I 
108TH CONGRESS 
1ST SESSION H. R. 1199
To amend titles XVIII and XIX of the Social Security Act to provide for 
a voluntary Medicare prescription medicine benefit, to provide greater 
access to affordable pharmaceuticals, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MARCH 11, 2003
Mr. RANGEL (for himself, Mr. DINGELL, Mr. HOLDEN, Mr. BROWN of Ohio, 
Mr. STARK, Mr. WAXMAN, Mr. PALLONE, Mr. ABERCROMBIE, Mr. ACK-
ERMAN, Mr. ALEXANDER, Mr. ALLEN, Mr. ANDREWS, Ms. BALDWIN, Mr. 
BECERRA, Mr. BELL, Ms. BERKLEY, Mr. BERMAN, Mr. BERRY, Mr. 
BISHOP of New York, Mr. BOSWELL, Mr. BOUCHER, Ms. CORRINE 
BROWN of Florida, Mrs. CAPPS, Mr. CAPUANO, Mr. CARDIN, Mr. 
CARDOZA, Mrs. CHRISTENSEN, Mr. CLAY, Mr. CONYERS, Mr. CROWLEY, 
Mr. CUMMINGS, Mr. DAVIS of Illinois, Mr. DELAHUNT, Ms. DELAURO, 
Mr. DEUTSCH, Mr. DICKS, Mr. DOYLE, Mr. ENGEL, Mr. EVANS, Mr. 
FARR, Mr. FILNER, Mr. FRANK of Massachusetts, Mr. FROST, Mr. GEP-
HARDT, Mr. GORDON, Mr. GREEN of Texas, Mr. GRIJALVA, Mr. 
HASTINGS of Florida, Mr. HINCHEY, Mr. HINOJOSA, Mr. HOEFFEL, Mr. 
HOYER, Ms. JACKSON-LEE of Texas, Mr. JEFFERSON, Ms. EDDIE BER-
NICE JOHNSON of Texas, Mr. KANJORSKI, Ms. KAPTUR, Mr. KENNEDY 
of Rhode Island, Mr. KILDEE, Ms. KILPATRICK, Mr. KLECZKA, Mr. 
LAMPSON, Mr. LANGEVIN, Mr. LANTOS, Mr. LARSON of Connecticut, Ms. 
LEE, Mr. LEVIN, Mr. LEWIS of Georgia, Mrs. LOWEY, Mr. LYNCH, Mrs. 
MALONEY, Mr. MARKEY, Mr. MATSUI, Ms. MCCARTHY of Missouri, Ms. 
MCCOLLUM, Mr. MCDERMOTT, Mr. MCGOVERN, Mr. MCNULTY, Mr. 
MEEHAN, Mr. MEEK of Florida, Mr. MEEKS of New York, Ms. 
MILLENDER-MCDONALD, Mr. GEORGE MILLER of California, Mr. MOL-
LOHAN, Mr. MURTHA, Mr. NADLER, Mrs. NAPOLITANO, Mr. NEAL of 
Massachusetts, Ms. NORTON, Mr. OBERSTAR, Mr. OLVER, Mr. ORTIZ, 
Mr. OWENS, Ms. PELOSI, Mr. RAHALL, Mr. REYES, Mr. RODRIGUEZ, Mr. 
ROSS, Ms. ROYBAL-ALLARD, Mr. RUSH, Ms. LINDA T. SA´NCHEZ of Cali-
fornia, Mr. SANDERS, Mr. SANDLIN, Ms. SCHAKOWSKY, Mr. SCHIFF, Mr. 
SCOTT of Virginia, Mr. SERRANO, Ms. SLAUGHTER, Ms. SOLIS, Mr. 
STRICKLAND, Mr. THOMPSON of Mississippi, Mr. TIERNEY, Mr. TOWNS, 
Mrs. JONES of Ohio, Mr. UDALL of New Mexico, Mr. VAN HOLLEN, Mr. 
VISCLOSKY, Ms. WATSON, Mr. WEINER, Mr. WEXLER, Ms. WOOLSEY, 
and Mr. WYNN) introduced the following bill; which was referred to the 
Committee on Energy and Commerce, and in addition to the Committee
on Ways and Means, for a period to be subsequently determined by the 
Speaker, in each case for consideration of such provisions as fall within 
the jurisdiction of the committee concerned 
A BILL 
To amend titles XVIII and XIX of the Social Security Act 
to provide for a voluntary Medicare prescription medicine 
benefit, to provide greater access to affordable pharma-
ceuticals, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES IN ACT; TABLE OF 
CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Medicare Rx Drug Benefit and Discount Act of 2003’’. 
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Ex-
cept as otherwise specifically provided, whenever in this 
Act an amendment is expressed in terms of an amendment 
to or repeal of a section or other provision, the reference 
shall be considered to be made to that section or other 
provision of the Social Security Act. 
(c) TABLE OF CONTENTS.—The table of contents of 
this Act is as follows:
TITLE I—MEDICARE PRESCRIPTION MEDICINE BENEFIT 
Sec. 101. Voluntary medicare outpatient prescription medicine program. 
‘‘PART D—VOLUNTARY PRESCRIPTION MEDICINE BENEFIT FOR THE AGED 
AND DISABLED
‘‘Sec. 1859. Medicare outpatient prescription medicine benefit. 
‘‘Sec. 1859A. Negotiating fair prices with pharmaceutical manufacturers. 
‘‘Sec. 1859B. Contract authority. 
‘‘Sec. 1859C. Eligibility; voluntary enrollment; coverage. 
‘‘Sec. 1859D. Provision of, and entitlement to, benefits. 
‘‘Sec. 1859E. Administration; quality assurance. 
‘‘Sec. 1859F. Federal Medicare Prescription Medicine Trust Fund. 
‘‘Sec. 1859G. Compensation for employers covering retiree medicine costs. 
‘‘Sec. 1859H. Medicare Prescription Medicine Advisory Committee. 
Sec. 102. Provision of medicare outpatient prescription medicine coverage 
under the Medicare+Choice program. 
Sec. 103. Medigap revisions. 
Sec. 104. Transitional assistance for low income beneficiaries. 
Sec. 105. Expansion of membership and duties of Medicare Payment Advisory 
Commission (MedPAC). 
TITLE II—AFFORDABLE PHARMACEUTICALS 
Subtitle A—Greater Access to Affordable Pharmaceuticals 
Sec. 201. Accelerated generic drug competition. 
Sec. 202. Patent certification. 
Sec. 203. Additional uses. 
Subtitle B—Notification of Agreements Affecting the Sale or Marketing of 
Generic Drugs 
Sec. 211. Definitions. 
Sec. 212. Notification of agreements affecting the sale or marketing of generic 
drugs. 
Sec. 213. Filing deadlines. 
Sec. 214. Enforcement. 
Sec. 215. Rulemaking. 
Sec. 216. Effective dates.
TITLE I—MEDICARE PRESCRIP-
TION MEDICINE BENEFIT 
SEC. 101. VOLUNTARY MEDICARE OUTPATIENT PRESCRIP-
TION MEDICINE PROGRAM. 
(a) IN GENERAL.—Title XVIII (42 U.S.C. 1395 et 
seq.) is amended—
(1) by redesignating section 1859 and part D 
as section 1858 and part E, respectively; and 
(2) by inserting after part C the following new 
part:
‘‘PART D—VOLUNTARY PRESCRIPTION MEDICINE 
BENEFIT FOR THE AGED AND DISABLED 
‘‘MEDICARE OUTPATIENT PRESCRIPTION MEDICINE 
BENEFIT 
‘‘SEC. 1859. Subject to the succeeding provisions of 
this part, the voluntary prescription medicine benefit pro-
gram under this part provides the following: 
‘‘(1) PREMIUM.—The monthly premium is $25. 
‘‘(2) DEDUCTIBLE.—The annual deductible is 
$100. 
‘‘(3) COINSURANCE.—The coinsurance is 20 
percent. 
‘‘(4) OUT-OF-POCKET LIMIT.—The annual limit 
on out-of-pocket spending on covered medicines is 
$2,000. 
‘‘NEGOTIATING FAIR PRICES WITH PHARMACEUTICAL 
MANUFACTURERS 
‘‘SEC. 1859A. (a) AUTHORITY
TO
NEGOTIATE 
PRICES WITH MANUFACTURERS.—The Secretary shall, 
consistent with the requirements of this part and the goals 
of providing quality care and containing costs under this 
part, negotiate contracts with manufacturers of covered 
outpatient prescription medicines that provide for the 
maximum prices that may be charged to individuals en-
rolled under this part by participating pharmacies for dis-
pensing such medicines to such individuals.
‘‘(b) PROMOTION OF BREAKTHROUGH MEDICINES.—
In conducting negotiations with manufacturers under this 
part, the Secretary shall take into account the goal of pro-
moting the development of breakthrough medicines (as de-
fined in section 1859H(b)). 
‘‘CONTRACT AUTHORITY 
‘‘SEC. 1859B. (a) CONTRACT AUTHORITY.—
‘‘(1) IN GENERAL.—The Secretary is respon-
sible for the administration of this part and shall 
enter into contracts with appropriate pharmacy con-
tractors on a national or regional basis to administer 
the benefits under this part. 
‘‘(2) PROCEDURES.—The Secretary shall estab-
lish procedures under which the Secretary—
‘‘(A) accepts bids submitted by entities to 
serve as pharmacy contractors under this part 
in a region or on a national basis; 
‘‘(B) awards contracts to such contractors 
to administer benefits under this part to eligible 
beneficiaries in the region or on a national 
basis; and 
‘‘(C) provides for the termination (and 
nonrenewal) of a contract in the case of a con-
tractor’s failure to meet the requirements of the 
contract and this part.
‘‘(3) COMPETITIVE PROCEDURES.—Competitive 
procedures (as defined in section 4(5) of the Office 
of Federal Procurement Policy Act (41 U.S.C. 
403(5))) shall be used to enter into contracts under 
this part. 
‘‘(4) TERMS AND CONDITIONS.—Such contracts 
shall have such terms and conditions as the Sec-
retary shall specify and shall be for such terms (of 
at least 2 years, but not to exceed 5 years) as the 
Secretary shall specify consistent with this part. 
‘‘(5) USE
OF
PHARMACY
CONTRACTORS
IN 
PRICE NEGOTIATIONS.—Such contracts shall require 
the contractor involved to negotiate contracts with 
manufacturers that provide for maximum prices for 
covered outpatient prescription medicines that are 
lower than the maximum prices negotiated under 
section 1859A(a), if applicable. The price reductions 
shall be passed on to eligible beneficiaries and the 
Secretary shall hold the contractor accountable for 
meeting performance requirements with respect to 
price reductions and limiting price increases. 
‘‘(6) AREA FOR CONTRACTS.—
‘‘(A) REGIONAL BASIS.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii) and subject to subpara-
graph (B), the contract entered into be-
tween the Secretary and a pharmacy con-
tractor shall require the contractor to ad-
minister the benefits under this part in a 
region determined by the Secretary under 
subparagraph (B) or on a national basis. 
‘‘(ii) PARTIAL REGIONAL BASIS.—
‘‘(I) IN
GENERAL.—If deter-
mined appropriate by the Secretary, 
the Secretary may permit the benefits 
to be administered in a partial region 
determined appropriate by the Sec-
retary. 
‘‘(II) 
REQUIREMENTS.—If 
the 
Secretary permits administration pur-
suant to subclause (I), the Secretary 
shall ensure that the partial region in 
which administration is effected is no 
smaller than a State and is at least 
the size of the commercial service area 
of the contractor for that area. 
‘‘(B) DETERMINATION.—
‘‘(i) IN GENERAL.—In determining re-
gions for contracts under this part, the 
Secretary shall—
‘‘(I) take into account the num-
ber of individuals enrolled under this 
part in an area in order to encourage 
participation by pharmacy contrac-
tors; and 
‘‘(II) ensure that there are at 
least 10 different regions in the 
United States. 
‘‘(ii) NO
ADMINISTRATIVE
OR
JUDI-
CIAL REVIEW.—The determination of ad-
ministrative areas under this paragraph 
shall not be subject to administrative or ju-
dicial review. 
‘‘(7) SUBMISSION OF BIDS.—
‘‘(A) SUBMISSION.—
‘‘(i) IN
GENERAL.—Subject to sub-
paragraph (B), each entity desiring to 
serve as a pharmacy contractor under this 
part in an area shall submit a bid with re-
spect to such area to the Secretary at such 
time, in such manner, and accompanied by 
such information as the Secretary may rea-
sonably require. 
‘‘(ii) BID
THAT
COVERS
MULTIPLE 
AREAS.—The Secretary shall permit an en-
tity to submit a single bid for multiple 
areas if the bid is applicable to all such 
areas. 
‘‘(B) REQUIRED INFORMATION.—The bids 
described in subparagraph (A) shall include—
‘‘(i) a proposal for the estimated 
prices of covered outpatient prescription 
medicines and the projected annual in-
creases in such prices, including the addi-
tional reduction in price negotiated below 
the Secretary’s maximum price and dif-
ferentials between preferred and nonpre-
ferred prices, if applicable; 
‘‘(ii) 
a 
statement 
regarding 
the 
amount that the entity will charge the Sec-
retary for administering the benefits under 
the contract; 
‘‘(iii) a statement regarding whether 
the entity will reduce the applicable coin-
surance percentage pursuant to section 
1859E(a)(1)(A)(ii) and if so, the amount 
of such reduction and how such reduction 
is tied to the performance requirements de-
scribed in subsection (c)(4)(A)(ii);
‘‘(iv) a detailed description of the per-
formance requirements for which the ad-
ministrative fee of the entity will be subject 
to risk pursuant to subsection (c)(4)(A)(ii); 
‘‘(v) a detailed description of access to 
pharmacy services provided by the entity, 
including information regarding whether 
the pharmacy contractor will use a pre-
ferred pharmacy network, and, if so, how 
the pharmacy contractor will ensure access 
to pharmacies that choose to be outside of 
that network, and whether there will be in-
creased cost-sharing for beneficiaries if 
they obtain medicines at such pharmacies; 
‘‘(vi) a detailed description of the pro-
cedures and standards the entity will use 
for—
‘‘(I) selecting preferred prescrip-
tion medicines; and 
‘‘(II) determining when and how 
often the list of preferred prescription 
medicines should be modified; 
‘‘(vii) a detailed description of any 
ownership or shared financial interests 
with pharmaceutical manufacturers, phar-
macies, and other entities involved in the 
administration or delivery of benefits under 
this part as proposed in the bid; 
‘‘(viii) a detailed description of the en-
tity’s estimated marketing and advertising 
expenditures related to enrolling and re-
taining eligible beneficiaries; and 
‘‘(ix) such other information that the 
Secretary determines is necessary in order 
to carry out this part, including informa-
tion relating to the bidding process under 
this part. 
The procedures under clause (vi) shall include 
the use of a pharmaceutical and therapeutics 
committee the members of which include prac-
ticing pharmacists. 
‘‘(8) AWARDING OF CONTRACTS.—
‘‘(A) NUMBER OF CONTRACTS.—The Sec-
retary shall, consistent with the requirements of 
this part and the goals of providing quality care 
and of containing costs under this part, award 
in a competitive manner at least 2 contracts to 
administer benefits under this part in each area 
specified under paragraph (6), unless only 1 
pharmacy contractor submitting a bid meets the
minimum standards specified under this part 
and by the Secretary. 
‘‘(B) DETERMINATION.—In determining 
which of the pharmacy contractors that sub-
mitted bids that meet the minimum standards 
specified under this part and by the Secretary 
to award a contract, the Secretary shall con-
sider the comparative merits of each bid, as de-
termined on the basis of relevant factors, with 
respect to—
‘‘(i) how well the contractor meets 
such minimum standards; 
‘‘(ii) the amount that the contractor 
will charge the Secretary for administering 
the benefits under the contract; 
‘‘(iii) the performance standards es-
tablished under subsection (c)(2) and per-
formance requirements for which the ad-
ministrative fee of the entity will be subject 
to risk pursuant to subsection (c)(4)(A)(ii); 
‘‘(iv) the proposed negotiated prices of 
covered outpatient medicines and annual 
increases in such prices;
‘‘(v) factors relating to benefits, qual-
ity and performance, beneficiary cost-shar-
ing, and consumer satisfaction; 
‘‘(vi) past performance and prior ex-
perience of the contractor in administering 
a prescription medicine benefit program; 
‘‘(vii) effectiveness of the contractor 
in containing costs through pricing incen-
tives and utilization management; and 
‘‘(viii) such other factors as the Sec-
retary deems necessary to evaluate the 
merits of each bid. 
‘‘(C) EXCEPTION TO CONFLICT OF INTER-
EST RULES.—In awarding contracts with phar-
macy contractors under this part, the Secretary 
may waive conflict of interest laws generally ap-
plicable to Federal acquisitions (subject to such 
safeguards as the Secretary may find necessary 
to impose) in circumstances where the Sec-
retary finds that such waiver—
‘‘(i) is not inconsistent with the—
‘‘(I) purposes of the programs 
under this part; or 
‘‘(II) best interests of bene-
ficiaries enrolled under this part; and
‘‘(ii) permits a sufficient level of com-
petition for such contracts, promotes effi-
ciency of benefits administration, or other-
wise serves the objectives of the program 
under this part. 
‘‘(D) NO
ADMINISTRATIVE
OR
JUDICIAL 
REVIEW.—The determination of the Secretary 
to award or not award a contract to a phar-
macy contractor under this part shall not be 
subject to administrative or judicial review. 
‘‘(9) 
ACCESS
TO
BENEFITS
IN
CERTAIN 
AREAS.—
‘‘(A) AREAS
NOT
COVERED
BY
CON-
TRACTS.—The Secretary shall develop proce-
dures for the provision of covered outpatient 
prescription medicines under this part to each 
eligible beneficiary enrolled under this part that 
resides in an area that is not covered by any 
contract under this part. 
‘‘(B) BENEFICIARIES
RESIDING
IN
DIF-
FERENT LOCATIONS.—The Secretary shall de-
velop procedures to ensure that each eligible 
beneficiary enrolled under this part that resides 
in different areas in a year is provided the ben-
efits under this part throughout the entire year.
‘‘(b) QUALITY, FINANCIAL, AND OTHER STANDARDS 
AND PROGRAMS.—In consultation with appropriate phar-
macy contractors, pharmacists, and health care profes-
sionals with expertise in prescribing, dispensing, and the 
appropriate use of prescription medicines, the Secretary 
shall establish standards and programs for the administra-
tion of this part to ensure appropriate prescribing, dis-
pensing, and utilization of outpatient medicines under this 
part, to avoid adverse medicine reactions, and to contin-
ually reduce errors in the delivery of medically appropriate 
covered benefits. The Secretary shall not award a contract 
to a pharmacy contractor under this part unless the Sec-
retary finds that the contractor agrees to comply with 
such standards and programs and other terms and condi-
tions as the Secretary shall specify. The standards and 
programs under this subsection shall be applied to any ad-
ministrative agreements described in subsection (a) the 
Secretary enters into. Such standards and programs shall 
include the following: 
‘‘(1) ACCESS.—
‘‘(A) IN
GENERAL.—The pharmacy con-
tractor shall ensure that covered outpatient pre-
scription medicines are accessible and conven-
ient to eligible beneficiaries enrolled under this 
part for whom benefits are administered by the
pharmacy contractor, including by offering the 
services 24 hours a day and 7 days a week for 
emergencies. 
‘‘(B) ON-LINE
REVIEW.—The pharmacy 
contractor shall provide for on-line prospective 
review available 24 hours a day and 7 days a 
week in order to evaluate each prescription for 
medicine therapy problems due to duplication, 
interaction, or incorrect dosage or duration of 
therapy. 
‘‘(C) GUARANTEED ACCESS TO MEDICINES 
IN RURAL AND HARD-TO-SERVE AREAS.—The 
Secretary shall ensure that all beneficiaries 
have guaranteed access to the full range of 
pharmaceuticals under this part, and shall give 
special attention to access, pharmacist coun-
seling, and delivery in rural and hard-to-serve 
areas, including through the use of incentives 
such as bonus payments to retail pharmacists 
in rural areas and extra payments to the phar-
macy contractor for the cost of rapid delivery of 
pharmaceuticals and any other actions nec-
essary. 
‘‘(D) 
PREFERRED
PHARMACY
NET-
WORKS.—
‘‘(i) IN
GENERAL.—If a pharmacy 
contractor uses a preferred pharmacy net-
work to deliver benefits under this part, 
such network shall meet minimum access 
standards established by the Secretary. 
‘‘(ii) 
STANDARDS.—In 
establishing 
standards under clause (i), the Secretary 
shall take into account reasonable dis-
tances to pharmacy services in both urban 
and rural areas. 
‘‘(E) 
ADHERENCE
TO
NEGOTIATED 
PRICES.—The pharmacy contractor shall have 
in place procedures to assure compliance of 
pharmacies with the requirements of subsection 
(d)(3)(C) (relating to adherence to negotiated 
prices). 
‘‘(F) CONTINUITY OF CARE.—
‘‘(i) IN
GENERAL.—The pharmacy 
contractor shall ensure that, in the case of 
an eligible beneficiary who loses coverage 
under this part with such entity under cir-
cumstances that would permit a special 
election period (as established by the Sec-
retary under section 1859C(b)(3)), the 
contractor will continue to provide cov-
erage under this part to such beneficiary 
until the beneficiary enrolls and receives 
such coverage with another pharmacy con-
tractor under this part or, if eligible, with 
a Medicare+Choice organization. 
‘‘(ii) LIMITED PERIOD.—In no event 
shall a pharmacy contractor be required to 
provide the extended coverage required 
under clause (i) beyond the date which is 
30 days after the coverage with such con-
tractor would have terminated but for this 
subparagraph. 
‘‘(2) ENROLLEE GUIDELINES.—The pharmacy 
contractor shall, consistent with State law, apply 
guidelines for counseling enrollees regarding—
‘‘(A) the proper use of covered outpatient 
prescription medicine; and 
‘‘(B) interactions and contra-indications. 
‘‘(3) EDUCATION.—The pharmacy contractor 
shall apply methods to identify and educate pro-
viders, pharmacists, and enrollees regarding—
‘‘(A) instances or patterns concerning the 
unnecessary or inappropriate prescribing or dis-
pensing of covered outpatient prescription medi-
cines;
‘‘(B) instances or patterns of substandard 
care; 
‘‘(C) potential adverse reactions to covered 
outpatient prescription medicines; 
‘‘(D) inappropriate use of antibiotics; 
‘‘(E) appropriate use of generic products; 
and 
‘‘(F) the importance of using covered out-
patient prescription medicines in accordance 
with the instruction of prescribing providers. 
‘‘(4) 
COORDINATION.—The 
pharmacy 
con-
tractor shall coordinate with State prescription med-
icine programs, other pharmacy contractors, phar-
macies, and other relevant entities as necessary to 
ensure appropriate coordination of benefits with re-
spect to enrolled individuals when such individual is 
traveling outside the home service area, and under 
such other circumstances as the Secretary may 
specify. 
‘‘(5) COST DATA.—
‘‘(A) The pharmacy contractor shall make 
data on prescription medicine negotiated prices 
(including data on discounts) available to the 
Secretary.
‘‘(B) The Secretary shall require, either di-
rectly or through a pharmacy contractor, that 
participating pharmacists, physicians, and man-
ufacturers—
‘‘(i) maintain their prescription medi-
cine cost data (including data on dis-
counts) in a form and manner specified by 
the Secretary; 
‘‘(ii) make such prescription medicine 
cost data available for review and audit by 
the Secretary; and 
‘‘(iii) certify that the prescription 
medicine cost data are current, accurate, 
and complete, and reflect all discounts ob-
tained by the pharmacist or physician in 
the purchasing of covered outpatient pre-
scription medicines. 
Discounts referred to in subparagraphs (A) and (B) 
shall include all volume discounts, manufacturer re-
bates, prompt payment discounts, free goods, in-kind 
services, or any other thing of financial value pro-
vided explicitly or implicitly in exchange for the pur-
chase of a covered outpatient prescription medicine.
‘‘(6) REPORTING.—The pharmacy contractor 
shall provide the Secretary with periodic reports 
on—
‘‘(A) the contractor’s costs of admin-
istering this part; 
‘‘(B) utilization of benefits under this part; 
‘‘(C) marketing and advertising expendi-
tures related to enrolling and retaining individ-
uals under this part; and 
‘‘(D) grievances and appeals. 
‘‘(7) RECORDS
AND
AUDITS.—The pharmacy 
contractor shall maintain adequate records related to 
the administration of benefits under this part and 
afford the Secretary access to such records for au-
diting purposes. 
‘‘(8) APPROVAL OF MARKETING MATERIAL AND 
APPLICATION
FORMS.—The pharmacy contractor 
shall comply with requirements of section 1851(h) 
(relating to marketing material and application 
forms) with respect to this part in the same manner 
as such requirements apply under part C, except 
that the provisions of paragraph (4)(A) of such sec-
tion shall not apply with respect to discounts or re-
bates provided in accordance with this part.
‘‘(c) INCENTIVES FOR COST AND UTILIZATION MAN-
AGEMENT AND QUALITY IMPROVEMENT.—
‘‘(1) IN GENERAL.—The Secretary shall include 
in a contract awarded under subsection (b) with a 
pharmacy contractor such incentives for cost and 
utilization management and quality improvement as 
the Secretary may deem appropriate. The contract 
may provide financial or other incentives to encour-
age greater savings to the program under this part. 
‘‘(2) PERFORMANCE
STANDARDS.—The Sec-
retary shall provide for performance standards 
(which may include monetary bonuses if the stand-
ards are met and penalties if the standards are not 
met), including standards relating to the time taken 
to answer member and pharmacy inquiries (written 
or by telephone), the accuracy of responses, claims 
processing accuracy, online system availability, ap-
peal procedure turnaround time, system availability, 
the accuracy and timeliness of reports, and level of 
beneficiary satisfaction. 
‘‘(3) OTHER
INCENTIVES.—Such incentives 
under this subsection may also include—
‘‘(A) financial incentives under which sav-
ings derived from the substitution of generic 
and other preferred multi-source medicines in
lieu of nongeneric and nonpreferred medicines 
are made available to pharmacy contractors, 
pharmacies, beneficiaries, and the Federal 
Medicare Prescription Medicine Trust Fund; 
and 
‘‘(B) any other incentive that the Secretary 
deems appropriate and likely to be effective in 
managing costs or utilization or improving qual-
ity that does not reduce the access of bene-
ficiaries to medically necessary covered out-
patient medicines. 
‘‘(4) REQUIREMENTS FOR PROCEDURES.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish procedures for making payments to 
each pharmacy contractor with a contract under 
this part for the administration of the benefits 
under this part. The procedures shall provide 
for the following: 
‘‘(i) 
ADMINISTRATIVE
PAYMENT.—
Payment of administrative fees for such 
administration. 
‘‘(ii) RISK
REQUIREMENT.—An ad-
justment of a percentage (determined 
under subparagraph (B)) of the adminis-
trative fee payments made to a pharmacy
contractor to ensure that the contractor, in
administering the benefits under this part, 
pursues performance requirements estab-
lished by the Secretary, including the fol-
lowing: 
‘‘(I) 
QUALITY
SERVICE.—The 
contractor 
provides 
eligible 
bene-
ficiaries for whom it administers bene-
fits with quality services, as measured 
by such factors as sustained pharmacy 
network access, timeliness and accu-
racy of service delivery in claims proc-
essing and card production, pharmacy 
and member service support access, 
and timely action with regard to ap-
peals and current beneficiary service 
surveys. 
‘‘(II) QUALITY CLINICAL CARE.—
The contractor provides such bene-
ficiaries with quality clinical care, as 
measured by such factors as providing 
notification to such beneficiaries and 
to providers in order to prevent ad-
verse drug reactions and reduce medi-
cation errors and specific clinical sug-
gestions to improve health and patient 
and prescriber education as appro-
priate. 
‘‘(III) CONTROL
OF
MEDICARE 
COSTS.—The contractor contains costs 
under this part to the Federal Medi-
care 
Prescription 
Medicine 
Trust 
Fund and enrollees, as measured by 
generic substitution rates, price dis-
counts, and other factors determined 
appropriate by the Secretary that do 
not reduce the access of beneficiaries 
to medically necessary covered out-
patient prescription medicines. 
‘‘(B) PERCENTAGE OF PAYMENT TIED TO 
RISK.—
‘‘(i) IN GENERAL.—Subject to clause 
(ii), the Secretary shall determine the per-
centage of the administrative payments to 
a pharmacy contractor that will be tied to 
the performance requirements described in 
subparagraph (A)(ii). 
‘‘(ii) LIMITATION ON RISK TO ENSURE 
PROGRAM STABILITY.—In order to provide 
for program stability, the Secretary may
not establish a percentage to be adjusted 
under this paragraph at a level that jeop-
ardizes the ability of a pharmacy con-
tractor to administer the benefits under 
this part or administer such benefits in a 
quality manner. 
‘‘(C) RISK
ADJUSTMENT
OF
PAYMENTS 
BASED ON ENROLLEES IN PLAN.—To the extent 
that a pharmacy contractor is at risk under this 
paragraph, the procedures established under 
this paragraph may include a methodology for 
risk adjusting the payments made to such con-
tractor based on the differences in actuarial 
risk of different enrollees being served if the 
Secretary determines such adjustments to be 
necessary and appropriate. 
‘‘(d) AUTHORITY RELATING TO PHARMACY PARTICI-
PATION.—
‘‘(1) IN GENERAL.—Subject to the succeeding 
provisions of this subsection, a pharmacy contractor 
may establish consistent with this part conditions for 
the participation of pharmacies, including conditions 
relating to quality (including reduction of medical 
errors) and technology.
‘‘(2) AGREEMENTS WITH PHARMACIES.—Each 
pharmacy contractor shall enter into a participation 
agreement with any pharmacy that meets the re-
quirements of this subsection and section 1859E to 
furnish covered outpatient prescription medicines to 
individuals enrolled under this part. 
‘‘(3) TERMS OF AGREEMENT.—An agreement 
under this subsection shall include the following 
terms and conditions: 
‘‘(A) APPLICABLE
REQUIREMENTS.—The 
pharmacy shall meet (and throughout the con-
tract period continue to meet) all applicable 
Federal requirements and State and local li-
censing requirements. 
‘‘(B) ACCESS AND QUALITY STANDARDS.—
The pharmacy shall comply with such standards 
as the Secretary (and such a pharmacy con-
tractor) shall establish concerning the quality 
of, and enrolled individuals’ access to, phar-
macy services under this part. Such standards 
shall require the pharmacy—
‘‘(i) not to refuse to dispense covered 
outpatient prescription medicines to any 
individual enrolled under this part;
‘‘(ii) to keep patient records (includ-
ing records on expenses) for all covered 
outpatient prescription medicines dispensed 
to such enrolled individuals; 
‘‘(iii) to submit information (in a 
manner specified by the Secretary to be 
necessary to administer this part) on all 
purchases of such medicines dispensed to 
such enrolled individuals; and 
‘‘(iv) to comply with periodic audits to 
assure compliance with the requirements of 
this part and the accuracy of information 
submitted. 
‘‘(C) 
ADHERENCE
TO
NEGOTIATED 
PRICES.—(i) The total charge for each medicine 
dispensed by the pharmacy to an enrolled indi-
vidual under this part, without regard to wheth-
er the individual is financially responsible for 
any or all of such charge, shall not exceed the 
price negotiated under section 1859A(a) or, if 
lower, negotiated under subsection (a)(5) (or, if 
less, the retail price for the medicine involved) 
with respect to such medicine plus a reasonable 
dispensing fee determined contractually with 
the pharmacy contractor.
‘‘(ii) The pharmacy does not charge (or 
collect from) an enrolled individual an amount 
that exceeds the individual’s obligation (as de-
termined in accordance with the provisions of 
this part) of the applicable price described in 
clause (i). 
‘‘(D) ADDITIONAL
REQUIREMENTS.—The 
pharmacy shall meet such additional contract 
requirements as the applicable pharmacy con-
tractor specifies under this section. 
‘‘(4) APPLICABILITY
OF
FRAUD
AND
ABUSE 
PROVISIONS.—The 
provisions 
of 
section 
1128 
through 1128C (relating to fraud and abuse) apply 
to pharmacies participating in the program under 
this part. 
‘‘ELIGIBILITY; VOLUNTARY ENROLLMENT; COVERAGE 
‘‘SEC. 1859C. (a) ELIGIBILITY.—Each individual 
who is entitled to hospital insurance benefits under part 
A or is eligible to be enrolled in the medical insurance pro-
gram under part B is eligible to enroll in accordance with 
this section for outpatient prescription medicine benefits 
under this part. 
‘‘(b) VOLUNTARY ENROLLMENT.—
‘‘(1) IN GENERAL.—An individual may enroll 
under this part only in such manner and form as 
may be prescribed by regulations, and only during
an enrollment period prescribed in or under this sub-
section. 
‘‘(2) INITIAL ENROLLMENT PERIOD.—
‘‘(A) 
INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who satis-
fies subsection (a) as of November 1, 2005, the 
initial general enrollment period shall begin on 
August 1, 2005, and shall end on March 1, 
2006. 
‘‘(B) INDIVIDUAL COVERED IN FUTURE.—
In the case of an individual who first satisfies 
subsection (a) on or after November 1, 2005, 
the individual’s initial enrollment period shall 
begin on the first day of the third month before 
the month in which such individual first satis-
fies such paragraph and shall end seven months 
later. The Secretary shall apply rules similar to 
the rule described in the second sentence of sec-
tion 1837(d). 
‘‘(3) SPECIAL ENROLLMENT PERIODS (WITHOUT 
PREMIUM PENALTY).—
‘‘(A) EMPLOYER COVERAGE AT TIME OF 
INITIAL
GENERAL
ENROLLMENT
PERIOD.—In 
the case of an individual who—
‘‘(i) at the time the individual first 
satisfies subsection (a) is enrolled in a 
group health plan (including continuation 
coverage) that provides outpatient pre-
scription medicine coverage by reason of 
the 
individual’s 
(or 
the 
individual’s 
spouse’s) current (or, in the case of con-
tinuation coverage, former) employment 
status, and 
‘‘(ii) has elected not to enroll (or to be 
deemed enrolled) under this subsection 
during the individual’s initial enrollment 
period, 
there shall be a special enrollment period of 6 
months beginning with the first month that in-
cludes the date of the individual’s (or individ-
ual’s spouse’s) retirement from or termination 
of current employment status with the employer 
that sponsors the plan, or, in the case of con-
tinuation coverage, that includes the date of 
termination of such coverage, or that includes 
the date the plan substantially terminates out-
patient prescription medicine coverage.
‘‘(B) DROPPING
OF
RETIREE
PRESCRIP-
TION MEDICINE COVERAGE.—In the case of an 
individual who—
‘‘(i) at the time the individual first 
satisfies subsection (a) is enrolled in a 
group health plan that provides outpatient 
prescription medicine coverage other than 
by reason of the individual’s (or the indi-
vidual’s spouse’s) current employment; and 
‘‘(ii) has elected not to enroll (or to be 
deemed enrolled) under this subsection 
during the individual’s initial enrollment 
period, 
there shall be a special enrollment period of 6 
months beginning with the first month that in-
cludes the date that the plan substantially ter-
minates outpatient prescription medicine cov-
erage and ending 6 months later. 
‘‘(C) LOSS
OF
MEDICARE+CHOICE
PRE-
SCRIPTION MEDICINE COVERAGE.—In the case 
of an individual who is enrolled under part C in 
a Medicare+Choice plan that provides prescrip-
tion medicine benefits, if such enrollment is ter-
minated because of the termination or reduction 
in service area of the plan, there shall be a spe-
cial enrollment period of 6 months beginning 
with the first month that includes the date that 
such plan is terminated or such reduction oc-
curs and ending 6 months later. 
‘‘(D) LOSS
OF
MEDICAID
PRESCRIPTION 
MEDICINE COVERAGE.—In the case of an indi-
vidual who—
‘‘(i) satisfies subsection (a); 
‘‘(ii) loses eligibility for benefits (that 
include benefits for prescription medicine) 
under a State plan after having been en-
rolled (or determined to be eligible) for 
such benefits under such plan; and 
‘‘(iii) is not otherwise enrolled under 
this subsection at the time of such loss of 
eligibility, 
there shall be a special enrollment period speci-
fied by the Secretary of not less than 6 months 
beginning with the first month that includes the 
date that the individual loses such eligibility. 
‘‘(4) LATE ENROLLMENT WITH PREMIUM PEN-
ALTY.—The Secretary shall permit an individual 
who satisfies subsection (a) to enroll other than dur-
ing the initial enrollment period under paragraph (2) 
or a special enrollment period under paragraph (3).
But, in the case of such an enrollment, the amount 
of the monthly premium of the individual is subject 
to an increase under section 1859C(e)(1). 
‘‘(5) INFORMATION.—
‘‘(A) IN
GENERAL.—The Secretary shall 
broadly distribute information to individuals 
who satisfy subsection (a) on the benefits pro-
vided under this part. The Secretary shall peri-
odically make available information on the cost 
differentials to enrollees for the use of generic 
medicines and other medicines. 
‘‘(B) TOLL-FREE
HOTLINE.—The Sec-
retary shall maintain a toll-free telephone hot-
line (which may be a hotline already used by 
the Secretary under this title) for purposes of 
providing assistance to beneficiaries in the pro-
gram under this part, including responding to 
questions concerning coverage, enrollment, ben-
efits, grievances and appeals procedures, and 
other aspects of such program. 
‘‘(6) ENROLLEE
DEFINED.—For purposes of 
this part, the term ‘enrollee’ means an individual en-
rolled for benefits under this part. 
‘‘(c) COVERAGE PERIOD.—
‘‘(1) IN GENERAL.—The period during which 
an individual is entitled to benefits under this part 
(in this subsection referred to as the individual’s 
‘coverage period’) shall begin on such a date as the 
Secretary shall establish consistent with the type of 
coverage rules described in subsections (a) and (e) 
of section 1838, except that in no case shall a cov-
erage period begin before January 1, 2006. No pay-
ments may be made under this part with respect to 
the expenses of an individual unless such expenses 
were incurred by such individual during a period 
which, with respect to the individual, is a coverage 
period. 
‘‘(2) TERMINATION.—The Secretary shall pro-
vide for the application of provisions under this sub-
section similar to the provisions in section 1838(b). 
‘‘(d) 
PROVISION
OF
BENEFITS
TO 
MEDICARE+CHOICE ENROLLEES.—In the case of an indi-
vidual who is enrolled under this part and is enrolled in 
a Medicare+Choice plan under part C, the individual shall 
be provided the benefits under this part through such plan 
and not through payment under this part. 
‘‘(e) LATE ENROLLMENT PENALTIES; PAYMENT OF 
PREMIUMS.—
‘‘(1) LATE ENROLLMENT PENALTY.—
‘‘(A) IN GENERAL.—In the case of a late 
enrollment described in subsection (b)(4), sub-
ject to the succeeding provisions of this para-
graph, the Secretary shall establish procedures 
for increasing the amount of the monthly pre-
mium under this part applicable to such en-
rollee by an amount that the Secretary deter-
mines is actuarially sound for each such period. 
‘‘(B) PERIODS
TAKEN
INTO
ACCOUNT.—
For purposes of calculating any 12-month pe-
riod under subparagraph (A), there shall be 
taken into account months of lapsed coverage in 
a manner comparable to that applicable under 
the second sentence of section 1839(b). 
‘‘(C) PERIODS
NOT
TAKEN
INTO
AC-
COUNT.—
‘‘(i) IN
GENERAL.—For purposes of 
calculating any 12-month period under 
subparagraph (A), subject to clause (ii), 
there shall not be taken into account 
months for which the enrollee can dem-
onstrate that the enrollee was covered 
under a group health plan that provides 
coverage of the cost of prescription medi-
cines whose actuarial value (as defined by
the Secretary) to the enrollee equals or ex-
ceeds the actuarial value of the benefits 
provided to an individual enrolled in the 
outpatient prescription medicine benefit 
program under this part. 
‘‘(ii) APPLICATION.—This subpara-
graph shall only apply with respect to a 
coverage period the enrollment for which 
occurs before the end of the 60-day period 
that begins on the first day of the month 
which includes the date on which the plan 
terminates or reduces its service area (in a 
manner that results in termination of en-
rollment), ceases to provide, or reduces the 
value of the prescription medicine coverage 
under such plan to below the value of the 
coverage provided under the program 
under this part. 
‘‘(2) INCORPORATION
OF
PREMIUM
PAYMENT 
AND GOVERNMENT CONTRIBUTIONS PROVISIONS.—
The provisions of sections 1840 and 1844(a)(1) shall 
apply to enrollees under this part in the same man-
ner as they apply to individuals 65 years of age or 
older enrolled under part B. For purposes of this 
subsection, any reference in a section referred to in
a previous subsection to the Federal Supplementary 
Medical Insurance Trust Fund is deemed a reference 
to the Federal Medicare Prescription Medicine Trust 
Fund. 
‘‘(f) ELECTION OF PHARMACY CONTRACTOR TO AD-
MINISTER BENEFITS.—The Secretary shall establish a 
process whereby each individual enrolled under this part 
and residing in a region may elect the pharmacy con-
tractor that will administer the benefits under this part 
with respect to the individual. Such process shall permit 
the individual to make an initial election and to change 
such an election on at least an annual basis and under 
such other circumstances as the Secretary shall specify. 
‘‘PROVISION OF, AND ENTITLEMENT TO, BENEFITS 
‘‘SEC. 1859D. (a) BENEFITS.—Subject to the suc-
ceeding provisions of this section, the benefits provided to 
an enrollee by the program under this part shall consist 
of the following: 
‘‘(1) COVERED
OUTPATIENT
PRESCRIPTION 
MEDICINE BENEFITS.—Entitlement to have payment 
made on the individual’s behalf for covered out-
patient prescription medicines. 
‘‘(2) LIMITATION ON COST-SHARING FOR PART 
B OUTPATIENT PRESCRIPTION MEDICINES.—
‘‘(A) IN GENERAL.—Once an enrollee has 
incurred aggregate countable cost-sharing (as
defined in subparagraph (B)) equal to the stop-
loss limit specified in subsection (c)(4) for ex-
penses in a year, entitlement to the elimination 
of cost-sharing otherwise applicable under part 
B for additional expenses incurred in the year 
for 
outpatient 
prescription 
medicines 
or 
biologicals for which payment is made under 
part B. 
‘‘(B) 
COUNTABLE
COST-SHARING
DE-
FINED.—For purposes of this part, the term 
‘countable cost-sharing’ means—
‘‘(i) out-of-pocket expenses for out-
patient prescription medicines with respect 
to which benefits are payable under part 
B, and 
‘‘(ii) cost-sharing under subsections 
(c)(3)(B) and (c)(3)(C)(i). 
‘‘(b) COVERED OUTPATIENT PRESCRIPTION MEDI-
CINE DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), for purposes of this part the term ‘cov-
ered outpatient prescription medicine’ means any of 
the following products: 
‘‘(A) A medicine which may be dispensed 
only upon prescription, and—
‘‘(i) which is approved for safety and 
effectiveness as a prescription medicine 
under section 505 of the Federal Food, 
Drug, and Cosmetic Act;
‘‘(ii)(I) which was commercially used 
or sold in the United States before the 
date of enactment of the Drug Amend-
ments of 1962 or which is identical, simi-
lar, or related (within the meaning of sec-
tion 310.6(b)(1) of title 21 of the Code of 
Federal Regulations) to such a medicine, 
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 Cosmetic Act) or an action brought by 
the Secretary 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 de-
termined there is a compelling justification 
for its medical need, or is identical, simi-
lar, or related (within the meaning of sec-
tion 310.6(b)(1) of title 21 of the Code of 
Federal Regulations) to such a medicine, 
and 
(II) for which the Secretary has not 
issued a notice of an opportunity for a 
hearing under section 505(e) of the Fed-
eral Food, Drug, and Cosmetic Act on a 
proposed order of the Secretary to with-
draw approval of an application for such 
medicine under such section because the 
Secretary has determined that the medi-
cine is less than effective for all conditions 
of use prescribed, recommended, or sug-
gested in its labeling. 
‘‘(B) A biological product which—
‘‘(i) may only be dispensed upon pre-
scription; 
‘‘(ii) is licensed under section 351 of 
the Public Health Service Act; and 
‘‘(iii) is produced at an establishment 
licensed under such section to produce 
such product. 
‘‘(C) Insulin approved under appropriate 
Federal law, and needles, syringes, and dispos-
able pumps for the administration of such insu-
lin. 
‘‘(D) A prescribed medicine or biological 
product that would meet the requirements of 
subparagraph (A) or (B) but that is available 
over-the-counter in addition to being available 
upon prescription, but only if the particular 
dosage form or strength prescribed and re-
quired for the individual is not available over-
the-counter. 
‘‘(E) Smoking cessation agents (as speci-
fied by the Secretary). 
‘‘(2) EXCLUSION.—The term ‘covered out-
patient prescription medicine’ does not include—
‘‘(A) medicines or classes of medicines, or 
their medical uses, which may be excluded from 
coverage or otherwise restricted under section 
1927(d)(2), other than subparagraph (E) there-
of (relating to smoking cessation agents), as the 
Secretary may specify and does not include 
such other medicines, classes, and uses as the 
Secretary may specify consistent with the goals 
of providing quality care and containing costs 
under this part;
‘‘(B) except as provided in paragraphs 
(1)(D) and (1)(E), any product which may be 
distributed to individuals without a prescrip-
tion; 
‘‘(C) any product when furnished as part 
of, or as incident to, a diagnostic service or any 
other item or service for which payment may be 
made under this title; or 
‘‘(D) any product that is covered under 
part B of this title. 
‘‘(c) PAYMENT OF BENEFITS.—
‘‘(1) COVERED
OUTPATIENT
PRESCRIPTION 
MEDICINES.—There shall be paid from the Federal 
Medicare Prescription Medicine Trust Fund, in the 
case of each enrollee who incurs expenses for medi-
cines with respect to which benefits are payable 
under this part under subsection (a)(1), amounts 
equal to the sum of—
‘‘(A) the price for which the medicine is 
made available under this part (consistent with 
sections 1859A and 1859B), reduced by any 
applicable cost-sharing under paragraphs (2) 
and (3); and 
‘‘(B) a reasonable dispensing fee.
The price under subparagraph (A) shall in no case 
exceed the retail price for the medicine involved. 
‘‘(2) DEDUCTIBLE.—The amount of payment 
under paragraph (1) for expenses incurred in a year, 
beginning with 2006, shall be reduced by an annual 
deductible equal to the amount specified in section 
1859(2) (subject to adjustment under paragraph 
(8)). Only expenses for countable cost-sharing (as 
defined in subsection (a)(2)(B)) shall be taken into 
account in applying this paragraph. 
‘‘(3) COINSURANCE.—
‘‘(A) IN GENERAL.—The amount of pay-
ment under paragraph (1) for expenses in-
curred in a year shall be further reduced (sub-
ject to the stop-loss limit under paragraph (4)) 
by coinsurance as provided under this para-
graph.
‘‘(B) PREFERRED MEDICINES.—The coin-
surance under this paragraph in the case of a 
preferred medicine (including a medicine treat-
ed as a preferred medicine under paragraph 
(5)), is equal to 20 percent of the price applica-
ble under paragraph (1)(A) (or such lower per-
centage as may be provided for under section 
1859E(a)(1)(A)(ii)). In this part, the term ‘pre-
ferred medicine’ means, with respect to medi-
cines classified within a therapeutic class, those 
medicines which have been designated as a pre-
ferred medicine by the Secretary or the phar-
macy contractor involved with respect to that 
class and (in the case of a nongeneric medicine) 
with respect to which a contract has been nego-
tiated under this part. 
‘‘(C) NONPREFERRED
MEDICINES.—The 
coinsurance under this paragraph in the case of 
a nonpreferred medicine that is not treated as 
a preferred medicine under paragraph (5) is 
equal to the sum of—
‘‘(i) 20 percent of the price for lowest 
price preferred medicine that is within the 
same therapeutic class; and 
‘‘(ii) the amount by which—
‘‘(I) the price at which the non-
preferred medicine is made available 
to the enrollee; exceeds 
‘‘(II) the price of such lowest 
price preferred medicine. 
‘‘(4) NO COINSURANCE ONCE OUT-OF-POCKET 
EXPENDITURES EQUAL STOP-LOSS LIMIT.—Once an 
enrollee has incurred aggregate countable cost-shar-
ing under paragraph (3) (including cost-sharing 
under part B attributable to outpatient prescription 
drugs or biologicals) equal to the amount specified 
in section 1859(4) (subject to adjustment under 
paragraph (8)) for expenses in a year—
‘‘(A) there shall be no coinsurance under 
paragraph (3) for additional expenses incurred 
in the year involved; and 
‘‘(B) there shall be no coinsurance under 
part B for additional expenses incurred in the 
year involved for outpatient prescription drugs 
and biologicals. 
‘‘(5) APPEALS RIGHTS RELATING TO COVERAGE 
OF NONPREFERRED MEDICINES.—
‘‘(A) PROCEDURES
REGARDING
THE
DE-
TERMINATION OF MEDICINES THAT ARE MEDI-
CALLY NECESSARY.—Each pharmacy contractor 
shall have in place procedures on a case-by-case 
basis to treat a nonpreferred medicine as a pre-
ferred medicine under this part if the preferred 
medicine is determined to be not as effective for 
the enrollee or to have significant adverse effect 
on the enrollee. Such procedures shall require 
that such determinations are based on profes-
sional medical judgment, the medical condition 
of the enrollee, and other medical evidence. 
‘‘(B) PROCEDURES
REGARDING
DENIALS 
OF CARE.—Such contractor shall have in place 
procedures to ensure—
‘‘(i) a timely internal review for reso-
lution of denials of coverage (in whole or 
in part and including those regarding the 
coverage of nonpreferred medicines) in ac-
cordance with the medical exigencies of the 
case and a timely resolution of complaints, 
by enrollees in the plan, or by providers, 
pharmacists, and other individuals acting 
on behalf of each such enrollee (with the 
enrollee’s consent) in accordance with re-
quirements (as established by the Sec-
retary) that are comparable to such re-
quirements for Medicare+Choice organiza-
tions under part C; 
‘‘(ii) that the entity complies in a 
timely manner with requirements estab-
lished by the Secretary that (I) provide for 
an external review by an independent enti-
ty selected by the Secretary of denials of 
coverage described in clause (i) not re-
solved in the favor of the beneficiary (or 
other complainant) under the process de-
scribed in such clause and (II) are com-
parable to the external review requirements 
established for Medicare+Choice organiza-
tions under part C; and 
‘‘(iii) that enrollees are provided with 
information regarding the appeals proce-
dures under this part at the time of enroll-
ment with a pharmacy contractor under 
this part and upon request thereafter. 
‘‘(6) TRANSFER OF FUNDS TO COVER COSTS OF 
PART
B
PRESCRIPTION
MEDICINE
CATASTROPHIC 
BENEFIT.—With respect to benefits described in 
subsection (a)(2), there shall be transferred from the 
Federal Medicare Prescription Medicine Trust Fund 
to the Federal Supplementary Medical Insurance 
Trust Fund amounts equivalent to the elimination of 
cost-sharing described in such subsection. 
‘‘(7) PERMITTING APPLICATION UNDER PART B 
OF NEGOTIATED PRICES.—For purposes of making 
payment under part B for medicines that would be 
covered outpatient prescription medicines but for the 
exclusion under subparagraph (B) or (C) of sub-
section (b)(2), the Secretary may elect to apply the
payment basis used for payment of covered out-
patient prescription medicines under this part in-
stead of the payment basis otherwise used under 
such part, if it results in a lower cost to the pro-
gram. 
‘‘(8) INFLATION ADJUSTMENT.—
‘‘(A) IN GENERAL.—With respect to ex-
penses incurred in a year after 2006—
‘‘(i) the deductible under paragraph 
(2) is equal to the deductible determined 
under such paragraph (or this subpara-
graph) for the previous year increased by 
the percentage increase in per capita pro-
gram expenditures (as estimated in ad-
vance for the year involved under subpara-
graph (B)); and 
‘‘(ii) the stop-loss limit under para-
graph (3) is equal to the stop-loss limit de-
termined under such paragraph (or this 
subparagraph) for the previous year in-
creased by such percentage increase. 
The Secretary shall adjust such percentage in-
crease in subsequent years to take into account 
misestimations made of the per capita program 
expenditures under clauses (i) and (ii) in pre-
vious years. Any increase under this subpara-
graph that is not a multiple of $10 shall be 
rounded to the nearest multiple of $10. 
‘‘(B) ESTIMATION
OF
INCREASE
IN
PER 
CAPITA
PROGRAM
EXPENDITURES.—The Sec-
retary shall before the beginning of each year 
(beginning with 2007) estimate the percentage 
increase in average per capita aggregate ex-
penditures from the Federal Medicare Prescrip-
tion Medicine Trust Fund for the year involved 
compared to the previous year. 
‘‘(C) 
RECONCILIATION.—The 
Secretary 
shall also compute (beginning with 2008) the 
actual percentage increase in such aggregate 
expenditures in order to provide for reconcili-
ation of deductibles, stop-loss limits, and pre-
miums under the second sentence of subpara-
graph (A) and under section 1859D(d)(2). 
‘‘(d) AMOUNT OF PREMIUMS.—
‘‘(1) MONTHLY PREMIUM RATE IN 2006.—The 
monthly premium rate in 2006 for prescription med-
icine benefits under this part is the amount specified 
in section 1859(1). 
‘‘(2) INFLATION
ADJUSTMENT
FOR
SUBSE-
QUENT YEARS.—The monthly premium rate for a
year after 2006 for prescription medicine benefits 
under this part is equal to the monthly premium 
rate for the previous year under this subsection in-
creased by the percentage increase in per capita pro-
gram expenditures (as estimated in advance for the 
year involved under subsection (c)(8)(B)). The Sec-
retary shall adjust such percentage in subsequent 
years to take into account misestimations made of 
the per capita program expenditures under the pre-
vious sentence in previous years. Any increase under 
this paragraph that is not a multiple of $1 shall be 
rounded to the nearest multiple of $1. 
‘‘ADMINISTRATION; QUALITY ASSURANCE 
‘‘SEC. 1859E. (a) RULES RELATING TO PROVISION 
OF BENEFITS.—
‘‘(1) PROVISION OF BENEFITS.—
‘‘(A) IN GENERAL.—In providing benefits 
under this part, the Secretary (directly or 
through the contracts with pharmacy contrac-
tors) shall employ mechanisms to provide bene-
fits appropriately and efficiently, and those 
mechanisms may include—
‘‘(i) the use of—
‘‘(I) 
price 
negotiations 
(con-
sistent with subsection (b));
‘‘(II) reduced coinsurance (below 
20 percent) to encourage the utiliza-
tion of appropriate preferred medi-
cines; and 
‘‘(III) methods to reduce medica-
tion errors and encourage appropriate 
use of medications; and 
‘‘(ii) permitting pharmacy contractors, 
as approved by the Secretary, to make ex-
ceptions to section 1859D(c)(3)(C) (relat-
ing to cost-sharing for non-preferred medi-
cines) to secure best prices for enrollees so 
long as the payment amount under section 
1859D(c)(1) does not equal zero. 
‘‘(B) CONSTRUCTION.—Nothing in this 
subsection shall be construed to prevent the 
Secretary (directly or through the contracts 
with pharmacy contractors) from using incen-
tives to encourage enrollees to select generic 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; and
‘‘(ii) a beneficiary’s coinsurance shall 
be no greater than 20 percent in the case 
of a preferred medicine (including a non-
preferred medicine treated as a preferred 
medicine under section 1859D(c)(5)). 
‘‘(2) CONSTRUCTION.—Nothing in this part 
shall preclude the Secretary or a pharmacy con-
tractor from—
‘‘(A) educating prescribing providers, phar-
macists, and enrollees about medical and cost 
benefits of preferred medicines; 
‘‘(B) requesting prescribing providers to 
consider a preferred medicine prior to dis-
pensing of a nonpreferred medicine, as long as 
such request does not unduly delay the provi-
sion of the medicine; 
‘‘(C) using mechanisms to encourage en-
rollees under this part to select cost-effective 
medicines or less costly means of receiving or 
administering medicines, including the use of 
therapeutic interchange programs, disease man-
agement programs, and notification to the bene-
ficiary that a more affordable generic medicine 
equivalent was not selected by the prescribing
provider and a statement of the lost cost sav-
ings to the beneficiary; 
‘‘(D) using price negotiations to achieve re-
duced prices on covered outpatient prescription 
medicines, including new medicines, medicines 
for which there are few therapeutic alternatives, 
and medicines of particular clinical importance 
to individuals enrolled under this part; and 
‘‘(E) utilizing information on medicine 
prices of OECD countries and of other payors 
in the United States in the negotiation of prices 
under this part. 
‘‘(b) PRICE NEGOTIATIONS PROCESS.—
‘‘(1) REQUIREMENTS WITH RESPECT TO PRE-
FERRED MEDICINES.—Negotiations of contracts with 
manufacturers with respect to covered outpatient 
prescription medicines under this part shall be con-
ducted in a manner so that—
‘‘(A) there is at least a contract for a med-
icine within each therapeutic class (as defined 
by the Secretary in consultation with such 
Medicare Prescription Medicine Advisory Com-
mittee); 
‘‘(B) if there is more than 1 medicine 
available in a therapeutic class, there are con-
tracts for at least 2 medicines within such class 
unless determined clinically inappropriate in ac-
cordance with standards established by the Sec-
retary; and 
‘‘(C) if there are more than 2 medicines 
available in a therapeutic class, there is a con-
tract for at least 2 medicines within such class 
and a contract for generic medicine substitute 
if available unless determined clinically inappro-
priate in accordance with standards established 
by the Secretary. 
‘‘(2) ESTABLISHMENT OF THERAPEUTIC CLASS-
ES.—The Secretary, in consultation with the Medi-
care Prescription Medicine Advisory Committee (es-
tablished under section 1859H), shall establish for 
purposes of this part therapeutic classes and assign 
to such classes covered outpatient prescription medi-
cines. 
‘‘(3) DISCLOSURE
CONCERNING
PREFERRED 
MEDICINES.—The Secretary shall provide, through 
pharmacy contractors or otherwise, for—
‘‘(A) disclosure to current and prospective 
enrollees and to participating providers and 
pharmacies in each service area a list of the 
preferred medicines and differences in applica-
ble cost-sharing between such medicines and 
nonpreferred medicines; and 
‘‘(B) advance disclosure to current enroll-
ees and to participating providers and phar-
macies in each service area of changes to any 
such list of preferred medicines and differences 
in applicable cost-sharing. 
‘‘(4) NO REVIEW.—The Secretary’s establish-
ment of therapeutic classes and the assignment of 
medicines to such classes and the Secretary’s deter-
mination of what is a breakthrough medicine are not 
subject to administrative or judicial review. 
‘‘(c) CONFIDENTIALITY.—The Secretary shall ensure 
that the confidentiality of individually identifiable health 
information relating to the provision of benefits under this 
part is protected, consistent with the standards for the 
privacy of such information promulgated by the Secretary 
under the Health Insurance Portability and Accountability 
Act of 1996, or any subsequent comprehensive and more 
protective set of confidentiality standards enacted into law 
or promulgated by the Secretary. Nothing in this sub-
section shall be construed as preventing the coordination 
of data with a State prescription medicine program so long 
as such program has in place confidentiality standards
that are equal to or exceed the standards used by the Sec-
retary. 
‘‘(d) FRAUD AND ABUSE SAFEGUARDS.—The Sec-
retary, through the Office of the Inspector General, is au-
thorized and directed to issue regulations establishing ap-
propriate safeguards to prevent fraud and abuse under 
this part. Such safeguards, at a minimum, should include 
compliance programs, certification data, audits, and rec-
ordkeeping practices. In developing such regulations, the 
Secretary shall consult with the Attorney General and 
other law enforcement and regulatory agencies. 
‘‘FEDERAL MEDICARE PRESCRIPTION MEDICINE TRUST 
FUND 
‘‘SEC. 1859F. (a) ESTABLISHMENT.—There is here-
by created on the books of the Treasury of the United 
States a trust fund to be known as the ‘Federal Medicare 
Prescription Medicine Trust Fund’ (in this section re-
ferred to as the ‘Trust Fund’). The Trust Fund shall con-
sist of such gifts and bequests as may be made as provided 
in section 201(i)(1), and such amounts as may be depos-
ited in, or appropriated to, such fund as provided in this 
part. 
‘‘(b) APPLICATION OF SMI TRUST FUND PROVI-
SIONS.—The provisions of subsections (b) through (i) of 
section 1841 shall apply to this part and the Trust Fund 
in the same manner as they apply to part B and the Fed-
eral Supplementary Medical Insurance Trust Fund, re-
spectively.
‘‘COMPENSATION FOR EMPLOYERS COVERING RETIREE 
MEDICINE COSTS 
‘‘SEC. 1859G. (a) IN GENERAL.—In the case of an 
individual who is eligible to be enrolled under this part 
and is a participant or beneficiary under a group health 
plan that provides outpatient prescription medicine cov-
erage to retirees the actuarial value of which is not less 
than the actuarial value of the coverage provided under 
this part, the Secretary shall make payments to such plan 
subject to the provisions of this section. Such payments 
shall be treated as payments under this part for purposes 
of sections 1859F and 1859C(e)(2). In applying the pre-
vious sentence with respect to section 1859C(e)(2), the 
amount of the Government contribution referred to in sec-
tion 1844(a)(1)(A) is deemed to be equal to the aggregate 
amount of the payments made under this section. 
‘‘(b) REQUIREMENTS.—To receive payment under 
this section, a group health plan shall comply with the fol-
lowing requirements: 
‘‘(1) COMPLIANCE WITH REQUIREMENTS.—The 
group health plan shall comply with the require-
ments of this Act and other reasonable, necessary, 
and related requirements that are needed to admin-
ister this section, as determined by the Secretary.
‘‘(2) ANNUAL
ASSURANCES
AND
NOTICE
BE-
FORE
TERMINATION.—The sponsor of the plan 
shall—
‘‘(A) annually attest, and provide such as-
surances as the Secretary may require, that the 
coverage offered under the group health plan 
meets the requirements of this section and will 
continue to meet such requirements for the du-
ration of the sponsor’s participation in the pro-
gram under this section; and 
‘‘(B) guarantee that it will give notice to 
the Secretary and covered enrollees—
‘‘(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 required under sub-
section (a). 
‘‘(3) BENEFICIARY INFORMATION.—The spon-
sor of the plan shall report to the Secretary, for 
each calendar quarter for which it seeks a payment 
under this section, the names and social security 
numbers of all enrollees described in subsection (a) 
covered under such plan during such quarter and
the dates (if less than the full quarter) during which 
each such individual was covered. 
‘‘(4) AUDITS.—The sponsor or plan seeking 
payment under this section shall agree to maintain, 
and to afford the Secretary access to, such records 
as the Secretary may require for purposes of audits 
and other oversight activities necessary to ensure the 
adequacy of prescription medicine coverage, the ac-
curacy of payments made, and such other matters as 
may be appropriate. 
‘‘(c) PAYMENT.—
‘‘(1) IN
GENERAL.—The sponsor of a group 
health plan that meets the requirements of sub-
section (b) with respect to a quarter in a calendar 
year shall be entitled to have payment made on a 
quarterly basis of the amount specified in paragraph 
(2) for each individual described in subsection (a) 
who during the quarter is covered under the plan 
and was not enrolled in the insurance program 
under this part. 
‘‘(2) AMOUNT OF PAYMENT.—
‘‘(A) IN
GENERAL.—The amount of the 
payment for a quarter shall approximate, for 
each such covered individual, 2⁄3 of the sum of 
the monthly Government contribution amounts
(computed under subparagraph (B)) for each of 
the 3 months in the quarter. 
‘‘(B) COMPUTATION
OF
MONTHLY
GOV-
ERNMENT CONTRIBUTION AMOUNT.—For pur-
poses of subparagraph (A), the monthly Gov-
ernment contribution amount for a month in a 
year is equal to the amount by which—
‘‘(i) 1⁄12 of the average per capita ag-
gregate expenditures, as estimated under 
section 1859D(c)(8) for the year involved; 
exceeds 
‘‘(ii) the monthly premium rate under 
section 1859D(d) for the month involved. 
‘‘MEDICARE PRESCRIPTION MEDICINE ADVISORY 
COMMITTEE 
‘‘SEC. 1859H. (a) ESTABLISHMENT
OF
COM-
MITTEE.—There is established a Medicare Prescription 
Medicine Advisory Committee (in this section referred to 
as the ‘Committee’). 
‘‘(b) FUNCTIONS OF COMMITTEE.—The Committee 
shall advise the Secretary on policies related to— 
‘‘(1) the development of guidelines for the im-
plementation and administration of the outpatient 
prescription medicine benefit program under this 
part; and 
‘‘(2) the development of—
‘‘(A) standards required of pharmacy con-
tractors under section 1859D(c)(5) for deter-
mining if a medicine is as effective for an en-
rollee or has a significant adverse effect on an 
enrollee under this part; 
‘‘(B) standards for—
‘‘(i) defining therapeutic classes; 
‘‘(ii) adding new therapeutic classes; 
‘‘(iii) assigning to such classes covered 
outpatient prescription medicines; and 
‘‘(iv) identifying breakthrough medi-
cines; 
‘‘(C) procedures to evaluate the bids sub-
mitted by pharmacy contractors under this 
part; 
‘‘(D) procedures for negotiations, and 
standards for entering into contracts, with 
manufacturers, including identifying medicines 
or classes of medicines where Secretarial nego-
tiation is most likely to yield savings under this 
part significantly above those that which could 
be achieved by a pharmacy contractor; and 
‘‘(E) procedures to ensure that pharmacy 
contractors with a contract under this part are
in compliance with the requirements under this 
part. 
For purposes of this part, a medicine is a ‘breakthrough 
medicine’ if the Secretary, in consultation with the Com-
mittee, determines it is a new product that will make a 
significant and major improvement by reducing physical 
or mental illness, reducing mortality, or reducing dis-
ability, and that no other product is available to bene-
ficiaries that achieves similar results for the same condi-
tion. The Committee may consider cost-effectiveness in es-
tablishing standards for defining therapeutic classes and 
assigning drugs to such classes under subparagraph (B). 
‘‘(c) STRUCTURE AND MEMBERSHIP OF THE COM-
MITTEE.—
‘‘(1) STRUCTURE.—The Committee shall be 
composed of 19 members who shall be appointed by 
the Secretary. 
‘‘(2) MEMBERSHIP.—
‘‘(A) IN GENERAL.—The members of the 
Committee shall be chosen on the basis of their 
integrity, impartiality, and good judgment, and 
shall be individuals who are, by reason of their 
education, experience, and attainments, excep-
tionally qualified to perform the duties of mem-
bers of the Committee.
‘‘(B) SPECIFIC MEMBERS.—Of the mem-
bers appointed under paragraph (1)—
‘‘(i) 5 shall be chosen to represent 
practicing physicians, 2 of whom shall be 
gerontologists; 
‘‘(ii) 2 shall be chosen to represent 
practicing nurse practitioners; 
‘‘(iii) 4 shall be chosen to represent 
practicing pharmacists; 
‘‘(iv) 1 shall be chosen to represent 
the Centers for Medicare & Medicaid Serv-
ices; 
‘‘(v) 4 shall be chosen to represent ac-
tuaries, pharmacoeconomists, researchers, 
and other appropriate experts; 
‘‘(vi) 1 shall be chosen to represent 
emerging medicine technologies;
‘‘(vii) 1 shall be chosen to represent 
the Food and Drug Administration; and 
‘‘(viii) 1 shall be chosen to represent 
individuals enrolled under this part. 
‘‘(d) TERMS OF APPOINTMENT.—Each member of 
the Committee shall serve for a term determined appro-
priate by the Secretary. The terms of service of the mem-
bers initially appointed shall begin on January 1, 2005.
‘‘(e) CHAIRPERSON.—The Secretary shall designate 
a member of the Committee as Chairperson. The term as 
Chairperson shall be for a 1-year period. 
‘‘(f) COMMITTEE PERSONNEL MATTERS.—
‘‘(1) MEMBERS.—
‘‘(A) COMPENSATION.—Each member of 
the Committee who is not an officer or em-
ployee of the Federal Government shall be com-
pensated at a rate equal to the daily equivalent 
of the annual rate of basic pay prescribed for 
level IV of the Executive Schedule under section 
5315 of title 5, United States Code, for each 
day (including travel time) during which such 
member is engaged in the performance of the 
duties of the Committee. All members of the 
Committee who are officers or employees of the 
United States shall serve without compensation 
in addition to that received for their services as 
officers or employees of the United States. 
‘‘(B) TRAVEL
EXPENSES.—The members 
of the Committee shall be allowed travel ex-
penses, including per diem in lieu of subsist-
ence, at rates authorized for employees of agen-
cies under subchapter I of chapter 57 of title 5, 
United States Code, while away from their
homes or regular places of business in the per-
formance of services for the Committee. 
‘‘(2) STAFF.—The Committee may appoint 
such personnel as the Committee considers appro-
priate. 
‘‘(g) OPERATION OF THE COMMITTEE.—
‘‘(1) MEETINGS.—The Committee shall meet at 
the call of the Chairperson (after consultation with 
the other members of the Committee) not less often 
than quarterly to consider a specific agenda of 
issues, as determined by the Chairperson after such 
consultation. 
‘‘(2) QUORUM.—Ten members of the Com-
mittee shall constitute a quorum for purposes of 
conducting business. 
‘‘(h) FEDERAL ADVISORY COMMITTEE ACT.—Section 
14 of the Federal Advisory Committee Act (5 U.S.C. 
App.) shall not apply to the Committee. 
‘‘(i) TRANSFER OF PERSONNEL, RESOURCES, AND 
ASSETS.—For purposes of carrying out its duties, the Sec-
retary and the Committee may provide for the transfer 
to the Committee of such civil service personnel in the em-
ploy of the Department of Health and Human Services 
(including the Centers for Medicare & Medicaid Services),
and such resources and assets of the Department used in 
carrying out this title, as the Committee requires. 
‘‘(j) AUTHORIZATION OF APPROPRIATIONS.—There 
are authorized to be appropriated such sums as may be 
necessary to carry out the purposes of this section.’’. 
(b) APPLICATION OF GENERAL EXCLUSIONS FROM 
COVERAGE.—
(1) APPLICATION TO PART D.—Section 1862(a) 
(42 U.S.C. 1395y(a)) is amended in the matter pre-
ceding paragraph (1) by striking ‘‘part A or part B’’ 
and inserting ‘‘part A, B, or D’’. 
(2) PRESCRIPTION MEDICINES NOT EXCLUDED 
FROM COVERAGE IF APPROPRIATELY PRESCRIBED.—
Section 1862(a)(1) (42 U.S.C. 1395y(a)(1)) is 
amended—
(A) in subparagraph (H), by striking 
‘‘and’’ at the end; 
(B) in subparagraph (I), by striking the 
semicolon at the end and inserting ‘‘, and’’; and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(J) in the case of prescription medicines 
covered under part D, which are not prescribed 
in accordance with such part;’’.
(c) CONFORMING AMENDMENTS.—(1) Part C of title 
XVIII is amended—
(A) in section 1851(a)(2)(B) (42 U.S.C. 
1395w–21(a)(2)(B)), by striking ‘‘1859(b)(3)’’ and 
inserting ‘‘1858(b)(3)’’; 
(B) in section 1851(a)(2)(C) (42 U.S.C. 
1395w–21(a)(2)(C)), by striking ‘‘1859(b)(2)’’ and 
inserting ‘‘1858(b)(2)’’; 
(C) in section 1852(a)(1) (42 U.S.C. 1395w–
22(a)(1)), by striking ‘‘1859(b)(3)’’ and inserting 
‘‘1858(b)(3)’’; 
(D) in section 1852(a)(3)(B)(ii) (42 U.S.C. 
1395w–22(a)(3)(B)(ii)), 
by 
striking 
‘‘1859(b)(2)(B)’’ and inserting ‘‘1858(b)(2)(B)’’; 
(E) in section 1853(a)(1)(A) (42 U.S.C. 
1395w–23(a)(1)(A)), by striking ‘‘1859(e)(4)’’ and 
inserting ‘‘1858(e)(4)’’; and 
(F) in section 1853(a)(3)(D) (42 U.S.C. 
1395w–23(a)(3)(D)), by striking ‘‘1859(e)(4)’’ and 
inserting ‘‘1858(e)(4)’’. 
(2) 
Section 
1171(a)(5)(D) 
(42 
U.S.C. 
1320d(a)(5)(D)) is amended by striking ‘‘or (C)’’ and in-
serting ‘‘(C), or (D)’’.
SEC. 102. PROVISION OF MEDICARE OUTPATIENT PRE-
SCRIPTION 
MEDICINE 
COVERAGE 
UNDER 
THE MEDICARE+CHOICE PROGRAM. 
(a) REQUIRING AVAILABILITY OF AN ACTUARIALLY 
EQUIVALENT PRESCRIPTION MEDICINE BENEFIT.—Sec-
tion 1851 (42 U.S.C. 1395w–21) is amended by adding 
at the end the following new subsection: 
‘‘(j) AVAILABILITY
OF
PRESCRIPTION
MEDICINE 
BENEFITS.—
‘‘(1) IN GENERAL.—Notwithstanding any other 
provision of this part, each Medicare+Choice organi-
zation that makes available a Medicare+Choice plan 
described in section 1851(a)(2)(A) shall make avail-
able such a plan that offers coverage of covered out-
patient prescription medicines that is at least actu-
arially equivalent to the benefits provided under part 
D. Information respecting such benefits shall be 
made available in the same manner as information 
on other benefits provided under this part is made 
available. Nothing in this paragraph shall be con-
strued as requiring the offering of such coverage 
separate from coverage that includes benefits under 
parts A and B. 
‘‘(2) TREATMENT OF PRESCRIPTION MEDICINE 
ENROLLEES.—In the case of a Medicare+Choice eli-
gible individual who is enrolled under part D, the
benefits described in paragraph (1) shall be treated 
in the same manner as benefits described in part B 
for purposes of coverage and payment and any ref-
erence in this part to the Federal Supplementary 
Medical Insurance Trust Fund shall be deemed, with 
respect to such benefits, to be a reference to the 
Federal Medicare Prescription Medicine Trust 
Fund.’’. 
(b) APPLICATION OF QUALITY STANDARDS.—Section 
1852(e)(2)(A) (42 U.S.C. 1395w–22(e)(2)(A)) is amend-
ed—
(1) by striking ‘‘and’’ at the end of clause (xi); 
(2) by striking the period at the end of clause 
(xii) and inserting ‘‘, and’’; and 
(3) by adding at the end the following new 
clause: 
‘‘(xiii) comply with the standards, and 
apply 
the 
programs, 
under 
section 
1859B(b) for covered outpatient prescrip-
tion medicines under the plan.’’. 
(c) PAYMENT SEPARATE FROM PAYMENT FOR PART 
A AND B BENEFITS.—Section 1853 (42 U.S.C. 1395w–
23) is amended—
(1) in subsection (a)(1)(A), by striking ‘‘and 
(i)’’ and inserting ‘‘(i), and (j)’’; and
(2) by adding at the end the following new sub-
section: 
‘‘(j) PAYMENT FOR PRESCRIPTION MEDICINE COV-
ERAGE OPTION.—
‘‘(1) 
IN
GENERAL.—In 
the 
case 
of 
a 
Medicare+Choice plan that provides prescription 
medicine benefits described in section 1851(j)(1), 
the amount of payment otherwise made to the 
Medicare+Choice organization offering the plan 
shall be increased by the amount described in para-
graph (2). Such payments shall be made in the same 
manner and time as the amount otherwise paid, but 
such amount shall be payable from the Federal 
Medicare Prescription Medicine Trust Fund. 
‘‘(2) AMOUNT.—The amount described in this 
paragraph is the monthly Government contribution 
amount computed under section 1859G(c)(2)(B), 
but subject to adjustment under paragraph (3). 
Such amount shall be uniform geographically and 
shall not vary based on the Medicare+Choice pay-
ment area involved. 
‘‘(3) RISK ADJUSTMENT.—The Secretary shall 
establish a methodology for the adjustment of the 
payment amount under this subsection in a manner 
that takes into account the relative risks for use of
outpatient 
prescription 
medicines 
by 
Medicare+Choice enrollees. Such methodology shall 
be designed in a manner so that the total payments 
under this title (including part D) are not changed 
as a result of the application of such methodology.’’. 
(d) SEPARATE APPLICATION OF ADJUSTED COMMU-
NITY RATE (ACR).—Section 1854 (42 U.S.C. 1395w–24) 
is amended by adding at the end the following: 
‘‘(i) APPLICATION TO PRESCRIPTION MEDICINE COV-
ERAGE.—The Secretary shall apply the previous provisions 
of this section (including the computation of the adjusted 
community rate) separately with respect to prescription 
medicine benefits described in section 1851(j)(1).’’. 
(e) CONFORMING AMENDMENTS.—
(1) Section 1851 (42 U.S.C. 1395w–21) is 
amended—
(A) in subsection (a)(1)(A), by striking 
‘‘parts A and B’’ and inserting ‘‘parts A, B, 
and D’’; and 
(B) in subsection (i) by inserting ‘‘(and, if 
applicable, part D)’’ after ‘‘parts A and B’’. 
(2) Section 1852(a)(1)(A) (42 U.S.C. 1395w–
22(a)(1)(A)) is amended by inserting ‘‘(and under 
part D to individuals also enrolled under such part)’’ 
after ‘‘parts A and B’’.
(3) Section 1852(d)(1) (42 U.S.C. 1395w–
22(d)(1)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (D); 
(B) by striking the period at the end of 
subparagraph (E) and inserting ‘‘; and’’; and 
(C) by adding at the end the following: 
‘‘(F) the plan for part D benefits guaran-
tees coverage of any specifically named pre-
scription medicine for an enrollee to the extent 
that it would be required to be covered under 
part D. 
In 
carrying 
out 
subparagraph 
(F), 
a 
Medicare+Choice organization has the same author-
ity to enter into contracts with respect to coverage 
of preferred medicines as the Secretary has under 
part D, but subject to an independent contractor ap-
peal or other appeal process that would be applicable 
to determinations by such a pharmacy contractor 
consistent with section 1859D(c)(5).’’. 
(f) 
LIMITATION
ON
COST-SHARING.—Section 
1854(e) (42 U.S.C. 1395w–24(e)) is amended by adding 
at the end the following new paragraph: 
‘‘(5) LIMITATION
ON
COST-SHARING.—In no 
event may a Medicare+Choice organization include
a requirement that an enrollee pay cost-sharing in 
excess of the cost-sharing otherwise permitted under 
part D.’’. 
SEC. 103. MEDIGAP REVISIONS. 
(a) REQUIRED COVERAGE OF COVERED OUTPATIENT 
PRESCRIPTION MEDICINES.—Section 1882(p)(2)(B) (42 
U.S.C. 1395ss(p)(2)(B)) is amended by inserting before 
‘‘and’’ at the end the following: ‘‘including a requirement 
that an appropriate number of policies provide coverage 
of medicines which complements but does not duplicate 
the medicine benefits that beneficiaries are otherwise eligi-
ble for benefits under part D of this title (with the Sec-
retary and the National Association of Insurance Commis-
sioners determining the appropriate level of medicine ben-
efits that each benefit package must provide and ensuring 
that policies providing such coverage are affordable for 
beneficiaries;’’. 
(b) EFFECTIVE DATE.—The amendment made by 
subsection (a) shall take effect on January 1, 2006. 
(c) TRANSITION PROVISIONS.—
(1) IN GENERAL.—If the Secretary of Health 
and Human Services identifies a State as requiring 
a change to its statutes or regulations to conform its 
regulatory program to the amendments made by this 
section, the State regulatory program shall not be
considered to be out of compliance with the require-
ments of section 1882 of the Social Security Act due 
solely to failure to make such change until the date 
specified in paragraph (4). 
(2) NAIC STANDARDS.—If, within 9 months 
after the date of enactment of this Act, the National 
Association of Insurance Commissioners (in this 
subsection referred to as the ‘‘NAIC’’) modifies its 
NAIC Model Regulation relating to section 1882 of 
the Social Security Act (referred to in such section 
as the 1991 NAIC Model Regulation, as subse-
quently modified) to conform to the amendments 
made by this section, such revised regulation incor-
porating the modifications shall be considered to be 
the applicable NAIC model regulation (including the 
revised NAIC model regulation and the 1991 NAIC 
Model Regulation) for the purposes of such section. 
(3) SECRETARY
STANDARDS.—If the NAIC 
does not make the modifications described in para-
graph (2) within the period specified in such para-
graph, the Secretary of Health and Human Services 
shall make the modifications described in such para-
graph and such revised regulation incorporating the 
modifications shall be considered to be the appro-
priate regulation for the purposes of such section.
(4) DATE SPECIFIED.—
(A) IN
GENERAL.—Subject to subpara-
graph (B), the date specified in this paragraph 
for a State is the earlier of—
(i) the date the State changes its stat-
utes or regulations to conform its regu-
latory program to the changes made by 
this section; or 
(ii) 1 year after the date the NAIC or 
the Secretary first makes the modifications 
under paragraph (2) or (3), respectively. 
(B) ADDITIONAL LEGISLATIVE ACTION RE-
QUIRED.—In the case of a State which the Sec-
retary identifies as—
(i) requiring State legislation (other 
than legislation appropriating funds) to 
conform its regulatory program to the 
changes made in this section; but 
(ii) having a legislature which is not 
scheduled to meet in 2004 in a legislative 
session in which such legislation may be 
considered; 
the date specified in this paragraph is the first 
day of the first calendar quarter beginning after 
the close of the first legislative session of the
State legislature that begins on or after Janu-
ary 1, 2004. For purposes of the previous sen-
tence, in the case of a State that has a 2-year 
legislative session, each year of such session 
shall be deemed to be a separate regular session 
of the State legislature.
SEC. 104. TRANSITIONAL ASSISTANCE FOR LOW INCOME 
BENEFICIARIES. 
(a) QMB COVERAGE OF PREMIUMS AND COST-SHAR-
ING.—Section 1905(p)(3) (42 U.S.C. 1396d(p)(3)) is 
amended—
(1) in subparagraph (A)—
(A) by striking ‘‘and’’ at the end of clause 
(i), 
(B) by adding ‘‘and’’ at the end of clause 
(ii), and 
(C) by adding at the end the following new 
clause: 
‘‘(iii) premiums under section 1859D(d).’’; 
(2) in subparagraph (B), by inserting ‘‘and sec-
tion 1859D(c)(3)(B) and 1859D(c)(3)(C)(i)’’ after 
‘‘1813’’; and
(3) in subparagraph (C), by striking ‘‘and sec-
tion 1833(b)’’ and inserting ‘‘, section 1833(b), and 
section 1859D(c)(2)’’.
(b) 
EXPANDED
SLMB 
ELIGIBILITY.—Section 
1902(a)(10)(E) (42 U.S.C. 1396a(a)(10)(E)) is amend-
ed—
(1) by striking ‘‘and’’ at the end of clause (iii); 
(2) by adding ‘‘and’’ at the end of clause (iv); 
and 
(3) by adding at the end the following new 
clause: 
‘‘(v)(I) for making medical assistance 
available for medicare cost-sharing described in 
section 1905(p)(3)(A)(iii) and medicare cost-
sharing described in section 1905(p)(3)(B) and 
section 1905(p)(3)(C) but only insofar as it re-
lates to benefits provided under part D of title 
XVIII, subject to section 1905(p)(4), for indi-
viduals (other than qualified medicare bene-
ficiaries) who are enrolled under part D of title 
XVIII 
and 
are 
described 
in 
section 
1905(p)(1)(B) or would be so described but for 
the fact that their income exceeds 100 percent, 
but is less than 150 percent, of the official pov-
erty line (referred to in such section) for a fam-
ily of the size involved; 
‘‘(II) subject to section 1905(p)(4), for in-
dividuals (other than qualified medicare bene-
ficiaries and individuals described in subclause 
(I)) who are enrolled under part D of title 
XVIII and would be described in section 
1905(p)(1)(B) but for the fact that their in-
come exceeds 150 percent, but is less than 175 
percent, of the official poverty line (referred to 
in such section) for a family of the size in-
volved, for making medical assistance available 
for medicare cost-sharing described in section 
1905(p)(3)(A)(iii) and medicare cost-sharing 
described in section 1905(p)(3)(B) and section 
1905(p)(3)(C) but only insofar as it relates to 
benefits provided under part D of title XVIII, 
and the assistance for medicare cost-sharing de-
scribed in section 1905(p)(3)(A)(iii) is reduced 
(on a sliding scale based on income) from 100 
percent to 0 percent as the income increases 
from 150 percent to 175 percent of such pov-
erty line;’’. 
(c) FEDERAL FINANCING.—The third sentence of 
section 1905(b) (42 U.S.C. 1396d(b)) is amended by in-
serting before the period at the end the following: ‘‘and 
with respect to amounts expended that are attributable to 
section 1902(a)(10)(E)(v) (other than for individuals de-
scribed in section 1905(p)(1)(B))’’.
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1905(p) (42 U.S.C. 
1396d(p)) is amended—
(A) by redesignating paragraphs (5) and 
(6) as paragraphs (6) and (7), respectively; and 
(B) by inserting after paragraph (4) the 
following new paragraph: 
‘‘(5)(A) In the case of a State, other than the 50 
States and the District of Columbia—
‘‘(i) the provisions of paragraph (3) insofar as 
they relate to section 1859D and the provisions of 
section 1902(a)(10)(E)(v) shall not apply to resi-
dents of such State; and 
‘‘(ii) if the State establishes a plan described in 
subparagraph (B) (for providing medical assistance 
with respect to the provision of prescription medi-
cines to medicare beneficiaries), the amount other-
wise determined under section 1108(f) (as increased 
under section 1108(g)) for the State shall be in-
creased by the amount specified in subparagraph 
(C). 
‘‘(B) The plan described in this subparagraph is a 
plan that—
‘‘(i) provides medical assistance with respect to 
the provision of covered outpatient medicines (as de-
fined in section 1859D(b)) to low-income medicare 
beneficiaries; and 
‘‘(ii) assures that additional amounts received 
by the State that are attributable to the operation 
of this paragraph are used only for such assistance. 
‘‘(C)(i) The amount specified in this subparagraph 
for a State for a year is equal to the product of—
‘‘(I) the aggregate amount specified in clause 
(ii); and 
‘‘(II) the amount specified in section 1108(g)(1) 
for that State, divided by the sum of the amounts 
specified in such section for all such States. 
‘‘(ii) The aggregate amount specified in this clause 
for—
‘‘(I) 2006, is equal to $25,000,000; or 
‘‘(II) a subsequent year, is equal to the aggre-
gate amount specified in this clause for the previous 
year increased by annual percentage increase speci-
fied in section 1859D(c)(8)(B) for the year involved. 
‘‘(D) The Secretary shall submit to Congress a report 
on the application of this paragraph and may include in 
the report such recommendations as the Secretary deems 
appropriate.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
1108(f) (42 U.S.C. 1308(f)) is amended by inserting
‘‘and section 1905(p)(5)(A)(ii)’’ after ‘‘Subject to 
subsection (g)’’.
(e) 
APPLICATION
OF
COST-SHARING.—Section 
1902(n)(2) (42 U.S.C. 1396a(n)(2)) is amended by add-
ing at the end the following: ‘‘The previous sentence shall 
not apply to medicare cost-sharing relating to benefits 
under part D of title XVIII.’’. 
(f) EFFECTIVE DATE.—The amendments made by 
this section apply to medical assistance for premiums and 
cost-sharing incurred on or after January 1, 2006, with 
regard to whether regulations to implement such amend-
ments are promulgated by such date. 
SEC. 105. EXPANSION OF MEMBERSHIP AND DUTIES OF 
MEDICARE PAYMENT ADVISORY COMMISSION 
(MEDPAC). 
(a) EXPANSION OF MEMBERSHIP.—
(1) IN GENERAL.—Section 1805(c) (42 U.S.C. 
1395b–6(c)) is amended—
(A) in paragraph (1), by striking ‘‘17’’ and 
inserting ‘‘19’’; and
(B) in paragraph (2)(B), by inserting ‘‘ex-
perts in the area of pharmacology and prescrip-
tion medicine benefit programs,’’ after ‘‘other 
health professionals,’’.
(2) INITIAL
TERMS
OF
ADDITIONAL
MEM-
BERS.—
(A) IN GENERAL.—For purposes of stag-
gering the initial terms of members of the 
Medicare Payment Advisory Commission under 
section 1805(c)(3) of the Social Security Act 
(42 U.S.C. 1395b–6(c)(3)), the initial terms of 
the 2 additional members of the Commission 
provided for by the amendment under para-
graph (1)(A) are as follows: 
(i) One member shall be appointed for 
1 year. 
(ii) One member shall be appointed 
for 2 years. 
(B) COMMENCEMENT
OF
TERMS.—Such 
terms shall begin on January 1, 2004. 
(b) EXPANSION OF DUTIES.—Section 1805(b)(2) (42 
U.S.C. 1395b–6(b)(2)) is amended by adding at the end 
the following new subparagraph: 
‘‘(D) PRESCRIPTION
MEDICINE
BENEFIT 
PROGRAM.—Specifically, the Commission shall 
review, with respect to the prescription medicine 
benefit program under part D, the following:
‘‘(i) The methodologies used for the 
management of costs and utilization of 
prescription medicines. 
‘‘(ii) The prices negotiated and paid, 
including trends in such prices and appli-
cable discounts and comparisons with 
prices under section 1859E(a)(2)(E). 
‘‘(iii) The relationship of pharmacy 
acquisition costs to the prices so negotiated 
and paid. 
‘‘(iv) The methodologies used to en-
sure access to covered outpatient prescrip-
tion medicines and to ensure quality in the 
appropriate dispensing and utilization of 
such medicines.
‘‘(v) The impact of the program on 
promoting the development of break-
through medicines.’’.
TITLE II—AFFORDABLE 
PHARMACEUTICALS 
Subtitle A—Greater Access to 
Affordable Pharmaceuticals 
SEC. 201. ACCELERATED GENERIC DRUG COMPETITION. 
(a) IN GENERAL.—Section 505(j)(5) of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 355(j)(5)) is 
amended—
(1) in subparagraph (B)(iv), by striking sub-
clause (II) and inserting the following: 
‘‘(II) the earlier of—
‘‘(aa) the date of a final decision of a 
court in an action described in clause 
(iii)(II) (from which no appeal can or has 
been taken, other than a petition to the 
Supreme Court for a writ of certiorari) 
holding the patent that is the subject of 
the certification to be invalid or not in-
fringed; or 
‘‘(bb) the date of a settlement order 
or consent decree in such an action signed 
by a Federal judge that enters a final 
judgment and includes a finding that the 
patent that is the subject of the certifi-
cation is invalid or not infringed;’’;
(2) by redesignating subparagraphs (C) and 
(D) as subparagraphs (E) and (F), respectively; and 
(3) by inserting before subparagraph (E) (as so 
redesignated) the following subparagraph: 
‘‘(D)(i) The 180-day period described in subpara-
graph (B)(iv) shall be forfeited by the previous applicant 
if—
‘‘(I) the previous applicant fails to market the 
drug by the later of the date 60 days after the date 
on which the approval of the application for the drug 
is made effective under subparagraph (B)(iii) or, if 
such approval has been made effective, and if an ac-
tion has been brought against the previous applicant 
for infringement of a patent subject to a certifi-
cation under paragraph (2)(A)(vii)(IV), or an action 
has been brought by the previous applicant for a de-
claratory judgment that such a patent is invalid or 
not infringed, the date 60 days after the date of a 
final decision in such action, if there is no other 
such action pending by or against the previous appli-
cant; except, however, that either of such dates may 
be extended due to extraordinary or unusual cir-
cumstances, as determined by the Secretary; 
‘‘(II) the previous applicant withdraws the ap-
plication;
‘‘(III) the previous applicant amends the certifi-
cation from a certification under subclause (IV) of 
paragraph (2)(A)(vii) to a certification under sub-
clause (III) of such paragraph, either voluntarily or 
as a result of a settlement or defeat in patent litiga-
tion; 
‘‘(IV) the previous applicant fails to obtain ten-
tative approval of the application within 30 months 
after the date on which the application is filed, un-
less the failure is caused by—
‘‘(aa) a change in the requirements for 
tentative approval of the application imposed 
after the date on which the application was 
filed; or 
‘‘(bb) other extraordinary or unusual cir-
cumstances, as determined by the Secretary; 
‘‘(V) in a case in which, after the date on which 
the previous application was submitted under this 
subsection, new patent information is submitted 
under subsection (c)(2) for the listed drug for a pat-
ent for which certification or a method of use state-
ment is required under paragraph (2)(A), the pre-
vious applicant fails to submit no later than 60 days 
from the date the applicant receives notice from the 
Secretary under paragraph (7)(A)(iii) of the submis-