330
Title I, Subtitle G
to be a full-time employee of an employer) for
a month (or for all months in a 12-month pe-
riod) if the employee is employed by that em-
ployer on a continuing basis that, taking into
account the structure or nature of the employ-
ment in the industry, represents full time em-
ployment.
(3) HOURS OF EMPLOYMENT.—
(A) IN GENERAL.—For purposes of this
Act, the Board shall specify the method for
computing hours of employment for employees
of an employer consistent with this paragraph.
The Board shall take into account rules used
for purposes of applying the Fair Labor Stand-
ards Act.
(B) HOURLY WAGE EARNERS.—In the case
of an individual who receives compensation (in
the form of hourly wages or compensation) for
the performance of services, the individual is
considered to be ‘‘employed’’ by an employer for
an hour if compensation is payable with respect
to that hour of employment, without regard to
whether or not the employee is actually per-
forming services during such hours.
331
Title I, Subtitle G
(4) TREATMENT OF SALARIED EMPLOYEES AND
EMPLOYEES PAID ON CONTINGENT OR BONUS AR-
RANGEMENTS.—In the case of an employee who re-
ceives compensation on a salaried basis or on the
basis of a commission (or other contingent or bonus
basis), rather than an hourly wage, the Board shall
establish rules for the conversion of the compensa-
tion to hours of employment, taking into account the
minimum monthly compensation levels for workers
employed on a full-time basis under the Fair Labor
Standards Act and other factors the Board considers
relevant.
(c) DEFINITIONS
RELATING
TO
SELF-EMPLOY-
MENT.—In this Act:
(1) 
NET
EARNINGS
FROM
SELF-EMPLOY-
MENT.—The term ‘‘net earnings from self-employ-
ment’’ has the meaning given such term under sec-
tion 1402(a) of the Internal Revenue Code of 1986.
(2) SELF-EMPLOYED
INDIVIDUAL.—The term
‘‘self-employed individual’’ means, for a year, an in-
dividual who has net earnings from self-employment
for the year.
SEC. 1902. OTHER GENERAL DEFINITIONS.
Except as otherwise specifically provided, in this Act
the following definitions apply:
332
Title I, Subtitle G
(1) ALIEN
PERMANENTLY
RESIDING
IN
THE
UNITED STATES UNDER COLOR OF LAW.—The term
‘‘alien permanently residing in the United States
under color of law’’ means an alien lawfully admitted
for permanent residence (within the meaning of sec-
tion 101(a)(20) of the Immigration and Nationality
Act), and includes any of the following:
(A) An alien who is admitted as a refugee
under section 207 of the Immigration and Na-
tionality Act.
(B) An alien who is granted asylum under
section 208 of such Act.
(C) An alien whose deportation is withheld
under section 243(h) of such Act.
(D) An alien who is admitted for tem-
porary residence under section 210, 210A, or
245A of such Act.
(E) An alien who has been paroled into the
United States under section 212(d)(5) of such
Act for an indefinite period or who has been
granted extended voluntary departure as a
member of a nationality group.
(F) An alien who is the spouse or unmar-
ried child under 21 years of age of a citizen of
the United States, or the parent of such a cit-
333
Title I, Subtitle G
izen if the citizen is over 21 years of age, and
with respect to whom an application for adjust-
ment to lawful permanent residence is pending.
(G) An alien within such other classifica-
tion of permanent resident aliens as the Na-
tional Health Board may establish by regula-
tion.
(2) AFDC FAMILY.—The term ‘‘AFDC family’’
means a family composed entirely of one or more
AFDC recipients.
(3) AFDC RECIPIENT.—The term ‘‘AFDC re-
cipient’’ means, for a month, an individual who is
receiving aid or assistance under any plan of the
State approved under title I, X, XIV, or XVI, or
part A or part E of title IV, of the Social Security
Act for the month.
(4) ALLIANCE AREA.—The term ‘‘alliance area’’
means the area served by a regional alliance and
specified under section 1202(b).
(5) ALLIANCE
ELIGIBLE
INDIVIDUAL.—The
term ‘‘alliance eligible individual’’ means, with re-
spect to a health alliance, an eligible individual with
respect to whom the applicable health plan is a
health plan offered by or through such alliance and
does not include a prisoner.
334
Title I, Subtitle G
(6) APPLICABLE
HEALTH
PLAN.—The term
‘‘applicable health plan’’ means, with respect to an
eligible individual, the health plan specified pursuant
to section 1004 and part 2 of subtitle A.
(7) COMBINATION COST SHARING PLAN.—The
term ‘‘combination cost sharing plan’’ means a
health plan that provides combination cost sharing
schedule (consistent with section 1134).
(8) COMPREHENSIVE BENEFIT PACKAGE.—The
term ‘‘comprehensive benefit package’’ means the
package of health benefits provided under subtitle B.
(9) CONSUMER PRICE INDEX; CPI.—The terms
‘‘consumer price index’’ and ‘‘CPI’’ mean the Con-
sumer Price Index for all urban consumers (U.S.
city average), as published by the Bureau of Labor
Statistics.
(10) CORPORATE
ALLIANCE
ELIGIBLE
INDI-
VIDUAL.—The term ‘‘corporate alliance eligible indi-
vidual’’ means, with respect to a corporate alliance,
an eligible individual with respect to whom the cor-
porate alliance is the applicable health plan.
(11) CORPORATE
ALLIANCE
EMPLOYER.—The
term ‘‘corporate alliance employer’’ means, with re-
spect to a corporate alliance, an employer of an indi-
335
Title I, Subtitle G
vidual who is a participant in a corporate alliance
health plan of that alliance.
(12) CORPORATE ALLIANCE HEALTH PLAN.—
The term ‘‘corporate alliance health plan’’ means a
health plan offered by a corporate alliance.
(13) DISABLED
SSI
RECIPIENT.—The term
‘‘disabled SSI recipient’’ means an individual who—
(A) is an SSI recipient, and
(B) has been determined to be disabled for
purposes of the supplemental security income
program (under title XVI of the Social Security
Act).
(14) ELIGIBLE ENROLLEE.—The term ‘‘eligible
enrollee’’ means, with respect to a health plan of-
fered by a health alliance, an alliance eligible indi-
vidual, but does not include such an individual if the
individual is enrolled under such a plan as the fam-
ily member of another alliance eligible individual.
(15) ESSENTIAL COMMUNITY PROVIDER.—The
term ‘‘essential community provider’’ means an enti-
ty certified as such a provider under subpart B of
part 2 of subtitle F.
(16) FEE-FOR-SERVICE PLAN.—The term ‘‘fee-
for-service plan’’ means a health plan described in
section 1322(b)(2)(A).
336
Title I, Subtitle G
(17) FIRST
YEAR.—The term ‘‘first year’’
means, with respect to—
(A) a State that is a participating State in
a year before 1998, the year in which the State
first is a participating State, or
(B) any other State, 1998.
(18) HIGHER COST SHARING PLAN.—The term
‘‘higher cost sharing plan’’ means a health plan that
provides a higher cost sharing schedule (consistent
with section 1133).
(19) LONG-TERM
NONIMMIGRANT.—The term
‘‘long-term nonimmigrant’’ means a nonimmigrant
described in subparagraph (E), (H), (I), (J), (K),
(L), (M), (N), (O), (Q), or (R) of section 101(a)(15)
of the Immigration and Nationality Act or an alien
within such other classification of nonimmigrant as
the National Health Board may establish by regula-
tion.
(20) LOWER COST SHARING PLAN.—The term
‘‘lower cost sharing plan’’ means a health plan that
provides a lower cost sharing schedule (consistent
with section 1132).
(21) MEDICARE PROGRAM.—The term ‘‘medi-
care program’’ means the health insurance program
under title XVIII of the Social Security Act.
337
Title I, Subtitle G
(22) MEDICARE-ELIGIBLE
INDIVIDUAL.—The
term ‘‘medicare-eligible individual’’ means, subject to
section 1012(a), an individual who is entitled to ben-
efits under part A of the medicare program.
(23) MOVE.—The term ‘‘move’’ means, respect
to an individual, a change of residence of the indi-
vidual from one alliance area to another alliance
area.
(24) NATIONAL HEALTH BOARD; BOARD.—The
terms ‘‘National Health Board’’ and ‘‘Board’’ mean
the National Health Board created under section
1501.
(25) POVERTY LEVEL.—
(A) IN GENERAL.—The term ‘‘applicable
poverty level’’ means, for a family for a year,
the official poverty line (as defined by the Of-
fice 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
(as determined under subparagraph (B)) for
1994 adjusted by the percentage increase or de-
crease described in subparagraph (C) for the
year involved.
338
Title I, Subtitle G
(B) FAMILY SIZE.—In applying the appli-
cable poverty level to—
(i) an individual enrollment, the fam-
ily size is deemed to be one person;
(ii) a couple-only enrollment, the fam-
ily size is deemed to be two persons;
(iii) a single parent enrollment, the
family size is deemed to be three persons;
or
(iv) a dual parent enrollment, the
family size is deemed to be four persons.
(C) PERCENTAGE ADJUSTMENT.—The per-
centage increase or decrease described in this
subparagraph for a year is the percentage in-
crease or decrease by which the average CPI for
the 12-month-period ending with August 31 of
the preceding year exceeds such average for the
12-month period ending with August 31, 1993.
(D) ROUNDING.—Any adjustment made
under subparagraph (A) for a year shall be
rounded to the nearest multiple of $100.
(26) PRISONER.—The term ‘‘prisoner’’ means,
as specified by the Board, an eligible individual dur-
ing a period of imprisonment under Federal, State,
or local authority after conviction as an adult.
339
Title I, Subtitle G
(27) REGIONAL
ALLIANCE
ELIGIBLE
INDI-
VIDUAL.—The term ‘‘regional alliance eligible indi-
vidual’’ means an eligible individual with respect to
whom a regional alliance health plan is an applicable
health plan.
(28) REGIONAL
ALLIANCE
EMPLOYER.—The
term ‘‘regional alliance employer’’ means, with re-
spect to an employee, an employer that is not a cor-
porate alliance employer with respect to such em-
ployee.
(29) REGIONAL ALLIANCE HEALTH PLAN.—The
term ‘‘regional alliance health plan’’ means a health
plan offered by a regional alliance.
(30) RESIDE.—
(A) An individual is considered to reside in
the location in which the individual maintains a
primary residence (as established under rules of
the National Health Board).
(B) Under such rules and subject to sec-
tion 1323(c), in the case of an individual who
maintains more than one residence, the primary
residence of the individual shall be determined
taking into account the proportion of time spent
at each residence.
340
Title I, Subtitle G
(C) In the case of a couple only one spouse
of which is a qualifying employee, except as the
Board may provide, the residence of the em-
ployee shall be the residence of the couple.
(31) 
SECRETARY.—The 
term 
‘‘Secretary’’
means the Secretary of Health and Human Services.
(32) SSI FAMILY.—The term ‘‘SSI family’’
means a family composed entirely of one or more
SSI recipients.
(33) SSI RECIPIENT.—The term ‘‘SSI recipi-
ent’’ means, for a month, an individual—
(A) with respect to whom supplemental se-
curity income benefits are being paid under title
XVI of the Social Security Act for the month,
(B) who is receiving a supplementary pay-
ment under section 1616 of such Act or under
section 212 of Public Law 93–66 for the
month, or
(C) who is receiving monthly benefits
under section 1619(a) of the Social Security
Act (whether or not pursuant to section
1616(c)(3) of such Act) for the month.
(34) STATE.—The term ‘‘State’’ includes the
District of Columbia, Puerto Rico, the Virgin Is-
341
Title I, Subtitle G
lands, Guam, American Samoa, and the Northern
Mariana Islands.
(35) STATE MEDICAID PLAN.—The term ‘‘State
medicaid plan’’ means a plan of medical assistance
of a State approved under title XIX of the Social
Security Act.
(36) UNDOCUMENTED ALIEN.—The term ‘‘un-
documented alien’’ means an alien who is not a long-
term nonimmigrant, a diplomat, or described in sec-
tion 1005(c).
(37) UNITED
STATES.—The term ‘‘United
States’’ means the 50 States, the District of Colum-
bia, Puerto Rico, the Virgin Islands, Guam, Amer-
ican Samoa, and Northern Mariana Islands.
Subtitle B—Miscellaneous
Provisions
SEC. 1911. USE OF INTERIM, FINAL REGULATIONS.
In order to permit the timely implementation of the
provisions of this Act, the National Health Board, the Sec-
retary of Health and Human Services, the Secretary of
Labor are each authorized to issue regulations under this
Act on an interim basis that become final on the date of
publication, subject to change based on subsequent public
comment.
342
Title II
SEC. 1912. SOCIAL SECURITY ACT REFERENCES.
Except as may otherwise be provided, any reference
in this title, or in title V or VI, to a provision of the Social
Security Act shall be to that provision of the Social Secu-
rity Act as in effect on the date of the enactment of this
Act.
TITLE II—NEW BENEFITS
TABLE OF CONTENTS OF TITLE
Page
Subtitle A—Medicare Outpatient Prescription Drug Benefit
Sec. 2001. Coverage of outpatient prescription drugs ............................
343
Sec. 2002. Payment rules and related requirements for covered out-
patient drugs .................................................................
349
Sec. 2003. Medicare rebates for covered outpatient drugs .....................
365
Sec. 2004. Extension of 25 percent rule for portion of premium attrib-
utable to covered outpatient drugs ...............................
379
Sec. 2005. Coverage of home infusion drug therapy services .................
380
Sec. 2006. Conforming amendments to medicaid program ....................
387
Sec. 2007. Effective date ........................................................................
389
Subtitle B—Long-Term Care
PART 1—STATE PROGRAMS FOR HOME AND COMMUNITY-BASED SERVICES
FOR INDIVIDUALS WITH DISABILITIES
Sec. 2101. State programs for home and community-based services for
individuals with disabilities ...........................................
389
Sec. 2102. State plans .............................................................................
390
Sec. 2103. Individuals with disabilities defined ......................................
398
Sec. 2104. Home and community-based services covered under State
plan ...............................................................................
402
Sec. 2105. Cost sharing ..........................................................................
408
Sec. 2106. Quality assurance and safeguards .........................................
409
Sec. 2107. Advisory groups .....................................................................
410
Sec. 2108. Payments to States ...............................................................
412
Sec. 2109. Total Federal budget; allotments to States ..........................
415
PART 2—MEDICAID NURSING HOME IMPROVEMENTS
Sec. 2201. Reference to amendments .....................................................
425
PART 3—PRIVATE LONG-TERM CARE INSURANCE
343
Title II, Subtitle A
SUBPART A—GENERAL PROVISIONS
Sec. 2301. Federal regulations; prior application or certain require-
ments .............................................................................
426
Sec. 2302. National Long-Term Care Insurance Advisory Council ........
430
Sec. 2303. Relation to State law .............................................................
438
Sec. 2304. Definitions .............................................................................
438
SUBPART B—FEDERAL STANDARDS AND REQUIREMENTS
Sec. 2321. Requirements to facilitate understanding and comparison of
benefits ..........................................................................
443
Sec. 2322. Requirements relating to coverage ........................................
449
Sec. 2323. Requirements relating to premiums ......................................
454
Sec. 2324. Requirements relating to sales practices ...............................
455
Sec. 2325. Continuation, renewal, replacement, conversion, and can-
cellation of policies ........................................................
461
Sec. 2326. Requirements relating to payment of benefits ......................
470
SUBPART C—ENFORCEMENT
Sec. 2342. State programs for enforcement of standards ......................
474
Sec. 2342. Authorization of appropriations for State programs .............
480
Sec. 2343. Allotments to States ..............................................................
481
Sec. 2344. Payments to States ...............................................................
481
Sec. 2345. Federal oversight of State enforcement ................................
482
Sec. 2346. Effect of failure to have approved State program ................
483
SUBPART D—CONSUMER EDUCATION GRANTS
Sec. 2361. Grants for consumer education .............................................
485
PART 4—TAX TREATMENT OF LONG-TERM CARE INSURANCE AND SERVICES
Sec. 2401. Reference to tax provisions ...................................................
488
PART 5—TAX INCENTIVES FOR INDIVIDUALS WITH DISABILITIES WHO
WORK
Sec. 2501. Reference to tax provision .....................................................
489
PART 6—DEMONSTRATION AND EVALUATION
Sec. 2601. Demonstration on acute and long-term care integration ......
489
Sec. 2602. Performance review of the long-term care programs ............
497
Subtitle A—Medicare Outpatient
Prescription Drug Benefit
SEC. 2001. COVERAGE OF OUTPATIENT PRESCRIPTION
DRUGS.
(a) COVERED OUTPATIENT DRUGS AS MEDICAL AND
OTHER HEALTH SERVICES.—Section 1861(s)(2)(J) of the
344
Title II, Subtitle A
Social Security Act (42 U.S.C. 1395x(s)(2)(J)) is amend-
ed to read as follows:
‘‘(J) covered outpatient drugs;’’.
(b) DEFINITION OF COVERED OUTPATIENT DRUG.—
Section 1861(t) of such Act (42 U.S.C. 1395x(t)), as
amended by section 13553(b) of the Omnibus Budget Rec-
onciliation Act of 1993 (hereafter in this subtitle referred
to as ‘‘OBRA–1993’’), is amended—
(1) in the heading, by adding at the end the fol-
lowing: ‘‘; Covered Outpatient Drugs’’;
(2) in paragraph (1), by striking ‘‘paragraph
(2)’’ and inserting ‘‘the succeeding paragraphs of
this subsection’’; and
(3) by striking paragraph (2) and inserting the
following:
‘‘(2) Except as otherwise provided in paragraph (3),
the term ‘covered outpatient drug’ means any of the fol-
lowing products used for a medically accepted indication
(as described in paragraph (4)):
‘‘(A) A drug which may be dispensed only upon
prescription and—
‘‘(i) which is approved for safety and effec-
tiveness as a prescription drug under section
505 or 507 of the Federal Food, Drug, and
345
Title II, Subtitle A
Cosmetic Act or which is approved under sec-
tion 505(j) of such Act;
‘‘(ii)(I) which was commercially used or
sold in the United States before the date of the
enactment of the Drug Amendments of 1962 or
which is identical, similar, or related (within the
meaning of section 310.6(b)(1) of title 21 of the
Code of Federal Regulations) to such a drug,
and (II) which has not been the subject of a
final determination by the Secretary that it is
a ‘new drug’ (within the meaning of section
201(p) of the Federal Food, Drug, and Cos-
metic Act) or an action brought by the Sec-
retary under section 301, 302(a), or 304(a) of
such Act to enforce section 502(f) or 505(a) of
such Act; or
‘‘(iii)(I) which is described in section
107(c)(3) of the Drug Amendments of 1962
and for which the Secretary has determined
there is a compelling justification for its med-
ical need, or is identical, similar, or related
(within the meaning of section 310.6(b)(1) of
title 21 of the Code of Federal Regulations) to
such a drug, and (II) for which the Secretary
has not issued a notice of an opportunity for a
346
Title II, Subtitle A
hearing under section 505(e) of the Federal
Food, Drug, and Cosmetic Act on a proposed
order of the Secretary to withdraw approval of
an application for such drug under such section
because the Secretary has determined that the
drug is less than effective for all conditions of
use prescribed, recommended, or suggested in
the labeling.
‘‘(B) A biological product which—
‘‘(i) may only be dispensed upon prescrip-
tion,
‘‘(ii) is licensed under section 351 of the
Public Health Service Act, and
‘‘(iii) is produced at an establishment li-
censed under such section to produce such
product.
‘‘(C) Insulin certified under section 506 of the
Federal Food, Drug, and Cosmetic Act.
‘‘(3) The term ‘covered outpatient drug’ does not in-
clude any product—
‘‘(A) which is administered through infusion in
a home setting unless the product is a covered home
infusion drug (as defined in paragraph (5));
347
Title II, Subtitle A
‘‘(B) when furnished as part of, or as incident
to, any other item or service for which payment may
be made under this title; or
‘‘(C) which is listed under paragraph (2) of sec-
tion 1927(d) (other than subparagraph (I) or (J) of
such subparagraph) as a drug which may be ex-
cluded from coverage under a State plan under title
XIX and which the Secretary elects to exclude from
coverage under part B.
‘‘(4) For purposes of paragraph (2), the term ‘medi-
cally accepted indication’, with respect to the use of an
outpatient drug, includes any use which has been approved
by the Food and Drug Administration for the drug, and
includes another use of the drug if—
‘‘(A) the drug has been approved by the Food
and Drug Administration; and
‘‘(B)(i) such use is supported by one or more
citations which are included (or approved for inclu-
sion) in one or more of the following compendia: the
American Hospital Formulary Service-Drug Infor-
mation, the American Medical Association Drug
Evaluations, the United States Pharmacopoeia-Drug
Information, and other authoritative compendia as
identified by the Secretary, unless the Secretary has
determined that the use is not medically appropriate
348
Title II, Subtitle A
or the use is identified as not indicated in one or
more such compendia, or
‘‘(ii) the carrier involved determines, based
upon guidance provided by the Secretary to carriers
for determining accepted uses of drugs, that such
use is medically accepted based on supportive clinical
evidence in peer reviewed medical literature appear-
ing in publications which have been identified for
purposes of this clause by the Secretary.
The Secretary may revise the list of compendia in sub-
paragraph (B)(i) designated as appropriate for identifying
medically accepted indications for drugs.
‘‘(5)(A) For purposes of paragraph (3), the term
‘covered home infusion drug’ means a covered outpatient
drug or an enteral or parenteral nutrient dispensed to an
individual that—
‘‘(i) 
is 
administered 
intravenously,
subcutaneously, epidurally, or through other means
determined by the Secretary, using an access device
that is inserted in to the body and an infusion device
to control the rate of flow of the drug,
‘‘(ii) is administered in the individual’s home
(including an institution used as the individual’s
home, other than a hospital under subsection (e) or
349
Title II, Subtitle A
a skilled nursing facility that meets the requirements
of section 1819(a)), and
‘‘(iii)(I) is an antibiotic drug and the Secretary
has not determined, for the specific drug or the indi-
cation to which the drug is applied, that the drug
cannot generally be administered safely and effec-
tively in a home setting, or
‘‘(II) is not an antibiotic drug and the Sec-
retary has determined, for the specific drug or the
indication to which the drug is applied, that the
drug can generally be administered safely and effec-
tively in a home setting.
‘‘(B) Not later than January 1, 1996, (and periodi-
cally thereafter), the Secretary shall publish a list of the
drugs, and indications for such drugs, that are covered
home infusion drugs, with respect to which home infusion
drug therapy may be provided under this title.’’.
(c) OTHER CONFORMING AMENDMENTS.—(1) Sec-
tion 1861 of such Act (42 U.S.C. 1395x) is amended—
(A) in subsection (s)(2), as amended by section
13553 of OBRA–1993—
(i) by striking subparagraphs (O) and (Q),
(ii) by adding ‘‘and’’ at the end of sub-
paragraph (N),
350
Title II, Subtitle A
(iii) by striking ‘‘; and’’ at the end of sub-
paragraph (P) and inserting a period, and
(iv) by redesignating subparagraph (P) as
subparagraph (O); and
(B) by striking the subsection (jj) added by sec-
tion 4156(a)(2) of the Omnibus Budget Reconcili-
ation Act of 1990.
(2) Section 1881(b)(1)(C) of such Act (42 U.S.C.
1395rr(b)(1)(C)), as amended by section 13566(a) of
OBRA–1993, 
is 
amended 
by 
striking 
‘‘section
1861(s)(2)(P)’’ and inserting ‘‘section 1861(s)(2)(O)’’.
SEC. 2002. PAYMENT RULES AND RELATED REQUIREMENTS
FOR COVERED OUTPATIENT DRUGS.
(a) IN GENERAL.—Section 1834 of the Social Secu-
rity Act (42 U.S.C. 1395m) is amended by inserting after
subsection (c) the following new subsection:
‘‘(d) PAYMENT FOR AND CERTAIN REQUIREMENTS
CONCERNING COVERED OUTPATIENT DRUGS.—
‘‘(1) DEDUCTIBLE.—
‘‘(A) IN
GENERAL.—Payment shall be
made under paragraph (2) only for expenses in-
curred by an individual for a covered outpatient
drug during a calendar year after the individual
has incurred expenses in the year for such
drugs (during a period in which the individual
351
Title II, Subtitle A
is entitled to benefits under this part) equal to
the deductible amount for that year.
‘‘(B) DEDUCTIBLE AMOUNT.—
‘‘(i) For purposes of subparagraph
(A), the deductible amount is—
‘‘(I) for 1996, $250, and
‘‘(II) for any succeeding year, the
amount (rounded to the nearest dol-
lar) that the Secretary estimates will
ensure that the percentage of the av-
erage number of individuals covered
under this part (other than individ-
uals enrolled with an eligible organiza-
tion under section 1876 or an organi-
zation 
described 
in 
section
1833(a)(1)(A)) during the year who
will incur expenses for covered out-
patient drugs equal to or greater than
such amount will be the same as the
percentage for the previous year.
‘‘(ii) The Secretary shall promulgate
the deductible amount for 1997 and each
succeeding year during September of the
previous year.
352
Title II, Subtitle A
‘‘(C) SPECIAL RULE FOR DETERMINATION
OF EXPENSES INCURRED.—In determining the
amount of expenses incurred by an individual
for covered outpatient drugs during a year for
purposes of subparagraph (A), there shall not
be included any expenses incurred with respect
to a drug to the extent such expenses exceed
the payment basis for such drug under para-
graph (3).
‘‘(2) PAYMENT AMOUNT.—
‘‘(A) IN GENERAL.—Subject to the deduct-
ible established under paragraph (1), the
amount payable under this part for a covered
outpatient drug furnished to an individual dur-
ing a calendar year shall be equal to—
‘‘(i) 80 percent of the payment basis
described in paragraph (3), in the case of
an individual who has not incurred ex-
penses for covered outpatient drugs during
the year (including the deductible imposed
under paragraph (1)) in excess of the out-
of-pocket limit for the year under subpara-
graph (B); and
353
Title II, Subtitle A
‘‘(ii) 100 percent of the payment basis
described in paragraph (3), in the case of
any other individual.
‘‘(B) 
OUT-OF-POCKET
LIMIT
DE-
SCRIBED.—
‘‘(i) For purposes of subparagraph
(A), the out-of-pocket limit for a year is
equal to—
‘‘(I) for 1996, $1000, and
‘‘(II) for any succeeding year, the
amount (rounded to the nearest dol-
lar) that the Secretary estimates will
ensure that the percentage of the av-
erage number of individuals covered
under this part (other than individ-
uals enrolled with an eligible organiza-
tion under section 1876 or an organi-
zation 
described 
in 
section
1833(a)(1)(A)) during the year who
will incur expenses for covered out-
patient drugs equal to or greater than
such amount will be the same as the
percentage for the previous year.
‘‘(ii) The Secretary shall promulgate
the out-of-pocket limit for 1997 and each
354
Title II, Subtitle A
succeeding year during September of the
previous year.
‘‘(C) SPECIAL RULE FOR DETERMINATION
OF EXPENSES INCURRED.—In determining the
amount of expenses incurred by an individual
for covered outpatient drugs during a year for
purposes of subparagraph (A), there shall not
be included any expenses incurred with respect
to a drug to the extent such expenses exceed
the payment basis for such drug under para-
graph (3).
‘‘(3) PAYMENT BASIS.—For purposes of para-
graph (2), the payment basis is the lesser of—
‘‘(A) the actual charge for a covered out-
patient drug, or
‘‘(B) the applicable payment limit estab-
lished under paragraph (4).
‘‘(4) PAYMENT LIMITS.—
‘‘(A) PAYMENT LIMIT FOR SINGLE SOURCE
DRUGS
AND
MULTIPLE
SOURCE
DRUGS
WITH
RESTRICTIVE PRESCRIPTIONS.—In the case of a
covered outpatient drug that is a multiple
source drug which has a restrictive prescription,
or that is single source drug, the payment limit
for a payment calculation period is equal to—
355
Title II, Subtitle A
‘‘(i) the 90th percentile of the actual
charges (computed on the geographic basis
specified by the Secretary) for the drug
product for the second previous payment
calculation period, or
‘‘(ii) the amount of the administrative
allowance (established under paragraph
(5)) plus the product of the number of dos-
age units dispensed and the per unit esti-
mated acquisition cost for the drug prod-
uct (determined under subparagraph (C))
for the period,
whichever is less.
‘‘(B) PAYMENT
LIMIT
FOR
MULTIPLE
SOURCE
DRUGS
WITHOUT
RESTRICTIVE
PRE-
SCRIPTIONS.—In the case of a drug that is a
multiple source drug which does not have a re-
strictive prescription, the payment limit for a
payment calculation period is equal to the
amount of the administrative allowance (estab-
lished under paragraph (5)) plus the product of
the number of dosage units dispensed and the
unweighted median of the unit estimated acqui-
sition cost (determined under subparagraph
(C)) for the drug products for the period.
356
Title II, Subtitle A
‘‘(C) DETERMINATION OF UNIT PRICE.—
‘‘(i) IN
GENERAL.—The Secretary
shall determine, for the dispensing of a
covered outpatient drug product in a pay-
ment calculation period, the estimated ac-
quisition cost for the drug product. With
respect to any covered outpatient drug
product, such cost may not exceed 93 per-
cent of the published average wholesale
price for the drug during the period.
‘‘(ii) COMPLIANCE
WITH
REQUEST
FOR INFORMATION.—If a wholesaler or di-
rect seller of a covered outpatient drug re-
fuses, after being requested by the Sec-
retary, to provide price information re-
quested to carry out clause (i), or delib-
erately provides information that is false,
the Secretary may impose a civil money
penalty of not to exceed $10,000 for each
such refusal or provision of false informa-
tion. The provisions of section 1128A
(other than subsections (a) and (b)) shall
apply to civil money penalties under the
previous sentence in the same manner as
they apply to a penalty or proceeding
357
Title II, Subtitle A
under section 1128A(a). Information gath-
ered pursuant to clause (i) shall not be dis-
closed except as the Secretary determines
to be necessary to carry out the purposes
of this part.
‘‘(5) ADMINISTRATIVE ALLOWANCE FOR PUR-
POSES OF PAYMENT LIMIT.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the administrative allowance
established under this paragraph is—
‘‘(i) for 1996, $5, and
‘‘(ii) for each succeeding year, the
amount for the previous year adjusted by
the percentage change in the consumer
price index for all urban consumers (U.S.
city average) for the 12-month period end-
ing with June of that previous year.
‘‘(B) REDUCTION FOR MAIL ORDER PHAR-
MACIES.—The Secretary may, after consulting
with representatives of pharmacists, individuals
enrolled under this part, and of private insur-
ers, reduce the administrative allowances estab-
lished under subparagraph (A) for any covered
outpatient drug dispensed by a mail order phar-
macy, based on differences between such phar-
358
Title II, Subtitle A
macies and other pharmacies with respect to
operating costs and other economies.
‘‘(6) ASSURING
APPROPRIATE
PRESCRIBING
AND DISPENSING PRACTICES.—
‘‘(A) IN
GENERAL.—The Secretary shall
establish a program to identify (and to educate
physicians and pharmacists concerning)—
‘‘(i) instances or patterns of unneces-
sary or inappropriate prescribing or dis-
pensing practices for covered outpatient
drugs,
‘‘(ii) instances or patterns of sub-
standard care with respect to such drugs,
‘‘(iii) potential adverse reactions, and
‘‘(iv) appropriate use of generic prod-
ucts.
‘‘(B) PRIOR
AUTHORIZATION.—The Sec-
retary may require advance approval for a cov-
ered outpatient drug which the Secretary finds
is subject to misuse or inappropriate use, is not
cost effective, which is a multiple source drug
with a restrictive prescription, or is subject to
negotiation under section 1850(c)(3). The Sec-
retary may also establish maximum quantities
per prescription and limits on the number of
359
Title II, Subtitle A
prescription refills. The Secretary shall ensure
that any advance approval requirements im-
posed under this subparagraph do not restrict
the access of patients to medically necessary
covered outpatient drugs on a timely basis, and
assure prompt determinations of approval or
disapproval and provide a means for providers
and patients to appeal a decision to disapprove
a drug.
‘‘(C) DRUG USE REVIEW.—The Secretary
may provide for a drug use review program
with respect to covered outpatient drugs dis-
pensed to individuals eligible for benefits under
this part. Such program may include such ele-
ments as the Secretary determines to be nec-
essary to assure that prescriptions (i) are ap-
propriate, (ii) are medically necessary, and (iii)
are not likely to result in adverse medical re-
sults, including any elements of the State drug
use review programs required under section
1927(g) that the Secretary determines to be ap-
propriate.
‘‘(7) ADMINISTRATIVE
IMPROVEMENTS.—The
Secretary shall develop, in consultation with rep-
resentatives of pharmacies and of other interested
360
Title II, Subtitle A
persons, a standard claims form for covered out-
patient drugs in accordance with title V of the
Health Security Act.
‘‘(8) COUNSELING REQUIREMENTS FOR PHAR-
MACIES.—A pharmacy may not receive any payment
under this part for a covered outpatient drug unless
the pharmacy agrees to answer questions of individ-
uals enrolled under this part who receive a covered
outpatient drug from the pharmacy regarding the
appropriate use of the drug, potential interactions
between the drug and other drugs dispensed to the
individual, and other matters relating to the dis-
pensing of such drugs.
‘‘(9) DEFINITIONS.—In this subsection:
‘‘(A) MULTIPLE
AND
SINGLE
SOURCE
DRUGS.—The terms ‘multiple source drug’ and
‘single source drug’ have the meanings of those
terms under section 1927(k)(7).
‘‘(B) 
RESTRICTIVE
PRESCRIPTION.—A
drug has a ‘restrictive prescription’ only if—
‘‘(i) in the case of a written prescrip-
tion, the prescription for the drug indi-
cates, in the handwriting of the physician
or other person prescribing the drug and
with an appropriate phrase (such as ‘brand
361
Title II, Subtitle A
medically necessary’) recognized by the
Secretary, that a particular drug product
must be dispensed, or
‘‘(ii) in the case of a prescription
issued by telephone—
‘‘(I) the physician or other per-
son prescribing the drug (through use
of such an appropriate phrase) states
that a particular drug product must
be dispensed, and
‘‘(II) the physician or other per-
son submits to the pharmacy involved,
within 30 days after the date of the
telephone prescription, a written con-
firmation which is in the handwriting
of the physician or other person pre-
scribing the drug and which indicates
with such appropriate phrase that the
particular drug product was required
to have been dispensed.
‘‘(C) PAYMENT
CALCULATION
PERIOD.—
The term ‘payment calculation period’ means
the 6-month period beginning with January of
each year and the 6-month period beginning
with July of each year.’’.
362
Title II, Subtitle A
(b) SUBMISSION OF CLAIMS BY PHARMACIES.—Sec-
tion 1848(g)(4) of such Act (42 U.S.C. 1395w–4(g)(4))
is amended—
(1) in the heading—
(A) by striking ‘‘PHYSICIAN’’, and
(B) by inserting ‘‘BY
PHYSICIANS
AND
SUPPLIERS’’ after ‘‘CLAIMS’’,
(2) in the matter in subparagraph (A) pre-
ceding clause (i)—
(A) by striking ‘‘For services furnished on
or after September 1, 1990, within 1 year’’ and
inserting ‘‘Within 1 year (90 days in the case
of covered outpatient drugs)’’,
(B) by striking ‘‘a service’’ and inserting
‘‘an item or service’’, and
(C) by inserting ‘‘or of providing a covered
outpatient drug,’’ after ‘‘basis,’’ and
(3) in subparagraph (A)(i), by inserting ‘‘item
or’’ before ‘‘service.
(c) SPECIAL RULES FOR CARRIERS.—
(1) USE
OF
REGIONAL
CARRIERS.—Section
1842(b)(2) of such Act (42 U.S.C. 1395u(b)(2)) is
amended by adding at the end the following:
‘‘(D) With respect to activities related to covered out-
patient drugs, the Secretary may enter into contracts with
363
Title II, Subtitle A
carriers under this section to perform the activities on a
regional basis.’’.
(2) PAYMENT
ON
OTHER
THAN
A
COST
BASIS.—Section 1842(c)(1)(A) of such Act (42
U.S.C. 1395u(c)(1)(A)) is amended—
(A) by inserting ‘‘(i)’’ after ‘‘(c)(1)(A)’’,
(B) in the first sentence, by inserting ‘‘,
except as otherwise provided in clause (ii),’’
after ‘‘under this part, and’’, and
(C) by adding at the end the following:
‘‘(ii) To the extent that a contract under this section
provides for activities related to covered outpatient drugs,
the Secretary may provide for payment for those activities
based on any method of payment determined by the Sec-
retary to be appropriate.’’.
(3) USE OF OTHER ENTITIES FOR COVERED
OUTPATIENT DRUGS.—Section 1842(f) of such Act
(42 U.S.C. 1395u(f)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (1),
(B) by striking the period at the end of
paragraph (2) and inserting ‘‘; and’’, and
(C) by adding at the end the following:
‘‘(3) with respect to activities related to covered
outpatient drugs, any other private entity which the
364
Title II, Subtitle A
Secretary determines is qualified to conduct such ac-
tivities.’’.
(4) 
DESIGNATED
CARRIERS
TO
PROCESS
CLAIMS OF RAILROAD RETIREES.—Section 1842(g)
of such Act (42 U.S.C. 1395u(g)) is amended by in-
serting ‘‘(other than functions related to covered
outpatient drugs)’’ after ‘‘functions’’.
(d) CONTRACTS FOR AUTOMATIC DATA PROCESSING
EQUIPMENT.—Actions taken before 1996 that affect con-
tracts related to the processing of claims for covered out-
patient drugs (as defined in section 1861(t) of the Social
Security Act) shall not be subject to section 111 of the
Federal Property and Administrative Services Act of
1949, and shall not be subject to administrative or judicial
review.
(e) CONFORMING AMENDMENTS.—
(1)(A) Section 1833(a)(1) of such Act (42
U.S.C. 
1395l(a)(1)), 
as 
amended 
by 
section
13544(b)(2) of OBRA–1993, is amended—
(i) by striking ‘‘and’’ at the end of clause
(O), and
(ii) by inserting before the semicolon at the
end the following: ‘‘, and (Q) with respect to
covered outpatient drugs, the amounts paid
shall be as prescribed by section 1834(d)’’.
365
Title II, Subtitle A
(B) Section 1833(a)(2) of such Act (42 U.S.C.
1395l(a)(2)) is amended in the matter preceding
subparagraph (A) by inserting ‘‘, except for covered
outpatient drugs,’’ after ‘‘and (I) of such section’’.
(2) Section 1833(b)(2) of such Act (42 U.S.C.
1395l(b)(2)) is amended by inserting ‘‘or with re-
spect to covered outpatient drugs’’ before the
comma.
(3) The first sentence of section 1842(h)(2) of
such Act (42 U.S.C. 1395u(h)(2)) is amended by in-
serting ‘‘(other than a carrier described in sub-
section (f)(3))’’ after ‘‘Each carrier’’.
(4) The first sentence of section 1866(a)(2)(A)
of such Act (42 U.S.C. 1395cc(a)(2)(A)) is
amended—
(A) in clause (i), by inserting ‘‘section
1834(d),’’ after ‘‘section 1833(b),’’, and
(B) in clause (ii), by inserting ‘‘, other
than for covered outpatient drugs,’’ after ‘‘pro-
vider)’’.
SEC. 
2003. 
MEDICARE 
REBATES 
FOR 
COVERED 
OUT-
PATIENT DRUGS.
(a) IN GENERAL.—Part B of title XVIII of the Social
Security Act is amended by adding at the end the fol-
lowing new section:
366
Title II, Subtitle A
‘‘REBATES FOR COVERED OUTPATIENT DRUGS
‘‘Sec. 1850. (a) REQUIREMENT FOR REBATE AGREE-
MENT.—In order for payment to be available under this
part for covered outpatient drugs of a manufacturer dis-
pensed on or after January 1, 1996, the manufacturer
must have entered into and have in effect a rebate agree-
ment with the Secretary meeting the requirements of sub-
section (b), and an agreement to give equal access to dis-
counts in accordance with subsection (e).
‘‘(b) TERMS, IMPLEMENTATION, AND ENFORCEMENT
OF REBATE AGREEMENT.—
‘‘(1) PERIODIC REBATES.—
‘‘(A) IN
GENERAL.—A rebate agreement
under this section shall require the manufac-
turer to pay to the Secretary for each calendar
quarter, not later than 30 days after the date
of receipt of the information described in para-
graph (2) for such quarter, a rebate in an
amount determined under subsection (c) for all
covered outpatient drugs of the manufacturer
described in subparagraph (B).
‘‘(B) DRUGS
INCLUDED
IN
QUARTERLY
REBATE CALCULATION.—Drugs subject to re-
bate with respect to a calendar quarter are
drugs which are dispensed by a pharmacy dur-
367
Title II, Subtitle A
ing such quarter to individuals (other than indi-
viduals enrolled with an eligible organization
with a contract under section 1876) eligible for
benefits under this part, as reported by such
pharmacies to the Secretary.
‘‘(2) INFORMATION FURNISHED TO MANUFAC-
TURERS.—
‘‘(A) IN
GENERAL.—The Secretary shall
report to each manufacturer, not later than 60
days after the end of each calendar quarter, in-
formation on the total number, for each covered
outpatient drug, of units of each dosage form,
strength, and package size dispensed under the
plan during the quarter, on the basis of the
data reported to the Secretary described in
paragraph (1)(B).
‘‘(B) AUDIT.—The Comptroller General
may audit the records of the Secretary to the
extent necessary to determine the accuracy of
reports by the Secretary pursuant to subpara-
graph (A). Adjustments to rebates shall be
made to the extent determined necessary by the
audit to reflect actual units of drugs dispensed.
‘‘(3) PROVISION
OF
PRICE
INFORMATION
BY
MANUFACTURER.—
368
Title II, Subtitle A
‘‘(A) 
QUARTERLY
PRICING
INFORMA-
TION.—Each manufacturer with an agreement
in effect under this section shall report to the
Secretary, not later than 30 days after the last
day of each calendar quarter, on the average
manufacturer retail price and the average man-
ufacturer non-retail price for each dosage form
and strength of each covered outpatient drug
for the quarter.
‘‘(B) BASE QUARTER PRICES.—Each man-
ufacturer of a covered outpatient drug with an
agreement under this section shall report to the
Secretary, by not later than 30 days after the
effective date of such agreement (or, if later, 30
days after the end of the base quarter), the av-
erage manufacturer retail price, for such base
quarter, for each dosage form and strength of
each such covered drug.
‘‘(C) VERIFICATION
OF
AVERAGE
MANU-
FACTURER PRICE.—The Secretary may inspect
the records of manufacturers, and survey whole-
salers, pharmacies, and institutional purchasers
of drugs, as necessary to verify prices reported
under subparagraph (A).
‘‘(D) PENALTIES.—
369
Title II, Subtitle A
‘‘(i) CIVIL
MONEY
PENALTIES.—The
Secretary may impose a civil money pen-
alty on a manufacturer with an agreement
under this section—
‘‘(I) for failure to provide infor-
mation required under subparagraph
(A) on a timely basis, in an amount
up to $10,000 per day of delay;
‘‘(II) for refusal to provide infor-
mation about charges or prices re-
quested by the Secretary for purposes
of verification pursuant to subpara-
graph (C), in an amount up to
$100,000; and
‘‘(III) for provision, pursuant to
subparagraph (A) or (B), of informa-
tion that the manufacturer knows or
should know is false, in an amount up
to $100,000 per item of information.
Such civil money penalties are in addition
to any other penalties prescribed by law.
The provisions of section 1128A (other
than subsections (a) (with respect to
amounts of penalties or additional assess-
ments) and (b)) shall apply to a civil
370
Title II, Subtitle A
money penalty under this subparagraph in
the same manner as such provisions apply
to a penalty or proceeding under section
1128A(a).
‘‘(ii) 
TERMINATION
OF
AGREE-
MENT.—If a manufacturer with an agree-
ment under this section has not provided
information required under subparagraph
(A) or (B) within 90 days of the deadline
imposed, the Secretary may suspend the
agreement with respect to covered out-
patient drugs dispensed after the end of
such 90-day period and until the date such
information is reported (but in no case
shall a suspension be for less than 30
days).
‘‘(4) LENGTH OF AGREEMENT.—
‘‘(A) IN
GENERAL.—A rebate agreement
shall be effective for an initial period of not less
than one year and shall be automatically re-
newed for a period of not less than one year un-
less terminated under subparagraph (B).
‘‘(B) TERMINATION.—
‘‘(i) BY THE SECRETARY.—The Sec-
retary may provide for termination of a re-
371
Title II, Subtitle A
bate agreement for violation of the require-
ments of the agreement or other good
cause shown. Such termination shall not be
effective earlier than 60 days after the
date of notice of such termination. The
Secretary shall afford a manufacturer an
opportunity for a hearing concerning such
termination, but such hearing shall not
delay the effective date of the termination.
‘‘(ii) BY A MANUFACTURER.—A man-
ufacturer may terminate a rebate agree-
ment under this section for any reason.
Any such termination shall not be effective
until the calendar quarter beginning at
least 60 days after the date the manufac-
turer provides notice to the Secretary.
‘‘(iii) EFFECTIVE
DATE
OF
TERMI-
NATION.—Any termination under this sub-
paragraph shall not affect rebates due
under the agreement before the effective
date of its termination.
‘‘(iv) NOTICE
TO
PHARMACIES.—In
the case of a termination under this sub-
paragraph, the Secretary shall notify phar-
macies and physician organizations not less
372
Title II, Subtitle A
than 30 days before the effective date of
such termination.
‘‘(c) AMOUNT OF REBATE.—
‘‘(1) BASIC REBATE.—Each manufacturer shall
remit a basic rebate to the Secretary for each cal-
endar quarter in an amount, with respect to each
dosage form and strength of a covered drug (except
as provided under paragraph (4)), equal to the prod-
uct of—
‘‘(A) the total number of units subject to
rebate for such quarter, as described in sub-
section (b)(1)(B); and
‘‘(B) the greater of—
‘‘(i) the difference between the aver-
age manufacturer retail price and the aver-
age manufacturer non-retail price,
‘‘(ii) 17 percent of the average manu-
facturer retail price, or
‘‘(iii) the amount determined pursuant
to paragraph (3).
‘‘(2) ADDITIONAL
REBATE.—Each manufac-
turer shall remit to the Secretary, for each calendar
quarter, an additional rebate for each dosage form
and strength of a covered drug (except as provided
under paragraph (4)), in an amount equal to—
531
Title III, Subtitle A
of the institution in meeting the condition described in sec-
tion 3032(b); the application contains each funding agree-
ment described in this subpart and the application pro-
vides such assurances of compliance with the agreements
as the Secretary may require; and the application is in
such form, is made in such manner, and contains such
agreements, assurances, and information as the Secretary
determines to be necessary to carry out this subpart.
(e) AMOUNT OF PAYMENTS.—
(1) IN GENERAL.—Subject to the annual health
professions workforce account available for the cal-
endar year involved, the amount of payments re-
quired in subsection (a) to be made to an eligible in-
stitution for such year is the product of the amount
determined under paragraph (2) and the applicable
percentage specified in paragraph (3).
(2) NUMBER OF SPECIALTY POSITIONS LOST;
NATIONAL
AVERAGE
SALARY.—For purposes of
paragraph (1), the amount determined under this
paragraph for an eligible institution for the calendar
year involved is the product of—
(A) an amount equal to the aggregate
number of full-time equivalent specialty posi-
tions lost; and
698
Title IV, Subtitle A
work, and to encourage individuals to receive serv-
ices under this title through the network;
‘‘(5) specify the rules under which carriers
under section 1842 may administer the program;
‘‘(6) establish procedures to used for the provi-
sion of case management services and criteria for
determining 
whether 
(and 
under 
which 
cir-
cumstances) services which would otherwise not be
covered under this title would be covered by the net-
work under such case management;
‘‘(7) establish standards for the processing and
payment of claims for payment for services fur-
nished by the network, including standards for the
apportionment of payments among the Trust Funds
established under this title;
‘‘(8) establish standards for the selection of
physicians for the network based on practice pat-
terns and a demonstration of effective quality assur-
ance;
‘‘(9) develop standards to ensure that the point-
of-service option does not result in a net financial
loss to the medicare program under this title after
the implementation of the option in an area, taking
into account administrative costs, the costs of serv-
ices (which would otherwise not be covered under