(2) At least 2⁄3 of medicare beneficiaries have 
unreliable, inadequate, or no medicine coverage at 
all. 
(3) Seniors who do not have medicine coverage 
typically pay, at a minimum, 15 percent more than 
people with coverage. 
(4) Medicare beneficiaries at all income levels 
lack prescription medicine coverage, with more than 
1⁄2 of such beneficiaries having incomes greater than 
150 percent of the poverty line. 
(5) The number of private firms offering retiree 
health coverage is declining. 
(6) Medigap premiums for medicines are too ex-
pensive for most beneficiaries and are highest for 
older senior citizens, who need prescription medicine 
coverage the most and typically have the lowest in-
comes. 
(7) All medicare beneficiaries should have ac-
cess to a voluntary, reliable, affordable, and defined 
outpatient medicine benefit as part of the medicare 
program that assists with the high cost of prescrip-
tion medicines and protects them against excessive 
out-of-pocket costs.
SEC. 3. PRESCRIPTION MEDICINE BENEFIT PROGRAM. 
(a) IN GENERAL.—Title XVIII of the Social Security 
Act (42 U.S.C. 1395 et seq.) is amended—
(1) by redesignating part D as part E; and 
(2) by inserting after part C the following new 
part: 
‘‘PART D—PRESCRIPTION MEDICINE BENEFIT 
FOR THE AGED AND DISABLED 
‘‘ESTABLISHMENT OF PRESCRIPTION MEDICINE BENEFIT 
PROGRAM FOR THE AGED AND DISABLED 
‘‘SEC. 1860. There is established a voluntary insur-
ance program to provide prescription medicine benefits, 
including pharmacy services, in accordance with the provi-
sions of this part for individuals who are aged or disabled 
or have end-stage renal disease and who elect to enroll 
under such program, to be financed from premium pay-
ments by enrollees together with contributions from funds 
appropriated by the Federal Government. 
‘‘SCOPE OF BENEFITS 
‘‘SEC. 1860A. (a) IN GENERAL.—The benefits pro-
vided to an individual enrolled in the insurance program 
under this part shall consist of—
‘‘(1) payments made, in accordance with the 
provisions of this part, for covered prescription 
medicines (as specified in subsection (b)) dispensed 
by any pharmacy participating in the program under
this part (and, in circumstances designated by the 
Secretary, by a nonparticipating pharmacy), includ-
ing any specifically named medicine prescribed for 
the individual by a qualified health care professional 
regardless of whether the medicine is included in any 
formulary established under this part if such medi-
cine is certified as medically necessary by such 
health care professional (except that the Secretary 
shall encourage to the maximum extent possible the 
substitution and use of lower-cost generics), up to 
the benefit limits specified in section 1860B; and 
‘‘(2) charging by pharmacies of the negotiated 
price—
‘‘(A) for all covered prescription medicines, 
without regard to such benefit limit; and 
‘‘(B) established with respect to any drugs 
or classes of drugs described in subparagraphs 
(A), (B), (D), (E), or (F) of section 1927(d)(2) 
that are available to individuals receiving bene-
fits under this title. 
‘‘(b) COVERED PRESCRIPTION MEDICINES.—
‘‘(1) IN GENERAL.—Covered prescription medi-
cines, for purposes of this part, include all prescrip-
tion medicines (as defined in section 1860K(1)), in-
cluding smoking cessation agents, except as other-
wise provided in this subsection. 
‘‘(2) EXCLUSIONS FROM COVERAGE.—Covered 
prescription medicines shall not include drugs or 
classes of drugs described in subparagraphs (A) 
through (D) and (F) through (H) of section 
1927(d)(2) unless—
‘‘(A) specifically provided otherwise by the 
Secretary with respect to a drug in any of such 
classes; or 
‘‘(B) a drug in any of such classes is cer-
tified to be medically necessary by a health care 
professional. 
‘‘(3) EXCLUSION OF PRESCRIPTION MEDICINES 
TO THE EXTENT COVERED UNDER PART A OR B.—
A medicine prescribed for an individual that would 
otherwise be a covered prescription medicine under 
this part shall not be so considered to the extent 
that payment for such medicine is available under 
part A or B, including all injectable drugs and 
biologicals for which payment was made or should 
have been made by a carrier under section 
1861(s)(2) (A) or (B) as of the date of enactment 
of the Medicare Extension of Drugs to Seniors 
(MEDS) Act of 2003. Medicines otherwise covered
under part A or B shall be covered under this part 
to the extent that benefits under part A or B are ex-
hausted. 
‘‘(4) STUDY ON INCLUSION OF HOME INFUSION 
THERAPY SERVICES.—Not later than one year after 
the date of the enactment of the Medicare Extension 
of Drugs to Seniors (MEDS) Act of 2003, the Sec-
retary shall submit to Congress a legislative proposal 
for the delivery of home infusion therapy services 
under this title and for a system of payment for 
such a benefit that coordinates items and services 
furnished under part B and under this part. 
‘‘PAYMENT OF BENEFITS; BENEFIT LIMITS 
‘‘SEC. 1860B. (a) PAYMENT OF BENEFITS.—
‘‘(1) IN GENERAL.—There shall be paid from 
the Prescription Medicine Insurance Account within 
the Supplementary Medical Insurance Trust Fund, 
in the case of each individual who is enrolled in the 
insurance program under this part and who pur-
chases covered prescription medicines in a calendar 
year—
‘‘(A) with respect to costs incurred for cov-
ered prescription medicine furnished during a 
year, before the individual has incurred out-of-
pocket expenses under this subsection equal to 
the catastrophic out-of-pocket limit specified in
subsection (b), an amount equal to the applica-
ble percentage (specified in paragraph (2)) of 
the negotiated price for each such covered pre-
scription medicine or such higher percentage as 
is proposed under section 1860G(b)(7); and 
‘‘(B) with respect to costs incurred for cov-
ered prescription medicine furnished during a 
year, after the individual has incurred out-of-
pocket expenses under this subsection equal to 
the catastrophic out-of-pocket limit specified in 
subsection (b), an amount equal to 100 percent 
of the negotiated price for each such covered 
prescription medicine. 
‘‘(2) APPLICABLE PERCENTAGE.—The applica-
ble percentage specified in this paragraph is 80 per-
cent or such higher percentage as is proposed under 
section 1860G(b)(7), if the Secretary finds that such 
higher percentage will not increase aggregate costs 
to the Prescription Medicine Insurance Account. 
‘‘(b) CATASTROPHIC LIMIT ON OUT-OF-POCKET EX-
PENSES.—
‘‘(1) IN GENERAL.—The catastrophic limit on 
out-of-pocket expenses specified in this subsection 
for—
‘‘(A) for each of calendar years 2005 and 
2006, $2,000; and 
‘‘(B) subject to paragraph (2), for calendar 
year 2007 and each subsequent calendar year is 
equal the limit for the preceding year under this 
paragraph adjusted by the sustainable growth 
rate percentage (determined under section 
1861I(b)) for the year involved. 
‘‘(2) 
ROUNDING.—Any 
amount 
determined 
under paragraph (1)(E) that is not a multiple of 
$10 shall be rounded to the nearest multiple of $10. 
‘‘ELIGIBILITY AND ENROLLMENT 
‘‘SEC. 1860C. (a) ELIGIBILITY.—Every individual 
who, in or after 2005, is entitled to hospital insurance ben-
efits under part A or enrolled in the medical insurance 
program under part B is eligible to enroll, in accordance 
with the provisions of this section, in the insurance pro-
gram under this part, during an enrollment period pre-
scribed in or under this section, in such manner and form 
as may be prescribed by regulations. 
‘‘(b) ENROLLMENT.—
‘‘(1) IN GENERAL.—Each individual who satis-
fies subsection (a) shall be enrolled (or eligible to en-
roll) in the program under this part in accordance 
with the provisions of section 1837, as if that section
applied to this part, except as otherwise explicitly 
provided in this part. 
‘‘(2) SINGLE ENROLLMENT PERIOD.—Except as 
provided in section 1837(i) (as such section applies 
to this part), 1860E, or 1860H(e), or as otherwise 
explicitly provided, no individual shall be entitled to 
enroll in the program under this part at any time 
after the initial enrollment period without penalty, 
and in the case of all other late enrollments, the Sec-
retary shall develop a late enrollment penalty for the 
individual that fully recovers the additional actuarial 
risk involved providing coverage for the individual. 
‘‘(3) 
SPECIAL
ENROLLMENT
PERIOD
FOR 
2005.—
‘‘(A) IN
GENERAL.—An individual who 
first satisfies subsection (a) in 2005 may, at 
any time on or before December 31, 2005—
‘‘(i) enroll in the program under this 
part; and 
‘‘(ii) enroll or reenroll in such pro-
gram after having previously declined or 
terminated enrollment in such program. 
‘‘(B) EFFECTIVE DATE OF COVERAGE.—
An individual who enrolls under the program 
under this part pursuant to subparagraph (A)
shall be entitled to benefits under this part be-
ginning on the first day of the month following 
the month in which such enrollment occurs. 
‘‘(c) PERIOD OF COVERAGE.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this part, an individual’s coverage under the 
program under this part shall be effective for the pe-
riod provided in section 1838, as if that section ap-
plied to the program under this part. 
‘‘(2) PART D COVERAGE TERMINATED BY TER-
MINATION OF COVERAGE UNDER PARTS A AND B.—
In addition to the causes of termination specified in 
section 1838, an individual’s coverage under this 
part shall be terminated when the individual retains 
coverage under neither the program under part A 
nor the program under part B, effective on the effec-
tive date of termination of coverage under part A or 
(if later) under part B. 
‘‘PREMIUMS 
‘‘SEC. 1860D. (a) ANNUAL ESTABLISHMENT
OF 
MONTHLY PREMIUM RATES.—
‘‘(1) IN GENERAL.—The Secretary shall, during 
September of 2004 and of each succeeding year, de-
termine and promulgate a monthly premium rate for 
the succeeding year in accordance with the provi-
sions of this subsection.
‘‘(2) INITIAL PREMIUMS.—For months in 2005, 
the monthly premium rate under this subsection 
shall be—
‘‘(A) $24, in the case of premiums paid by 
an individual enrolled in the program under this 
part; and 
‘‘(B) $32, in the case of premiums paid for 
such an individual by a former employer (as de-
fined in section 1860H(f)(2)). 
‘‘(3) SUBSEQUENT YEARS.—
‘‘(A) IN GENERAL.—For months in a year 
after 2005, the monthly premium under this 
subsection shall be (subject to subparagraph 
(B)) the monthly premium (computed under 
this subsection without regard to subparagraph 
(B)) for the previous year increased by the an-
nual percentage increase in average per capita 
aggregate expenditures for covered outpatient 
medicines in the United States for medicare 
beneficiaries, as estimated and published by the 
Secretary in September before the year and for 
the year involved. 
‘‘(B) ROUNDING.—The monthly premium 
determined under subparagraph (A) shall be
rounded to the nearest multiple of 10 cents if 
it is not a multiple of 10 cents. 
‘‘(C) PUBLICATION
OF
ASSUMPTIONS.—
The Secretary shall publish, together with the 
promulgation of the monthly premium rates 
under this paragraph, a statement setting forth 
the actuarial assumptions and bases employed 
in arriving at the monthly premium under sub-
paragraph (A). 
‘‘(b) PAYMENT OF PREMIUMS.—
‘‘(1) PAYMENTS BY DEDUCTION FROM SOCIAL 
SECURITY, RAILROAD
RETIREMENT
BENEFITS, OR 
BENEFITS ADMINISTERED BY OPM.—
‘‘(A) DEDUCTION
FROM
BENEFITS.—In 
the case of an individual who is entitled to or 
receiving benefits as described in subsection (a), 
(b), or (d) of section 1840, premiums payable 
under this part shall be collected by deduction 
from such benefits at the same time and in the 
same manner as premiums payable under part 
B are collected pursuant to section 1840. 
‘‘(B) TRANSFERS TO PRESCRIPTION MEDI-
CINE INSURANCE ACCOUNT.—The Secretary of 
the Treasury shall, from time to time, but not 
less often than quarterly, transfer premiums
collected pursuant to subparagraph (A) to the 
Prescription Medicine Insurance Account from 
the appropriate funds and accounts described in 
subsections (a)(2), (b)(2), and (d)(2) of section 
1840, on the basis of the certifications de-
scribed in such subsections. The amounts of 
such transfers shall be appropriately adjusted 
to the extent that prior transfers were too great 
or too small. 
‘‘(2) DIRECT PAYMENTS TO SECRETARY.—
‘‘(A) 
ADDITIONAL
PAYMENT
BY
EN-
ROLLEE.—An individual to whom paragraph 
(1) applies (other than an individual receiving 
benefits as described in section 1840(d)) and 
who estimates that the amount that will be 
available for deduction under such paragraph 
for any premium payment period will be less 
than the amount of the monthly premiums for 
such period may (under regulations) pay to the 
Secretary the estimated balance, or such great-
er portion of the monthly premium as the indi-
vidual chooses. 
‘‘(B) PAYMENTS BY OTHER ENROLLEES.—
An individual enrolled in the insurance program 
under this part with respect to whom none of
the preceding provisions of this subsection ap-
plies (or to whom section 1840(c) applies) shall 
pay premiums to the Secretary at such times 
and in such manner as the Secretary shall by 
regulations prescribe. 
‘‘(C) DEPOSIT
OF
PREMIUMS.—Amounts 
paid to the Secretary under this paragraph 
shall be deposited in the Treasury to the credit 
of the Prescription Medicine Insurance Account 
in the Supplementary Medical Insurance Trust 
Fund. 
‘‘(c) CERTAIN
LOW-INCOME
INDIVIDUALS.—For 
rules concerning premiums for certain low-income individ-
uals, see section 1860E. 
‘‘SPECIAL ELIGIBILITY, ENROLLMENT, AND COPAYMENT 
RULES FOR LOW-INCOME INDIVIDUALS 
‘‘SEC. 1860E. (a) STATE AGREEMENTS FOR COV-
ERAGE.—
‘‘(1) IN GENERAL.—The Secretary shall, at the 
request of a State, enter into an agreement with the 
State under which all individuals described in para-
graph (2) are enrolled in the program under this 
part, without regard to whether any such individual 
has previously declined the opportunity to enroll in 
such program.
‘‘(2) ELIGIBILITY GROUPS.—The individuals de-
scribed in this paragraph, for purposes of paragraph 
(1), are individuals who satisfy section 1860C(a) 
and who are—
‘‘(A)(i) eligible individuals within the 
meaning of section 1843; and 
‘‘(ii) in a coverage group or groups per-
mitted under section 1843 (as selected by the 
State and specified in the agreement); or 
‘‘(B) qualified medicare medicine bene-
ficiaries (as defined in subsection (e)(1)). 
‘‘(3) COVERAGE PERIOD.—The period of cov-
erage under this part of an individual enrolled under 
an agreement under this subsection shall be as fol-
lows: 
‘‘(A) INDIVIDUALS
ELIGIBLE
(AT
STATE 
OPTION) FOR PART B BUY-IN.—In the case of 
an individual described in subsection (a)(2)(A), 
the coverage period shall be the same period 
that applies (or would apply) pursuant to sec-
tion 1843(d). 
‘‘(B) QUALIFIED
MEDICARE
MEDICINE 
BENEFICIARIES.—In the case of an individual 
described in subsection (a)(2)(B)—
‘‘(i) the coverage period shall begin on 
the latest of—
‘‘(I) January 1, 2005; 
‘‘(II) the first day of the third 
month following the month in which 
the State agreement is entered into; 
or 
‘‘(III) the first day of the first 
month following the month in which 
the 
individual 
satisfies 
section 
1860C(a); and 
‘‘(ii) the coverage period shall end on 
the last day of the month in which the in-
dividual is determined by the State to have 
become ineligible for medicare medicine 
cost-sharing. 
‘‘(4) ALTERNATIVE ENROLLMENT METHODS.—
In the process of enrolling low-income individuals 
under this part, the Secretary shall use the system 
provided under section 154 of the Social Security 
Act Amendments of 1994 for newly eligible medicare 
beneficiaries and shall apply a similar system for 
other medicare beneficiaries. Such system shall use 
existing Federal government databases to identify 
eligibility. Such system shall not require that bene-
ficiaries apply for, or enroll through, State medicaid 
systems in order to obtain low-income assistance de-
scribed in this section. 
‘‘(b) SPECIAL PART D ENROLLMENT OPPORTUNITY 
FOR INDIVIDUALS LOSING MEDICAID ELIGIBILITY.—In 
the case of an individual who—
‘‘(1) satisfies section 1860C(a); and 
‘‘(2) loses eligibility for benefits under the State 
plan under title XIX after having been enrolled 
under such plan or having been determined eligible 
for such benefits; 
the Secretary shall provide an opportunity for enrollment 
under the program under this part during the period that 
begins on the date that such individual loses such eligi-
bility and ends on the date specified by the Secretary. 
‘‘(c) STATE OPTION TO BUY-IN DUALLY ELIGIBLE 
INDIVIDUALS.—
‘‘(1) COVERAGE OF PREMIUMS AS MEDICAL AS-
SISTANCE.—For purposes of applying the second 
sentence of section 1905(a), any reference to pre-
miums under part B shall be considered to include 
a reference to premiums under this part. 
‘‘(2) STATE COMMITMENT TO CONTINUE PAR-
TICIPATION
IN
PART
D
AFTER
BENEFIT
LIMIT 
REACHED.—As a condition of additional funding to
a State under subsection (d), the State, in its State 
plan under title XIX, shall provide that in the case 
of any individual whose eligibility for medical assist-
ance under title XIX is not limited to medicare cost-
sharing and for whom the State elects to pay pre-
miums under this part pursuant to this section, the 
State will purchase all prescription medicines for 
such individual in accordance with the provisions of 
this part without regard to whether the benefit limit 
for such individual under section 1860B(b) has been 
reached. 
‘‘(3) MEDICARE COST-SHARING REQUIRED FOR 
QUALIFIED MEDICARE BENEFICIARIES.—In applying 
title XIX, the term ‘medicare cost-sharing’ (as de-
fined in section 1905(p)(3)) is deemed to include—
‘‘(A) premiums under section 1860D; and 
‘‘(B) the difference between the amount 
that is paid under section 1860B and the 
amount that would be paid under such section 
if any reference to ‘80 percent’ in subsection 
(a)(2) of such section were deemed a reference 
to ‘100 percent’ (or, if the Secretary approves 
a higher percentage under such section, if such 
percentage were deemed to be 100 percent).
‘‘(d) PAYMENT TO STATES FOR COVERAGE OF CER-
TAIN MEDICARE COST-SHARING.—
‘‘(1) IN GENERAL.—The Secretary shall provide 
for payment under this subsection to each State that 
provides for—
‘‘(A) medicare cost-sharing described in 
section 1905(p)(3)(A)(ii) for individuals who 
would be qualified medicare beneficiaries de-
scribed in section 1905(p)(1) but for the fact 
that their income exceeds the income level es-
tablished by the State under section 1905(p)(2) 
and is at least 120 percent, but less than 135 
percent, of the official poverty line (referred to 
in such section) for a family of the size involved 
and who are not otherwise eligible for medical 
assistance under the State plan; and 
‘‘(B) medicare medicine cost-sharing (as 
defined in subsection (e)(2)) for qualified medi-
care medicine beneficiaries described in sub-
section (e)(1). 
‘‘(2) AMOUNT OF PAYMENT.—The amount of 
payment under paragraph (1) shall equal 100 per-
cent of the cost-sharing described in such paragraph, 
except that, in the case of an individual whose eligi-
bility for medical assistance under title XIX is not
amount that is reasonable in relation to the 
payment levels provided to other States under 
paragraph (2). 
‘‘(e) DEFINITIONS; SPECIAL RULES.—For purposes 
of this section: 
‘‘(1) QUALIFIED
MEDICARE
MEDICINE
BENE-
FICIARY.—The term ‘qualified medicare medicine 
beneficiary’ means an individual—
‘‘(A) who is entitled to hospital insurance 
benefits under part A (including an individual 
entitled to such benefits pursuant to an enroll-
ment under section 1818, but not including an 
individual entitled to such benefits only pursu-
ant to an enrollment under section 1818A); 
‘‘(B) whose income (as determined under 
section 1612 for purposes of the supplemental 
security income program, except as provided in 
section 1905(p)(2)(D)) is above 100 percent 
but below 150 percent of 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 fam-
ily of the size involved; and
‘‘(C) whose resources (as determined under 
section 1613 for purposes of the supplemental 
security income program) do not exceed twice 
the maximum amount of resources that an indi-
vidual may have and obtain benefits under that 
program. 
‘‘(2) MEDICARE
MEDICINE
COST-SHARING.—
The term ‘medicare medicine cost-sharing’ means 
the following costs incurred with respect to a quali-
fied medicare medicine beneficiary, without regard to 
whether the costs incurred were for items and serv-
ices for which medical assistance is otherwise avail-
able under a State plan under title XIX: 
‘‘(A) In the case of a qualified medicare 
medicine beneficiary whose income (as deter-
mined under paragraph (1)) is less than 135 
percent of the official poverty line—
‘‘(i) premiums under section 1860D; 
and 
‘‘(ii) 
the 
difference 
between 
the 
amount that is paid under section 1860B 
and the amount that would be paid under 
such section if any reference to ‘50 per-
cent’ therein were deemed a reference to 
‘100 percent’ (or, if the Secretary approves
a higher percentage under such section, if 
such percentage were deemed to be 100 
percent). 
‘‘(B) In the case of a qualified medicare 
medicine beneficiary whose income (as deter-
mined under paragraph (1)) is at least 135 per-
cent but less than 150 percent of the official 
poverty line, a percentage of premiums under 
section 1860D, determined on a linear sliding 
scale ranging from 100 percent for individuals 
with incomes at 135 percent of such line to 0 
percent for individuals with incomes at 150 per-
cent of such line. 
‘‘(3) STATE.—The term ‘State’ has the mean-
ing given such term under section 1101(a) for pur-
poses of title XIX. 
‘‘(4) TREATMENT OF DRUGS PURCHASED.—The 
provisions of section 1927 shall not apply to pre-
scription drugs purchased under this part pursuant 
to an agreement with the Secretary under this sec-
tion (including any drugs so purchased after the 
limit under section 1860B(b) has been exceeded). 
‘‘PRESCRIPTION MEDICINE INSURANCE ACCOUNT 
‘‘SEC. 1860F. (a) ESTABLISHMENT.—There is cre-
ated within the Federal Supplemental Medical Insurance 
Trust Fund established by section 1841 an account to be
known as the ‘Prescription Medicine Insurance Account’ 
(in this section referred to as the ‘Account’). 
‘‘(b) AMOUNTS IN ACCOUNT.—
‘‘(1) IN GENERAL.—The Account shall consist 
of—
‘‘(A) such amounts as may be deposited in, 
or appropriated to, such fund as provided in 
this part; and 
‘‘(B) such gifts and bequests as may be 
made as provided in section 201(i)(1). 
‘‘(2) SEPARATION OF FUNDS.—Funds provided 
under this part to the Account shall be kept sepa-
rate from all other funds within the Federal Supple-
mental Medical Insurance Trust Fund. 
‘‘(c) PAYMENTS FROM ACCOUNT.—The Managing 
Trustee shall pay from time to time from the Account such 
amounts as the Secretary certifies are necessary to make 
the payments provided for by this part, and the payments 
with respect to administrative expenses in accordance with 
section 201(g). 
‘‘ADMINISTRATION OF BENEFITS 
‘‘SEC. 1860G. (a) THROUGH CMS.—The Secretary 
shall provide for administration of the benefits under this 
part through the Centers for Medicare & Medicaid Serv-
ices in accordance with the provisions of this section. The 
Administrator of such Centers may enter into contracts
with carriers to administer this part in the same manner 
as the Administrator enters into such contracts to admin-
ister part B. Any such contract shall be separate from any 
contract under section 1842. 
‘‘(b) ADMINISTRATION FUNCTIONS.—In carrying out 
this part, the Administrator (or a carrier under a contract 
with the Administrator) shall (or in the case of the func-
tion described in paragraph (9), may) perform the fol-
lowing functions: 
‘‘(1) PARTICIPATION
AGREEMENTS, 
PRICES, 
AND FEES.—
‘‘(A) 
NEGOTIATED
PRICES.—Establish, 
through negotiations with medicine manufactur-
ers and wholesalers and pharmacies, a schedule 
of prices for covered prescription medicines. 
‘‘(B) AGREEMENTS WITH PHARMACIES.—
Enter into participation agreements under sub-
section (c) with pharmacies, that include terms 
that—
‘‘(i) secure the participation of suffi-
cient numbers of pharmacies to ensure 
convenient 
access 
(including 
adequate 
emergency access); 
‘‘(ii) permit the participation of any 
pharmacy in the service area that meets
the participation requirements described in 
subsection (c); and 
‘‘(iii) allow for reasonable dispensing 
and consultation fees for pharmacies. 
‘‘(C) LISTS OF PRICES AND PARTICIPATING 
PHARMACIES.—Ensure 
that 
the 
negotiated 
prices established under subparagraph (A) and 
the list of pharmacies with agreements under 
subsection (c) are regularly updated and readily 
available to health care professionals authorized 
to prescribe medicines, participating phar-
macies, and enrolled individuals. 
‘‘(2) TRACKING OF COVERED ENROLLED INDI-
VIDUALS.—Maintain accurate, updated records of all 
enrolled individuals (other than individuals enrolled 
in a plan under part C). 
‘‘(3) PAYMENT AND COORDINATION OF BENE-
FITS.—
‘‘(A) PAYMENT.—
‘‘(i) Administer claims for payment of 
benefits under this part and encourage, to 
the maximum extent possible, use of elec-
tronic means for the submissions of claims. 
‘‘(ii) Determine amounts of benefit 
payments to be made.
‘‘(iii) Receive, disburse, and account 
for funds used in making such payments, 
including through the activities specified in 
the provisions of this paragraph. 
‘‘(B) 
COORDINATION.—Coordinate 
with 
other private benefit providers, pharmacies, and 
other relevant entities as necessary to ensure 
appropriate coordination of benefits with re-
spect to enrolled individuals, including coordina-
tion of access to and payment for covered pre-
scription medicines according to an individual’s 
in-service area plan provisions, when such indi-
vidual is traveling outside the home service 
area, and under such other circumstances as 
the Secretary may specify. 
‘‘(C) EXPLANATION OF BENEFITS.—Fur-
nish to enrolled individuals an explanation of 
benefits in accordance with section 1806(a), 
and a notice of the balance of benefits remain-
ing for the current year, whenever prescription 
medicine benefits are provided under this part 
(except that such notice need not be provided 
more often than monthly). 
‘‘(4) RULES RELATING TO PROVISION OF BENE-
FITS.—
‘‘(A) IN GENERAL.—In providing benefits 
under this part, the Secretary (directly or 
through contracts) shall employ mechanisms to 
provide benefits economically, including the use 
of—
‘‘(i) formularies (consistent with sub-
paragraph (B)); 
‘‘(ii) automatic generic medicine sub-
stitution (unless the physician specifies 
otherwise, in which case a 30-day prescrip-
tion may be dispensed pending a consulta-
tion with the physician on whether a ge-
neric substitute can be dispensed in the fu-
ture); 
‘‘(iii) tiered copayments (which may 
include copayments at a rate lower than 20 
percent) to encourage the use of the lowest 
cost, on-formulary product in cases where 
there is no restrictive prescription (de-
scribed in subparagraph (D)(i)); and 
‘‘(iv) therapeutic interchange. 
‘‘(B) REQUIREMENTS WITH RESPECT TO 
FORMULARIES.—If a formulary is used to con-
tain costs under this part—
‘‘(i) use an advisory committee (or a 
therapeutics committee) comprised of li-
censed practicing physicians, pharmacists, 
and other health care practitioners to de-
velop and manage the formulary; 
‘‘(ii) include in the formulary at least 
1 medicine from each therapeutic class 
and, if available, a generic equivalent 
thereof; and 
‘‘(iii) disclose to current and prospec-
tive enrollees and to participating providers 
and pharmacies, the nature of the for-
mulary restrictions, including information 
regarding the medicines included in the 
formulary and any difference in cost-shar-
ing amounts. 
‘‘(C) CONSTRUCTION.—Nothing in this 
subsection shall be construed to prevent the 
Secretary (directly or through contracts) from 
using incentives (including a lower beneficiary 
coinsurance) to encourage enrollees to select ge-
neric or other cost-effective medicines, so long 
as—
‘‘(i) such incentives are designed not 
to result in any increase in the aggregate
expenditures under the Federal Medicare 
Prescription Medicine Trust Fund; 
‘‘(ii) the average coinsurance charged 
to all beneficiaries by the Secretary (di-
rectly or through contractors) shall seek to 
approximate (but in no case exceed) 20 
percent for on-formulary medicines; 
‘‘(iii) a beneficiary’s coinsurance shall 
be no greater than 20 percent if the pre-
scription is a restrictive prescription; and 
‘‘(iv) the reimbursement for a pre-
scribed nonformulary medicine without a 
restrictive prescription in no case shall be 
more than the lowest reimbursement for a 
formulary medicine in the therapeutic class 
of the prescribed medicine. 
‘‘(D) RESTRICTIVE
PRESCRIPTION.—For 
purposes of this section: 
‘‘(i) WRITTEN
PRESCRIPTIONS.—In 
the case of a written prescription for a 
medicine, it is a restrictive prescription 
only if the prescription indicates, in the 
writing of the physician or other qualified 
person prescribing the medicine and with 
an appropriate phrase (such as ‘brand
medically necessary’) recognized by the 
Secretary, that a particular medicine prod-
uct must be dispensed based upon a belief 
by the physician or person prescribing the 
medicine that the particular medicine will 
provide even marginally superior thera-
peutic benefits to the individual for whom 
the medicine is prescribed or would have 
marginally fewer adverse reactions with re-
spect to such individual. 
‘‘(ii) TELEPHONE
PRESCRIPTIONS.—
In the case of a prescription issued by tele-
phone for a medicine, it is a restrictive 
prescription only if the prescription cannot 
be longer than 30 days and the physician 
or other qualified person prescribing the 
medicine (through use of such an appro-
priate phrase) states that a particular 
medicine product must be dispensed, and 
the physician or other qualified person sub-
mits to the pharmacy involved, within 30 
days after the date of the telephone pre-
scription, a written confirmation from the 
physician or other qualified person pre-
scribing the medicine and which indicates
with such appropriate phrase that the par-
ticular medicine product was required to 
have been dispensed based upon a belief by 
the physician or person prescribing the 
medicine that the particular medicine will 
provide even marginally superior thera-
peutic benefits to the individual for whom 
the medicine is prescribed or would have 
marginally fewer adverse reactions with re-
spect to such individual. Such written con-
firmation is required to refill the prescrip-
tion. 
‘‘(iii) REVIEW OF RESTRICTIVE PRE-
SCRIPTIONS.—The advisory committee (es-
tablished under subparagraph (B)(i)) may 
decide to review a restrictive prescription 
and, if so, it may approve or disapprove 
such restrictive prescription. It may not 
disapprove such restrictive prescription un-
less it finds that there is no literature ap-
proved by the Food and Drug Administra-
tion that supports a determination that the 
particular medicine provides even margin-
ally superior therapeutic benefits to the in-
dividual for whom the medicine is pre-
scribed or would have marginally fewer ad-
verse reactions with respect to such indi-
vidual. If it disapproves, upon request of 
the prescribing physician or the enrollee, 
the committee must provide for a review by 
an independent contractor of such decision 
within 48 hours of the time of submission 
of the prescription, to determine whether 
the prescription is an eligible benefit under 
this part. The Secretary shall ensure that 
independent contractors so used are com-
pletely independent of the contractor or its 
advisory committee. 
‘‘(5) COST
AND
UTILIZATION
MANAGEMENT; 
QUALITY ASSURANCE.—Have in place effective cost 
and utilization management, drug utilization review, 
quality assurance measures, and systems to reduce 
medical errors, including at least the following, to-
gether with such additional measures as the Admin-
istrator may specify: 
‘‘(A) DRUG UTILIZATION REVIEW.—A drug 
utilization review program conforming to the 
standards provided in section 1927(g)(2) (with 
such modifications as the Administrator finds 
appropriate).
‘‘(B) FRAUD AND ABUSE CONTROL.—Ac-
tivities to control fraud, abuse, and waste, in-
cluding prevention of diversion of pharma-
ceuticals to the illegal market. 
‘‘(C) 
MEDICATION
THERAPY
MANAGE-
MENT.—
‘‘(i) IN
GENERAL.—A program of 
medicine therapy management and medica-
tion administration that is designed to as-
sure that covered outpatient medicines are 
appropriately used to achieve therapeutic 
goals and reduce the risk of adverse 
events, including adverse drug interactions. 
‘‘(ii) ELEMENTS.—Such program may 
include—
‘‘(I) enhanced beneficiary under-
standing of such appropriate use 
through beneficiary education, coun-
seling, and other appropriate means; 
and 
‘‘(II) increased beneficiary adher-
ence with prescription medication 
regimens through medication refill re-
minders, special packaging, and other 
appropriate means.
‘‘(iii) DEVELOPMENT OF PROGRAM IN 
COOPERATION
WITH
LICENSED
PHAR-
MACISTS.—The program shall be developed 
in cooperation with licensed pharmacists 
and physicians. 
‘‘(iv) CONSIDERATIONS IN PHARMACY 
FEES.—There shall be taken into account, 
in establishing fees for pharmacists and 
others providing services under the medica-
tion therapy management program, the re-
sources and time used in implementing the 
program. 
‘‘(6) EDUCATION
AND
INFORMATION
ACTIVI-
TIES.—Have in place mechanisms for disseminating 
educational and informational materials to enrolled 
individuals and health care providers designed to en-
courage effective and cost-effective use of prescrip-
tion medicine benefits and to ensure that enrolled in-
dividuals understand their rights and obligations 
under the program. 
‘‘(7) BENEFICIARY PROTECTIONS.—
‘‘(A) CONFIDENTIALITY
OF
HEALTH
IN-
FORMATION.—Have in effect systems to safe-
guard the confidentiality of health care infor-
mation on enrolled individuals, which comply
with section 1106 and with section 552a of title 
5, United States Code, and meet such addi-
tional standards as the Administrator may pre-
scribe. 
‘‘(B) GRIEVANCE
AND
APPEAL
PROCE-
DURES.—Have in place such procedures as the 
Administrator may specify for hearing and re-
solving grievances and appeals, including expe-
dited appeals, brought by enrolled individuals 
against the Administrator or a pharmacy con-
cerning benefits under this part, which shall in-
clude procedures equivalent to those specified in 
subsections (f) and (g) of section 1852. 
‘‘(8) RECORDS, REPORTS, AND AUDITS.—
‘‘(A) RECORDS
AND
AUDITS.—Maintain 
adequate records, and afford the Administrator 
access to such records (including for audit pur-
poses). 
‘‘(B) REPORTS.—Make such reports and 
submissions of financial and utilization data as 
the Administrator may require taking into ac-
count standard commercial practices. 
‘‘(9) PROPOSAL
FOR
ALTERNATIVE
COINSUR-
ANCE AMOUNT.—
‘‘(A) 
SUBMISSION.—The 
Administrator 
may provide for increased Government cost-
sharing for generic prescription medicines, pre-
scription medicines on a formulary, or prescrip-
tion medicines obtained through mail order 
pharmacies. 
‘‘(B) CONTENTS.—The proposal submitted 
under subparagraph (A) shall contain evidence 
that such increased cost-sharing would not re-
sult in an increase in aggregate costs to the Ac-
count, including an analysis of differences in 
projected drug utilization patterns by bene-
ficiaries whose cost-sharing would be reduced 
under the proposal and those making the cost-
sharing payments that would otherwise apply. 
‘‘(10) OTHER
REQUIREMENTS.—Meet such 
other requirements as the Secretary may specify. 
The Administrator shall negotiate a schedule of prices 
under paragraph (1)(A), except that nothing in this sen-
tence shall prevent a carrier under a contract with the Ad-
ministrator from negotiating a lower schedule of prices for 
covered prescription medicines. 
‘‘(c) PHARMACY PARTICIPATION AGREEMENTS.—
‘‘(1) IN GENERAL.—A pharmacy that meets the 
requirements of this subsection shall be eligible to
enter an agreement with the Administrator to fur-
nish covered prescription medicines and pharmacists’ 
services to enrolled individuals. 
‘‘(2) TERMS OF AGREEMENT.—An agreement 
under this subsection shall include the following 
terms and requirements: 
‘‘(A) LICENSING.—The pharmacy and 
pharmacists shall meet (and throughout the 
contract period will continue to meet) all appli-
cable State and local licensing requirements. 
‘‘(B) LIMITATION
ON
CHARGES.—Phar-
macies participating under this part shall not 
charge an enrolled individual more than the ne-
gotiated price for an individual medicine as es-
tablished under subsection (b)(1), regardless of 
whether such individual has attained the benefit 
limit under section 1860B(b), and shall not 
charge an enrolled individual more than the in-
dividual’s share of the negotiated price as deter-
mined under the provisions of this part. 
‘‘(C) 
PERFORMANCE
STANDARDS.—The 
pharmacy and the pharmacist shall comply with 
performance standards relating to—
‘‘(i) measures for quality assurance, 
reduction of medical errors, and participa-
tion in the drug utilization review program 
described in subsection (b)(3)(A); 
‘‘(ii) systems to ensure compliance 
with the confidentiality standards applica-
ble under subsection (b)(5)(A); and 
‘‘(iii) other requirements as the Sec-
retary may impose to ensure integrity, effi-
ciency, and the quality of the program. 
‘‘(D) DISCLOSURE OF PRICE OF GENERIC 
MEDICINE.—A pharmacy participating under 
this part shall inform an enrollee of the dif-
ference in price between generic and non-ge-
neric equivalents. 
‘‘(d) SPECIAL ATTENTION TO RURAL AND HARD-TO-
SERVE AREAS.—
‘‘(1) IN GENERAL.—The Secretary shall ensure 
that all beneficiaries have access to the full range of 
pharmaceuticals under this part, and shall give spe-
cial attention to access, pharmacist counseling, and 
delivery in rural and hard-to-serve areas (as the Sec-
retary may define by regulation). 
‘‘(2) SPECIAL ATTENTION DEFINED.—For pur-
poses of paragraph (1), the term ‘special attention’ 
may include bonus payments to retail pharmacists in 
rural areas and any other actions the Secretary de-
termines are necessary to ensure full access to rural 
and hard-to-serve beneficiaries. 
‘‘(3) GAO REPORT.—Not later than 2 years 
after the implementation of this part the Comp-
troller General of the United States shall submit to 
Congress a report on the access of medicare bene-
ficiaries to pharmaceuticals and pharmacists’ serv-
ices in rural and hard-to-serve areas under this part 
together with any recommendations of the Comp-
troller General regarding any additional steps the 
Secretary may need to take to ensure the access of 
medicare beneficiaries to pharmaceuticals and phar-
macists’ services in such areas under this part. 
‘‘(e) INCENTIVES FOR COST AND UTILIZATION MAN-
AGEMENT AND QUALITY IMPROVEMENT.—The Secretary 
is authorized to include in a contract awarded under sub-
section (b) with a carrier such incentives for cost and utili-
zation management and quality improvement as the Sec-
retary may deem appropriate, including—
‘‘(1) bonus and penalty incentives to encourage 
administrative efficiency; 
‘‘(2) incentives under which carriers share in 
any benefit savings achieved; 
‘‘(3) risk-sharing arrangements related to ini-
tiatives to encourage savings in benefit payments;
‘‘(4) financial incentives under which savings 
derived from the substitution of generic medicines in 
lieu of non-generic medicines are made available to 
carriers, pharmacies, and the Prescription Medicine 
Insurance Account; and 
‘‘(5) any other incentive that the Secretary 
deems appropriate and likely to be effective in man-
aging costs or utilization. 
‘‘EMPLOYER INCENTIVE PROGRAM FOR EMPLOYMENT-
BASED RETIREE MEDICINE COVERAGE 
‘‘SEC. 1860H. (a) PROGRAM AUTHORITY.—The Sec-
retary shall develop and implement a program under this 
section called the ‘Employer Incentive Program’ that en-
courages employers and other sponsors of employment-
based health care coverage to provide adequate prescrip-
tion medicine benefits to retired individuals and to main-
tain such existing benefit programs, by subsidizing, in 
part, the sponsor’s cost of providing coverage under quali-
fying plans. 
‘‘(b) SPONSOR REQUIREMENTS.—In order to be eligi-
ble to receive an incentive payment under this section with 
respect to coverage of an individual under a qualified re-
tiree prescription medicine plan (as defined in subsection 
(f)(3)), a sponsor shall meet the following requirements: 
‘‘(1) ASSURANCES.—The sponsor shall—
‘‘(A) annually attest, and provide such as-
surances as the Secretary may require, that the 
coverage offered by the sponsor is a qualified 
retiree prescription medicine plan, and will re-
main such a plan for the duration of the spon-
sor’s participation in the program under this 
section; and 
‘‘(B) guarantee that it will give notice to 
the Secretary and covered retirees—
‘‘(i) at least 120 days before termi-
nating its plan; and 
‘‘(ii) immediately upon determining 
that the actuarial value of the prescription 
medicine benefit under the plan falls below 
the actuarial value of the insurance benefit 
under this part. 
‘‘(2) OTHER
REQUIREMENTS.—The sponsor 
shall provide such information, and comply with 
such requirements, including information require-
ments to ensure the integrity of the program, as the 
Secretary may find necessary to administer the pro-
gram under this section. 
‘‘(c) INCENTIVE PAYMENT.—
‘‘(1) IN GENERAL.—A sponsor that meets the 
requirements of subsection (b) with respect to a
quarter in a calendar year shall have payment made 
by the Secretary on a quarterly basis (to the sponsor 
or, at the sponsor’s direction, to the appropriate em-
ployment-based health plan) of an incentive pay-
ment, in the amount determined as described in 
paragraph (2), for each retired individual (or 
spouse) who—
‘‘(A) was covered under the sponsor’s 
qualified retiree prescription medicine plan dur-
ing such quarter; and 
‘‘(B) was eligible for but was not enrolled 
in the insurance program under this part. 
‘‘(2) AMOUNT
OF
INCENTIVE.—The payment 
under this section with respect to each individual de-
scribed in paragraph (1) for a month shall be equal 
to 2⁄3 of the monthly premium amount payable from 
the Prescription Medicine Insurance Account for an 
enrolled individual, as set for the calendar year pur-
suant to section 1860D(a)(2). 
‘‘(3) PAYMENT
DATE.—The incentive under 
this section with respect to a calendar quarter shall 
be payable as of the end of the next succeeding cal-
endar quarter. 
‘‘(d) CIVIL MONEY PENALTIES.—A sponsor, health 
plan, or other entity that the Secretary determines has,
directly or through its agent, provided information in con-
nection with a request for an incentive payment under this 
section that the entity knew or should have known to be 
false shall be subject to a civil monetary penalty in an 
amount equal to $2,000 for each false representation plus 
an amount not to exceed 3 times the total incentive 
amounts under subsection (c) that were paid (or would 
have been payable) on the basis of such information. 
‘‘(e) PART D ENROLLMENT FOR CERTAIN INDIVID-
UALS
COVERED
BY
EMPLOYMENT-BASED
RETIREE 
HEALTH COVERAGE PLANS.—
‘‘(1) ELIGIBLE
INDIVIDUALS.—An individual 
shall be given the opportunity to enroll in the pro-
gram under this part during the period specified in 
paragraph (2) if—
‘‘(A) the individual declined enrollment in 
the program under this part at the time the in-
dividual first satisfied section 1860C(a); 
‘‘(B) at that time, the individual was cov-
ered under a qualified retiree prescription medi-
cine plan for which an incentive payment was 
paid under this section; and 
‘‘(C)(i) the sponsor subsequently ceased to 
offer such plan; or
‘‘(ii) the value of prescription medicine cov-
erage under such plan is reduced below the 
value of the coverage provided at the time the 
individual first became eligible to participate in 
the program under this part. 
‘‘(2) SPECIAL ENROLLMENT PERIOD.—An indi-
vidual described in paragraph (1) shall be eligible to 
enroll in the program under this part during the 6-
month period beginning on the first day of the 
month in which—
‘‘(A) the individual receives a notice that 
coverage under such plan has terminated (in 
the 
circumstance 
described 
in 
paragraph 
(1)(C)(i)) or notice that a claim has been de-
nied because of such a termination; or 
‘‘(B) the individual received notice of the 
change in benefits (in the circumstance de-
scribed in paragraph (1)(C)(ii)). 
‘‘(f) DEFINITIONS.—In this section: 
‘‘(1) EMPLOYMENT-BASED
RETIREE
HEALTH 
COVERAGE.—The term ‘employment-based retiree 
health coverage’ means health insurance or other 
coverage of health care costs for retired individuals 
(or for such individuals and their spouses and de-
pendents) based on their status as former employees 
or labor union members. 
‘‘(2) EMPLOYER.—The term ‘employer’ has the 
meaning given to such term by section 3(5) of the 
Employee Retirement Income Security Act of 1974 
(except that such term shall include only employers 
of 2 or more employees). 
‘‘(3) QUALIFIED RETIREE PRESCRIPTION MEDI-
CINE PLAN.—The term ‘qualified retiree prescription 
medicine plan’ means health insurance coverage in-
cluded in employment-based retiree health coverage 
that—
‘‘(A) provides coverage of the cost of pre-
scription medicines whose actuarial value to 
each retired beneficiary equals or exceeds the 
actuarial value of the benefits provided to an in-
dividual enrolled in the program under this 
part; and 
‘‘(B) does not deny, limit, or condition the 
coverage or provision of prescription medicine 
benefits for retired individuals based on age or 
any health status-related factor described in 
section 2702(a)(1) of the Public Health Service 
Act.
‘‘(4) SPONSOR.—The term ‘sponsor’ has the 
meaning given the term ‘plan sponsor’ by section 
3(16)(B) of the Employee Retirement Income Secu-
rity Act of 1974. 
‘‘PROMOTION
OF
PHARMACEUTICAL
RESEARCH
ON 
BREAK-THROUGH
MEDICINES
WHILE
PROVIDING 
PROGRAM COST CONTAINMENT 
‘‘SEC. 1860I. (a) MONITORING EXPENDITURES.—
The Secretary shall monitor expenditures under this part. 
On October 1, 2005, Secretary shall estimate total expend-
itures under this part for 2005. 
‘‘(b) ESTABLISHMENT
OF SUSTAINABLE GROWTH 
RATE.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish a sustainable growth rate prescription medicine 
target system for expenditures under this part for 
each year after 2005. 
‘‘(2) INITIAL COMPUTATION.—Such target shall 
equal the amount of total expenditures estimated for 
2005 adjusted by the Secretary’s estimate of a sus-
tainable growth rate (in this section referred to as 
an ‘SGR’) percentage between 2005 and 2006. Such 
SGR shall be estimated based on the following: 
‘‘(A) Reasonable changes in the cost of 
production or price of covered pharmaceuticals, 
but in no event more than the rate of increase
in the consumer price index for all urban con-
sumers for the period involved. 
‘‘(B) Population enrolled in this part, both 
in numbers and in average age and severity of 
chronic and acute illnesses. 
‘‘(C) Appropriate changes in utilization of 
pharmaceuticals, as determined by the Drug 
Review Board (established under subsection 
(c)(3)) and based on best estimates of utiliza-
tion change if there were no direct-to-consumer 
advertising or promotions to providers. 
‘‘(D) Productivity index of manufacturers 
and distributors. 
‘‘(E) Percentage of products with patent 
and market exclusivity protection versus prod-
ucts without patent protection and changes in 
the availability of generic substitutes. 
‘‘(F) Such other factors as the Secretary 
may determine are appropriate. 
In no event may the sustainable growth rate exceed 
120 percent of the estimated per capita growth in 
total spending under this title. 
‘‘(3) 
COMPUTATION
FOR
SUBSEQUENT 
YEARS.—In October of 2006 and each year there-
after, for purposes of setting the SGRs for the suc-
ceeding year, the Secretary shall adjust each current 
year’s estimated expenditures by the estimated SGR 
for the succeeding year, further adjusted for correc-
tions in earlier estimates and the receipt of addi-
tional data on previous years spending as follows: 
‘‘(A) ERROR ESTIMATES.—An adjustment 
(up or down) for errors in the estimate of total 
expenditures under this part for the previous 
year. 
‘‘(B) COSTS.—An adjustment (up or 
down) for corrections in the cost of production 
of prescriptions covered under this part between 
the current calendar year and the previous year. 
‘‘(C) TARGET.—An adjustment for any 
amount (over or under) that expenditures in the 
current year under this part are estimated to 
differ from the target amount set for the year. 
If expenditures in the current year are esti-
mated to be—
‘‘(i) less than the target amount, fu-
ture target amounts will be adjusted down-
ward; or 
‘‘(ii) more than the target amount, 
the Secretary shall notify all pharma-
ceutical manufacturers with sales of phar-
maceutical prescription medicine products 
to medicare beneficiaries under this part, 
of a rebate requirement (except as pro-
vided in this subparagraph) to be deposited 
in the Federal Medicare Prescription Medi-
cine Trust Fund. 
‘‘(D) 
REBATE
DETERMINATION.—The 
amount of the rebate described in subparagraph 
(C)(ii) may vary among manufacturers and 
shall be based on the manufacturer’s estimated 
contribution to the expenditure above the target 
amount, taking into consideration such factors 
as—
‘‘(i) above average increases in the 
cost of the manufacturer’s product; 
‘‘(ii) increases in utilization due to 
promotion activities of the manufacturer, 
wholesaler, or retailer; 
‘‘(iii) launch prices of new drugs at 
the same or higher prices as similar drugs 
already in the marketplace (so-called ‘me 
too’ or ‘copy-cat’ drugs); 
‘‘(iv) the role of the manufacturer in 
delaying the entry of generic products into 
the market; and
‘‘(v) such other actions by the manu-
facturer that the Secretary may determine 
has contributed to the failure to meet the 
SGR target. 
The rebates shall be established under such 
subparagraph so that the total amount of the 
rebates is estimated to ensure that the amount 
the target for the current year is estimated to 
be exceeded is recovered in lower spending in 
the subsequent year; except that, no rebate 
shall be made in any manufacturer’s product 
which the Food and Drug Administration has 
determined is a breakthrough medicine (as de-
termined under subsection (c)) or an orphan 
medicine. 
‘‘(c) BREAKTHROUGH MEDICINES.—
‘‘(1) DETERMINATION.—For purposes of this 
section, a medicine is a ‘breakthrough medicine’ if 
the Drug Review Board (established under para-
graph (3)) determines—
‘‘(A) it is a new product that will make a 
significant and major improvement by reducing 
physical or mental illness, reducing mortality, 
or reducing disability; and
‘‘(B) that no other product is available to 
beneficiaries that achieves similar results for 
the same condition at a lower cost. 
‘‘(2) CONDITION.—An exemption from rebates 
under subsection (b)(3) for a breakthrough medicine 
shall continue as long as the medicine is certified as 
a breakthrough medicine but shall be limited to 7 
calendar years from 2003 or 7 calendar years from 
the date of the initial determination under para-
graph (1), whichever is later. 
‘‘(3) DRUG REVIEW BOARD.—The Drug Review 
Board under this paragraph shall consist of the 
Commissioner of Food and Drugs, the Directors of 
the National Institutes of Health, the Director of 
the National Science Foundation, and 10 experts in 
pharmaceuticals, medical research, and clinical care, 
selected by the Commissioner of Food and Drugs 
from the faculty of academic medical centers, except 
that no person who has (or who has an immediate 
family member that has) any conflict of interest with 
any pharmaceutical manufacturer shall serve on the 
Board. 
‘‘(d) NO REVIEW.—The Secretary’s determination of 
the rebate amounts under this section, and the Drug Re-
view Board’s determination of what is a breakthrough 
drug, are not subject to administrative or judicial review. 
‘‘APPROPRIATIONS TO COVER GOVERNMENT 
CONTRIBUTIONS 
‘‘SEC. 1860J. (a) IN GENERAL.—There are author-
ized to be appropriated from time to time, out of any mon-
eys in the Treasury not otherwise appropriated, to the 
Prescription Medicine Insurance Account, a Government 
contribution equal to—
‘‘(1) the aggregate premiums payable for a 
month pursuant to section 1860D(a)(2) by individ-
uals enrolled in the program under this part; plus 
‘‘(2) one-half the aggregate premiums payable 
for a month pursuant to such section for such indi-
viduals by former employers; plus 
‘‘(3) the benefits payable by reason of the appli-
cation of paragraph (2) of section 1860B(a) (relat-
ing to catastrophic benefits). 
‘‘(b) APPROPRIATIONS TO COVER INCENTIVES FOR 
EMPLOYMENT-BASED RETIREE MEDICINE COVERAGE.—
There are authorized to be appropriated to the Prescrip-
tion Medicine Insurance Account from time to time, out 
of any moneys in the Treasury not otherwise appropriated 
such sums as may be necessary for payment of incentive 
payments under section 1860H(c).
‘‘PRESCRIPTION MEDICINE DEFINED 
‘‘SEC. 1860K. As used in this part, the term ‘pre-
scription medicine’ means—
‘‘(1) a drug that may be dispensed only upon 
a prescription, and that is described in subpara-
graph (A)(i), (A)(ii), or (B) of section 1927(k)(2); 
and 
‘‘(2) insulin certified under section 506 of the 
Federal Food, Drug, and Cosmetic Act, and needles, 
syringes, and disposable pumps for the administra-
tion of such insulin.’’. 
(b) CONFORMING AMENDMENTS.—
(1) 
AMENDMENTS
TO
FEDERAL
SUPPLE-
MENTARY HEALTH INSURANCE TRUST FUND.—Sec-
tion 1841 of the Social Security Act (42 U.S.C. 
1395t) is amended—
(A) in the last sentence of subsection (a)—
(i) by striking ‘‘and’’ after ‘‘section 
201(i)(1)’’; and 
(ii) by inserting before the period the 
following: ‘‘, and such amounts as may be 
deposited in, or appropriated to, the Pre-
scription Medicine Insurance Account es-
tablished by section 1860F’’;
(B) in subsection (g), by inserting after 
‘‘by this part,’’ the following: ‘‘the payments 
provided for under part D (in which case the 
payments shall come from the Prescription 
Medicine Insurance Account in the Supple-
mentary Medical Insurance Trust Fund),’’; 
(C) in the first sentence of subsection (h), 
by inserting before the period the following: 
‘‘and section 1860D(b)(4) (in which case the 
payments shall come from the Prescription 
Medicine Insurance Account in the Supple-
mentary Medical Insurance Trust Fund)’’; and 
(D) in the first sentence of subsection 
(i)—
(i) by striking ‘‘and’’ after ‘‘section 
1840(b)(1)’’; and 
(ii) by inserting before the period the 
following: ‘‘, section 1860D(b)(2) (in which 
case the payments shall come from the 
Prescription Medicine Insurance Account 
in the Supplementary Medical Insurance 
Trust Fund)’’. 
(2) PRESCRIPTION
MEDICINE
OPTION
UNDER 
MEDICARE+CHOICE PLANS.—
(A) ELIGIBILITY, ELECTION, AND ENROLL-
MENT.—Section 1851 of the Social Security Act 
(42 U.S.C. 1395w–21) is amended—
(i) in subsection (a)(1)(A), by striking 
‘‘parts A and B’’ inserting ‘‘parts A, B, 
and D’’; and 
(ii) in subsection (i)(1), by striking 
‘‘parts A and B’’ and inserting ‘‘parts A, 
B, and D’’. 
(B) VOLUNTARY
BENEFICIARY
ENROLL-
MENT
FOR
MEDICINE
COVERAGE.—Section 
1852(a)(1)(A) of such Act (42 U.S.C. 1395w–
22(a)(1)(A)) is amended by inserting ‘‘(and 
under part D to individuals also enrolled under 
that part)’’ after ‘‘parts A and B’’. 
(C) 
ACCESS
TO
SERVICES.—Section 
1852(d)(1) of such Act (42 U.S.C. 1395w–
22(d)(1)) is amended—
(i) in subparagraph (D), by striking 
‘‘and’’ at the end; 
(ii) in subparagraph (E), by striking 
the period at the end and inserting ‘‘; 
and’’; and 
(iii) by adding at the end the fol-
lowing new subparagraph:
‘‘(F) the plan for prescription medicine 
benefits under part D guarantees coverage of 
any specifically named covered prescription 
medicine for an enrollee, when prescribed by a 
physician in accordance with the provisions of 
such part, regardless of whether such medicine 
would otherwise be covered under an applicable 
formulary or discount arrangement.’’. 
(D) PAYMENTS TO ORGANIZATIONS.—Sec-
tion 1853(a)(1)(A) of such Act (42 U.S.C. 
1395w–23(a)(1)(A)) is amended—
(i) by inserting ‘‘determined sepa-
rately for benefits under parts A and B 
and under part D (for individuals enrolled 
under that part)’’ after ‘‘as calculated 
under subsection (c)’’; 
(ii) by striking ‘‘that area, adjusted 
for such risk factors’’ and inserting ‘‘that 
area. In the case of payment for benefits 
under parts A and B, such payment shall 
be adjusted for such risk factors as’’; and 
(iii) by inserting before the last sen-
tence the following: ‘‘In the case of the 
payments for benefits under part D, such 
payment shall initially be adjusted for the
risk factors of each enrollee as the Sec-
retary determines to be feasible and appro-
priate. By 2008, the adjustments would be 
for the same risk factors applicable for 
benefits under parts A and B.’’. 
(E) CALCULATION OF ANNUAL MEDICARE 
+CHOICE CAPITATION RATES.—Section 1853(c) 
of such Act (42 U.S.C. 1395w–23(c)) is amend-
ed—
(i) in paragraph (1), in the matter 
preceding subparagraph (A), by inserting 
‘‘for benefits under parts A and B’’ after 
‘‘capitation rate’’; 
(ii) in paragraph (6)(A), by striking 
‘‘rate of growth in expenditures under this 
title’’ and inserting ‘‘rate of growth in ex-
penditures for benefits available under 
parts A and B’’; and 
(iii) by adding at the end the fol-
lowing new paragraph: 
‘‘(8) PAYMENT
FOR
PRESCRIPTION
MEDI-
CINES.—The Secretary shall determine a capitation 
rate for prescription medicines—
‘‘(A) dispensed in 2005, which is based on 
the projected national per capita costs for pre-
scription medicine benefits under part D and 
associated claims processing costs for bene-
ficiaries under the original medicare fee-for-
service program; and 
‘‘(B) dispensed in each subsequent year, 
which shall be equal to the rate for the previous 
year updated by the Secretary’s estimate of the 
projected per capita rate of growth in expendi-
tures under this title for an individual enrolled 
under part D.’’. 
(F) LIMITATION
ON
ENROLLEE
LIABIL-
ITY.—Section 1854(e) of such Act (42 U.S.C. 
1395w–24(e)) is amended by adding at the end 
the following new paragraph: 
‘‘(5) SPECIAL RULE FOR PROVISION OF PART D 
BENEFITS.—In no event may a Medicare+Choice or-
ganization include as part of a plan for prescription 
medicine benefits under part D a requirement that 
an enrollee pay a deductible, or a coinsurance per-
centage that exceeds 20 percent.’’. 
(G) REQUIREMENT FOR ADDITIONAL BEN-
EFITS.—Section 1854(f)(1) of such Act (42 
U.S.C. 1395w–24(f)(1)) is amended by adding 
at the end the following new sentence: ‘‘Such 
determination shall be made separately for ben-
efits under parts A and B and for prescription 
medicine benefits under part D.’’. 
(3) EXCLUSIONS FROM COVERAGE.—
(A) APPLICATION
TO
PART
D.—Section 
1862(a) of the Social Security Act (42 U.S.C. 
1395y(a)) is amended in the matter preceding 
paragraph (1) by striking ‘‘part A or part B’’ 
and inserting ‘‘part A, B, or D’’. 
(B) PRESCRIPTION
MEDICINES
NOT
EX-
CLUDED FROM COVERAGE IF APPROPRIATELY 
PRESCRIBED.—Section 1862(a)(1) of such Act 
(42 U.S.C. 1395y(a)(1)) is amended—
(i) in subparagraph (H), by striking 
‘‘and’’ at the end; 
(ii) in subparagraph (I), by striking 
the semicolon at the end and inserting ‘‘, 
and’’; and 
(iii) by adding at the end the fol-
lowing new subparagraph: 
‘‘(J) in the case of prescription medicines 
covered under part D, which are not prescribed 
in accordance with such part;’’.
SEC. 4. SUBSTANTIAL REDUCTIONS IN THE PRICE OF PRE-
SCRIPTION DRUGS FOR MEDICARE BENE-
FICIARIES. 
(a) PARTICIPATING MANUFACTURERS.—
(1) IN GENERAL.—Each participating manufac-
turer of a covered outpatient drug shall make avail-
able for purchase by each pharmacy such covered 
outpatient drug in the amount described in para-
graph (2) at the price described in paragraph (3). 
(2) DESCRIPTION OF AMOUNT OF DRUGS.—The 
amount of a covered outpatient drug that a partici-
pating manufacturer shall make available for pur-
chase by a pharmacy is an amount equal to the ag-
gregate amount of the covered outpatient drug sold 
or distributed by the pharmacy to medicare bene-
ficiaries. 
(3) DESCRIPTION
OF
PRICE.—The price at 
which a participating manufacturer shall make a 
covered outpatient drug available for purchase by a 
pharmacy is the price equal to the lowest of the fol-
lowing: 
(A) The lowest price paid for the covered 
outpatient drug by any agency or department of 
the United States. 
(B) The manufacturer’s best price for the 
covered outpatient drug, as defined in section
1927(c)(1)(C) of the Social Security Act (42 
U.S.C. 1396r–8(c)(1)(C)). 
(C) The lowest price at which the drug is 
available (as determined by the Secretary) 
through importation consistent with the provi-
sions of section 804 of the Federal Food, Drug, 
and Cosmetic Act. 
(b) SPECIAL PROVISION WITH RESPECT TO HOSPICE 
PROGRAMS.—For purposes of determining the amount of 
a covered outpatient drug that a participating manufac-
turer shall make available for purchase by a pharmacy 
under subsection (a), there shall be included in the cal-
culation of such amount the amount of the covered out-
patient drug sold or distributed by a pharmacy to a hos-
pice program. In calculating such amount, only amounts 
of the covered outpatient drug furnished to a medicare 
beneficiary enrolled in the hospice program shall be in-
cluded. 
(c) ADMINISTRATION.—The Secretary shall issue 
such regulations as may be necessary to implement this 
section. 
(d) REPORTS TO CONGRESS REGARDING EFFECTIVE-
NESS OF SECTION.—
(1) IN GENERAL.—Not later than 2 years after 
the date of the enactment of this Act, and annually
thereafter, the Secretary shall report to the Con-
gress regarding the effectiveness of this section in—
(A) protecting medicare beneficiaries from 
discriminatory pricing by drug manufacturers; 
and 
(B) making prescription drugs available to 
medicare beneficiaries at substantially reduced 
prices. 
(2) CONSULTATION.—In preparing such re-
ports, the Secretary shall consult with public health 
experts, affected industries, organizations rep-
resenting consumers and older Americans, and other 
interested persons. 
(3) RECOMMENDATIONS.—The Secretary shall 
include in such reports any recommendations they 
consider appropriate for changes in this section to 
further reduce the cost of covered outpatient drugs 
to medicare beneficiaries. 
(f) DEFINITIONS.—For purposes of this section: 
(1) 
PARTICIPATING
MANUFACTURER.—The 
term ‘‘participating manufacturer’’ means any man-
ufacturer of drugs or biologicals that, on or after the 
date of the enactment of this Act, enters into a con-
tract or agreement with the United States for the
sale or distribution of covered outpatient drugs to 
the United States. 
(2) COVERED OUTPATIENT DRUG.—The term 
‘‘covered outpatient drug’’ has the meaning given 
that term in section 1927(k)(2) of the Social Secu-
rity Act (42 U.S.C. 1396r–8(k)(2)). 
(3) 
MEDICARE
BENEFICIARY.—The 
term 
‘‘medicare beneficiary’’ means an individual entitled 
to benefits under part A of title XVIII of the Social 
Security Act or enrolled under part B of such title, 
or both. 
(4) HOSPICE
PROGRAM.—The term ‘‘hospice 
program’’ has the meaning given that term under 
section 1861(dd)(2) of the Social Security Act (42 
U.S.C. 1395x(dd)(2)). 
(5) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of Health and Human Services. 
(f) EFFECTIVE DATE.—The Secretary shall imple-
ment this section as expeditiously as practicable and in 
a manner consistent with the obligations of the United 
States.
SEC. 5. AMENDMENTS TO PROGRAM FOR IMPORTATION OF 
CERTAIN PRESCRIPTION DRUGS BY PHAR-
MACISTS AND WHOLESALERS. 
Section 804 of the Federal Food, Drug, and Cosmetic 
Act (as added by section 745(c)(2) of Public Law 106–
387) is amended—
(1) by striking subsections (e) and (f) and in-
serting the following subsections: 
‘‘(e) TESTING; APPROVED LABELING.—
‘‘(1) TESTING.—Regulations under subsection 
(a)—
‘‘(A) shall require that testing referred to 
in paragraphs (6) through (8) of subsection (d) 
be conducted by the importer of the covered 
product pursuant to subsection (a), or the man-
ufacturer of the product; 
‘‘(B) shall require that, if such tests are 
conducted by the importer, information needed 
to authenticate the product being tested be sup-
plied by the manufacturer of such product to 
the importer; and 
‘‘(C) shall provide for the protection of any 
information supplied by the manufacturer 
under subparagraph (B) that is a trade secret 
or commercial or financial information that is 
privileged or confidential.
‘‘(2) APPROVED LABELING.—For purposes of 
importing a covered product pursuant to subsection 
(a), the importer involved may use the labeling ap-
proved for the product under section 505, notwith-
standing any other provision of law. 
‘‘(f) DISCRETION OF SECRETARY REGARDING TEST-
ING.—The Secretary may waive or modify testing require-
ments described in subsection (d) if, with respect to spe-
cific countries or specific distribution chains, the Secretary 
has entered into agreements or otherwise approved ar-
rangements that the Secretary determines ensure that the 
covered products involved are not adulterated or in viola-
tion of section 505.’’; 
(2) by striking subsections (h) and (i) and in-
serting the following subsections: 
‘‘(h) PROHIBITED AGREEMENTS; NONDISCRIMINA-
TION.—
‘‘(1) PROHIBITED AGREEMENTS.—No manufac-
turer of a covered product may enter into a contract 
or agreement that includes a provision to prevent 
the sale or distribution of covered products imported 
pursuant to subsection (a). 
‘‘(2) NONDISCRIMINATION.—No manufacturer 
of a covered product may take actions that discrimi-
nate against, or cause other persons to discriminate
against, United States pharmacists, wholesalers, or 
consumers regarding the sale or distribution of cov-
ered products. 
‘‘(i) STUDY AND REPORT.—
‘‘(1) STUDY.—The Comptroller General of the 
United States shall conduct a study on the imports 
permitted under this section, taking into consider-
ation the information received under subsection (a). 
In conducting such study, the Comptroller General 
shall—
‘‘(A) evaluate importers’ compliance with 
regulations, determine the number of ship-
ments, if any, permitted under this section that 
have been determined to be counterfeit, mis-
branded, or adulterated; and 
‘‘(B) consult with the United States Trade 
Representative and United States Patent and 
Trademark Office to evaluate the effect of im-
portations permitted under this section on trade 
and patent rights under Federal law. 
‘‘(2) REPORT.—Not later than 5 years after the 
effective date of final regulations issued pursuant to 
this section, the Comptroller General of the United 
States shall prepare and submit to Congress a re-
port containing the study described in paragraph 
(1).’’; 
(3) in subsection (k)(2)—
(A) by redesignating subparagraphs (A) 
through (E) as subparagraphs (B) through (F), 
respectively; and 
(B) by inserting before subparagraph (B) 
(as so redesignated) the following subpara-
graph: 
‘‘(A) The term ‘discrimination’ includes a 
contract provision, a limitation on supply, or 
other measure which has the effect of providing 
United States pharmacists, wholesalers, or con-
sumers access to covered products on terms or 
conditions that are less favorable than the 
terms or conditions provided to any foreign pur-
chaser of such products.’’; 
(4) by striking subsection (m); and 
(5) by inserting after subsection (l) the fol-
lowing subsection: 
‘‘(m) FUNDING.—For the purpose of carrying out 
this section, there are authorized to be appropriated such 
sums as may be necessary for fiscal year 2004 and each 
subsequent fiscal year.’’.
SEC. 6. REASONABLE PRICE AGREEMENT FOR FEDERALLY 
FUNDED RESEARCH. 
(a) IN GENERAL.—If any Federal agency or any non-
profit entity undertakes federally funded health care re-
search and development and is to convey or provide a pat-
ent or other exclusive right to use such research and devel-
opment for a drug or other health care technology, such 
agency or entity shall not make such conveyance or pro-
vide such patent or other right until the person who will 
receive such conveyance or patent or other right first 
agrees to a reasonable pricing agreement with the Sec-
retary of Health and Human Services or the Secretary 
makes a determination that the public interest is served 
by a waiver of the reasonable pricing agreement provided 
in accordance with subsection (c). 
(b) CONSIDERATION OF COMPETITIVE BIDDING.—In 
cases where the Federal Government conveys or licenses 
exclusive rights to federally funded research under sub-
section (a), consideration shall be given to mechanisms for 
determining reasonable prices which are based upon a 
competitive bidding process. When appropriate, the mech-
anisms should be considered where—
(1) qualified bidders compete on the basis of 
the lowest prices that will be charged to consumers; 
(2) qualified bidders compete on the basis of 
the least sales revenues before prices are adjusted in
accordance with a cost based reasonable pricing for-
mula; 
(3) qualified bidders compete on the basis of 
the least period of time before prices are adjusted in 
accordance with a cost based reasonable pricing for-
mula; 
(4) qualified bidders compete on the basis of 
the shortest period of exclusivity; or 
(5) qualified bidders compete under other com-
petitive bidding systems. 
Such competitive bidding process may incorporate require-
ments for minimum levels of expenditures on research, 
marketing, maximum price, or other factors. 
(c) WAIVER.—No waiver shall take effect under sub-
section (a) before the public is given notice of the proposed 
waiver and provided a reasonable opportunity to comment 
on the proposed waiver. A decision to grant a waiver shall 
set out the Secretary’s finding that such a waiver is in 
the public interest. 
SEC. 7. GAO ONGOING STUDIES AND REPORTS ON PRO-
GRAM; MISCELLANEOUS REPORTS. 
(a) ONGOING STUDY.—The Comptroller General of 
the United States shall conduct an ongoing study and 
analysis of the prescription medicine benefit program 
under part D of the medicare program under title XVIII
of the Social Security Act (as added by section 3 of this 
Act), including an analysis of each of the following: 
(1) The extent to which the administering enti-
ties have achieved volume-based discounts similar to 
the favored price paid by other large purchasers. 
(2) Whether access to the benefits under such 
program are in fact available to all beneficiaries, 
with special attention given to access for bene-
ficiaries living in rural and hard-to-serve areas. 
(3) The success of such program in reducing 
medication error and adverse medicine reactions and 
improving quality of care, and whether it is probable 
that the program has resulted in savings through re-
duced hospitalizations and morbidity due to medica-
tion errors and adverse medicine reactions. 
(4) Whether patient medical record confiden-
tiality is being maintained and safe-guarded. 
(5) Such other issues as the Comptroller Gen-
eral may consider. 
(b) REPORTS.—The Comptroller General shall issue 
such reports on the results of the ongoing study described 
in (a) as the Comptroller General shall deem appropriate 
and shall notify Congress on a timely basis of significant 
problems in the operation of the part D prescription medi-
cine program and the need for legislative adjustments and 
improvements. 
(c) MISCELLANEOUS STUDIES AND REPORTS.—
(1) STUDY ON METHODS TO ENCOURAGE ADDI-
TIONAL
RESEARCH
ON
BREAKTHROUGH
PHARMA-
CEUTICALS.—
(A) 
IN
GENERAL.—The 
Secretary 
of 
Health and Human Services shall seek the ad-
vice of the Secretary of the Treasury on pos-
sible tax and trade law changes to encourage 
increased original research on new pharma-
ceutical breakthrough products designed to ad-
dress disease and illness. 
(B) REPORT.—Not later than January 1, 
2005, the Secretary shall submit to Congress a 
report on such study. The report shall include 
recommended methods to encourage the phar-
maceutical industry to devote more resources to 
research and development of new covered prod-
ucts than it devotes to overhead expenses. 
(2) STUDY ON PHARMACEUTICAL SALES PRAC-
TICES
AND
IMPACT
ON
COSTS
AND
QUALITY
OF 
CARE.—
(A) 
IN
GENERAL.—The 
Secretary 
of 
Health and Human Services shall conduct a
study on the methods used by the pharma-
ceutical industry to advertise and sell to con-
sumers and educate and sell to providers. 
(B) REPORT.—Not later than January 1, 
2005, the Secretary shall submit to Congress a 
report on such study. The report shall include 
the estimated direct and indirect costs of the 
sales methods used, the quality of the informa-
tion conveyed, and whether such sales efforts 
leads (or could lead) to inappropriate pre-
scribing. Such report may include legislative 
and regulatory recommendations to encourage 
more appropriate education and prescribing 
practices. 
(3) STUDY ON COST OF PHARMACEUTICAL RE-
SEARCH.—
(A) 
IN
GENERAL.—The 
Secretary 
of 
Health and Human Services shall conduct a 
study on the costs of, and needs for, the phar-
maceutical research and the role that the tax-
payer provides in encouraging such research. 
(B) REPORT.—Not later than January 1, 
2005, the Secretary shall submit to Congress a 
report on such study. The report shall include 
a description of the full-range of taxpayer-as-
sisted programs impacting pharmaceutical re-
search, including tax, trade, government re-
search, and regulatory assistance. The report 
may also include legislative and regulatory rec-
ommendations that are designed to ensure that 
the taxpayer’s investment in pharmaceutical re-
search results in the availability of pharma-
ceuticals at reasonable prices. 
(4) REPORT ON PHARMACEUTICAL PRICES IN 
MAJOR FOREIGN NATIONS.—Not later than January 
1, 2005, the Secretary of Health and Human Serv-
ices shall submit to Congress a report on the retail 
price of major pharmaceutical products in various 
developed nations, compared to prices for the same 
or similar products in the United States. The report 
shall include a description of the principal reasons 
for any price differences that may exist. 
SEC. 8. MEDIGAP TRANSITION PROVISIONS. 
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, no new medicare supplemental policy that pro-
vides coverage of expenses for prescription drugs may be 
issued under section 1882 of the Social Security Act on 
or after January 1, 2005, to an individual unless it re-
places a medicare supplemental policy that was issued to
that individual and that provided some coverage of ex-
penses for prescription drugs. 
(b) ISSUANCE OF SUBSTITUTE POLICIES IF OBTAIN-
ING PRESCRIPTION DRUG COVERAGE THROUGH MEDI-
CARE.—
(1) IN
GENERAL.—The issuer of a medicare 
supplemental policy—
(A) may not deny or condition the issuance 
or effectiveness of a medicare supplemental pol-
icy that has a benefit package classified as ‘‘A’’, 
‘‘B’’, ‘‘C’’, ‘‘D’’, ‘‘E’’, ‘‘F’’, or ‘‘G’’ (under the 
standards established under subsection (p)(2) of 
section 1882 of the Social Security Act, 42 
U.S.C. 1395ss) and that is offered and is avail-
able for issuance to new enrollees by such 
issuer; 
(B) may not discriminate in the pricing of 
such policy, because of health status, claims ex-
perience, receipt of health care, or medical con-
dition; and 
(C) may not impose an exclusion of bene-
fits based on a pre-existing condition under 
such policy, 
in the case of an individual described in paragraph 
(2) who seeks to enroll under the policy not later
has the meaning given such term in section 1882(g) 
of the Social Security Act (42 U.S.C. 1395ss(g)).
Æ