)’’ each place it appears 
and inserting ‘‘any other person described in subsection 
(l)(16), (17), or (19)’’. 
(d) UNAUTHORIZED DISCLOSURE.—Paragraph (2) of 
section 7213(a) of such Code is amended by striking ‘‘or 
(16)’’ and inserting ‘‘(16), or (19)’’. 
(e) UNAUTHORIZED
INSPECTION.—Subparagraph 
(B) of section 7213A(a)(1) of such Code is amended by 
inserting ‘‘or (19)’’ after ‘‘subsection (l)(18)’’.
SEC. 107. STATE PHARMACEUTICAL ASSISTANCE TRANSI-
TION COMMISSION. 
(a) ESTABLISHMENT.—
173
(1) IN GENERAL.—There is established, as of 
the first day of the third month beginning after the 
date of the enactment of this Act, a State Pharma-
ceutical Assistance Transition Commission (in this 
section referred to as the ‘‘Commission’’) to develop 
a proposal for addressing the unique transitional 
issues facing State pharmaceutical assistance pro-
grams, and program participants, due to the imple-
mentation of the medicare prescription drug pro-
gram under part D of title XVIII of the Social Secu-
rity Act. 
(2) DEFINITIONS.—For purposes of this sec-
tion: 
(A) STATE PHARMACEUTICAL ASSISTANCE 
PROGRAM DEFINED.—The term ‘‘State pharma-
ceutical assistance program’’ means a program 
(other than the medicaid program) operated by 
a State (or under contract with a State) that 
provides as of the date of the enactment of this 
Act assistance to low-income medicare bene-
ficiaries for the purchase of prescription drugs. 
(B) PROGRAM
PARTICIPANT.—The term 
‘‘program participant’’ means a low-income 
medicare beneficiary who is a participant in a 
State pharmaceutical assistance program.
174
(b) COMPOSITION.—The Commission shall include 
the following: 
(1) A representative of each governor of each 
State that the Secretary identifies as operating on a 
statewide basis a State pharmaceutical assistance 
program that provides for eligibility and benefits 
that are comparable or more generous than the low-
income assistance eligibility and benefits offered 
under part D of title XVIII of the Social Security 
Act. 
(2) Representatives from other States that the 
Secretary identifies have in operation other State 
pharmaceutical assistance programs, as appointed by 
the Secretary. 
(3) Representatives of organizations that have 
an inherent interest in program participants or the 
program itself, as appointed by the Secretary but 
not to exceed the number of representatives under 
paragraphs (1) and (2). 
(4) Representatives of Medicare Advantage or-
ganizations and other private health insurance plans, 
as appointed by the Secretary. 
(5) The Secretary (or the Secretary’s designee) 
and such other members as the Secretary may speci-
fy
175
The Secretary shall designate a member to serve as chair 
of the Commission and the Commission shall meet at the 
call of the chair. 
(c) DEVELOPMENT OF PROPOSAL.—The Commission 
shall develop the proposal described in subsection (a) in 
a manner consistent with the following principles: 
(1) Protection of the interests of program par-
ticipants in a manner that is the least disruptive to 
such participants and that includes a single point of 
contact for enrollment and processing of benefits. 
(2) Protection of the financial and flexibility in-
terests of States so that States are not financially 
worse off as a result of the enactment of this title. 
(3) Principles of medicare modernization pro-
vided under title II of this Act. 
(d) REPORT.—By not later than January 1, 2005, 
the Commission shall submit to the President and the 
Congress a report that contains a detailed proposal (in-
cluding specific legislative or administrative recommenda-
tions, if any) and such other recommendations as the 
Commission deems appropriate. 
(e) SUPPORT.—The Secretary shall provide the Com-
mission with the administrative support services necessary 
for the Commission to carry out its responsibilities under 
this section.
176
(f) TERMINATION.—The Commission shall terminate 
30 days after the date of submission of the report under 
subsection (d). 
SEC. 108. ADDITIONAL REQUIREMENTS FOR ANNUAL FI-
NANCIAL REPORT AND OVERSIGHT ON MEDI-
CARE PROGRAM, INCLUDING PRESCRIPTION 
DRUG SPENDING. 
(a) IN GENERAL.—Section 1817 (42 U.S.C. 1395i) 
is amended by adding at the end the following new sub-
section: 
‘‘(l) COMBINED REPORT ON OPERATION AND STATUS 
OF THE TRUST FUND, THE FEDERAL SUPPLEMENTARY 
MEDICAL INSURANCE TRUST FUND, AND MEDICARE 
PRESCRIPTION DRUG TRUST FUND.—
‘‘(1) IN GENERAL.—In addition to the duty of 
the Board of Trustees to report to Congress under 
subsection (b), on the date the Board submits the 
report required under subsection (b)(2), the Board 
shall submit to Congress a report on the operation 
and status of the Trust Fund, the Federal Supple-
mentary Medical Insurance Trust Fund established 
under section 1841, and the Medicare Prescription 
Drug Trust Fund under section 1860D–9(a) (in this 
subsection collectively referred to as the ‘Trust
177
Funds’). Such report shall included the following in-
formation: 
‘‘(A) OVERALL SPENDING FROM THE GEN-
ERAL FUND OF THE TREASURY.—A statement 
of total amounts obligated during the preceding 
fiscal year from the General Revenues of the 
Treasury to the Trust Funds for payment for 
benefits covered under this title, stated in terms 
of the total amount and in terms of the per-
centage such amount bears to all other amounts 
obligated from such General Revenues during 
such fiscal year. 
‘‘(B) HISTORICAL
OVERVIEW
OF
SPEND-
ING.—From the date of the inception of the 
program of insurance under this title through 
the fiscal year involved, a statement of the total 
amounts referred to in subparagraph (A). 
‘‘(C) 
10-YEAR
AND
75-YEAR
PROJEC-
TIONS.—An estimate of total amounts referred 
to in subparagraph (A) required to be obligated 
for payment for benefits covered under this title 
for each of the 10 fiscal years succeeding the 
fiscal year involved and for the 75-year period 
beginning with the succeeding fiscal year.
178
‘‘(D) RELATION
TO
GDP
GROWTH.—A 
comparison of the rate of growth of the total 
amounts referred to in subparagraph (A) to the 
rate of growth in the gross domestic product for 
the same period. 
‘‘(2) PUBLICATION.—Each report submitted 
under paragraph (1) shall be published jointly by the 
Committee on Ways and Means and the Committee 
on Energy and Commerce as a public document and 
shall be made available by such Committees on the 
Internet.’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall apply with respect to fiscal years be-
ginning on or after the date of the enactment of this Act.
TITLE II—MEDICARE ENHANCED 
FEE-FOR-SERVICE AND MEDI-
CARE 
ADVANTAGE 
PRO-
GRAMS; MEDICARE COMPETI-
TION 
SEC. 200. MEDICARE MODERNIZATION AND REVITALIZA-
TION. 
This title provides for—
(1) establishment of the medicare enhanced fee-
for-service (EFFS) program under which medicare 
beneficiaries are provided access to a range of en-
179
hanced fee-for-service (EFFS) plans that may use 
preferred provider networks to offer an enhanced 
range of benefits; 
(2) establishment of a Medicare Advantage pro-
gram that offers improved managed care plans with 
coordinated care; and 
(3) competitive bidding, in the style of the Fed-
eral Employees Health Benefits program (FEHBP), 
among enhanced fee-for-service plans and Medicare 
Advantage plans in order to promote greater effi-
ciency and responsiveness to medicare beneficiaries.
Subtitle A—Medicare Enhanced 
Fee-for-Service Program 
SEC. 201. ESTABLISHMENT OF ENHANCED FEE-FOR-SERV-
ICE (EFFS) PROGRAM UNDER MEDICARE. 
(a) IN GENERAL.—Title XVIII, as amended by sec-
tion 101(a), is amended—
(1) by redesignating part E as part F; and 
(2) by inserting after part D the following new 
part:
‘‘PART E—ENHANCED FEE-FOR-SERVICE PROGRAM 
‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE PLANS 
THROUGHOUT THE UNITED STATES 
‘‘SEC. 1860E–1. (a) ESTABLISHMENT
OF
PRO-
GRAM.—
180
‘‘(1) IN GENERAL.—The Administrator shall es-
tablish under this part beginning January 1, 2006, 
an enhanced fee-for-service program under which en-
hanced fee-for-service plans (as defined in subsection 
(b)) are offered to EFFS-eligible individuals (as so 
defined) in EFFS regions throughout the United 
States. 
‘‘(2) EFFS REGIONS.—For purposes of this 
part the Administrator shall establish EFFS regions 
throughout the United States by dividing the entire 
United States into at least 10 such regions. Before 
establishing such regions, the Administrator shall 
conduct a market survey and analysis, including an 
examination of current insurance markets, to deter-
mine how the regions should be established. The re-
gions shall be established in a manner to take into 
consideration maximizing full access for all EFFS-
eligible individuals, especially those residing in rural 
areas. 
‘‘(b) DEFINITIONS.—For purposes of this part: 
‘‘(1) EFFS ORGANIZATION.—The ‘EFFS orga-
nization’ means an entity that the Administrator 
certifies as meeting the requirements and standards 
applicable to such organization under this part.
181
‘‘(2) ENHANCED FEE-FOR-SERVICE PLAN; EFFS 
PLAN.—The terms ‘enhanced fee-for-service plan’ 
and ‘EFFS plan’ mean health benefits coverage of-
fered under a policy, contract, or plan by an EFFS 
organization pursuant to and in accordance with a 
contract pursuant to section 1860E–4(c), but only if 
the plan provides either fee-for-service coverage de-
scribed in the following subparagraph (A) or pre-
ferred provider coverage described in the following 
subparagraph (B): 
‘‘(A) FEE-FOR-SERVICE
COVERAGE.—The 
plan—
‘‘(i) reimburses hospitals, physicians, 
and other providers at a rate determined 
by the plan on a fee-for-service basis with-
out placing the provider at financial risk; 
‘‘(ii) does not vary such rates for such 
a provider based on utilization relating to 
such provider; and 
‘‘(iii) does not restrict the selection of 
providers among those who are lawfully au-
thorized to provide the covered services 
and agree to accept the terms and condi-
tions of payment established by the plan.
182
‘‘(B) PREFERRED PROVIDER COVERAGE.—
The plan—
‘‘(i) has a network of providers that 
have agreed to a contractually specified re-
imbursement for covered benefits with the 
organization offering the plan; and 
‘‘(ii) provides for reimbursement for 
all covered benefits regardless of whether 
such benefits are provided within such net-
work of providers. 
‘‘(3) EFFS ELIGIBLE INDIVIDUAL.—The term 
‘EFFS eligible individual’ means an eligible indi-
vidual described in section 1851(a)(3). 
‘‘(4) EFFS REGION.—The term ‘EFFS region’ 
means a region established under subsection (a)(2). 
‘‘(c) APPLICATION OF CERTAIN ELIGIBILITY, EN-
ROLLMENT, ETC. REQUIREMENTS.—The provisions of 
section 1851 (other than subsection (h)(4)(A)) shall apply 
to EFFS plans offered by an EFFS organization in an 
EFFS region, including subsection (g) (relating to guar-
anteed issue and renewal). 
‘‘OFFERING OF ENHANCED FEE-FOR-SERVICE (EFFS) 
PLANS 
‘‘SEC. 1860E–2. (a) PLAN REQUIREMENTS.—No 
EFFS plan may be offered under this part in an EFFS 
region unless the requirements of this part are met with
183
respect to the plan and EFFS organization offering the 
plan. 
‘‘(b) AVAILABLE TO ALL EFFS BENEFICIARIES IN 
THE ENTIRE REGION.—With respect to an EFFS plan 
offered in an EFFS region—
‘‘(1) IN GENERAL.—The plan must be offered 
to all EFFS-eligible individuals residing in the re-
gion. 
‘‘(2) ASSURING
ACCESS
TO
SERVICES.—The 
plan shall comply with the requirements of section 
1852(d)(4). 
‘‘(c) BENEFITS.—
‘‘(1) IN GENERAL.—Each EFFS plan shall pro-
vide to members enrolled in the plan under this part 
benefits, through providers and other persons that 
meet the applicable requirements of this title and 
part A of title XI—
‘‘(A) for the items and services described 
in section 1852(a)(1); 
‘‘(B) that are uniform for the plan for all 
EFFS eligible individuals residing in the same 
EFFS region; 
‘‘(C) that include a single deductible appli-
cable to benefits under parts A and B and in-
184
clude a catastrophic limit on out-of-pocket ex-
penditures for such covered benefits; and 
‘‘(D) that include benefits for prescription 
drug coverage for each enrollee who elects 
under part D to be provided qualified prescrip-
tion drug coverage through the plan.
‘‘(2) DISAPPROVAL AUTHORITY.—The Adminis-
trator shall not approve a plan of an EFFS organi-
zation if the Administrator determines (pursuant to 
the last sentence of section 1852(b)(1)(A)) that the 
benefits are designed to substantially discourage en-
rollment by certain EFFS eligible individuals with 
the organization. 
‘‘(d) 
OUTPATIENT
PRESCRIPTION
DRUG
COV-
ERAGE.—For rules concerning the offering of prescription 
drug coverage under EFFS plans, see the amendment 
made by section 102(b) of the Medicare Prescription Drug 
and Modernization Act of 2003. 
‘‘(e) OTHER ADDITIONAL PROVISIONS.—The provi-
sions of section 1852 (other than subsection (a)(1)) shall 
apply under this part to EFFS plans. For the application 
of chronic care improvement provisions, see the amend-
ment made by section 722(b). 
‘‘SUBMISSION OF BIDS; BENEFICIARY SAVINGS; PAYMENT 
OF PLANS 
‘‘SEC. 1860E–3. (a) SUBMISSION OF BIDS.—
185
‘‘(1) REQUIREMENT.—
‘‘(A) EFFS MONTHLY BID AMOUNT.—For 
each year (beginning with 2006), an EFFS or-
ganization shall submit to the Administrator an 
EFFS monthly bid amount for each EFFS 
plan offered in each region. Each such bid is re-
ferred to in this section as the ‘EFFS monthly 
bid amount’. 
‘‘(B) FORM.—Such bid amounts shall be 
submitted for each such plan and region in a 
form and manner and time specified by the Ad-
ministrator, and shall include information de-
scribed in paragraph (3)(A).
‘‘(2) UNIFORM
BID
AMOUNTS.—Each EFFS 
monthly bid amount submitted under paragraph (1) 
by an EFFS organization under this part for an 
EFFS plan in an EFFS region may not vary among 
EFFS eligible individuals residing in the EFFS re-
gion involved. 
‘‘(3) SUBMISSION OF BID AMOUNT INFORMA-
TION BY EFFS ORGANIZATIONS.—
‘‘(A) INFORMATION TO BE SUBMITTED.—
The information described in this subparagraph 
is as follows:
186
‘‘(i) The EFFS monthly bid amount 
for provision of all items and services 
under this part, which amount shall be 
based on average costs for a typical bene-
ficiary residing in the region, and the actu-
arial basis for determining such amount. 
‘‘(ii) The proportions of such bid 
amount that are attributable to—
‘‘(I) the provision of statutory 
non-drug benefits (such portion re-
ferred 
to 
in 
this 
part 
as 
the 
‘unadjusted EFFS statutory non-drug 
monthly bid amount’); 
‘‘(II) the provision of statutory 
prescription drug benefits; and 
‘‘(III) the provision of non-statu-
tory benefits; 
and the actuarial basis for determining 
such proportions. 
‘‘(iii) Such additional information as 
the Administrator may require to verify 
the actuarial bases described in clauses (i) 
and (ii). 
‘‘(B) STATUTORY
BENEFITS
DEFINED.—
For purposes of this part:
187
‘‘(i) The term ‘statutory non-drug 
benefits’ means benefits under section 
1852(a)(1). 
‘‘(ii) The term ‘statutory prescription 
drug benefits’ means benefits under part 
D. 
‘‘(iii) The term ‘statutory benefits’ 
means statutory prescription drug benefits 
and statutory non-drug benefits.
‘‘(C) ACCEPTANCE AND NEGOTIATION OF 
BID AMOUNTS.—The Administrator has the au-
thority to negotiate regarding monthly bid 
amounts submitted under subparagraph (A) 
(and the proportion described in subparagraph 
(A)(ii)), and for such purpose, the Adminis-
trator has negotiation authority that the Direc-
tor of the Office of Personnel Management has 
with respect to health benefits plans under 
chapter 89 of title 5, United States Code. The 
Administrator may reject such a bid amount or 
proportion if the Administrator determines that 
such amount or proportion is not supported by 
the actuarial bases provided under subpara-
graph (A).
188
‘‘(D) CONTRACT
AUTHORITY.—The Ad-
ministrator may, taking into account the 
unadjusted EFFS statutory non-drug monthly 
bid amounts accepted under subparagraph (C), 
enter into contracts for the offering of EFFS 
plans by up to 3 EFFS organizations in any re-
gion.
‘‘(b) PROVISION OF BENEFICIARY SAVINGS FOR CER-
TAIN PLANS.—
‘‘(1) BENEFICIARY REBATE RULE.—
‘‘(A) REQUIREMENT.—The EFFS plan 
shall provide to the enrollee a monthly rebate 
equal to 75 percent of the average per capita 
savings (if any) described in paragraph (2) ap-
plicable to the plan and year involved. 
‘‘(B) FORM
OF
REBATE.—A rebate re-
quired under this paragraph shall be provided—
‘‘(i) through the crediting of the 
amount of the rebate towards the EFFS 
monthly prescription drug beneficiary pre-
mium (as defined in section 1860E–
4(a)(3)(B)) and the EFFS monthly sup-
plemental beneficiary premium (as defined 
in section 1860E–4(a)(3)(C));