IB
Union Calendar No. 396
106TH CONGRESS
2D SESSION
H. R. 4680
[Report No. 106–703, Part I]
To amend title XVIII of the Social Security Act to provide for a voluntary
program for prescription drug coverage under the Medicare Program,
to modernize the Medicare Program, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 15, 2000
Mr. THOMAS (for himself, Mr. BURR of North Carolina, Mr. PETERSON of
Minnesota, Mr. BLILEY, and Mr. HALL of Texas) introduced the fol-
lowing bill; which was referred to the Committee on Ways and Means,
and in addition to the Committee on Commerce, for a period to be subse-
quently determined by the Speaker, in each case for consideration of such
provisions as fall within the jurisdiction of the committee concerned
JUNE 27, 2000
Reported from the Committee on Ways and Means with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
JUNE 27, 2000
Referral to the Commitee on Commerce extended for a period ending not later
than June 27, 2000
JUNE 27, 2000
Additional sponsors: Mr. KUYKENDALL, Mr. MARTINEZ, and Mr. ROGAN
JUNE 27, 2000
Committee on Commerce discharged; committed to the Committee of the
Whole House on the State of the Union and ordered to be printed
[For text of introduced bill, see copy of bill as introduced on June 15, 2000]
A BILL
To amend title XVIII of the Social Security Act to provide
for a voluntary program for prescription drug coverage
under the Medicare Program, to modernize the Medicare
Program, 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; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medicare Rx 2000 Act’’.
(b) TABLE OF CONTENTS.—The table of contents of this
Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT
Sec. 101. Establishment of a medicare prescription drug benefit.
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM
‘‘Sec. 1860A. Benefits; eligibility; enrollment; and coverage period.
‘‘Sec. 1860B. Requirements for qualified prescription drug coverage.
‘‘Sec. 1860C. Beneficiary protections for qualified prescription drug cov-
erage.
‘‘Sec. 1860D. Requirements for prescription drug plan (PDP) sponsors; con-
tracts; establishment of standards.
‘‘Sec. 1860E. Process for beneficiaries to select qualified prescription drug
coverage.
‘‘Sec. 1860F. Premiums.
‘‘Sec. 1860G. Premium and cost-sharing subsidies for low-income individ-
uals.
‘‘Sec. 1860H. Subsidies for all medicare beneficiaries through reinsurance for
qualified prescription drug coverage.
‘‘Sec. 1860I. Medicare Prescription Drug Account in Federal Supplementary
Medical Insurance Trust Fund.
‘‘Sec. 1860J. Definitions; treatment of references to provisions in part C.’’
Sec. 102. Offering 
of 
qualified 
prescription 
drug 
coverage 
under 
the
Medicare+Choice program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition provisions.
Sec. 105. Demonstration project for disease management for severely chronically
ill medicare beneficiaries.
TITLE II—MODERNIZATION OF ADMINISTRATION OF MEDICARE
Subtitle A—Medicare Benefits Administration
Sec. 201. Establishment of administration.
‘‘Sec. 1807. Medicare Benefits Administration.’’
Sec. 202. Miscellaneous administrative provisions.
Subtitle B—Oversight of Financial Sustainability of the Medicare Program
Sec. 211. Additional requirements for annual financial report and oversight on
medicare program.
Subtitle C—Changes in Medicare Coverage and Appeals Process
Sec. 221. Revisions to medicare appeals process.
Sec. 222. Provisions with respect to limitations on liability of beneficiaries.
Sec. 223. Waivers of liability for cost sharing amounts.
Sec. 224. Elimination of motions by the Secretary on decisions of the Provider
Reimbursement Review Board.
TITLE III—MEDICARE+CHOICE REFORMS; PRESERVATION OF
MEDICARE PART B DRUG BENEFIT
Subtitle A—Medicare+Choice Reforms
Sec. 301. Increase in national per capita Medicare+Choice growth percentage in
2001 and 2002.
Sec. 302. Permanently removing application of budget neutrality beginning in
2002.
Sec. 303. Increasing minimum payment amount.
Sec. 304. Allowing movement to 50:50 percent blend in 2002.
Sec. 305. Increased 
update 
for 
payment 
areas 
with 
only 
one 
or 
no
Medicare+Choice contracts.
Sec. 306. Permitting higher negotiated rates in certain Medicare+Choice pay-
ment areas below national average.
Sec. 307. 10-year phase in of risk adjustment based on data from all settings.
Subtitle B—Preservation of Medicare Coverage of Drugs and Biologicals
Sec. 311. Preservation of coverage of drugs and biologicals under part B of the
medicare program.
Sec. 312. GAO report on part B payment for drugs and biologicals and related
services.
TITLE I—MEDICARE
PRESCRIPTION DRUG BENEFIT
SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION
DRUG BENEFIT.
(a) IN GENERAL.—Title XVIII of the Social Security
Act is amended—
(1) by redesignating part D as part E; and
(2) by inserting after part C the following new
part:
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT
PROGRAM
‘‘SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND
COVERAGE PERIOD.
‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG
COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject to
the succeeding provisions of this part, each individual who
is enrolled under part B is entitled to obtain qualified pre-
scription drug coverage (described in section 1860B(a)) as
follows:
‘‘(1) MEDICARE+CHOICE
PLAN.—If the indi-
vidual is eligible to enroll in a Medicare+Choice plan
that provides qualified prescription drug coverage
under section 1851(j), the individual may enroll in
the plan and obtain coverage through such plan.
‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi-
vidual is not enrolled in a Medicare+Choice plan
that provides qualified prescription drug coverage, the
individual may enroll under this part in a prescrip-
tion drug plan (as defined in section 1860C(a)).
Such individuals shall have a choice of such plans under
section 1860E(d).
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN GENERAL.—An individual may elect to
enroll in a prescription drug plan under this part, or
elect the option of qualified prescription drug cov-
erage under a Medicare+Choice plan under part C,
and change such election only in such manner and
form as may be prescribed by regulations of the Ad-
ministrator of the Medicare Benefits Administration
(appointed under section 1807(b)) (in this part re-
ferred to as the ‘Medicare Benefits Administrator’)
and only during an election period prescribed in or
under this subsection.
‘‘(2) ELECTION PERIODS.—
‘‘(A) IN GENERAL.—Except as provided in
this paragraph, the election periods under this
subsection shall be the same as the coverage elec-
tion periods under the Medicare+Choice pro-
gram under section 1851(e), including—
‘‘(i) annual coordinated election peri-
ods; and
‘‘(ii) special election periods.
In applying the last sentence of section
1851(e)(4) (relating to discontinuance of a
Medicare+Choice election during the first year
of eligibility) under this subparagraph, in the
case of an election described in such section in
which the individual had elected or is provided
qualified prescription drug coverage at the time
of such first enrollment, the individual shall be
permitted to enroll in a prescription drug plan
under this part at the time of the election of cov-
erage under the original fee-for-service plan.
‘‘(B) INITIAL ELECTION PERIODS.—
‘‘(i) INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who is
enrolled under part B as of November 1,
2002, there shall be an initial election pe-
riod of 6 months beginning on that date.
‘‘(ii) INDIVIDUAL
COVERED
IN
FU-
TURE.—In the case of an individual who is
first enrolled under part B after November
1, 2002, there shall be an initial election pe-
riod which is the same as the initial enroll-
ment period under section 1837(d).
‘‘(C) ADDITIONAL SPECIAL ELECTION PERI-
ODS.—The Medicare Benefits Administrator
shall establish special election periods—
‘‘(i) in cases of individuals who have
and involuntarily lose prescription drug
coverage described in subsection (c)(2)(C);
‘‘(ii) in cases described in section
1837(h) (relating to errors in enrollment),
in the same manner as such section applies
to part B; and
‘‘(iii) in the case of an individual who
meets such exceptional conditions (including
conditions 
recognized 
under 
section
1851(d)(4)(D)) as the Administrator may
provide.
‘‘(D) ONE-TIME
ENROLLMENT
PERMITTED
FOR CURRENT PART A ONLY BENEFICIARIES.—In
the case of an individual who as of November 1,
2002—
‘‘(i) is entitled to benefits under part
A; and
‘‘(ii) is not (and has not previously
been) enrolled under part B;
the individual shall be eligible to enroll in a pre-
scription drug plan under this part but only
during the period described in subparagraph
(B)(i). If the individual enrolls in such a plan,
the individual may change such enrollment
under this part, but the individual may not en-
roll in a Medicare+Choice plan under part C
unless the individual enrolls under part B. Noth-
ing in this subparagraph shall be construed as
providing for coverage under a prescription drug
plan of benefits that are excluded because of the
application of section 1860B(f)(2)(B).
‘‘(c) GUARANTEED ISSUE; COMMUNITY RATING; AND
NONDISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible individual
who is eligible to elect qualified prescription
drug coverage under a prescription drug plan or
Medicare+Choice plan at a time during which
elections are accepted under this part with re-
spect to the plan shall not be denied enrollment
based on any health status-related factor (de-
scribed in section 2702(a)(1) of the Public
Health Service Act) or any other factor.
‘‘(B) MEDICARE+CHOICE LIMITATIONS PER-
MITTED.—The provisions of paragraphs (2) and
(3) (other than subparagraph (C)(i), relating to
default enrollment) of section 1851(g) (relating
to priority and limitation on termination of
election) shall apply to PDP sponsors under this
subsection.
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who maintains (as determined under sub-
paragraph (C)) continuous prescription drug
coverage since first qualifying to elect prescrip-
tion drug coverage under this part, a PDP spon-
sor or Medicare+Choice organization offering a
prescription drug plan or Medicare+Choice plan
that provides qualified prescription drug cov-
erage and in which the individual is enrolled
may not deny, limit, or condition the coverage or
provision of covered prescription drug benefits or
increase the premium under the plan based on
any health status-related factor described in sec-
tion 2702(a)(1) of the Public Health Service Act
or any other factor.
‘‘(B) LATE ENROLLMENT PENALTY.—In the
case of an individual who does not maintain
such continuous prescription drug coverage, a
PDP sponsor or Medicare+Choice organization
may (notwithstanding any provision in this
title) increase the premium otherwise applicable
or impose a pre-existing condition exclusion with
respect to qualified prescription drug coverage in
a manner that reflects additional actuarial risk
involved. Such a risk shall be established through
an appropriate actuarial opinion of the type de-
scribed in subparagraphs (A) through (C) of sec-
tion 2103(c)(4).
‘‘(C) CONTINUOUS
PRESCRIPTION
DRUG
COVERAGE.—An individual is considered for
purposes of this part to be maintaining contin-
uous prescription drug coverage on and after a
date if the individual establishes that there is no
period of 63 days or longer on and after such
date (beginning not earlier than January 1,
2003) during all of which the individual did not
have any of the following prescription drug cov-
erage:
‘‘(i) COVERAGE UNDER PRESCRIPTION
DRUG PLAN OR MEDICARE+CHOICE PLAN.—
Qualified prescription drug coverage under
a prescription drug plan or under a
Medicare+Choice plan.
‘‘(ii) MEDICAID
PRESCRIPTION
DRUG
COVERAGE.—Prescription 
drug 
coverage
under a medicaid plan under title XIX, in-
cluding through the Program of All-inclu-
sive Care for the Elderly (PACE) under sec-
tion 1934, through a social health mainte-
nance organization (referred to in section
4104(c) of the Balanced Budget Act of
1997), or through a Medicare+Choice
project that demonstrates the application of
capitation payment rates for frail elderly
medicare beneficiaries through the use of a
interdisciplinary team and through the pro-
vision of primary care services to such bene-
ficiaries by means of such a team at the
nursing facility involved.
‘‘(iii) PRESCRIPTION DRUG COVERAGE
UNDER
GROUP
HEALTH
PLAN.—Any out-
patient prescription drug coverage under a
group health plan, including a health bene-
fits plan under the Federal Employees
Health Benefit Plan under chapter 89 of
title 5, United States Code, and a qualified
retiree prescription drug plan as defined in
section 1860H(f)(1).
‘‘(iv) PRESCRIPTION DRUG COVERAGE
UNDER CERTAIN MEDIGAP POLICIES.—Cov-
erage under a medicare supplemental policy
under section 1882 that provides benefits for
prescription drugs (whether or not such cov-
erage conforms to the standards for pack-
ages of benefits under section 1882(p)(1)),
but only if the policy was in effect on Janu-
ary 1, 2003, and only until the date such
coverage is terminated.
‘‘(v) STATE PHARMACEUTICAL ASSIST-
ANCE PROGRAM.—Coverage of prescription
drugs under a State pharmaceutical assist-
ance program.
‘‘(vi) VETERANS’ COVERAGE OF PRE-
SCRIPTION
DRUGS.—Coverage of prescrip-
tion drugs for veterans under chapter 17 of
title 38, United States Code.
‘‘(D) CERTIFICATION.—For purposes of car-
rying out this paragraph, the certifications of the
type described in sections 2701(e) of the Public
Health Service Act and in section 9801(e) of the
Internal Revenue Code shall also include a state-
ment for the period of coverage of whether the in-
dividual involved had prescription drug coverage
described in subparagraph (C).
‘‘(E) CONSTRUCTION.—Nothing in this sec-
tion shall be construed as preventing the
disenrollment of an individual from a prescrip-
tion drug plan or a Medicare+Choice plan based
on the termination of an election described in
section 1851(g)(3), including for non-payment of
premiums or for other reasons specified in sub-
section (d)(3), which takes into account a grace
period described in section 1851(g)(3)(B)(i).
‘‘(3) NONDISCRIMINATION.—A PDP sponsor of-
fering a prescription drug plan shall not establish a
service area in a manner that would discriminate
based on health or economic status of potential enroll-
ees.
‘‘(d) EFFECTIVE DATE OF ELECTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this
section, the Medicare Benefits Administrator shall
provide that elections under subsection (b) take effect
at the same time as the Secretary provides that simi-
lar elections under section 1851(e) take effect under
section 1851(f).
‘‘(2) NO ELECTION EFFECTIVE BEFORE 2003.—In
no case shall any election take effect before January
1, 2003.
‘‘(3) TERMINATION.—The Medicare Benefits Ad-
ministrator shall provide for the termination of an
election in the case of—
‘‘(A) termination of coverage under part B
(other than the case of an individual described
in subsection (b)(2)(D) (relating to part A only
individuals)); and
‘‘(B) termination of elections described in
section 1851(g)(3) (including failure to pay re-
quired premiums).
‘‘SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIP-
TION DRUG COVERAGE.
‘‘(a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part
and part C, the term ‘qualified prescription drug cov-
erage’ means either of the following:
‘‘(A) STANDARD
COVERAGE
WITH
ACCESS
TO NEGOTIATED PRICES.—Standard coverage (as
defined in subsection (b)) and access to nego-
tiated prices under subsection (d).
‘‘(B) ACTUARIALLY EQUIVALENT COVERAGE
WITH
ACCESS
TO
NEGOTIATED
PRICES.—Cov-
erage of covered outpatient drugs which meets the
alternative coverage requirements of subsection
(c) and access to negotiated prices under sub-
section (d).
‘‘(2) PERMITTING ADDITIONAL OUTPATIENT PRE-
SCRIPTION DRUG COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), nothing in this part shall be con-
strued as preventing qualified prescription drug
coverage from including coverage of covered out-
patient drugs that exceeds the coverage required
under paragraph (1), but any such additional
coverage shall be limited to coverage of covered
outpatient drugs.
‘‘(B) DISAPPROVAL AUTHORITY.—The Medi-
care Benefits Administrator shall review the of-
fering of qualified prescription drug coverage
under this part or part C. If the Administrator
finds that, in the case of a qualified prescription
drug coverage under a prescription drug plan or
a Medicare+Choice plan, that the organization
or sponsor offering the coverage is purposefully
engaged in activities intended to result in favor-
able selection of those eligible medicare bene-
ficiaries obtaining coverage through the plan, the
Administrator may terminate the contract with
the sponsor or organization under this part or
part C.
‘‘(3) APPLICATION OF SECONDARY PAYOR PROVI-
SIONS.—The provisions of section 1852(a)(4) shall
apply under this part in the same manner as they
apply under part C.
‘‘(b) STANDARD COVERAGE.—For purposes of this
part, the ‘standard coverage’ is coverage of covered out-
patient drugs (as defined in subsection (f)) that meets the
following requirements:
‘‘(1) DEDUCTIBLE.—The coverage has an annual
deductible—
‘‘(A) for 2003, that is equal to $250; or
‘‘(B) for a subsequent year, that is equal to
the amount specified under this paragraph for
the previous year increased by the percentage
specified in paragraph (5) for the year involved.
Any amount determined under subparagraph (B)
that is not a multiple of $5 shall be rounded to the
nearest multiple of $5.
‘‘(2) LIMITS
ON
COST-SHARING.—The coverage
has cost-sharing (for costs above the annual deductible
specified in paragraph (1) and up to the initial cov-
erage limit under paragraph (3)) that is equal to 50
percent or that is actuarially consistent (using proc-
esses established under subsection (e)) with an average
expected payment of 50 percent of such costs.
‘‘(3) INITIAL COVERAGE LIMIT.—Subject to para-
graph (4), the coverage has an initial coverage limit
on the maximum costs that may be recognized for
payment purposes (above the annual deductible)—
‘‘(A) for 2003, that is equal to $2,100; or
‘‘(B) for a subsequent year, that is equal to
the amount specified in this paragraph for the
previous year, increased by the annual percent-
age increase described in paragraph (5) for the
year involved.
Any amount determined under subparagraph (B)
that is not a multiple of $25 shall be rounded to the
nearest multiple of $25.
‘‘(4) LIMITATION ON OUT-OF-POCKET EXPENDI-
TURES BY BENEFICIARY.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (3), the coverage provides benefits without
any cost-sharing after the individual has in-
curred costs (as described in subparagraph (C))
for covered outpatient drugs in a year equal to
the annual out-of-pocket limit specified in sub-
paragraph (B).
‘‘(B) ANNUAL OUT-OF-POCKET LIMIT.—For
purposes of this part, the ‘annual out-of-pocket
limit’ specified in this subparagraph—
‘‘(i) for 2003, is equal to $6,000; or
‘‘(ii) for a subsequent year, is equal to
the amount specified in this subparagraph
for the previous year, increased by the an-
nual percentage increase described in para-
graph (5) for the year involved.
Any amount determined under clause (ii) that is
not a multiple of $100 shall be rounded to the
nearest multiple of $100.
‘‘(C) APPLICATION.—In applying subpara-
graph (A)—
‘‘(i) incurred costs shall only include
costs incurred for the annual deductible (de-
scribed in paragraph (1)), cost-sharing (de-
scribed in paragraph (2)), and amounts for
which benefits are not provided because of
the application of the initial coverage limit
described in paragraph (3); and
‘‘(ii) such costs shall be treated as in-
curred without regard to whether the indi-
vidual or another person, including a State
program or other third-party coverage, has
paid for such costs.
‘‘(5) ANNUAL PERCENTAGE INCREASE.—For pur-
poses of this part, the annual percentage increase
specified in this paragraph for a year is equal to the
annual percentage increase in average per capita ag-
gregate expenditures for covered outpatient drugs in
the United States for medicare beneficiaries, as deter-
mined by the Medicare Benefits Administrator for the
12-month period ending in July of the previous year.
‘‘(c) ALTERNATIVE COVERAGE REQUIREMENTS.—A
prescription drug plan or Medicare+Choice plan may pro-
vide a different prescription drug benefit design from the
standard coverage described in subsection (b) so long as the
following requirements are met:
‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIVA-
LENT COVERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE
OF
TOTAL COVERAGE.—The actuarial value of the
total coverage (as determined under subsection
(e)) is at least equal to the actuarial value (as
so determined) of standard coverage.
‘‘(B) ASSURING EQUIVALENT UNSUBSIDIZED
VALUE OF COVERAGE.—The unsubsidized value
of the coverage is at least equal to the unsub-
sidized value of standard coverage. For purposes
of this subparagraph, the unsubsidized value of
coverage is the amount by which the actuarial
value of the coverage (as determined under sub-
section (e)) exceeds the actuarial value of the re-
insurance 
subsidy 
payments 
under 
section
1860H with respect to such coverage.
‘‘(C) ASSURING
STANDARD
PAYMENT
FOR
COSTS AT INITIAL COVERAGE LIMIT.—The cov-
erage is designed, based upon an actuarially rep-
resentative pattern of utilization (as determined
under subsection (e)), to provide for the pay-
ment, with respect to costs incurred that are
equal to the sum of the deductible under sub-
section (b)(1) and the initial coverage limit
under subsection (b)(3), of an amount equal to at
least such initial coverage limit multiplied by
the percentage specified in subsection (b)(2).
‘‘(2) LIMITATION ON OUT-OF-POCKET EXPENDI-
TURES BY BENEFICIARIES.—The coverage provides the
limitation on out-of-pocket expenditures by bene-
ficiaries described in subsection (b)(4).
‘‘(d) ACCESS TO NEGOTIATED PRICES.—Under quali-
fied prescription drug coverage offered by a PDP sponsor
or a Medicare+Choice organization, the sponsor or organi-
zation shall provide beneficiaries with access to negotiated
prices (including applicable discounts) used for payment
for covered outpatient drugs, regardless of the fact that no
benefits may be payable under the coverage with respect to
such drugs because of the application of cost-sharing or an
initial coverage limit (described in subsection (b)(3)). Inso-
far as a State elects to provide medical assistance under
title XIX for a drug based on the prices negotiated by a
prescription drug plan under this part, the requirements
of section 1927 shall not apply to such drugs.
‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF AN-
NUAL PERCENTAGE INCREASES.—
‘‘(1) PROCESSES.—For purposes of this section,
the Medicare Benefits Administrator shall establish
processes and methods—
‘‘(A) for determining the actuarial valu-
ation of prescription drug coverage, including—
‘‘(i) an actuarial valuation of standard
coverage and of the reinsurance subsidy
payments under section 1860H;
‘‘(ii) the use of generally accepted actu-
arial principles and methodologies; and
‘‘(iii) applying the same methodology
for determinations of alternative coverage
under subsection (c) as is used with respect
to determinations of standard coverage
under subsection (b); and
‘‘(B) for determining annual percentage in-
creases described in subsection (b)(5).
‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the
processes under paragraph (1)(A), PDP sponsors and
Medicare+Choice organizations may use actuarial
opinions certified by independent, qualified actuaries
to establish actuarial values.
‘‘(f) COVERED OUTPATIENT DRUGS DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, for purposes of this part, the term ‘covered
outpatient drug’ means—
‘‘(A) a drug that may be dispensed only
upon a prescription and that is described in sub-
paragraph (A)(i) or (A)(ii) of section 1927(k)(2);
or
‘‘(B) a biological product or insulin de-
scribed in subparagraph (B) or (C) of such sec-
tion;
and such term includes any use of a covered out-
patient drug for a medically accepted indication (as
defined in section 1927(k)(6)).
‘‘(2) EXCLUSIONS.—
‘‘(A) IN GENERAL.—Such term does not in-
clude drugs or classes of drugs, or their medical
uses, which may be excluded from coverage or
otherwise restricted under section 1927(d)(2),
other than subparagraph (E) thereof (relating to
smoking cessation agents).
‘‘(B) 
AVOIDANCE
OF
DUPLICATE
COV-
ERAGE.—A drug prescribed for an individual
that would otherwise be a covered outpatient
drug under this part shall not be so considered
if payment for such drug is available under part
A or B (but shall be so considered if such pay-
ment is not available because benefits under part
A or B have been exhausted), without regard to
whether the individual is entitled to benefits
under part A or enrolled under part B.
‘‘(3) APPLICATION
OF
FORMULARY
RESTRIC-
TIONS.—A drug prescribed for an individual that
would otherwise be a covered outpatient drug under
this part shall not be so considered under a plan if
the plan excludes the drug under a formulary that
meets the requirements of section 1860C(f)(2) (includ-
ing providing an appeal process).
‘‘(4) APPLICATION OF GENERAL EXCLUSION PRO-
VISIONS.—A 
prescription 
drug 
plan 
or
Medicare+Choice plan may exclude from qualified
prescription drug coverage any covered outpatient
drug—
‘‘(A) for which payment would not be made
if section 1862(a) applied to part D; or
‘‘(B) which are not prescribed in accordance
with the plan or this part.
Such exclusions are determinations subject to recon-
sideration and appeal pursuant to section 1860C(f).
‘‘(5) STUDY ON INCLUSION OF DRUGS TREATING
MORBID
OBESITY.—The Medicare Policy Advisory
Board shall provide for a study on removing the ex-
clusion under paragraph (2)(A) for coverage of agents
used for weight loss in the case of morbidly obese in-
dividuals. The Board shall report to Congress on the
results of the study not later than March 1, 2002.
‘‘SEC. 1860C. BENEFICIARY PROTECTIONS FOR QUALIFIED
PRESCRIPTION DRUG COVERAGE.
‘‘(a) GUARANTEED ISSUE COMMUNITY-RELATED PRE-
MIUMS AND NONDISCRIMINATION.—For provisions requir-
ing guaranteed issue, community-rated premiums, and
nondiscrimination, see sections 1860A(c)(1), 1860A(c)(2),
and 1860F(b).
‘‘(b) DISSEMINATION OF INFORMATION.—
‘‘(1) GENERAL INFORMATION.—A PDP sponsor
shall disclose, in a clear, accurate, and standardized
form to each enrollee with a prescription drug plan
offered by the sponsor under this part at the time of
enrollment and at least annually thereafter, the infor-
mation described in section 1852(c)(1) relating to
such plan. Such information includes the following:
‘‘(A) Access to covered outpatient drugs, in-
cluding access through pharmacy networks.
‘‘(B) How any formulary used by the spon-
sor functions.
‘‘(C) Co-payments and deductible require-
ments.
‘‘(D) Grievance and appeals procedures.
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an individual eligible to en-
roll under a prescription drug plan, the PDP sponsor
shall provide the information described in section
1852(c)(2) (other than subparagraph (D)) to such in-
dividual.
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
Each PDP sponsor offering a prescription drug plan
shall have a mechanism for providing specific infor-
mation to enrollees upon request. The sponsor shall
make available, through an Internet website and in
writing upon request, information on specific changes
in its formulary.
‘‘(4) CLAIMS INFORMATION.—Each PDP sponsor
offering a prescription drug plan must furnish to en-
rolled individuals in a form easily understandable to
such individuals an explanation of benefits (in ac-
cordance with section 1806(a) or in a comparable
manner) and a notice of the benefits in relation to
initial coverage limit and annual out-of-pocket limit
for the current year, whenever prescription drug bene-
fits are provided under this part (except that such no-
tice need not be provided more often than monthly).
‘‘(c) ACCESS TO COVERED BENEFITS.—
‘‘(1) ASSURING PHARMACY ACCESS.—The PDP
sponsor of the prescription drug plan shall secure the
participation of sufficient numbers of pharmacies
(which may include mail order pharmacies) to ensure
convenient access (including adequate emergency ac-
cess) for enrolled beneficiaries, in accordance with
standards established under section 1860D(e) that en-
sure such convenient access. Nothing in this para-
graph shall be construed as requiring the participa-
tion of (or permitting the exclusion of) all pharmacies
in any area under a plan.
‘‘(2) ACCESS TO NEGOTIATED PRICES FOR PRE-
SCRIPTION DRUGS.—The PDP sponsor of a prescrip-
tion drug plan shall issue such a card that may be
used by an enrolled beneficiary to assure access to ne-
gotiated prices under section 1860B(d) for the pur-
chase of prescription drugs for which coverage is not
otherwise provided under the prescription drug plan.
‘‘(3) REQUIREMENTS ON DEVELOPMENT AND AP-
PLICATION
OF
FORMULARIES.—Insofar as a PDP
sponsor of a prescription drug plan uses a formulary,
the following requirements must be met:
‘‘(A) FORMULARY COMMITTEE.—The spon-
sor must establish a pharmaceutical and thera-
peutic committee that develops the formulary.
Such committee shall include at least one physi-
cian and at least one pharmacist.
‘‘(B) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES.—The formulary must in-
clude drugs within all therapeutic categories and
classes of covered outpatient drugs (although not
necessarily for all drugs within such categories
and classes).
‘‘(C) APPEALS AND EXCEPTIONS TO APPLI-
CATION.—The PDP sponsor must have, as part
of the appeals process under subsection (f)(2), a
process for appeals for denials of coverage based
on such application of the formulary.
‘‘(d) COST AND UTILIZATION MANAGEMENT; QUALITY
ASSURANCE; MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(1) IN GENERAL.—The PDP sponsor shall have
in place—
‘‘(A) an effective cost and drug utilization
management program, including appropriate in-
centives to use generic drugs, when appropriate;
‘‘(B) quality assurance measures and sys-
tems to reduce medical errors and adverse drug
interactions, including a medication therapy
management program described in paragraph
(2); and
‘‘(C) a program to control fraud, abuse, and
waste.
‘‘(2) MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(A) IN GENERAL.—A medication therapy
management program described in this para-
graph is a program of drug therapy management
and medication administration that is designed
to assure that covered outpatient drugs under the
prescription drug plan are appropriately used to
achieve therapeutic goals and reduce the risk of
adverse events, including adverse drug inter-
actions.
‘‘(B) 
ELEMENTS.—Such 
program 
may
include—
‘‘(i) 
enhanced 
beneficiary 
under-
standing of such appropriate use through
beneficiary education, counseling, and other
appropriate means; and
‘‘(ii) increased beneficiary adherence
with 
prescription 
medication 
regimens
through medication refill reminders, special
packaging, and other appropriate means.
‘‘(C) DEVELOPMENT
OF
PROGRAM
IN
CO-
OPERATION WITH LICENSED PHARMACISTS.—The
program shall be developed in cooperation with
licensed pharmacists and physicians.
‘‘(D) 
CONSIDERATIONS
IN
PHARMACY
FEES.—The PDP sponsor of a prescription drug
program shall take into account, in establishing
fees for pharmacists and others providing serv-
ices under the medication therapy management
program, the resources and time used in imple-
menting the program.
‘‘(3) TREATMENT OF ACCREDITATION.—Section
1852(e)(4) (relating to treatment of accreditation)
shall apply to prescription drug plans under this part
with respect to the following requirements, in the
same manner as they apply to Medicare+Choice
plans under part C with respect to the requirements
described in a clause of section 1852(e)(4)(B):
‘‘(A) Paragraph (1) (including quality as-
surance), including medication therapy manage-
ment program under paragraph (2).
‘‘(B) Subsection (c)(1) (relating to access to
covered benefits).
‘‘(C) Subsection (g) (relating to confiden-
tiality and accuracy of enrollee records).
‘‘(4) PUBLIC DISCLOSURE OF PHARMACEUTICAL
PRICES
FOR
GENERIC
EQUIVALENT
DRUGS.—Each
PDP sponsor shall provide that each pharmacy or
other dispenser that arranges for the dispensing of a
covered outpatient drug shall inform the beneficiary
at the time of purchase of the drug of any differential
between the price of the prescribed drug to the enrollee
and the price of the lowest cost generic drug that is
therapeutically and pharmaceutically equivalent and
bioequivalent.
‘‘(e) GRIEVANCE MECHANISM.—Each PDP sponsor
shall provide meaningful procedures for hearing and resolv-
ing grievances between the organization (including any en-
tity or individual through which the sponsor provides cov-
ered benefits) and enrollees with prescription drug plans of
the sponsor under this part in accordance with section
1852(f).
‘‘(f) 
COVERAGE
DETERMINATIONS, 
RECONSIDER-
ATIONS, AND APPEALS.—
‘‘(1) IN GENERAL.—A PDP sponsor shall meet
the requirements of section 1852(g) with respect to
covered benefits under the prescription drug plan it
offers under this part in the same manner as such re-
quirements apply to a Medicare+Choice organization
with 
respect 
to 
benefits 
it 
offers 
under 
a
Medicare+Choice plan under part C.
‘‘(2) APPEALS
OF
FORMULARY
DETERMINA-
TIONS.—Under the appeals process under paragraph
(1) an individual who is enrolled in a prescription
drug plan offered by a PDP sponsor may appeal to
obtain coverage for a covered outpatient drug that is
not on the formulary of the sponsor (established under
subsection (c)) if the prescribing physician determines
that the therapeutically similar drug that is on the
formulary is not as effective for the enrollee or has
significant adverse effects for the enrollee.
‘‘(g) CONFIDENTIALITY AND ACCURACY OF ENROLLEE
RECORDS.—A PDP sponsor shall meet the requirements of
section 1852(h) with respect to enrollees under this part in
the same manner as such requirements apply to a
Medicare+Choice organization with respect to enrollees
under part C.
‘‘SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG
PLAN (PDP) SPONSORS; CONTRACTS; ESTAB-
LISHMENT OF STANDARDS.
‘‘(a) GENERAL REQUIREMENTS.—Each PDP sponsor
of a prescription drug plan shall meet the following require-
ments:
‘‘(1) LICENSURE.—Subject to subsection (c), the
sponsor is organized and licensed under State law as
a risk-bearing entity eligible to offer health insurance
or health benefits coverage in each State in which it
offers a prescription drug plan.
‘‘(2) ASSUMPTION OF FULL FINANCIAL RISK.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B) and section 1860E(d)(2), the entity
assumes full financial risk on a prospective basis
for qualified prescription drug coverage that it
offers under a prescription drug plan and that
is not covered under reinsurance under section
1860H.
‘‘(B) REINSURANCE PERMITTED.—The enti-
ty may obtain insurance or make other arrange-
ments for the cost of coverage provided to any
enrolled member under this part.
‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—In
the case of a sponsor that is not described in para-
graph (1), the sponsor shall meet solvency standards
established by the Medicare Benefits Administrator
under subsection (d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Medicare Benefits Ad-
ministrator shall not permit the election under section
1860A of a prescription drug plan offered by a PDP
sponsor under this part, and the sponsor shall not be
eligible for payments under section 1860G or 1860H,
unless the Administrator has entered into a contract
under this subsection with the sponsor with respect to
the offering of such plan. Such a contract with a
sponsor may cover more than 1 prescription drug
plan. Such contract shall provide that the sponsor
agrees to comply with the applicable requirements
and standards of this part and the terms and condi-
tions of payment as provided for in this part.
‘‘(2) NEGOTIATION REGARDING TERMS AND CON-
DITIONS.—The Medicare Benefits Administrator shall
have the same authority to negotiate the terms and
conditions of prescription drug plans under this part
as the Director of the Office of Personnel Management
has with respect to health benefits plans under chap-
ter 89 of title 5, United States Code. In negotiating
the terms and conditions regarding premiums for
which 
information 
is 
submitted 
under 
section
1860F(a)(2), the Administrator shall take into ac-
count the reinsurance subsidy payments under section
1860H and the adjusted community rate (as defined
in section 1854(f)(3)) for the benefits covered.
‘‘(3) 
INCORPORATION
OF
CERTAIN
MEDICARE+CHOICE CONTRACT REQUIREMENTS.—The
following provisions of section 1857 shall apply, sub-
ject to subsection (c)(5), to contracts under this sec-
tion in the same manner as they apply to contracts
under section 1857(a):
‘‘(A) MINIMUM ENROLLMENT.—Paragraphs
(1) and (3) of section 1857(b).
‘‘(B) CONTRACT
PERIOD
AND
EFFECTIVE-
NESS.—Paragraphs (1) through (3) and (5) of
section 1857(c).
‘‘(C) PROTECTIONS
AGAINST
FRAUD
AND
BENEFICIARY PROTECTIONS.—Section 1857(d).
‘‘(D) ADDITIONAL CONTRACT TERMS.—Sec-
tion 1857(e); except that in applying section
1857(e)(2) under this part—
‘‘(i) such section shall be applied sepa-
rately to costs relating to this part (from
costs under part C);
‘‘(ii) in no case shall the amount of the
fee established under this subparagraph for
a plan exceed 20 percent of the maximum
amount of the fee that may be established
under subparagraph (B) of such section;
and
‘‘(iii) no fees shall be applied under
this 
subparagraph 
with 
respect 
to
Medicare+Choice plans.
‘‘(E) INTERMEDIATE
SANCTIONS.—Section
1857(g).
‘‘(F) PROCEDURES
FOR
TERMINATION.—
Section 1857(h).
‘‘(4) RULES OF APPLICATION FOR INTERMEDIATE
SANCTIONS.—In applying paragraph (3)(E)—
‘‘(A) the reference in section 1857(g)(1)(B)
to section 1854 is deemed a reference to this
part; and
‘‘(B) the reference in section 1857(g)(1)(F)
to section 1852(k)(2)(A)(ii) shall not be applied.
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EXPAND
CHOICE.—
‘‘(1) IN GENERAL.—In the case of an entity that
seeks to offer a prescription drug plan in a State, the
Medicare Benefits Administrator shall waive the re-
quirement of subsection (a)(1) that the entity be li-
censed in that State if the Administrator determines,
based on the application and other evidence presented
to the Administrator, that any of the grounds for ap-
proval of the application described in paragraph (2)
has been met.
‘‘(2) GROUNDS FOR APPROVAL.—The grounds for
approval under this paragraph are the grounds for
approval described in subparagraph (B), (C), and
(D) of section 1855(a)(2), and also include the appli-
cation by a State of any grounds other than those re-
quired under Federal law.
‘‘(3) APPLICATION OF WAIVER PROCEDURES.—
With respect to an application for a waiver (or a
waiver granted) under this subsection, the provisions
of subparagraphs (E), (F), and (G) of section
1855(a)(2) shall apply.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR OR
CONSTITUTE CERTIFICATION.—The fact that an entity
is licensed in accordance with subsection (a)(1) does
not deem the entity to meet other requirements im-
posed under this part for a PDP sponsor.
‘‘(5) REFERENCES
TO
CERTAIN
PROVISIONS.—
For purposes of this subsection, in applying provi-
sions of section 1855(a)(2) under this subsection to
prescription drug plans and PDP sponsors—
‘‘(A) any reference to a waiver application
under section 1855 shall be treated as a reference
to a waiver application under paragraph (1);
and
‘‘(B) any reference to solvency standards
shall be treated as a reference to solvency stand-
ards established under subsection (d).
‘‘(d) SOLVENCY
STANDARDS
FOR
NON-LICENSED
SPONSORS.—
‘‘(1) ESTABLISHMENT.—The Medicare Benefits
Administrator shall establish, by not later than Octo-
ber 1, 2001, financial solvency and capital adequacy
standards that an entity that does not meet the re-
quirements of subsection (a)(1) must meet to qualify
as a PDP sponsor under this part.
‘‘(2) 
COMPLIANCE
WITH
STANDARDS.—Each
PDP sponsor that is not licensed by a State under
subsection (a)(1) and for which a waiver application
has been approved under subsection (c) shall meet sol-
vency and capital adequacy standards established
under paragraph (1). The Medicare Benefits Adminis-
trator shall establish certification procedures for such
PDP sponsors with respect to such solvency standards
in the manner described in section 1855(c)(2).
‘‘(e) OTHER STANDARDS.—The Medicare Benefits Ad-
ministrator shall establish by regulation other standards
(not described in subsection (d)) for PDP sponsors and
plans consistent with, and to carry out, this part. The Ad-
ministrator shall publish such regulations by October 1,
2001. In order to carry out this requirement in a timely
manner, the Administrator may promulgate regulations
that take effect on an interim basis, after notice and pend-
ing opportunity for public comment.
‘‘(f) RELATION TO STATE LAWS.—
‘‘(1) IN
GENERAL.—The standards established
under this section shall supersede any State law or
regulation (including standards described in para-
graph (2)) with respect to prescription drug plans
which are offered by PDP sponsors under this part to
the extent such law or regulation is inconsistent with
such standards.
‘‘(2) STANDARDS SPECIFICALLY SUPERSEDED.—
State standards relating to the following are super-
seded under this subsection:
‘‘(A) Benefit requirements.
‘‘(B) Requirements relating to inclusion or
treatment of providers.
‘‘(C) Coverage determinations (including re-
lated appeals and grievance processes).
‘‘(D) Establishment and regulation of pre-
miums.
‘‘(3) PROHIBITION
OF
STATE
IMPOSITION
OF
PREMIUM TAXES.—No State may impose a premium
tax or similar tax with respect to premiums paid to
PDP sponsors for prescription drug plans under this
part, or with respect to any payments made to such
a sponsor by the Medicare Benefits Administrator
under this part.
‘‘SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT
QUALIFIED PRESCRIPTION DRUG COVERAGE.
‘‘(a) IN GENERAL.—The Medicare Benefits Adminis-
trator, through the Office of Beneficiary Assistance, shall
establish, based upon and consistent with the procedures
used under part C (including section 1851), a process for
the 
selection 
of 
the 
prescription 
drug 
plan 
or
Medicare+Choice plan which offer qualified prescription
drug coverage through which eligible individuals elect quali-
fied prescription drug coverage under this part.
‘‘(b) ELEMENTS.—Such process shall include the fol-
lowing:
‘‘(1) Annual, coordinated election periods, in
which such individuals can change the qualifying
plans through which they obtain coverage, in accord-
ance with section 1860A(b)(2).
‘‘(2) Active dissemination of information to pro-
mote an informed selection among qualifying plans
based upon price, quality, and other features, in the
manner described in (and in coordination with) sec-
tion 1851(d), including the provision of annual com-
parative information, maintenance of a toll-free hot-
line, and the use of non-federal entities.
‘‘(3) Coordination of elections through filing
with a Medicare+Choice organization or a PDP
sponsor, in the manner described in (and in coordi-
nation with) section 1851(c)(2).
‘‘(c) MEDICARE+CHOICE ENROLLEE IN PLAN OFFER-
ING PRESCRIPTION DRUG COVERAGE MAY ONLY OBTAIN
BENEFITS THROUGH THE PLAN.—An individual who is
enrolled under a Medicare+Choice plan that offers qualified
prescription drug coverage may only elect to receive quali-
fied prescription drug coverage under this part through
such plan.
‘‘(d) ASSURING ACCESS TO A CHOICE OF QUALIFIED
PRESCRIPTION DRUG COVERAGE.—
‘‘(1) CHOICE OF AT LEAST 2 PLANS IN EACH
AREA.—
‘‘(A) IN GENERAL.—The Medicare Benefits
Administrator shall assure that each individual
who is enrolled under part B and who is resid-
ing in an area has available, consistent with
subparagraph (B), a choice of enrollment in at
least 2 qualifying plans (as defined in para-
graph (5)) in the area in which the individual
resides, at least one of which is a prescription
drug plan.
‘‘(B) REQUIREMENT FOR DIFFERENT PLAN
SPONSORS.—The requirement in subparagraph
(A) is not satisfied with respect to an area if
only one PDP sponsor or Medicare+Choice orga-
nization offers all the qualifying plans in the
area.
‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—In
order to assure access under paragraph (1) and con-
sistent with paragraph (3), the Medicare Benefits Ad-
ministrator may provide financial incentives (includ-
ing partial underwriting of risk) for a PDP sponsor
to expand the service area under an existing prescrip-
tion drug plan to adjoining or additional areas or to
establish such a plan (including offering such a plan
on a regional or nationwide basis), but only so long
as (and to the extent) necessary to assure the access
guaranteed under paragraph (1).
‘‘(3) LIMITATION ON AUTHORITY.—In exercising
authority under this subsection, the Medicare Benefits
Administrator—
‘‘(A) shall not provide for the full under-
writing of financial risk for any PDP sponsor;
‘‘(B) shall not provide for any underwriting
of financial risk for a public PDP sponsor with
respect to the offering of a nationwide prescrip-
tion drug plan; and
‘‘(C) shall seek to maximize the assumption
of 
financial 
risk 
by 
PDP 
sponsors 
or
Medicare+Choice organizations.
‘‘(4) REPORTS.—The Medicare Benefits Admin-
istrator shall, in each annual report to Congress
under section 1807(f), include information on the ex-
ercise of authority under this subsection. The Admin-
istrator also shall include such recommendations as
may be appropriate to minimize the exercise of such
authority, including minimizing the assumption of fi-
nancial risk.
‘‘(5) QUALIFYING PLAN DEFINED.—For purposes
of this subsection, the term ‘qualifying plan’ means a
prescription drug plan or a Medicare+Choice plan
that includes qualified prescription drug coverage.
‘‘SEC. 1860F. PREMIUMS.
‘‘(a) SUBMISSION OF PREMIUMS AND RELATED INFOR-
MATION.—
‘‘(1) IN
GENERAL.—Each PDP sponsor shall
submit to the Medicare Benefits Administrator infor-
mation of the type described in paragraph (2) in the
same manner as information is submitted by a
Medicare+Choice 
organization 
under 
section
1854(a)(1).
‘‘(2) TYPE OF INFORMATION.—The information
described in this paragraph is the following:
‘‘(A) Information on the qualified prescrip-
tion drug coverage to be provided.
‘‘(B) Information on the actuarial value of
the coverage.
‘‘(C) Information on the monthly premium
to be charged for the coverage, including an actu-
arial certification of—
‘‘(i) the actuarial basis for such pre-
mium;
‘‘(ii) the portion of such premium at-
tributable to benefits in excess of standard
coverage; and
‘‘(iii) the reduction in such premium
resulting from the reinsurance subsidy pay-
ments provided under section 1860H.
‘‘(D) Such other information as the Medi-
care Benefits Administrator may require to
carry out this part.
‘‘(3) REVIEW.—The Medicare Benefits Adminis-
trator shall review the information filed under para-
graph (2) for the purpose of conducting negotiations
under section 1860D(b)(2).
‘‘(b) UNIFORM PREMIUM.—The premium for a pre-
scription drug plan charged under this section may not
vary among individuals enrolled in the plan in the same
service area, except as is permitted under section
1860A(c)(2)(B) (relating to late enrollment penalties).
‘‘(c) TERMS AND CONDITIONS FOR IMPOSING PRE-
MIUMS.—The provisions of section 1854(d) shall apply
under this part in the same manner as they apply under
part C, and, for this purpose, the reference in such section
to section 1851(g)(3)(B)(i) is deemed a reference to section
1860A(d)(3)(B) (relating to failure to pay premiums re-
quired under this part).
‘‘(d) ACCEPTANCE OF REFERENCE PREMIUM AS FULL
PREMIUM IF NO STANDARD (OR EQUIVALENT) COVERAGE
IN AN AREA.—
‘‘(1) IN GENERAL.—If there is no standard pre-
scription drug coverage (as defined in paragraph (2))
offered in an area, in the case of an individual who
is eligible for a premium subsidy under section 1860G
and resides in the area, the PDP sponsor of any pre-
scription drug plan offered in the area (and any
Medicare+Choice organization that offers qualified
prescription drug coverage in the area) shall accept
the reference premium under section 1860G(b)(2) as
payment in full for the premium charge for qualified
prescription drug coverage.
‘‘(2) STANDARD PRESCRIPTION DRUG COVERAGE
DEFINED.—For purposes of this subsection, the term
‘standard prescription drug coverage’ means qualified
prescription drug coverage that is standard coverage
or that has an actuarial value equivalent to the actu-
arial value for standard coverage.
‘‘SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR
LOW-INCOME INDIVIDUALS.
‘‘(a) IN GENERAL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION
OF
COST-SHARING
FOR
INDIVIDUALS
WITH
INCOME
BELOW 135 PERCENT OF FEDERAL POVERTY LEVEL.—
In the case of a subsidy eligible individual (as defined
in paragraph (3)) who is determined to have income
that does not exceed 135 percent of the Federal pov-
erty level, the individual is entitled under this
section—
‘‘(A) to a premium subsidy equal to 100
percent of the amount described in subsection
(b)(1); and
‘‘(B) subject to subsection (c), to the substi-
tution for the beneficiary cost-sharing described
in paragraphs (1) and (2) of section 1860B(b)
(up to the initial coverage limit specified in
paragraph (3) of such section) of amounts that
are nominal.
‘‘(2) SLIDING SCALE PREMIUM SUBSIDY FOR IN-
DIVIDUALS WITH INCOME ABOVE 135, BUT BELOW 150
PERCENT, OF FEDERAL POVERTY LEVEL.—In the case
of a subsidy eligible individual who is determined to
have income that exceeds 135 percent, but does not ex-
ceed 150 percent, of the Federal poverty level, the in-
dividual is entitled under this section to a premium
subsidy determined on a linear sliding scale ranging
from 100 percent of the amount described in sub-
section (b)(1) for individuals with incomes at 135
percent of such level to 0 percent of such amount for
individuals with incomes at 150 percent of such level.
‘‘(3) DETERMINATION OF ELIGIBILITY.—
‘‘(A) SUBSIDY
ELIGIBLE
INDIVIDUAL
DE-
FINED.—For purposes of this section, subject to
subparagraph (D), the term ‘subsidy eligible in-
dividual’ means an individual who—
‘‘(i) is eligible to elect, and has elected,
to obtain qualified prescription drug cov-
erage under this part;
‘‘(ii) has income below 150 percent of
the Federal poverty line; and
‘‘(iii) meets the resources requirement
described in section 1905(p)(1)(C).
‘‘(B) DETERMINATIONS.—The determina-
tion of whether an individual residing in a State
is a subsidy eligible individual and the amount
of such individual’s income shall be determined
under the State medicaid plan for the State
under section 1935(a). In the case of a State that
does not operate such a medicaid plan (either
under title XIX or under a statewide waiver
granted under section 1115), such determination
shall be made under arrangements made by the
Medicare Benefits Administrator.
‘‘(C) INCOME DETERMINATIONS.—For pur-
poses of applying this section—
‘‘(i) income shall be determined in the
manner described in section 1905(p)(1)(B);
and
‘‘(ii) the term ‘Federal poverty line’
means the official poverty line (as defined
by the Office of Management and Budget,
and revised annually in accordance with
section 673(2) of the Omnibus Budget Rec-
onciliation Act of 1981) applicable to a
family of the size involved.
‘‘(D) TREATMENT
OF
TERRITORIAL
RESI-
DENTS.—In the case of an individual who is not
a resident of the 50 States or the District of Co-
lumbia, the individual is not eligible to be a sub-
sidy eligible individual but may be eligible for
financial assistance with prescription drug ex-
penses under section 1935(e).
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) 
IN
GENERAL.—The 
premium 
subsidy
amount described in this subsection for an individual
residing in an area is the reference premium (as de-
fined in paragraph (2)) for qualified prescription
drug coverage offered by the prescription drug plan or
the Medicare+Choice plan in which the individual is
enrolled.
‘‘(2) REFERENCE PREMIUM DEFINED.—For pur-
poses of this subsection, the term ‘reference premium’
means, with respect to qualified prescription drug
coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the ac-
tuarial value is equivalent to that of stand-
ard coverage), the premium imposed for en-
rollment under the plan under this part
(determined without regard to any subsidy
under this section or any late enrollment
penalty under section 1860A(c)(2)(B)); or
‘‘(ii) provides alternative prescription
drug coverage the actuarial value of which
is greater than that of standard coverage,
the premium described in clause (i) multi-
plied by the ratio of (I) the actuarial value
of standard coverage, to (II) the actuarial
value of the alternative coverage; or
‘‘(B) a Medicare+Choice plan, the standard
premium 
computed 
under 
section
1851(j)(4)(A)(iii), determined without regard to
any 
reduction 
effected 
under 
section
1851(j)(4)(B).
‘‘(c) RULES
IN
APPLYING
COST-SHARING
SUB-
SIDIES.—
‘‘(1) IN
GENERAL.—In applying subsection
(a)(1)(B)—
‘‘(A) the maximum amount of subsidy that
may be provided with respect to an enrollee for
a year may not exceed 95 percent of the max-
imum cost-sharing described in such subsection
that may be incurred for standard coverage;
‘‘(B) the Medicare Benefits Administrator
shall determine what is ‘nominal’ taking into ac-
count the rules applied under section 1916(a)(3);
and
‘‘(C) nothing in this part shall be construed
as preventing a plan or provider from waiving
or reducing the amount of cost-sharing otherwise
applicable.
‘‘(2) LIMITATION ON CHARGES.—In the case of
an individual receiving cost-sharing subsidies under
subsection (a)(1)(B), the PDP sponsor may not
charge more than a nominal amount in cases in
which the cost-sharing subsidy is provided under such
subsection.
‘‘(d) ADMINISTRATION OF SUBSIDY PROGRAM.—The
Medicare Benefits Administrator shall provide a process
whereby, in the case of an individual who is determined
to be a subsidy eligible individual and who is enrolled in
prescription drug plan or is enrolled in a Medicare+Choice
plan under which qualified prescription drug coverage is
provided—
‘‘(1) the Administrator provides for a notifica-
tion of the PDP sponsor or Medicare+Choice organi-
zation involved that the individual is eligible for a
subsidy and the amount of the subsidy under sub-
section (a);
‘‘(2) the sponsor or organization involved reduces
the premiums or cost-sharing otherwise imposed by
the amount of the applicable subsidy and submits to
the Administrator information on the amount of such
reduction; and
‘‘(3) the Administrator periodically and on a
timely basis reimburses the sponsor or organization
for the amount of such reductions.
The reimbursement under paragraph (3) with respect to
cost-sharing subsidies may be computed on a capitated
basis, taking into account the actuarial value of the sub-
sidies and with appropriate adjustments to reflect dif-
ferences in the risks actually involved.
‘‘(e) RELATION TO MEDICAID PROGRAM.—
‘‘(1) IN GENERAL.—For provisions providing for
eligibility determinations, and additional financing,
under the medicaid program, see section 1935.
‘‘(2) MEDICAID PROVIDING WRAP AROUND BENE-
FITS.—The coverage provided under this part is pri-
mary payor to benefits for prescribed drugs provided
under the medicaid program under title XIX.
‘‘SEC. 
1860H. 
SUBSIDIES 
FOR 
ALL 
MEDICARE 
BENE-
FICIARIES 
THROUGH 
REINSURANCE 
FOR
QUALIFIED PRESCRIPTION DRUG COVERAGE.
‘‘(a) REINSURANCE SUBSIDY PAYMENT.—In order to
reduce premium levels applicable to qualified prescription
drug coverage for all medicare beneficiaries, to reduce ad-
verse selection among prescription drug plans and
Medicare+Choice plans that provide qualified prescription
drug coverage, and to promote the participation of PDP
sponsors under this part, the Medicare Benefits Adminis-
trator shall provide in accordance with this section for pay-
ment to a qualifying entity (as defined in subsection (b))
of the reinsurance payment amount (as defined in sub-
section (c)) for excess costs incurred in providing qualified
prescription drug coverage—
‘‘(1) for individuals enrolled with a prescription
drug plan under this part;
‘‘(2) 
for 
individuals 
enrolled 
with 
a
Medicare+Choice plan that provides qualified pre-
scription drug coverage under part C; and
‘‘(3) for medicare primary individuals (described
in subsection (f)(3)(D)) who are enrolled in a quali-
fied retiree prescription drug plan.
This section constitutes budget authority in advance of ap-
propriations Acts and represents the obligation of the Ad-
ministrator to provide for the payment of amounts provided
under this section.
‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes of
this section, the term ‘qualifying entity’ means any of the
following that has entered into an agreement with the Ad-
ministrator to provide the Administrator with such infor-
mation as may be required to carry out this section:
‘‘(1) A PDP sponsor offering a prescription drug
plan under this part.
‘‘(2) A Medicare+Choice organization that pro-
vides qualified prescription drug coverage under a
Medicare+Choice plan under part C.
‘‘(3) The sponsor of a qualified retiree prescrip-
tion drug plan (as defined in subsection (f)).
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) IN GENERAL.—Subject to subsection (d)(2)
and paragraph (4), the reinsurance payment amount
under this subsection for a qualifying covered indi-
vidual (as defined in subsection (g)(1)) for a coverage
year (as defined in subsection (g)(2)) is equal to the
sum of the following:
‘‘(A) For the portion of the individual’s
gross covered prescription drug costs (as defined
in paragraph (3)) for the year that exceeds
$1,250, but does not exceed $1,350, an amount
equal to 30 percent of the allowable costs (as de-
fined in paragraph (2)) attributable to such
gross covered prescription drug costs.
‘‘(B) For the portion of the individual’s
gross covered prescription drug costs for the year
that exceeds $1,350, but does not exceed $1,450,
an amount equal to 50 percent of the allowable
costs attributable to such gross covered prescrip-
tion drug costs.
‘‘(C) For the portion of the individual’s
gross covered prescription drug costs for the year
that exceeds $1,450, but does not exceed $1,550,
an amount equal to 70 percent of the allowable
costs attributable to such gross covered prescrip-
tion drug costs.
‘‘(D) For the portion of the individual’s
gross covered prescription drug costs for the year
that exceeds $1,550, but does not exceed $2,350,
an amount equal to 90 percent of the allowable
costs attributable to such gross covered prescrip-
tion drug costs.
‘‘(E) For the portion of the individual’s
gross covered prescription drug costs for the year
that exceeds $7,050, an amount equal to 90 per-
cent of the allowable costs attributable to such
gross covered prescription drug costs.
‘‘(2) ALLOWABLE COSTS.—For purposes of this
section, the term ‘allowable costs’ means, with respect
to gross covered prescription drug costs under a plan
described in subsection (b) offered by a qualifying en-
tity, the part of such costs that are actually paid
under the plan, but in no case more than the part of
such costs that would have been paid under the plan
if the prescription drug coverage under the plan were
standard coverage.
‘‘(3) GROSS
COVERED
PRESCRIPTION
DRUG
COSTS.—For purposes of this section, the term ‘gross
covered prescription drug costs’ means, with respect to
an enrollee with a qualifying entity under a plan de-
scribed in subsection (b) during a coverage year, the
costs incurred under the plan for covered prescription
drugs dispensed during the year, including costs re-
lating to the deductible, whether paid by the enrollee
or under the plan, regardless of whether the coverage
under the plan exceeds standard coverage and regard-
less of when the payment for such drugs is made.
‘‘(4) INDEXING DOLLAR AMOUNTS.—
‘‘(A) AMOUNTS
FOR
2003.—The dollar
amounts applied under paragraph (1) for 2003
shall be the dollar amounts specified in such
paragraph.
‘‘(B) FOR 2004.—The dollar amounts ap-
plied under paragraph (1) for 2004 shall be the
dollar amounts specified in such paragraph in-
creased by the annual percentage increase de-
scribed in section 1860B(b)(5) for 2004.
‘‘(C) FOR SUBSEQUENT YEARS.—The dollar
amounts applied under paragraph (1) for a year
after 2004 shall be the amounts (under this
paragraph) applied under paragraph (1) for the
preceding year increased by the annual percent-
age increase described in section 1860B(b)(5) for
the year involved.
‘‘(D) ROUNDING.—Any amount, determined
under the preceding provisions of this paragraph
for a year, which is not a multiple of $5 shall
be rounded to the nearest multiple of $5.
‘‘(d) ADJUSTMENT OF PAYMENTS.—
‘‘(1) IN GENERAL.—The Medicare Benefits Ad-
ministrator shall estimate—
‘‘(A) the total payments to be made (with-
out regard to this subsection) during a year
under this section; and
‘‘(B) the total payments to be made by
qualifying entities for standard coverage under
plans described in subsection (b) during the year.
‘‘(2) ADJUSTMENT OF PAYMENTS.—The Adminis-
trator shall proportionally adjust the payments made
under this section for a coverage year in such manner
so that the total of the payments made for the year
under this section is equal to 35 percent of the total
payments described in paragraph (1)(B) during the
year.
‘‘(e) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this section
shall be based on such a method as the Medicare Ben-
efits Administrator determines. The Administrator
may establish a payment method by which interim
payments of amounts under this section are made
during a year based on the Administrator’s best esti-
mate of amounts that will be payable after obtaining
all of the information.
‘‘(2) SOURCE OF PAYMENTS.—Payments under
this section shall be made from the Medicare Prescrip-
tion Drug Account.
‘‘(f) QUALIFIED RETIREE PRESCRIPTION DRUG PLAN
DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this section,
the term ‘qualified retiree prescription drug plan’
means employment-based retiree health coverage (as
defined in paragraph (3)(A)) if, with respect to an
individual enrolled (or eligible to be enrolled) under
this part who is covered under the plan, the following
requirements are met:
‘‘(A) ASSURANCE.—The sponsor of the plan
shall annually attest, and provide such assur-
ances as the Medicare Benefits Administrator
may require, that the coverage meets the require-
ments for qualified prescription drug coverage.
‘‘(B) AUDITS.—The sponsor (and the plan)
shall maintain, and afford the Medicare Benefits
Administrator access to, such records as the Ad-
ministrator may require for purposes of audits
and other oversight activities necessary to ensure
the adequacy of prescription drug coverage, the
accuracy of payments made, and such other mat-
ters as may be appropriate.
‘‘(C) PROVISION OF CERTIFICATION OF PRE-
SCRIPTION DRUG COVERAGE.—The sponsor of the
plan shall provide for issuance of certifications
of the type described in section 1860A(c)(2)(D).
‘‘(D) OTHER REQUIREMENTS.—The sponsor
of the plan shall comply with such other require-
ments as the Medicare Benefits Administrator
finds necessary to administer the program under
this section.
‘‘(2) LIMITATION ON BENEFIT ELIGIBILITY.—No
payment shall be provided under this section with re-
spect to an individual who is enrolled under a quali-
fied retiree prescription drug plan unless the indi-
vidual is a medicare primary individual who—
‘‘(A) is covered under the plan; and
‘‘(B) is eligible to obtain qualified prescrip-
tion drug coverage under section 1860A but did
not elect such coverage under this part (either
through a prescription drug plan or through a
Medicare+Choice plan).
‘‘(3) DEFINITIONS.—As used in this section:
‘‘(A) 
EMPLOYMENT-BASED
RETIREE
HEALTH
COVERAGE.—The term ‘employment-
based retiree health coverage’ means health in-
surance or other coverage of health care costs for
medicare primary individuals (or for such indi-
viduals and their spouses and dependents) based
on their status as former employees or labor
union members.
‘‘(B) EMPLOYER.—The term ‘employer’ has
the meaning given such term by section 3(5) of
the Employee Retirement Income Security Act of
1974 (except that such term shall include only
employers of two or more employees).
‘‘(C) SPONSOR.—The term ‘sponsor’ means
a plan sponsor, as defined in section 3(16)(B) of
the Employee Retirement Income Security Act of
1974.
‘‘(D) MEDICARE
PRIMARY
INDIVIDUAL.—
The term ‘medicare primary individual’ means,
with respect to a plan, an individual who is cov-
ered under the plan and with respect to whom
the plan is not a primary plan (as defined in
section 1862(b)(2)(A)).
‘‘(g) GENERAL DEFINITIONS.—For purposes of this
section:
‘‘(1) QUALIFYING
COVERED
INDIVIDUAL.—The
term ‘qualifying covered individual’ means an indi-
vidual who—
‘‘(A) is enrolled with a prescription drug
plan under this part;
‘‘(B) is enrolled with a Medicare+Choice
plan that provides qualified prescription drug
coverage under part C; or
‘‘(C) is covered as a medicare primary indi-
vidual under a qualified retiree prescription
drug plan.
‘‘(2) COVERAGE YEAR.—The term ‘coverage year’
means a calendar year in which covered outpatient
drugs are dispensed if a claim for payment is made
under the plan for such drugs, regardless of when the
claim is paid.
‘‘SEC. 1860I. MEDICARE PRESCRIPTION DRUG ACCOUNT IN
FEDERAL SUPPLEMENTARY MEDICAL INSUR-
ANCE TRUST FUND.
‘‘(a) IN GENERAL.—There is created within the Fed-
eral Supplementary Medical Insurance Trust Fund estab-
lished by section 1841 an account to be known as the ‘Medi-
care Prescription Drug Account’ (in this section referred
to as the ‘Account’). The Account shall consist of such gifts
and bequests as may be made as provided in section
201(i)(1), and such amounts as may be deposited in, or
appropriated to, such fund as provided in this part. Funds
provided under this part to the Account shall be kept sepa-
rate from all other funds within the Federal Supplementary
Medical Insurance Trust Fund.
‘‘(b) PAYMENTS FROM ACCOUNT.—
‘‘(1) IN GENERAL.—The Managing Trustee shall
pay from time to time from the Account such
amounts as the Medicare Benefits Administrator cer-
tifies are necessary to make—
‘‘(A) payments under section 1860G (relat-
ing to low-income subsidy payments);
‘‘(B) payments under section 1860H (relat-
ing to reinsurance subsidy payments); and
‘‘(C) payments with respect to administra-
tive expenses under this part in accordance with
section 201(g).
‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR IN-
CREASED
ADMINISTRATIVE
COSTS.—The Managing
Trustee shall transfer from time to time from the Ac-
count to the Grants to States for Medicaid account
amounts the Secretary certifies are attributable to in-
creases in payment resulting from the application of
a higher Federal matching percentage under section
1935(b).
‘‘(3) TREATMENT IN RELATION TO PART B PRE-
MIUM.—Amounts payable from the Account shall not
be taken into account in computing actuarial rates or
premium amounts under section 1839.
‘‘(c) DEPOSITS INTO ACCOUNT.—
‘‘(1) MEDICAID
TRANSFER.—There is hereby
transferred to the Account, from amounts appro-
priated for Grants to States for Medicaid, amounts
equivalent to the aggregate amount of the reductions
in payments under section 1903(a)(1) attributable to
the application of section 1935(c).
‘‘(2) APPROPRIATIONS TO COVER GOVERNMENT
CONTRIBUTIONS.—There are authorized to be appro-
priated from time to time, out of any moneys in the
Treasury not otherwise appropriated, to the Account,
an amount equivalent to the amount of payments
made from the Account under subsection (b), reduced
by the amount transferred to the Account under para-
graph (1).
‘‘SEC. 1860J. DEFINITIONS; TREATMENT OF REFERENCES
TO PROVISIONS IN PART C.
‘‘(a) DEFINITIONS.—For purposes of this part:
‘‘(1) COVERED OUTPATIENT DRUGS.—The term
‘covered outpatient drugs’ is defined in section
1860B(f).
‘‘(2) INITIAL COVERAGE LIMIT.—The term ‘ini-
tial coverage limit’ means the such limit as estab-
lished under section 1860B(b)(3), or, in the case of
coverage that is not standard coverage, the com-
parable limit (if any) established under the coverage.
‘‘(3) 
MEDICARE
PRESCRIPTION
DRUG
AC-
COUNT.—The term ‘Medicare Prescription Drug Ac-
count’ means the Account in the Federal Supple-
mentary Medical Insurance Trust Fund created
under section 1860I(a).
‘‘(4) PDP SPONSOR.—The term ‘PDP sponsor’
means an entity that is certified under this part as
meeting the requirements and standards of this part
for such a sponsor.
‘‘(5) PRESCRIPTION DRUG PLAN.—The term ‘pre-
scription drug plan’ means health benefits coverage
that—
‘‘(A) is offered under a policy, contract, or
plan by a PDP sponsor pursuant to, and in ac-
cordance with, a contract between the Medicare
Benefits Administrator and the sponsor under
section 1860D(b);
‘‘(B) provides qualified prescription drug
coverage; and
‘‘(C) meets the applicable requirements of
the section 1860C for a prescription drug plan.
‘‘(6) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘qualified prescription drug cov-
erage’ is defined in section 1860B(a).
‘‘(7) STANDARD COVERAGE.—The term ‘standard
coverage’ is defined in section 1860B(b).
‘‘(b) APPLICATION
OF MEDICARE+CHOICE PROVI-
SIONS UNDER THIS PART.—For purposes of applying pro-
visions of part C under this part with respect to a prescrip-
tion drug plan and a PDP sponsor, unless otherwise pro-
vided in this part such provisions shall be applied as if—
‘‘(1) any reference to a Medicare+Choice plan
included a reference to a prescription drug plan;
‘‘(2) any reference to a provider-sponsored orga-
nization included a reference to a PDP sponsor;
‘‘(3) any reference to a contract under section
1857 included a reference to a contract under section
1860D(b); and
‘‘(4) any reference to part C included a reference
to this part.’’.
(b) CONFORMING AMENDMENTS TO FEDERAL SUPPLE-
MENTARY MEDICAL INSURANCE TRUST FUND.—Section
1841 of the Social Security Act (42 U.S.C. 1395t) is
amended—
(1) in the last sentence of subsection (a)—
(A) 
by 
striking 
‘‘and’’ 
before 
‘‘such
amounts’’, and
(B) by inserting before the period the fol-
lowing: ‘‘and such amounts as may be deposited
in, or appropriated to, the Medicare Prescription
Drug Account established by section 1860I’’; and
(2) in subsection (g), by inserting after ‘‘by this
part,’’ the following: ‘‘the payments provided for
under part D (in which case the payments shall come
from the Medicare Prescription Drug Account in the
Trust Fund),’’.
(c) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS
PART D.—Any reference in law (in effect before the
date of the enactment of this Act) to part D of title
XVIII of the Social Security Act is deemed a reference
to part E of such title (as in effect after such date).
(2) SECRETARIAL SUBMISSION OF LEGISLATIVE
PROPOSAL.—Not later than 6 months after the date of
the enactment of this Act, the Secretary of Health and
Human Services shall submit to the appropriate com-
mittees of Congress a legislative proposal providing
for such technical and conforming amendments in the
law as are required by the provisions of this subtitle.
SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG
COVERAGE UNDER THE MEDICARE+CHOICE
PROGRAM.
(a) IN GENERAL.—Section 1851 of the Social Security
Act (42 U.S.C. 1395w–21) is amended by adding at the
end the following new subsection:
‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENE-
FITS.—
‘‘(1) IN GENERAL.—A Medicare+Choice organi-
zation may not offer prescription drug coverage (other
than that required under parts A and B) to an en-
rollee under a Medicare+Choice plan unless such
drug coverage is at least qualified prescription drug
coverage and unless the requirements of this sub-
section with respect to such coverage are met.
‘‘(2) COMPLIANCE
WITH
ADDITIONAL
BENE-
FICIARY PROTECTIONS.—With respect to the offering
of 
qualified 
prescription 
drug 
coverage 
by 
a
Medicare+Choice 
organization 
under 
a
Medicare+Choice plan, the organization and plan
shall meet the requirements of section 1860C, includ-
ing requirements relating to information dissemina-
tion and grievance and appeals, in the same manner
as they apply to a PDP sponsor and a prescription
drug plan under part D. The Medicare Benefits Ad-
ministrator shall waive such requirements to the ex-
tent the Administrator determines that such require-
ments duplicate requirements otherwise applicable to
the organization or plan under this part.
‘‘(3) TREATMENT OF COVERAGE.—Except as pro-
vided in this subsection, qualified prescription drug
coverage offered under this subsection shall be treated
under this part in the same manner as supplemental
health 
care 
benefits 
described 
in 
section
1852(a)(3)(A).
‘‘(4) AVAILABILITY OF PREMIUM AND COST-SHAR-
ING SUBSIDIES FOR LOW-INCOME ENROLLEES AND RE-
INSURANCE
SUBSIDY
PAYMENTS
FOR
ORGANIZA-
TIONS.—For provisions—
‘‘(A) providing premium and cost-sharing
subsidies to low-income individuals receiving
qualified prescription drug coverage through a
Medicare+Choice plan, see section 1860G; and
‘‘(B) providing a Medicare+Choice organi-
zation with reinsurance subsidy payments for
providing qualified prescription drug coverage
under this part, see section 1860H.
‘‘(5) SPECIFICATION OF SEPARATE AND STAND-
ARD PREMIUM.—
‘‘(A) IN GENERAL.—For purposes of apply-
ing section 1854 and section 1860G(b)(2)(B)
with respect to qualified prescription drug cov-
erage offered under this subsection under a plan,
the Medicare+Choice organization shall compute
and publish the following:
‘‘(i) SEPARATE
PRESCRIPTION
DRUG
PREMIUM.—A premium for prescription
drug benefits that constitute qualified pre-
scription drug coverage that is separate
from other coverage under the plan.
‘‘(ii) PORTION OF COVERAGE ATTRIB-
UTABLE
TO
STANDARD
BENEFITS.—The
ratio of the actuarial value of standard cov-
erage to the actuarial value of the qualified
prescription drug coverage offered under the
plan.
‘‘(iii) PORTION OF PREMIUM ATTRIB-
UTABLE TO STANDARD BENEFITS.—A stand-
ard premium equal to the product of the
premium described in clause (i) and the
ratio under clause (ii).
The premium under clause (i) shall be compute
without regard to any reduction in the premium
permitted under subparagraph (B).
‘‘(B) 
REDUCTION
OF
PREMIUMS
AL-
LOWED.—Nothing in this subsection shall be con-
strued as preventing a Medicare+Choice organi-
zation from reducing the amount of a premium
charged for prescription drug coverage because of
the application of section 1854(f)(1)(A) to other
coverage.
‘‘(C) ACCEPTANCE OF REFERENCE PREMIUM
AS FULL PREMIUM IF NO STANDARD (OR EQUIVA-
LENT) COVERAGE IN AN AREA.—For requirement
to accept reference premium as full premium if
there is no standard (or equivalent) coverage in
the area of a Medicare+Choice plan, see section
1860F(d).
‘‘(6) TRANSITION IN INITIAL ENROLLMENT PE-
RIOD.—Notwithstanding any other provision of this
part, the annual, coordinated election period under
subsection (e)(3)(B) for 2003 shall be the 6-month pe-
riod beginning with November 2002.
‘‘(7) QUALIFIED PRESCRIPTION DRUG COVERAGE;
STANDARD COVERAGE.—For purposes of this part, the
terms ‘qualified prescription drug coverage’ and
‘standard coverage’ have the meanings given such
terms in section 1860B.’’.
(b) CONFORMING AMENDMENTS.—Section 1851 of such
Act (42 U.S.C. 1395w–21) is amended—
(1) in subsection (a)(1)—
(A) by inserting ‘‘(other than qualified pre-
scription drug benefits)’’ after ‘‘benefits’’;
(B) by striking the period at the end of sub-
paragraph (B) and inserting a comma; and
(C) by adding after and below subpara-
graph (B) the following:
‘‘and may elect qualified prescription drug coverage
in accordance with section 1860A.’’; and
(2) in subsection (g)(1), by inserting ‘‘and sec-
tion 1860A(c)(2)(B)’’ after ‘‘in this subsection’’.
(c) EFFECTIVE DATE.—The amendments made by this
section apply to coverage provided on or after January 1,
2003.
SEC. 103. MEDICAID AMENDMENTS.
(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN-
COME SUBSIDIES.—
(1) REQUIREMENT.—Section 1902 of the Social
Security Act (42 U.S.C. 1396a) is amended—
(A) in subsection (a)—
(i) by striking ‘‘and’’ at the end of
paragraph (64);
(ii) by striking the period at the end of
paragraph (65) and inserting ‘‘; and’’; and
(iii) by inserting after paragraph (65)
the following new paragraph:
‘‘(66) provide for making eligibility determina-
tions under section 1935(a).’’.
(2) NEW SECTION.—Title XIX of such Act is fur-
ther amended—
(A) by redesignating section 1935 as section
1936; and
(B) by inserting after section 1934 the fol-
lowing new section:
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE
PRESCRIPTION DRUG BENEFIT
‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI-
BILITY DETERMINATIONS FOR LOW-INCOME SUBSIDIES.—
As a condition of its State plan under this title under sec-
tion 1902(a)(66) and receipt of any Federal financial as-
sistance under section 1903(a), a State shall—
‘‘(1) make determinations of eligibility for pre-
mium and cost-sharing subsidies under (and in ac-
cordance with) section 1860G;
‘‘(2) inform the Administrator of the Medicare
Benefits Administration of such determinations in
cases in which such eligibility is established; and
‘‘(3) otherwise provide such Administrator with
such information as may be required to carry out
part D of title XVIII (including section 1860G).
‘‘(b) PAYMENTS
FOR ADDITIONAL ADMINISTRATIVE
COSTS.—
‘‘(1) IN GENERAL.—The amounts expended by a
State in carrying out subsection (a) are, subject to
paragraph (2), expenditures reimbursable under the
appropriate paragraph of section 1903(a); except
that, notwithstanding any other provision of such sec-
tion, the applicable Federal matching rates with re-
spect to such expenditures under such section shall be
increased as follows:
‘‘(A) For expenditures attributable to costs
incurred during 2003, the otherwise applicable
Federal matching rate shall be increased by 20
percent of the percentage otherwise payable (but
for this subsection) by the State.
‘‘(B) For expenditures attributable to costs
incurred during 2004, the otherwise applicable
Federal matching rate shall be increased by 40
percent of the percentage otherwise payable (but
for this subsection) by the State.
‘‘(C) For expenditures attributable to costs
incurred during 2005, the otherwise applicable
Federal matching rate shall be increased by 60
percent of the percentage otherwise payable (but
for this subsection) by the State.
‘‘(D) For expenditures attributable to costs
incurred during 2006, the otherwise applicable
Federal matching rate shall be increased by 80
percent of the percentage otherwise payable (but
for this subsection) by the State.
‘‘(E) For expenditures attributable to costs
incurred after 2006, the otherwise applicable
Federal matching rate shall be increased to 100
percent.
‘‘(2) COORDINATION.—The State shall provide
the Secretary with such information as may be nec-
essary to properly allocate administrative expendi-
tures described in paragraph (1) that may otherwise
be made for similar eligibility determinations.’’.
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID
RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB-
SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN GENERAL.—Section 1903(a)(1) of the So-
cial Security Act (42 U.S.C. 1396b(a)(1)) is amended
by inserting before the semicolon the following: ‘‘, re-
duced by the amount computed under section
1935(c)(1) for the State and the quarter’’.
(2) AMOUNT DESCRIBED.—Section 1935 of such
Act, as inserted by subsection (a)(2), is amended by
adding at the end the following new subsection:
‘‘(c) FEDERAL ASSUMPTION OF MEDICAID PRESCRIP-
TION
DRUG
COSTS
FOR
DUALLY-ELIGIBLE
BENE-
FICIARIES.—
‘‘(1) IN
GENERAL.—For purposes of section
1903(a)(1), for a State that is one of the 50 States
or the District of Columbia for a calendar quarter in
a year (beginning with 2003) the amount computed
under this subsection is equal to the product of the
following:
‘‘(A) MEDICARE
SUBSIDIES.—The total
amount of payments made in the quarter under
section 1860G (relating to premium and cost-
sharing prescription drug subsidies for low-in-
come medicare beneficiaries) that are attrib-
utable to individuals who are residents of the
State and are entitled to benefits with respect to
prescribed drugs under the State plan under this
title (including such a plan operating under a
waiver under section 1115).
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent
the Federal medical assistance percentage (as de-
fined in section 1905(b)) applicable to the State
and the quarter.
‘‘(C) PHASE-OUT PROPORTION.—The phase-
out proportion (as defined in paragraph (2)) for
the quarter.
‘‘(2) PHASE-OUT PROPORTION.—For purposes of
paragraph (1)(C), the ‘phase-out proportion’ for a
calendar quarter in—
‘‘(A) 2003 is 80 percent;
‘‘(B) 2004 is 60 percent;
‘‘(C) 2005 is 40 percent;
‘‘(D) 2006 is 20 percent; or
‘‘(E) a year after 2006 is 0 percent.’’.
(c) MEDICAID
PROVIDING
WRAP-AROUND
BENE-
FITS.—Section 1935 of such Act, as so inserted and amend-
ed, is further amended by adding at the end the following
new subsection:
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the
case of an individual dually entitled to qualified pre-
scription drug coverage under a prescription drug
plan under part D of title XVIII (or under a
Medicare+Choice plan under part C of such title)
and medical assistance for prescribed drugs under
this title, medical assistance shall continue to be pro-
vided under this title for prescribed drugs to the ex-
tent payment is not made under the prescription drug
plan or the Medicare+Choice plan selected by the in-
dividual.
‘‘(2) CONDITION.—A State may require, as a
condition for the receipt of medical assistance under
this title with respect to prescription drug benefits for
an individual eligible to obtain qualified prescription
drug coverage described in paragraph (1), that the in-
dividual elect qualified prescription drug coverage
under section 1860A.’’.
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1935 of such Act, as
so inserted and amended, is further amended—
(A) in subsection (a) in the matter pre-
ceding paragraph (1), by inserting ‘‘subject to
subsection (e)’’ after ‘‘section 1903(a)’’;
(B) in subsection (c)(1), by inserting ‘‘sub-
ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and
(C) by adding at the end the following new
subsection:
‘‘(e) TREATMENT OF TERRITORIES.—
‘‘(1) IN GENERAL.—In the case of a State, other
than the 50 States and the District of Columbia—
‘‘(A) the previous provisions of this section
shall not apply to residents of such State; and
‘‘(B) if the State establishes a plan de-
scribed in paragraph (2) (for providing medical
assistance with respect to the provision of pre-
scription drugs to medicare beneficiaries), the
amount otherwise determined under section
1108(f) (as increased under section 1108(g)) for
the State shall be increased by the amount speci-
fied in paragraph (3).
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of covered outpatient drugs
(as defined in section 1860B(f)) to low-income
medicare beneficiaries; and
‘‘(B) assures that additional amounts re-
ceived by the State that are attributable to the
operation of this subsection are used only for
such assistance.
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified
in this paragraph for a State for a year is equal
to the product of—
‘‘(i) the aggregate amount specified in
subparagraph (B); and
‘‘(ii) the amount specified in section
1108(g)(1) for that State, divided by the
sum of the amounts specified in such section
for all such States.
‘‘(B) AGGREGATE AMOUNT.—The aggregate
amount specified in this subparagraph for—
‘‘(i) 2003, is equal to $20,000,000; or
‘‘(ii) a subsequent year, is equal to the
aggregate amount specified in this subpara-
graph for the previous year increased by
annual percentage increase specified in sec-
tion 1860(b)(5) for the year involved.
‘‘(4) REPORT.—The Secretary shall submit to
Congress a report on the application of this subsection
and may include in the report such recommendations
as the Secretary deems appropriate.’’.
(2) CONFORMING AMENDMENT.—Section 1108(f)
of such Act is amended by inserting ‘‘and section
1935(e)(1)(B)’’ after ‘‘Subject to subsection (g)’’.
SEC. 104. MEDIGAP TRANSITION PROVISIONS.
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, no new medicare supplemental policy that pro-
vides coverage of expenses for prescription drugs may be
issued under section 1882 of the Social Security Act on or
after January 1, 2003, to an individual unless it replaces
a medicare supplemental policy that was issued to that in-
dividual and that provided some coverage of expenses for
prescription drugs.
(b) ISSUANCE OF SUBSTITUTE POLICIES IF OBTAIN
PRESCRIPTION DRUG COVERAGE THROUGH MEDICARE.—
(1) IN GENERAL.—The issuer of a medicare sup-
plemental policy—
(A) may not deny or condition the issuance
or effectiveness of a medicare supplemental pol-
icy that has a benefit package classified as ‘‘A’’,
‘‘B’’, ‘‘C’’, ‘‘D’’, ‘‘E’’, ‘‘F’’, or ‘‘G’’ (under the
standards established under subsection (p)(2) of
section 1882 of the Social Security Act, 42
U.S.C. 1395ss) and that is offered and is avail-
able for issuance to new enrollees by such issuer;
(B) may not discriminate in the pricing of
such policy, because of health status, claims expe-
rience, receipt of health care, or medical condi-
tion; and
(C) may not impose an exclusion of benefits
based on a pre-existing condition under such pol-
icy,
in the case of an individual described in paragraph
(2) who seeks to enroll under the policy not later than
63 days after the date of the termination of enroll-
ment described in such paragraph and who submits
evidence of the date of termination or disenrollment
along with the application for such medicare supple-
mental policy.
(2) INDIVIDUAL
COVERED.—An individual de-
scribed in this paragraph is an individual who—
(A) enrolls in a prescription drug plan
under part D of title XVIII of the Social Secu-
rity Act; and
(B) at the time of such enrollment was en-
rolled and terminates enrollment in a medicare
supplemental policy which has a benefit package
classified as ‘‘H’’, ‘‘I’’, or ‘‘J’’ under the stand-
ards referred to in paragraph (1)(A) or termi-
nates enrollment in a policy to which such
standards do not apply but which provides bene-
fits for prescription drugs.
(3) ENFORCEMENT.—The provisions of para-
graph (1) shall be enforced as though they were in-
cluded in section 1882(s) of the Social Security Act
(42 U.S.C. 1395ss(s)).
(4) DEFINITIONS.—For purposes of this sub-
section, the term ‘‘medicare supplemental policy’’ has
the meaning given such term in section 1882(g) of the
Social Security Act (42 U.S.C. 1395ss(g)).
SEC. 105. DEMONSTRATION PROJECT FOR DISEASE MAN-
AGEMENT FOR SEVERELY CHRONICALLY ILL
MEDICARE BENEFICIARIES.
(a) IN GENERAL.—The Administrator of the Medicare
Benefits Administration (in this section referred to as the
‘‘Administrator’’) shall conduct a demonstration project
under this section (in this section referred to as the
‘‘project’’) to demonstrate the impact on costs and health
outcomes of applying disease management to medicare
beneficiaries with diagnosed, advanced-stage congestive
heart failure, diabetes, or coronary heart disease.
(b) VOLUNTARY PARTICIPATION.—
(1) ELIGIBILITY.—Medicare beneficiaries are eli-
gible to participate in the project only if—
(A) they meet specific medical criteria dem-
onstrating the appropriate diagnosis and the ad-
vanced nature of their disease;
(B) their physicians approve of participa-
tion in the project; and
(C) 
they 
are 
not 
enrolled 
in 
a
Medicare+Choice plan.
(2) BENEFITS.—A beneficiary who is enrolled in
the project shall be eligible—
(A) for disease management services related
to their chronic health condition; and
(B) if the beneficiary—
(i) is enrolled in a prescription drug
plan under part D of title XVIII of the So-
cial Security Act, for payment of any pre-
miums for such plan, any deductible or
cost-sharing, and any amounts not covered
under the plan because of the application of
an initial coverage limit; or
(ii) is not enrolled in such a plan, for
payment for all costs for prescription drugs
without regard to whether or not they relate
to the chronic health condition;
except that the project may provide for modest
cost-sharing with respect to prescription drug
coverage.
(3) TREATMENT AS QUALIFYING COVERAGE FOR
PURPOSES OF CONTINUOUS COVERAGE.—For purposes
of applying section 1860A(c)(2)(C) of the Social Secu-
rity Act, coverage under the project shall be treated as
coverage under a prescription drug plan under part
D of title XVIII of such Act.
(c) CONTRACTS WITH DISEASE MANAGEMENT ORGANI-
ZATIONS.—
(1) IN GENERAL.—The Administrator shall carry
out the project through contracts with up to 3 disease
management organizations. The Administrator shall
not enter into such a contract with an organization
unless the organization demonstrates that it can
produce improved health outcomes and reduce aggre-
gate medicare expenditures consistent with paragraph
(2).
(2) 
CONTRACT
PROVISIONS.—Under 
such
contracts—
(A) such an organization shall be required
to provide for prescription drug coverage de-
scribed in subsection (b)(2)(B);
(B) such an organization shall be paid a fee
negotiated and established by the Administrator
in a manner so that (taking into account savings
in expenditures under parts A and B of the
medicare program) there will be a net reduction
in expenditures under the medicare program as
a result of the project; and
(C) such an organization shall guarantee,
through an appropriate arrangement with a re-
insurance company or otherwise, the net reduc-
tion in expenditures described in subparagraph
(B).
(3) PAYMENTS.—Payments to such organizations
shall be made in appropriate proportion from the
Trust Funds established under title XVIII of the So-
cial Security Act.
(d) DURATION.—The project shall last for not longer
than 3 years.
(e) REPORT.—The Administrator shall submit to Con-
gress an interim report on the project not later than 2 years
after the date it is first implemented and a final report
on the project not later than 6 months after the date of its
completion. Such reports shall include information on the
impact of the project on costs and health outcomes and rec-
ommendations on the cost-effectiveness of extending or ex-
panding the project.
TITLE II—MODERNIZATION OF
ADMINISTRATION OF MEDICARE
Subtitle A—Medicare Benefits
Administration
SEC. 201. ESTABLISHMENT OF ADMINISTRATION.
(a) IN GENERAL.—Title XVIII of the Social Security
Act (42 U.S.C. 1395 et seq.) is amended by inserting after
section 1806 the following new section:
‘‘MEDICARE BENEFITS ADMINISTRATION
‘‘SEC. 1807. (a) ESTABLISHMENT.—There is estab-
lished within the Department of Health and Human Serv-
ices an agency to be known as the Medicare Benefits Admin-
istration.
‘‘(b) 
ADMINISTRATOR
AND
DEPUTY
ADMINIS-
TRATOR.—
‘‘(1) ADMINISTRATOR.—
‘‘(A) IN GENERAL.—The Medicare Benefits
Administration shall be headed by an Adminis-
trator (in this section referred to as the ‘Admin-
istrator’) who shall be appointed by the Presi-
dent, by and with the advice and consent of the
Senate. The Administrator shall be in direct line
of authority to the Secretary.
‘‘(B) COMPENSATION.—The Administrator
shall be paid at the rate of basic pay payable for
level III of the Executive Schedule under section
5314 of title 5, United States Code.
‘‘(C) TERM OF OFFICE.—The Administrator
shall be appointed for a term of 5 years. In any
case in which a successor does not take office at
the end of an Administrator’s term of office, that
Administrator may continue in office until the
entry upon office of such a successor. An Admin-
istrator appointed to a term of office after the
commencement of such term may serve under
such appointment only for the remainder of such
term.
‘‘(D) GENERAL AUTHORITY.—The Adminis-
trator shall be responsible for the exercise of all
powers and the discharge of all duties of the Ad-
ministration, and shall have authority and con-
trol over all personnel and activities thereof.
‘‘(E) RULEMAKING
AUTHORITY.—The Ad-
ministrator may prescribe such rules and regula-
tions as the Administrator determines necessary
or appropriate to carry out the functions of the
Administration. The regulations prescribed by
the Administrator shall be subject to the rule-
making procedures established under section 553
of title 5, United States Code.
‘‘(F) AUTHORITY TO ESTABLISH ORGANIZA-
TIONAL UNITS.—The Administrator may estab-
lish, alter, consolidate, or discontinue such orga-
nizational units or components within the Ad-
ministration as the Administrator considers nec-
essary or appropriate, except that this subpara-
graph shall not apply with respect to any unit,
component, or provision provided for by this sec-
tion.
‘‘(G) AUTHORITY TO DELEGATE.—The Ad-
ministrator may assign duties, and delegate, or
authorize successive redelegations of, authority to
act and to render decisions, to such officers and
employees of the Administration as the Adminis-
trator may find necessary. Within the limita-
tions of such delegations, redelegations, or as-
signments, all official acts and decisions of such
officers and employees shall have the same force
and effect as though performed or rendered by
the Administrator.
‘‘(2) DEPUTY ADMINISTRATOR.—
‘‘(A) IN GENERAL.—There shall be a Dep-
uty Administrator of the Medicare Benefits Ad-
ministration who shall be appointed by the
President, by and with the advice and consent of
the Senate.
‘‘(B) COMPENSATION.—The Deputy Admin-
istrator shall be paid at the rate of basic pay
payable for level IV of the Executive Schedule
under section 5315 of title 5, United States Code.
‘‘(C) TERM OF OFFICE.—The Deputy Ad-
ministrator shall be appointed for a term of 5
years. In any case in which a successor does not
take office at the end of a Deputy Administra-
tor’s term of office, such Deputy Administrator
may continue in office until the entry upon of-
fice of such a successor. A Deputy Administrator
appointed to a term of office after the commence-
ment of such term may serve under such ap-
pointment only for the remainder of such term.
‘‘(D) DUTIES.—The Deputy Administrator
shall perform such duties and exercise such pow-
ers as the Administrator shall from time to time
assign or delegate. The Deputy Administrator
shall be Acting Administrator of the Administra-
tion during the absence or disability of the Ad-
ministrator and, unless the President designates
another officer of the Government as Acting Ad-
ministrator, in the event of a vacancy in the of-
fice of the Administrator.
‘‘(3) SECRETARIAL COORDINATION OF PROGRAM
ADMINISTRATION.—The Secretary shall ensure appro-
priate coordination between the Administrator and
the Administrator of the Health Care Financing Ad-
ministration in carrying out the programs under this
title.
‘‘(c) DUTIES; ADMINISTRATIVE PROVISIONS.—
‘‘(1) DUTIES.—
‘‘(A) GENERAL
DUTIES.—The Adminis-
trator shall carry out parts C and D,
including—
‘‘(i) negotiating, entering into, and en-
forcing, contracts with plans for the offering
of Medicare+Choice plans under part C, in-
cluding the offering of qualified prescription
drug coverage under such plans; and
‘‘(ii) negotiating, entering into, and
enforcing, contracts with PDP sponsors for
the offering of prescription drug plans
under part D.
‘‘(B) OTHER DUTIES.—The Administrator
shall carry out any duty provided for under part
C or part D, including demonstration projects
carried out in part or in whole under such parts,
the programs of all-inclusive care for the elderly
(PACE program) under section 1894, the social
health maintenance organization (SHMO) dem-
onstration projects (referred to in section 4104(c)
of the Balanced Budget Act of 1997), and
through a Medicare+Choice project that dem-
onstrates the application of capitation payment
rates for frail elderly medicare beneficiaries
through the use of a interdisciplinary team and
through the provision of primary care services to
such beneficiaries by means of such a team at the
nursing facility involved).
‘‘(C) NONINTERFERENCE.—In carrying out
its duties with respect to the provision of quali-
fied prescription drug coverage to beneficiaries
under this title, the Administrator may not—
‘‘(i) require a particular formulary or
institute a price structure for the reimburse-
ment of covered outpatient drugs;
‘‘(ii) interfere in any way with nego-
tiations 
between 
PDP 
sponsors 
and
Medicare+Choice organizations and drug
manufacturers, wholesalers, or other sup-
pliers of covered outpatient drugs; and
‘‘(iii) otherwise interfere with the com-
petitive nature of providing such coverage
through such sponsors and organizations.
‘‘(D) ANNUAL REPORTS.—Not later March
31 of each year, the Administrator shall submit
to Congress and the President a report on the
administration of parts C and D during the pre-
vious fiscal year.
‘‘(2) STAFF.—
‘‘(A) IN
GENERAL.—The Administrator,
with the approval of the Secretary, may employ,
without regard to chapter 31 of title 5, United
States Code, such officers and employees as are
necessary to administer the activities to be car-
ried out through the Medicare Benefits Adminis-
tration.
‘‘(B) FLEXIBILITY WITH RESPECT TO COM-
PENSATION.—
‘‘(i) IN
GENERAL.—The staff of the
Medicare Benefits Administration shall,
subject to clause (ii), be paid without regard
to the provisions of chapter 51 and chapter
53 of such title (relating to classification
and schedule pay rates).
‘‘(ii) MAXIMUM
RATE.—In no case
may the rate of compensation determined
under clause (i) exceed the rate of basic pay
payable for level IV of the Executive Sched-
ule under section 5315 of title 5, United
States Code.
‘‘(C) LIMITATION
ON
FULL-TIME
EQUIVA-
LENT STAFFING FOR CURRENT HCFA FUNCTIONS
BEING TRANSFERRED.—The Administrator may
not employ under this paragraph a number of
full-time equivalent employees, to carry out func-
tions that were previously conducted by the
Health Care Financing Administration and that
are conducted by the Administrator by reason of
this section, that exceeds the number of such full-
time equivalent employees authorized to be em-
ployed by the Health Care Financing Adminis-
tration to conduct such functions as of the date
of the enactment of this Act.
‘‘(3) REDELEGATION OF CERTAIN FUNCTIONS OF
THE HEALTH CARE FINANCING ADMINISTRATION.—
‘‘(A) IN GENERAL.—The Secretary, the Ad-
ministrator, and the Administrator of the Health
Care Financing Administration shall establish
an appropriate transition of responsibility in
order to redelegate the administration of part C
from the Secretary and the Administrator of the
Health Care Financing Administration to the
Administrator as is appropriate to carry out the
purposes of this section.
‘‘(B) TRANSFER
OF
DATA
AND
INFORMA-
TION.—The Secretary shall ensure that the Ad-
ministrator of the Health Care Financing Ad-
ministration transfers to the Administrator of
the Medicare Benefits Administration such infor-
mation and data in the possession of the Admin-
istrator of the Health Care Financing Adminis-
tration as the Administrator of the Medicare
Benefits Administration requires to carry out the
duties described in paragraph (1).
‘‘(C) CONSTRUCTION.—Insofar as a respon-
sibility of the Secretary or the Administrator of
the Health Care Financing Administration is re-
delegated to the Administrator under this sec-
tion, any reference to the Secretary or the Ad-
ministrator of the Health Care Financing Ad-
ministration in this title or title XI with respect
to such responsibility is deemed to be a reference
to the Administrator.
‘‘(d) OFFICE OF BENEFICIARY ASSISTANCE.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish within the Medicare Benefits Administration
an Office of Beneficiary Assistance to carry out func-
tions relating to medicare beneficiaries under this
title, including making determinations of eligibility of
individuals for benefits under this title, providing for
enrollment of medicare beneficiaries under this title,
and the functions described in paragraph (2). The Of-
fice shall be separate operating division within the
Administration.
‘‘(2) DISSEMINATION OF INFORMATION ON BENE-
FITS AND APPEALS RIGHTS.—
‘‘(A) DISSEMINATION OF BENEFITS INFOR-
MATION.—The Office of Beneficiary Assistance
shall disseminate to medicare beneficiaries, by
mail, by posting on the Internet site of the Medi-
care Benefits Administration and through the
toll-free telephone number provided for under sec-
tion 1804(b), information with respect to the fol-
lowing:
‘‘(i) Benefits, and limitations on pay-
ment (including cost-sharing, stop-loss pro-
visions, and formulary restrictions) under
parts C and D.
‘‘(ii) Benefits, and limitations on pay-
ment under parts A and B, including infor-
mation on medicare supplemental policies
under section 1882.
Such information shall be presented in a manner
so that medicare beneficiaries may compare ben-
efits under parts A, B, D, and medicare supple-
mental 
policies 
with 
benefits 
under
Medicare+Choice plans under part C.
‘‘(B) DISSEMINATION OF APPEALS RIGHTS
INFORMATION.—The Office of Beneficiary Assist-
ance shall disseminate to medicare beneficiaries
in the manner provided under subparagraph (A)
a description of procedural rights (including
grievance and appeals procedures) of bene-
ficiaries under the original medicare fee-for-serv-
ice program under parts A and B, the
Medicare+Choice program under part C, and
the Voluntary Prescription Drug Benefit Pro-
gram under part D.
‘‘(3) MEDICARE OMBUDSMAN.—
‘‘(A) IN
GENERAL.—Within the Office of
Beneficiary Assistance, there shall be a Medicare
Ombudsman, appointed by the Secretary from
among individuals with expertise and experience
in the fields of health care and advocacy, to
carry out the duties described in subparagraph
(B).
‘‘(B) DUTIES.—The Medicare Ombudsman
shall—
‘‘(i) receive complaints, grievances, and
requests for information submitted by a
medicare beneficiary, with respect to any
aspect of the medicare program;
‘‘(ii) provide assistance with respect to
complaints, grievances, and requests re-
ferred to in clause (i), including—
‘‘(I) assistance in collecting rel-
evant information for such bene-
ficiaries, to seek an appeal of a deci-
sion or determination made by a fiscal
intermediary, 
carrier,
Medicare+Choice organization, a PDP
sponsor under part D, or the Sec-
retary; and
‘‘(II) assistance to such bene-
ficiaries with any problems arising
from 
disenrollment 
from 
a
Medicare+Choice plan under part C
or a prescription drug plan under part
D; and
‘‘(iii) submit annual reports to Con-
gress, the Secretary, and the Medicare Pol-
icy Advisory Board describing the activities
of the Office, and including such rec-
ommendations for improvement in the ad-
ministration of this title as the Ombudsman
determines appropriate.
‘‘(C) COORDINATION WITH STATE OMBUDS-
MAN
PROGRAMS
AND
CONSUMER
ORGANIZA-
TIONS.—The Medicare Ombudsman shall, to the
extent appropriate, coordinate with State med-
ical Ombudsman programs, and with State- and
community-based consumer organizations, to—
‘‘(i) provide information about the
medicare program; and
‘‘(ii) conduct outreach to educate medi-
care beneficiaries with respect to manners
in which problems under the medicare pro-
gram may be resolved or avoided.
‘‘(e) MEDICARE POLICY ADVISORY BOARD.—
‘‘(1) 
ESTABLISHMENT.—There 
is 
established
within the Medicare Benefits Administration the
Medicare Policy Advisory Board (in this section re-
ferred to the ‘Board’). The Board shall advise, consult
with, and make recommendations to the Adminis-
trator of the Medicare Benefits Administration with
respect to the administration of parts C and D, in-
cluding the review of payment policies under such
parts.
‘‘(2) REPORTS.—
‘‘(A) IN GENERAL.—With respect to matters
of the administration of parts C and D, the
Board shall submit to Congress and to the Ad-
ministrator of the Medicare Benefits Administra-
tion such reports as the Board determines appro-
priate. Each such report may contain such rec-
ommendations as the Board determines appro-
priate for legislative or administrative changes
to improve the administration of such parts, in-
cluding the topics described in subparagraph
(B). Each such report shall be published in the
Federal Register.
‘‘(B) TOPICS DESCRIBED.—Reports required
under subparagraph (A) may include the fol-
lowing topics:
‘‘(i) FOSTERING
COMPETITION.—Rec-
ommendations or proposals to increase com-
100
petition under parts C and D for services
furnished to medicare beneficiaries.
‘‘(ii) EDUCATION AND ENROLLMENT.—
Recommendations for the improvement to
efforts to provide medicare beneficiaries in-
formation and education on the program
under this title, and specifically parts C
and D, and the program for enrollment
under the title.
‘‘(iii) IMPLEMENTATION
OF
RISK-AD-
JUSTMENT.—Evaluation of the implementa-
tion under section 1853(a)(3)(C) of the risk
adjustment methodology to payment rates
under that section to Medicare+Choice or-
ganizations offering Medicare+Choice plans
that accounts for variations in per capita
costs based on health status and other demo-
graphic factors.
‘‘(iv) 
DISEASE
MANAGEMENT
PRO-
GRAMS.—Recommendations on the incorpo-
ration of disease management programs
under parts C and D.
‘‘(v) RURAL
ACCESS.—Recommenda-
tions to improve competition and access to
plans under parts C and D in rural areas.
101
‘‘(C) 
MAINTAINING
INDEPENDENCE
OF
BOARD.—The Board shall directly submit to
Congress reports required under subparagraph
(A). No officer or agency of the United States
may require the Board to submit to any officer
or agency of the United States for approval,
comments, or review, prior to the submission to
Congress of such reports.
‘‘(3) DUTY
OF
ADMINISTRATOR
OF
MEDICARE
BENEFITS ADMINISTRATION.—With respect to any re-
port submitted by the Board under paragraph (2)(A),
not later than 90 days after the report is submitted,
the Administrator of the Medicare Benefits Adminis-
tration shall submit to Congress and the President an
analysis of recommendations made by the Board in
such report. Each such analysis shall be published in
the Federal Register.
‘‘(4) MEMBERSHIP.—
‘‘(A) APPOINTMENT.—Subject to the suc-
ceeding provisions of this paragraph, the Board
shall consist of 7 members to be appointed as fol-
lows:
‘‘(i) 3 members shall be appointed by
the President.
102
‘‘(ii) 2 members shall be appointed by
the Speaker of the House of Representatives,
with the advice of the chairman and the
ranking minority member of the Commit-
tees on Ways and Means and on Commerce
of the House of Representatives.
‘‘(iii) 2 members shall be appointed by
the President pro tempore of the Senate
with the advice of the chairman and the
ranking minority member of the Senate
Committee on Finance.
‘‘(B) QUALIFICATIONS.—The members shall
be chosen on the basis of their integrity, impar-
tiality, and good judgment, and shall be individ-
uals who are, by reason of their education and
experience in health care benefits management,
exceptionally qualified to perform the duties of
members of the Board.
‘‘(C) PROHIBITION ON INCLUSION OF FED-
ERAL EMPLOYEES.—No officer or employee of the
United States may serve as a member of the
Board.
‘‘(5) COMPENSATION.—Members of the Board
shall receive, for each day (including travel time) they
are engaged in the performance of the functions of the
103
board, compensation at rates not to exceed the daily
equivalent to the annual rate in effect for level IV of
the Executive Schedule under section 5315 of title 5,
United States Code.
‘‘(6) TERMS OF OFFICE.—
‘‘(A) IN GENERAL.—The term of office of
members of the Board shall be 3 years.
‘‘(B) TERMS OF INITIAL APPOINTEES.—As
designated by the President at the time of ap-
pointment, of the members first appointed—
‘‘(i) 1 shall be appointed for a term of
1 year;
‘‘(ii) 3 shall be appointed for terms of
2 years; and
‘‘(iii) 3 shall be appointed for terms of
3 years.
‘‘(C) REAPPOINTMENTS.—Any person ap-
pointed as a member of the Board may not serve
for more than 8 years.
‘‘(D) VACANCY.—Any member appointed to
fill a vacancy occurring before the expiration of
the term for which the member’s predecessor was
appointed shall be appointed only for the re-
mainder of that term. A member may serve after
the expiration of that member’s term until a suc-
104
cessor has taken office. A vacancy in the Board
shall be filled in the manner in which the origi-
nal appointment was made.
‘‘(7) CHAIR.—The Chair of the Board shall be
elected by the members. The term of office of the Chair
shall be 3 years.
‘‘(8) MEETINGS.—The Board shall meet at the
call of the Chair, but in no event less than 3 times
during each fiscal year.
‘‘(9) DIRECTOR AND STAFF.—
‘‘(A) APPOINTMENT
OF
DIRECTOR.—The
Board shall have a Director who shall be ap-
pointed by the Chair.
‘‘(B) IN GENERAL.—With the approval of
the Board, the Director may appoint, without re-
gard to chapter 31 of title 5, United States Code,
such additional personnel as the Director con-
siders appropriate.
‘‘(C) FLEXIBILITY WITH RESPECT TO COM-
PENSATION.—
‘‘(i) IN GENERAL.—The Director and
staff of the Board shall, subject to clause
(ii), be paid without regard to the provi-
sions of chapter 51 and chapter 53 of such
105
title (relating to classification and schedule
pay rates).
‘‘(ii) MAXIMUM
RATE.—In no case
may the rate of compensation determined
under clause (i) exceed the rate of basic pay
payable for level IV of the Executive Sched-
ule under section 5315 of title 5, United
States Code.
‘‘(D) ASSISTANCE
FROM
THE
ADMINIS-
TRATOR OF THE MEDICARE BENEFITS ADMINIS-
TRATION.—The Administrator of the Medicare
Benefits Administration shall make available to
the Board such information and other assistance
as it may require to carry out its functions.
‘‘(10) CONTRACT AUTHORITY.—The Board may
contract with and compensate government and pri-
vate agencies or persons to carry out its duties under
this subsection, without regard to section 3709 of the
Revised Statutes (41 U.S.C. 5).
‘‘(f) FUNDING.—There is authorized to be appro-
priated, in appropriate part from the Federal Hospital In-
surance Trust Fund and from the Federal Supplementary
Medical Insurance Trust Fund (including the Medicare
Prescription Drug Account), such sums as are necessary to
carry out this section.’’.
106
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—The amendment made by sub-
section (a) shall take effect on the date of the enact-
ment of this Act.
(2) TIMING OF INITIAL APPOINTMENTS.—The Ad-
ministrator and Deputy Administrator of the Medi-
care Benefits Administration may not be appointed
before March 1, 2001.
(3) DUTIES WITH RESPECT TO ELIGIBILITY DE-
TERMINATIONS
AND
ENROLLMENT.—The Adminis-
trator of the Medicare Benefits Administration shall
carry out enrollment under title XVIII of the Social
Security Act, make eligibility determinations under
such title, and carry out part C of such title for years
beginning or after January 1, 2003.
SEC. 202. MISCELLANEOUS ADMINISTRATIVE PROVISIONS.
(a) ADMINISTRATOR AS MEMBER OF THE BOARD OF
TRUSTEES OF THE MEDICARE TRUST FUNDS.—Section
1817(b) and section 1841(b) of the Social Security Act (42
U.S.C. 1395i(b), 1395t(b)) are each amended by striking
‘‘and the Secretary of Health and Human Services, all ex
officio,’’ and inserting ‘‘the Secretary of Health and
Human Services, and the Administrator of the Medicare
Benefits Administration, all ex officio,’’.
107
(b) INCREASE IN GRADE TO EXECUTIVE LEVEL III
FOR THE ADMINISTRATOR OF THE HEALTH CARE FINANC-
ING ADMINISTRATION.—
(1) IN
GENERAL.—Section 5314 of title 5,
United States Code, by adding at the end the fol-
lowing:
‘‘Administrator of the Health Care Financing
Administration.’’.
(2) CONFORMING AMENDMENT.—Section 5315 of
such title is amended by striking ‘‘Administrator of
the Health Care Financing Administration.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection take effect on March 1, 2001.
Subtitle B—Oversight of Financial
Sustainability of the Medicare
Program
SEC. 211. ADDITIONAL REQUIREMENTS FOR ANNUAL FI-
NANCIAL REPORT AND OVERSIGHT ON MEDI-
CARE PROGRAM.
(a) IN GENERAL.—Section 1817 of the Social Security
Act (42 U.S.C. 1395i) is amended by adding at the end
the following new subsection:
‘‘(l) COMBINED REPORT ON OPERATION AND STATUS
OF THE TRUST FUND AND THE FEDERAL SUPPLEMENTARY
MEDICAL INSURANCE TRUST FUND.—
108
‘‘(1) IN GENERAL.—In addition to the duty of
the Board of Trustees to report to Congress under sub-
section (b), on the date the Board submits the report
required under subsection (b)(2), the Board shall sub-
mit to Congress a report on the operation and status
of the Trust Fund and the Federal Supplementary
Medical Insurance Trust Fund established under sec-
tion 1841 (in this subsection referred to as the ‘Trust
Funds’). Such report shall included the following in-
formation:
‘‘(A) OVERALL SPENDING FROM THE GEN-
ERAL FUND OF THE TREASURY.—A statement of
total amounts obligated during the preceding fis-
cal year from the General Revenues of the Treas-
ury to the Trust Funds for payment for benefits
covered under this title, stated in terms of the
total amount and in terms of the percentage such
amount bears to all other amounts obligated
from such General Revenues during such fiscal
year.
‘‘(B) HISTORICAL
OVERVIEW
OF
SPEND-
ING.—From the date of the inception of the pro-
gram of insurance under this title through the
fiscal year involved, a statement of the total
amounts referred to in subparagraph (A).
109
‘‘(C) 10-YEAR AND 50-YEAR PROJECTIONS.—
An estimate of total amounts referred to in sub-
paragraph (A) required to be obligated for pay-
ment for benefits covered under this title for each
of the 10 fiscal years succeeding the fiscal year
involved and for the 50-year period beginning
with the succeeding fiscal year.
‘‘(D) RELATION TO GDP GROWTH.—A com-
parison of the rate of growth of the total
amounts referred to in subparagraph (A) to the
rate of growth in the gross domestic product for
the same period.
‘‘(2) 
PUBLICATION.—Each 
report 
submitted
under paragraph (1) shall be published by the Com-
mittee on Ways and Means as a public document and
shall be made available by such Committee on the
Internet.’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall apply with respect to fiscal years beginning
on or after the date of the enactment of this Act.
(c) CONGRESSIONAL HEARINGS.—It is the sense of
Congress that the committees of jurisdiction shall hold hear-
ings on the reports submitted under section 1817(l) of the
Social Security Act.
110
Subtitle C—Changes in Medicare
Coverage and Appeals Process
SEC. 221. REVISIONS TO MEDICARE APPEALS PROCESS.
(a) CONDUCT OF RECONSIDERATIONS OF DETERMINA-
TIONS BY INDEPENDENT CONTRACTORS.—Section 1869 of
the Social Security Act (42 U.S.C. 1395ff) is amended to
read as follows:
‘‘DETERMINATIONS; APPEALS
‘‘SEC. 1869. (a) INITIAL DETERMINATIONS.—The Sec-
retary shall promulgate regulations and make initial deter-
minations with respect to benefits under part A or part B
in accordance with those regulations for the following:
‘‘(1) The initial determination of whether an in-
dividual is entitled to benefits under such parts.
‘‘(2) The initial determination of the amount of
benefits available to the individual under such parts.
‘‘(3) Any other initial determination with re-
spect to a claim for benefits under such parts, includ-
ing an initial determination by the Secretary that
payment may not be made, or may no longer be
made, for an item or service under such parts, an ini-
tial determination made by a utilization and quality
control peer review organization under section
1154(a)(2), and an initial determination made by an
111
entity pursuant to a contract with the Secretary to
administer provisions of this title or title XI.
‘‘(b) APPEAL RIGHTS.—
‘‘(1) IN GENERAL.—
‘‘(A) RECONSIDERATION OF INITIAL DETER-
MINATION.—Subject to subparagraph (D), any
individual dissatisfied with any initial deter-
mination under subsection (a) shall be entitled to
reconsideration of the determination, and, subject
to subparagraphs (D) and (E), a hearing thereon
by the Secretary to the same extent as is pro-
vided in section 205(b) and to judicial review of
the Secretary’s final decision after such hearing
as is provided in section 205(g).
‘‘(B) REPRESENTATION
BY
PROVIDER
OR
SUPPLIER.—
‘‘(i) IN
GENERAL.—Sections 206(a),
1102, and 1871 shall not be construed as
authorizing the Secretary to prohibit an in-
dividual from being represented under this
section by a person that furnishes or sup-
plies the individual, directly or indirectly,
with services or items, solely on the basis
that the person furnishes or supplies the in-
dividual with such a service or item.
112
‘‘(ii) MANDATORY
WAIVER
OF
RIGHT
TO
PAYMENT
FROM
BENEFICIARY.—Any
person that furnishes services or items to an
individual may not represent an individual
under this section with respect to the issue
described in section 1879(a)(2) unless the
person has waived any rights for payment
from the beneficiary with respect to the
services or items involved in the appeal.
‘‘(iii) PROHIBITION ON PAYMENT FOR
REPRESENTATION.—If a person furnishes
services or items to an individual and rep-
resents the individual under this section, the
person may not impose any financial liabil-
ity on such individual in connection with
such representation.
‘‘(iv) REQUIREMENTS FOR REPRESENT-
ATIVES OF A BENEFICIARY.—The provisions
of section 205(j) and section 206 (regarding
representation of claimants) shall apply to
representation of an individual with respect
to appeals under this section in the same
manner as they apply to representation of
an individual under those sections.
113
‘‘(C) SUCCESSION OF RIGHTS IN CASES OF
ASSIGNMENT.—The right of an individual to an
appeal under this section with respect to an item
or service may be assigned to the provider of
services or supplier of the item or service upon
the written consent of such individual using a
standard form established by the Secretary for
such an assignment.
‘‘(D) TIME LIMITS FOR APPEALS.—
‘‘(i) RECONSIDERATIONS.—Reconsider-
ation under subparagraph (A) shall be
available only if the individual described
subparagraph (A) files notice with the Sec-
retary to request reconsideration by not
later than 180 days after the individual re-
ceives notice of the initial determination
under subsection (a) or within such addi-
tional time as the Secretary may allow.
‘‘(ii) HEARINGS CONDUCTED BY THE
SECRETARY.—The Secretary shall establish
in regulations time limits for the filing of
a request for a hearing by the Secretary in
accordance with provisions in sections 205
and 206.
‘‘(E) AMOUNTS IN CONTROVERSY.—
114
‘‘(i) IN GENERAL.—A hearing (by the
Secretary) shall not be available to an indi-
vidual under this section if the amount in
controversy is less than $100, and judicial
review shall not be available to the indi-
vidual if the amount in controversy is less
than $1,000.
‘‘(ii) AGGREGATION
OF
CLAIMS.—In
determining the amount in controversy, the
Secretary, under regulations, shall allow 2
or more appeals to be aggregated if the ap-
peals involve—
‘‘(I) the delivery of similar or re-
lated services to the same individual by
one or more providers of services or
suppliers, or
‘‘(II) common issues of law and
fact arising from services furnished to
2 or more individuals by one or more
providers of services or suppliers.
‘‘(F) EXPEDITED PROCEEDINGS.—
‘‘(i) EXPEDITED DETERMINATION.—In
the case of an individual who—
‘‘(I) has received notice by a pro-
vider of services that the provider of
115
services plans to terminate services
provided to an individual and a physi-
cian certifies that failure to continue
the provision of such services is likely
to place the individual’s health at sig-
nificant risk, or
‘‘(II) has received notice by a pro-
vider of services that the provider of
services plans to discharge the indi-
vidual from the provider of services,
the individual may request, in writing or
orally, an expedited determination or an ex-
pedited reconsideration of an initial deter-
mination made under subsection (a), as the
case may be, and the Secretary shall pro-
vide such expedited determination or expe-
dited reconsideration.
‘‘(ii) 
EXPEDITED
HEARING.—In 
a
hearing by the Secretary under this section,
in which the moving party alleges that no
material issues of fact are in dispute, the
Secretary shall make an expedited deter-
mination as to whether any such facts are
in dispute and, if not, shall render a deci-
sion expeditiously.
116
‘‘(G) REOPENING AND REVISION OF DETER-
MINATIONS.—The Secretary may reopen or revise
any initial determination or reconsidered deter-
mination described in this subsection under
guidelines established by the Secretary in regula-
tions.
‘‘(2) REVIEW OF COVERAGE DETERMINATIONS.—
‘‘(A) NATIONAL
COVERAGE
DETERMINA-
TIONS.—
‘‘(i) IN GENERAL.—Review of any na-
tional coverage determination shall be sub-
ject to the following limitations:
‘‘(I) Such a determination shall
not be reviewed by any administrative
law judge.
‘‘(II) Such a determination shall
not be held unlawful or set aside on the
ground that a requirement of section
553 of title 5, United States Code, or
section 1871(b) of this title, relating to
publication in the Federal Register or
opportunity for public comment, was
not satisfied.
‘‘(III) Upon the filing of a com-
plaint by an aggrieved party, such a
117
determination shall be reviewed by the
Departmental Appeals Board of the
Department of Health and Human
Services. In conducting such a review,
the Departmental Appeals Board shall
review the record and shall permit dis-
covery and the taking of evidence to
evaluate the reasonableness of the deter-
mination. In reviewing such a deter-
mination, the Departmental Appeals
Board shall defer only to the reason-
able findings of fact, reasonable inter-
pretations of law, and reasonable ap-
plications of fact to law by the Sec-
retary.
‘‘(IV) A decision of the Depart-
mental Appeals Board constitutes a
final agency action and is subject to
judicial review.
‘‘(ii) DEFINITION
OF
NATIONAL
COV-
ERAGE
DETERMINATION.—For purposes of
this section, the term ‘national coverage de-
termination’ means a determination by the
Secretary respecting whether or not a par-
ticular item or service is covered nationally
118
under this title, including such a deter-
mination under 1862(a)(1).
‘‘(B) LOCAL COVERAGE DETERMINATION.—In the
case of a local coverage determination made by a fis-
cal intermediary or a carrier under part A or part
B respecting whether a particular type or class of
items or services is covered under such parts, the fol-
lowing limitations apply:
‘‘(i) Upon the filing of a complaint by an
aggrieved party, such a determination shall be
reviewed by an administrative law judge of the
Social Security Administration. The administra-
tive law judge shall review the record and shall
permit discovery and the taking of evidence to
evaluate the reasonableness of the determination.
In reviewing such a determination, the adminis-
trative law judge shall defer only to the reason-
able findings of fact, reasonable interpretations
of law, and reasonable applications of fact to law
by the Secretary.
‘‘(ii) Such a determination may be reviewed
by the Departmental Appeals Board of the De-
partment of Health and Human Services.
119
‘‘(iii) A decision of the Departmental Ap-
peals Board constitutes a final agency action
and is subject to judicial review.
‘‘(C) NO
MATERIAL
ISSUES
OF
FACT
IN
DIS-
PUTE.—In the case of review of a determination
under subparagraph (A)(i)(III) or (B)(i) where the
moving party alleges that there are no material issues
of fact in dispute, and alleges that the only issue is
the constitutionality of a provision of this title, or
that a regulation, determination, or ruling by the
Secretary is invalid, the moving party may seek re-
view by a court of competent jurisdiction.
‘‘(D) PENDING NATIONAL COVERAGE DETERMINA-
TIONS.—
‘‘(i) IN GENERAL.—In the event the Sec-
retary has not issued a national coverage or non-
coverage determination with respect to a par-
ticular type or class of items or services, an af-
fected party may submit to the Secretary a re-
quest to make such a determination with respect
to such items or services. By not later than the
end of the 90-day period beginning on the date
the Secretary receives such a request, the Sec-
retary shall take one of the following actions:
120
‘‘(I) Issue a national coverage deter-
mination, with or without limitations.
‘‘(II) Issue a national noncoverage de-
termination.
‘‘(III) Issue a determination that no
national coverage or noncoverage deter-
mination is appropriate as of the end of
such 90-day period with respect to national
coverage of such items or services.
‘‘(IV) Issue a notice that states that the
Secretary has not completed a review of the
request for a national coverage determina-
tion and that includes an identification of
the remaining steps in the Secretary’s re-
view process and a deadline by which the
Secretary will complete the review and take
an action described in subclause (I), (II), or
(III).
‘‘(ii) In the case of an action described in
clause (i)(IV), if the Secretary fails to take an
action referred to in such clause by the deadline
specified by the Secretary under such clause,
then the Secretary is deemed to have taken an
action described in clause (i)(III) as of the dead-
line.
121
‘‘(iii) When issuing a determination under
clause (i), the Secretary shall include an expla-
nation of the basis for the determination. An ac-
tion taken under clause (i) (other than subclause
(IV)) is deemed to be a national coverage deter-
mination for purposes of review under subpara-
graph (A).
‘‘(E) ANNUAL REPORT ON NATIONAL COVERAGE
DETERMINATIONS.—
‘‘(i) IN GENERAL.—Not later than December
1 of each year, beginning in 2001, the Secretary
shall submit to Congress a report that sets forth
a detailed compilation of the actual time periods
that were necessary to complete and fully imple-
ment national coverage determinations that were
made in the previous fiscal year for items, serv-
ices, or medical devices not previously covered as
a benefit under this title, including, with respect
to each new item, service, or medical device, a
statement of the time taken by the Secretary to
make the necessary coverage, coding, and pay-
ment determinations, including the time taken to
complete each significant step in the process of
making such determinations.
122
‘‘(ii) PUBLICATION
OF
REPORTS
ON
THE
INTERNET.—The Secretary shall publish each re-
port submitted under clause (i) on the medicare
Internet site of the Department of Health and
Human Services.
‘‘(3) PUBLICATION ON THE INTERNET OF DECI-
SIONS OF HEARINGS OF THE SECRETARY.—Each deci-
sion of a hearing by the Secretary shall be made pub-
lic, and the Secretary shall publish each decision on
the Medicare Internet site of the Department of
Health and Human Services. The Secretary shall re-
move from such decision any information that would
identify any individual, provider of services, or sup-
plier.
‘‘(4) LIMITATION ON REVIEW OF CERTAIN REGU-
LATIONS.—A regulation or instruction which relates
to a method for determining the amount of payment
under part B and which was initially issued before
January 1, 1981, shall not be subject to judicial re-
view.
‘‘(5) STANDING.—An action under this section
seeking review of a coverage determination (with re-
spect to items and services under this title) may be
initiated only by one (or more) of the following ag-
grieved persons, or classes of persons:
123
‘‘(A) Individuals entitled to benefits under
part A, or enrolled under part B, or both, who
are in need of the items or services that are the
subject of the coverage determination.
‘‘(B) Persons, or classes of persons, who
make, manufacture, offer, supply, make avail-
able, or provide such items and services.
‘‘(c) CONDUCT
OF
RECONSIDERATIONS
BY
INDE-
PENDENT CONTRACTORS.—
‘‘(1) IN
GENERAL.—The Secretary shall enter
into contracts with qualified independent contractors
to conduct reconsiderations of initial determinations
made under paragraphs (2) and (3) of subsection (a).
Contracts shall be for an initial term of three years
and shall be renewable on a triennial basis thereafter.
‘‘(2) QUALIFIED INDEPENDENT CONTRACTOR.—
For purposes of this subsection, the term ‘qualified
independent contractor’ means an entity or organiza-
tion that is independent of any organization under
contract with the Secretary that makes initial deter-
minations under subsection (a), and that meets the
requirements established by the Secretary consistent
with paragraph (3).
‘‘(3) 
REQUIREMENTS.—Any 
qualified 
inde-
pendent contractor entering into a contract with the
124
Secretary under this subsection shall meet the fol-
lowing requirements:
‘‘(A) IN
GENERAL.—The qualified inde-
pendent contractor shall perform such duties and
functions and assume such responsibilities as
may be required under regulations of the Sec-
retary promulgated to carry out the provisions of
this subsection, and such additional duties, func-
tions, and responsibilities as provided under the
contract.
‘‘(B) 
DETERMINATIONS.—The 
qualified
independent contractor shall determine, on the
basis of such criteria, guidelines, and policies es-
tablished by the Secretary and published under
subsection (d)(2)(D), whether payment shall be
made for items or services under part A or part
B and the amount of such payment. Such deter-
mination shall constitute the conclusive deter-
mination on those issues for purposes of payment
under such parts for fiscal intermediaries, car-
riers, and other entities whose determinations
are subject to review by the contractor; except
that payment may be made if—
‘‘(i) such payment is allowed by reason
of section 1879;
125
‘‘(ii) in the case of inpatient hospital
services or extended care services, the quali-
fied independent contractor determines that
additional time is required in order to ar-
range for postdischarge care, but payment
may be continued under this clause for not
more than 2 days, and only in the case in
which the provider of such services did not
know and could not reasonably have been
expected to know (as determined under sec-
tion 1879) that payment would not other-
wise be made for such services under part A
or part B prior to notification by the quali-
fied independent contractor under this sub-
section;
‘‘(iii) such determination is changed as
the result of any hearing by the Secretary
or judicial review of the decision under this
section; or
‘‘(iv) such payment is authorized
under section 1861(v)(1)(G).
‘‘(C) DEADLINES FOR DECISIONS.—
‘‘(i) DETERMINATIONS.—The qualified
independent contractor shall conduct and
conclude a determination under subpara-
126
graph (B) or an appeal of an initial deter-
mination, and mail the notice of the deci-
sion by not later than the end of the 45-day
period beginning on the date a request for
reconsideration has been timely filed.
‘‘(ii) CONSEQUENCES OF FAILURE TO
MEET DEADLINE.—In the case of a failure
by the qualified independent contractor to
mail the notice of the decision by the end of
the period described in clause (i), the party
requesting the reconsideration or appeal
may request a hearing before an adminis-
trative law judge, notwithstanding any re-
quirements for a reconsidered determination
for purposes of the party’s right to such
hearing.
‘‘(iii) 
EXPEDITED
RECONSIDER-
ATIONS.—The qualified independent con-
tractor shall perform an expedited reconsid-
eration under subsection (b)(1)(F) of a no-
tice from a provider of services or supplier
that payment may not be made for an item
or service furnished by the provider of serv-
ices or supplier, of a decision by a provider
of services to terminate services furnished to
127
an individual, or in accordance with the
following:
‘‘(I) DEADLINE FOR DECISION.—
Notwithstanding section 216(j), not
later than 1 day after the date the
qualified independent contractor has
received a request for such reconsider-
ation and has received such medical or
other records needed for such reconsid-
eration, the qualified independent con-
tractor shall provide notice (by tele-
phone and in writing) to the indi-
vidual and the provider of services and
attending physician of the individual
of the results of the reconsideration.
Such reconsideration shall be con-
ducted regardless of whether the pro-
vider of services or supplier will charge
the individual for continued services or
whether the individual will be liable
for payment for such continued serv-
ices.
‘‘(II) CONSULTATION WITH BENE-
FICIARY.—In such reconsideration, the
qualified independent contractor shall
128
solicit the views of the individual in-
volved.
‘‘(D) LIMITATION ON INDIVIDUAL REVIEW-
ING DETERMINATIONS.—
‘‘(i) PHYSICIANS.—No physician under
the employ of a qualified independent con-
tractor may review—
‘‘(I) 
determinations 
regarding
health care services furnished to a pa-
tient if the physician was directly re-
sponsible for furnishing such services;
or
‘‘(II) 
determinations 
regarding
health care services provided in or by
an institution, organization, or agen-
cy, if the physician or any member of
the physician’s family has, directly or
indirectly, a significant financial in-
terest in such institution, organization,
or agency.
‘‘(ii) 
PHYSICIAN’S
FAMILY
DE-
SCRIBED.—For purposes of this paragraph,
a physician’s family includes the physi-
cian’s spouse (other than a spouse who is le-
gally separated from the physician under a
129
decree of divorce or separate maintenance),
children (including stepchildren and legally
adopted children), grandchildren, parents,
and grandparents.
‘‘(E) EXPLANATION OF DETERMINATIONS.—
Any determination of a qualified independent
contractor shall be in writing, and shall include
a detailed explanation of the determination as
well as a discussion of the pertinent facts and
applicable regulations applied in making such
determination.
‘‘(F) NOTICE REQUIREMENTS.—Whenever a
qualified independent contractor makes a deter-
mination under this subsection, the qualified
independent contractor shall promptly notify
such individual and the entity responsible for the
payment of claims under part A or part B of
such determination.
‘‘(G) DISSEMINATION
OF
INFORMATION.—
Each qualified independent contractor shall,
using the methodology established by the Sec-
retary under subsection (d)(4), make available
all determinations of such qualified independent
contractors to fiscal intermediaries (under sec-
tion 1816), carriers (under section 1842), peer
130
review organizations (under part B of title XI),
Medicare+Choice 
organizations 
offering
Medicare+Choice plans under part C, and other
entities under contract with the Secretary to
make initial determinations under part A or
part B or title XI.
‘‘(H) ENSURING
CONSISTENCY
IN
DETER-
MINATIONS.—Each qualified independent con-
tractor shall monitor its determinations to en-
sure the consistency of its determinations with
respect to requests for reconsideration of similar
or related matters.
‘‘(I) DATA COLLECTION.—
‘‘(i) IN GENERAL.—Consistent with the
requirements of clause (ii), a qualified inde-
pendent contractor shall collect such infor-
mation relevant to its functions, and keep
and maintain such records in such form
and manner as the Secretary may require
to carry out the purposes of this section and
shall permit access to and use of any such
information and records as the Secretary
may require for such purposes.
‘‘(ii) TYPE
OF
DATA
COLLECTED.—
Each qualified independent contractor shall
131
keep accurate records of each decision made,
consistent with standards established by the
Secretary for such purpose. Such records
shall be maintained in an electronic data-
base in a manner that provides for identi-
fication of the following:
‘‘(I) Specific claims that give rise
to appeals.
‘‘(II) Situations suggesting the
need for increased education for pro-
viders of services, physicians, or sup-
pliers.
‘‘(III) Situations suggesting the
need for changes in national or local
coverage policy.
‘‘(IV) Situations suggesting the
need for changes in local medical re-
view policies.
‘‘(iii) 
ANNUAL
REPORTING.—Each
qualified independent contractor shall sub-
mit annually to the Secretary (or otherwise
as the Secretary may request) records main-
tained under this paragraph for the pre-
vious year.
132
‘‘(J) HEARINGS BY THE SECRETARY.—The
qualified independent contractor shall (i) pre-
pare such information as is required for an ap-
peal of its reconsidered determination to the Sec-
retary for a hearing, including as necessary, ex-
planations of issues involved in the determina-
tion and relevant policies, and (ii) participate
in such hearings as required by the Secretary.
‘‘(4) NUMBER OF QUALIFIED INDEPENDENT CON-
TRACTORS.—The Secretary shall enter into contracts
with not fewer than 12 qualified independent contrac-
tors under this subsection.
‘‘(5) LIMITATION ON QUALIFIED INDEPENDENT
CONTRACTOR
LIABILITY.—No qualified independent
contractor having a contract with the Secretary under
this subsection and no person who is employed by, or
who has a fiduciary relationship with, any such
qualified independent contractor or who furnishes
professional services to such qualified independent
contractor, shall be held by reason of the performance
of any duty, function, or activity required or author-
ized pursuant to this subsection or to a valid contract
entered into under this subsection, to have violated
any criminal law, or to be civilly liable under any
law of the United States or of any State (or political
133
subdivision thereof) provided due care was exercised
in the performance of such duty, function, or activity.
‘‘(d) ADMINISTRATIVE PROVISIONS.—
‘‘(1) OUTREACH.—The Secretary shall perform
such outreach activities as are necessary to inform in-
dividuals entitled to benefits under this title and pro-
viders of services and suppliers with respect to their
rights of, and the process for, appeals made under this
section. The Secretary shall use the toll-free telephone
number maintained by the Secretary (1–800–
MEDICAR(E)) (1–800–633–4227) to provide infor-
mation regarding appeal rights and respond to in-
quiries regarding the status of appeals.
‘‘(2) GUIDANCE
FOR
RECONSIDERATIONS
AND
HEARINGS.—
‘‘(A) REGULATIONS.—Not later than 1 year
after the date of the enactment of this section, the
Secretary shall promulgate regulations governing
the processes of reconsiderations of determina-
tions by the Secretary and qualified independent
contractors and of hearings by the Secretary.
Such regulations shall include such specific cri-
teria and provide such guidance as required to
ensure the adequate functioning of the reconsid-
134
erations and hearings processes and to ensure
consistency in such processes.
‘‘(B) DEADLINES FOR ADMINISTRATIVE AC-
TION.—
‘‘(i) HEARING BY ADMINISTRATIVE LAW
JUDGE.—
‘‘(II) IN
GENERAL.—Except as
provided in subclause (II), an admin-
istrative law judge shall conduct and
conclude a hearing on a decision of a
qualified independent contractor under
subsection (c) and render a decision on
such hearing by not later than the end
of the 90-day period beginning on the
date a request for hearing has been
timely filed.
‘‘(II) WAIVER
OF
DEADLINE
BY
PARTY
SEEKING
HEARING.—The 90-
day period under subclause (i) shall
not apply in the case of a motion or
stipulation by the party requesting the
hearing to waive such period.
‘‘(ii) DEPARTMENTAL APPEALS BOARD
REVIEW.—The Departmental Appeals Board
of the Department of Health and Human
135
Services shall conduct and conclude a re-
view of the decision on a hearing described
in subparagraph (B) and make a decision
or remand the case to the administrative
law judge for reconsideration by not later
than the end of the 90-day period beginning
on the date a request for review has been
timely filed.
‘‘(iii) CONSEQUENCES OF FAILURE TO
MEET DEADLINES.—In the case of a failure
by an administrative law judge to render a
decision by the end of the period described
in clause (ii), the party requesting the hear-
ing may request a review by the Depart-
mental Appeals Board of the Department of
Health and Human Services, notwith-
standing any requirements for a hearing for
purposes of the party’s right to such a re-
view.
‘‘(iv) DAB HEARING PROCEDURE.—In
the case of a request described in clause
(iii), the Departmental Appeals Board shall
review the case de novo.
‘‘(C) POLICIES.—The Secretary shall pro-
vide such specific criteria and guidance, includ-
136
ing all applicable national and local coverage
policies and rationale for such policies, as is nec-
essary to assist the qualified independent con-
tractors to make informed decisions in consid-
ering appeals under this section. The Secretary
shall furnish to the qualified independent con-
tractors the criteria and guidance described in
this paragraph in a published format, which
may be an electronic format.
‘‘(D) PUBLICATION OF MEDICARE COVERAGE
POLICIES
ON
THE
INTERNET.—The Secretary
shall publish national and local coverage policies
under this title on an Internet site maintained
by the Secretary.
‘‘(E) EFFECT
OF
FAILURE
TO
PUBLISH
POLICIES.—
‘‘(i) NATIONAL AND LOCAL COVERAGE
POLICIES.—Qualified independent contrac-
tors shall not be bound by any national or
local medicare coverage policy established
by the Secretary that is not published on
the Internet site under subparagraph (D).
‘‘(ii) OTHER POLICIES.—With respect
to policies established by the Secretary other
than the policies described in clause (i),
137
qualified independent contractors shall not
be bound by such policies if the Secretary
does not furnish to the qualified inde-
pendent contractor the policies in a pub-
lished format consistent with subparagraph
(C).
‘‘(3) CONTINUING EDUCATION REQUIREMENT FOR
QUALIFIED INDEPENDENT CONTRACTORS AND ADMIN-
ISTRATIVE LAW JUDGES.—
‘‘(A) IN
GENERAL.—The Secretary shall
provide to each qualified independent contractor,
and, in consultation with the Commissioner of
Social Security, to administrative law judges
that decide appeals of reconsiderations of initial
determinations or other decisions or determina-
tions under this section, such continuing edu-
cation with respect to policies of the Secretary
under this title or part B of title XI as is nec-
essary for such qualified independent contractors
and administrative law judges to make informed
decisions with respect to appeals.
‘‘(B) MONITORING OF DECISIONS BY QUALI-
FIED INDEPENDENT CONTRACTORS AND ADMINIS-
TRATIVE
LAW
JUDGES.—The Secretary shall
monitor determinations made by all qualified
138
independent contractors and administrative law
judges under this section and shall provide con-
tinuing education and training to such qualified
independent contractors and administrative law
judges to ensure consistency of determinations
with respect to appeals on similar or related
matters. To ensure such consistency, the Sec-
retary shall provide for administration and over-
sight of qualified independent contractors and,
in consultation with the Commissioner of Social
Security, administrative law judges through a
central office of the Department of Health and
Human Services. Such administration and over-
sight may not be delegated to regional offices of
the Department.
‘‘(4) DISSEMINATION OF DETERMINATIONS.—The
Secretary shall establish a methodology under which
qualified independent contractors shall carry out sub-
section (c)(3)(G).
‘‘(5) SURVEY.—Not less frequently than every 5
years, the Secretary shall conduct a survey of a valid
sample of individuals entitled to benefits under this
title, providers of services, and suppliers to determine
the satisfaction of such individuals or entities with
the process for appeals of determinations provided for
139
under this section and education and training pro-
vided by the Secretary with respect to that process.
The Secretary shall submit to Congress a report de-
scribing the results of the survey, and shall include
any recommendations for administrative or legislative
actions that the Secretary determines appropriate.
‘‘(6) REPORT
TO
CONGRESS.—The Secretary
shall submit to Congress an annual report describing
the number of appeals for the previous year, identi-
fying issues that require administrative or legislative
actions, and including any recommendations of the
Secretary with respect to such actions. The Secretary
shall include in such report an analysis of determina-
tions by qualified independent contractors with re-
spect to inconsistent decisions and an analysis of the
causes of any such inconsistencies.’’.
(b) APPLICABILITY OF REQUIREMENTS AND LIMITA-
TIONS ON LIABILITY OF QUALIFIED INDEPENDENT CON-
TRACTORS TO MEDICARE+CHOICE INDEPENDENT APPEALS
CONTRACTORS.—Section 1852(g)(4) of the Social Security
Act (42 U.S.C. 1395w–22(e)(3)) is amended by adding at
the end the following: ‘‘The provisions of section 1869(c)(5)
shall apply to independent outside entities under contract
with the Secretary under this paragraph.’’.
140
(c) CONFORMING AMENDMENT TO REVIEW BY THE
PROVIDER
REIMBURSEMENT
REVIEW
BOARD.—Section
1878(g) of the Social Security Act (42 U.S.C. 1395oo(g))
is amended by adding at the end the following new para-
graph:
‘‘(3) Findings described in paragraph (1) and deter-
minations and other decisions described in paragraph (2)
may be reviewed or appealed under section 1869.’’.
SEC. 222. PROVISIONS WITH RESPECT TO LIMITATIONS ON
LIABILITY OF BENEFICIARIES.
(a) EXPANSION OF LIMITATION OF LIABILITY PROTEC-
TION FOR BENEFICIARIES WITH RESPECT TO MEDICARE
CLAIMS NOT PAID OR PAID INCORRECTLY.—
(1) IN GENERAL.—Section 1879 of the Social Se-
curity Act (42 U.S.C. 1395pp) is amended by adding
at the end the following new subsections:
‘‘(i) Notwithstanding any other provision of this Act,
an individual who is entitled to benefits under this title
and is furnished a service or item is not liable for repay-
ment to the Secretary of amounts with respect to such
benefits—
‘‘(1) subject to paragraph (2), in the case of a
claim for such item or service that is incorrectly paid
by the Secretary; and
141
‘‘(2) in the case of payments made to the indi-
vidual by the Secretary with respect to any claim
under paragraph (1), the individual shall be liable for
repayment of such amount only up to the amount of
payment received by the individual from the Sec-
retary.
‘‘(j)(1) An individual who is entitled to benefits under
this title and is furnished a service or item is not liable
for payment of amounts with respect to such benefits in the
following cases:
‘‘(A) In the case of a benefit for which an initial
determination has not been made by the Secretary
under subsection (a) whether payment may be made
under this title for such benefit.
‘‘(B) In the case of a claim for such item or serv-
ice that is—
‘‘(i) improperly submitted by the provider
of services or supplier; or
‘‘(ii) rejected by an entity under contract
with the Secretary to review or pay claims for
services and items furnished under this title, in-
cluding an entity under contract with the Sec-
retary under section 1857.
‘‘(2) The limitation on liability under paragraph (1)
shall not apply if the individual signs a waiver provided
142
by the Secretary under subsection (l) of protections under
this paragraph, except that any such waiver shall not apply
in the case of a denial of a claim for noncompliance with
applicable regulations or procedures under this title or title
XI.
‘‘(k) An individual who is entitled to benefits under
this title and is furnished services by a provider of services
is not liable for payment of amounts with respect to such
services prior to noon of the first working day after the date
the individual receives the notice of determination to dis-
charge and notice of appeal rights under paragraph (1),
unless the following conditions are met:
‘‘(1) The provider of services shall furnish a no-
tice of discharge and appeal rights established by the
Secretary under subsection (l) to each individual enti-
tled to benefits under this title to whom such provider
of services furnishes services, upon admission of the
individual to the provider of services and upon notice
of determination to discharge the individual from the
provider of services, of the individual’s limitations of
liability under this section and rights of appeal under
section 1869.
‘‘(2) If the individual, prior to discharge from
the provider of services, appeals the determination to
discharge under section 1869 not later than noon of
143
the first working day after the date the individual re-
ceives the notice of determination to discharge and
notice of appeal rights under paragraph (1), the pro-
vider of services shall, by the close of business of such
first working day, provide to the Secretary (or quali-
fied independent contractor under section 1869, as de-
termined by the Secretary) the records required to re-
view the determination.
‘‘(l) The Secretary shall develop appropriate standard
forms for individuals entitled to benefits under this title to
waive limitation of liability protections under subsection
(j) and to receive notice of discharge and appeal rights
under subsection (k). The forms developed by the Secretary
under this subsection shall clearly and in plain language
inform such individuals of their limitations on liability,
their rights under section 1869(a) to obtain an initial deter-
mination by the Secretary of whether payment may be
made under part A or part B for such benefit, and their
rights of appeal under section 1869(b), and shall inform
such individuals that they may obtain further information
or file an appeal of the determination by use of the toll-
free telephone number (1–800–MEDICAR(E)) (1–800–633–
4227) maintained by the Secretary. The forms developed by
the Secretary under this subsection shall be the only manner
144
in which such individuals may waive such protections
under this title or title XI.
‘‘(m) An individual who is entitled to benefits under
this title and is furnished an item or service is not liable
for payment of cost sharing amounts of more than $50 with
respect to such benefits unless the individual has been in-
formed in advance of being furnished the item or service
of the estimated amount of the cost sharing for the item
or service using a standard form established by the Sec-
retary.’’.
(2) CONFORMING AMENDMENT.—Section 1870(a)
of the Social Security Act (42 U.S.C. 1395gg(a)) is
amended by striking ‘‘Any payment under this title’’
and inserting ‘‘Except as provided in section 1879(i),
any payment under this title’’.
(b) INCLUSION OF BENEFICIARY LIABILITY INFORMA-
TION IN EXPLANATION OF MEDICARE BENEFITS.—Section
1806(a) of the Social Security Act (42 U.S.C. 1395b–7(a))
is amended—
(1) in paragraph (1), by striking ‘‘and’’ at the
end;
(2) by redesignating paragraph (2) as para-
graph (3); and
(3) by inserting after paragraph (1) the fol-
lowing new paragraph:
145
‘‘(2) lists with respect to each item or service fur-
nished the amount of the individual’s liability for
payment;’’;
(4) in paragraph (3), as so redesignated, by
striking the period at the end and inserting ‘‘; and’’;
and
(5) by adding at the end the following new para-
graph:
‘‘(4) includes the toll-free telephone number (1–
800–MEDICAR(E)) (1–800–633–4227) for informa-
tion and questions concerning the statement, liability
of the individual for payment, and appeal rights.’’.
SEC. 223. WAIVERS OF LIABILITY FOR COST SHARING
AMOUNTS.
(a) IN GENERAL.—Section 1128A(i)(6)(A) of the So-
cial Security Act (42 U.S.C. 1320a–7a(i)(6)(A)) is amend-
ed by striking clauses (i) through (iii) and inserting the
following:
‘‘(i) the waiver is offered as a part of
a supplemental insurance policy or retiree
health plan;
‘‘(ii) the waiver is not offered as part
of any advertisement or solicitation, other
than in conjunction with a policy or plan
described in clause (i);
146
‘‘(iii) the person waives the coinsur-
ance and deductible amount after the bene-
ficiary informs the person that payment of
the coinsurance or deductible amount would
pose a financial hardship for the indi-
vidual; or
‘‘(iv) the person determines that the co-
insurance and deductible amount would not
justify the costs of collection.’’.
(b) CONFORMING AMENDMENT.—Section 1128B(b) of
the Social Security Act (42 U.S.C. 1320a–7b(b)) is amend-
ed by adding at the end the following new paragraph:
‘‘(4) In this section, the term ‘remuneration’ in-
cludes the meaning given such term in section
1128A(i)(6).’’.
SEC. 224. ELIMINATION OF MOTIONS BY THE SECRETARY
ON DECISIONS OF THE PROVIDER REIM-
BURSEMENT REVIEW BOARD.
Section 1878(f)(1) of such Act (42 U.S.C. 1395oo(f)(1))
is amended—
(1) in the first sentence, by striking ‘‘unless the
Secretary, on his own motion, and within 60 days
after the provider of services is notified of the Board’s
decision, reverses, affirms, or modifies the Board’s de-
cision’’;
147
(2) in the second sentence, by striking ‘‘, or of
any reversal, affirmance, or modification by the Sec-
retary,’’ and ‘‘or of any reversal, affirmance, or modi-
fication by the Secretary’’; and
(3) in the fifth sentence, by striking ‘‘and not
subject to review by the Secretary’’.
TITLE 
III—MEDICARE+CHOICE
REFORMS; PRESERVATION OF
MEDICARE PART B DRUG BEN-
EFIT
Subtitle A—Medicare+Choice
Reforms
SEC. 
301. 
INCREASE 
IN 
NATIONAL 
PER 
CAPITA
MEDICARE+CHOICE GROWTH PERCENTAGE IN
2001 AND 2002.
Section 1853(c)(6)(B) of the Social Security Act (42
U.S.C. 1395w–23(c)(6)(B)) is amended—
(1) in clause (iv), by striking ‘‘for 2001, 0.5 per-
centage points’’ and inserting ‘‘for 2001, 0 percentage
points’’; and
(2) in clause (v), by striking ‘‘for 2002, 0.3 per-
centage points’’ and inserting ‘‘for 2002, 0 percentage
points’’.
148
SEC. 302. PERMANENTLY REMOVING APPLICATION OF
BUDGET NEUTRALITY BEGINNING IN 2002.
Section 1853(c) of the Social Security Act (42 U.S.C.
1395w–23(c)) is amended—
(1) in paragraph (1)(A), in the matter following
clause (ii), by inserting ‘‘(for years before 2002)’’
after ‘‘multiplied’’; and
(2) in paragraph (5), by inserting ‘‘(before
2002)’’ after ‘‘for each year’’.
SEC. 303. INCREASING MINIMUM PAYMENT AMOUNT.
(a) IN GENERAL.—Section 1853(c)(1)(B)(ii) of the So-
cial Security Act (42 U.S.C. 1395w–23(c)(1)(B)(ii)) is
amended—
(1) by striking ‘‘(ii) For a succeeding year’’ and
inserting ‘‘(ii)(I) Subject to subclause (II), for a suc-
ceeding year’’; and
(2) by adding at the end the following new sub-
clause:
‘‘(II) For 2002 for any of the 50 States
and the District of Columbia, $450.’’.
(b) EFFECTIVE DATE.—The amendments made by sub-
section (a) apply to years beginning with 2002.
SEC. 304. ALLOWING MOVEMENT TO 50:50 PERCENT BLEND
IN 2002.
Section 1853(c)(2) of the Social Security Act (42
U.S.C. 1395w–23(c)(2)) is amended—
149
(1) by striking the period at the end of subpara-
graph (F) and inserting a semicolon; and
(2) by adding after and below subparagraph (F)
the following:
‘‘except that a Medicare+Choice organization may
elect to apply subparagraph (F) (rather than sub-
paragraph (E)) for 2002.’’.
SEC. 305. INCREASED UPDATE FOR PAYMENT AREAS WITH
ONLY ONE OR NO MEDICARE+CHOICE CON-
TRACTS.
(a) IN GENERAL.—Section 1853(c)(1)(C)(ii) of the So-
cial Security Act (42 U.S.C. 1395w–23(c)(1)(C)(ii)) is
amended—
(1) by striking ‘‘(ii) For a subsequent year’’ and
inserting ‘‘(ii)(I) Subject to subclause (II), for a sub-
sequent year’’; and
(2) by adding at the end the following new sub-
clause:
‘‘(II) During 2002, 2003, 2004, and
2005, in the case of a Medicare+Choice
payment area in which there is no more
than 1 contract entered into under this part
as of July 1 before the beginning of the
year, 
102.5 
percent 
of 
the 
annual
Medicare+Choice capitation rate under this
150
paragraph for the area for the previous
year.’’.
(b) CONSTRUCTION.—The amendments made by sub-
section (a) do not affect the payment of a first time bonus
under section 1853(i) of the Social Security Act (42 U.S.C.
1395w–23(i)).
SEC. 306. PERMITTING HIGHER NEGOTIATED RATES IN CER-
TAIN MEDICARE+CHOICE PAYMENT AREAS
BELOW NATIONAL AVERAGE.
Section 1853(c)(1) of the Social Security Act (42
U.S.C. 1395w–23(c)(1)) is amended—
(1) in the matter before subparagraph (A), by
striking ‘‘or (C)’’ and inserting ‘‘(C), or (D)’’; and
(2) by adding at the end the following new sub-
paragraph:
‘‘(D) PERMITTING HIGHER RATES THROUGH
NEGOTIATION.—
‘‘(i) IN GENERAL.—For each year be-
ginning with 2004, in the case of a
Medicare+Choice payment area for which
the Medicare+Choice capitation rate under
this paragraph would otherwise be less than
the United States per capita cost (USPCC),
as 
calculated 
by 
the 
Secretary, 
a
Medicare+Choice organization may nego-
151
tiate with the Medicare Benefits Adminis-
trator an annual per capita rate that—
‘‘(I) reflects an annual rate of in-
crease up to the rate of increase speci-
fied in clause (ii);
‘‘(II) takes into account audited
current data supplied by the organiza-
tion on its adjusted community rate
(as defined in section 1854(f)(3)); and
‘‘(III) does not exceed the United
States per capita cost, as projected by
the Secretary for the year involved.
‘‘(ii) MAXIMUM
RATE
DESCRIBED.—
The rate of increase specified in this clause
for a year is the rate of inflation in private
health insurance for the year involved, as
projected by the Medicare Benefits Adminis-
trator, and includes such adjustments as
may be necessary—
‘‘(I) to reflect the demographic
characteristics in the population under
this title; and
‘‘(II) to eliminate the costs of pre-
scription drugs.
152
‘‘(iii) ADJUSTMENTS
FOR
OVER
OR
UNDER PROJECTIONS.—If subparagraph is
applied to an organization and payment
area for a year, in applying this subpara-
graph for a subsequent year the provisions
of paragraph (6)(C) shall apply in the same
manner as such provisions apply under this
paragraph.’’.
SEC. 307. 10-YEAR PHASE IN OF RISK ADJUSTMENT BASED
ON DATA FROM ALL SETTINGS.
Section 1853(a)(3)(C)(ii) of the Social Security Act
(42 U.S.C. 1395w–23(c)(1)(C)(ii)) is amended—
(1) by striking the period at the end of subclause
(II) and inserting a semicolon; and
(2) by adding after and below subclause (II) the
following:
‘‘and, beginning in 2004, insofar as such
risk adjustment is based on data from all
settings, the methodology shall be phased in
equal increments over a 10 year period, be-
ginning with 2004 or (if later) the first
year in which such data is used.’’.
153
Subtitle B—Preservation of Medi-
care Coverage of Drugs and
Biologicals
SEC. 311. PRESERVATION OF COVERAGE OF DRUGS AND
BIOLOGICALS UNDER PART B OF THE MEDI-
CARE PROGRAM.
(a) IN GENERAL.—Section 1861(s)(2) of the Social Se-
curity Act (42 U.S.C. 1395x(s)(2)) is amended, in each of
subparagraphs (A) and (B), by striking ‘‘(including drugs
and biologicals which cannot, as determined in accordance
with regulations, be self-administered)’’ and inserting ‘‘(in-
cluding injectable and infusable drugs and biologicals which
are not usually self-administered by the patient)’’.
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) applies to drugs and biologicals administered
on or after October 1, 2000.
SEC. 312. GAO REPORT ON PART B PAYMENT FOR DRUGS
AND BIOLOGICALS AND RELATED SERVICES.
(a) IN GENERAL.—The Comptroller General of the
United States shall conduct a study to quantify the extent
to which reimbursement for drugs and biologicals under the
current medicare payment methodology (provided under
section 1842 (o) of the Social Security Act (42 U.S.C.
1395u(o)) overpays for the cost of such drugs and biologicals
154
compared to the average acquisition cost paid by physicians
or other suppliers of such drugs
(B) ELEMENTS.—The study shall also assess the con-
sequences of changing the current medicare payment meth-
odology to a payment methodology that is based on the aver-
age acquisition cost of the drugs. The study shall, at a min-
imum, assess the effects of such a reduction on—
(1) the delivery of health care services to Medi-
care beneficiaries with cancer;
(2) total Medicare expenditures, including an es-
timate of the number of patients who would, as a re-
sult of the payment reduction, receive chemotherapy
in a hospital rather than in a physician’s office;
(3) the delivery of dialysis services;
(4) the delivery of vaccines;
(5) the administration in physician offices of
drugs other than cancer therapy drugs; and
(6) the effect on the delivery of drug therapies by
hospital outpatient departments of changing the aver-
age wholesale price as the basis for Medicare pass-
through payments to such departments, as included
in the Medicare, Medicaid, and SCHIP Balanced
Budget Refinement Act of 1999.
(c) PAYMENT
FOR RELATED PROFESSIONAL SERV-
ICES.—The study shall also include a review of the extent
155
to which other payment methodologies under part B of the
medicare program, if any, intended to reimburse physician
and other suppliers of drugs and biologicals described in
subsection (a) for costs incurred in handling, storing and
administering such drugs and biologicals are inadequate to
cover such costs and whether an additional payment would
be required to cover these costs under the average acquisi-
tion cost methodology.
(d) CONSIDERATION OF ISSUES IN IMPLEMENTING AN
AVERAGE ACQUISITION COST METHODOLOGY.—The study
shall assess possible means by which a payment method
based on average acquisition cost could be implemented, in-
cluding at least the following:
(1) Identification of possible bases for deter-
mining the average acquisition cost of drugs, such as
surveys of wholesaler catalog prices, and determina-
tion of the advantages, disadvantages, and costs (to
the government and public) of each possible approach.
(2) The impact on individual providers and
practitioners if average or median prices are used as
the payment basis.
(3) Methods for updating and keeping current
the prices used as the payment basis.
(e) COORDINATION WITH BBRA STUDY.—The Comp-
troller General shall conduct the study under this section