organization under part C, an organization
under section 1876, or provide for payment
under section 1833(a)(1)(A) with respect to an
organization which provides reimbursement for
covered outpatient drugs, with respect to a plan
that is not a drug buy-out plan, unless the or-
ganization provides assurances, satisfactory to
the Secretary, that—
‘‘(i) the organization will maintain
and make available, for its enrollees and in
coordination with the appropriate carriers
under this part, an accounting of expenses
incurred by (or on behalf of) enrollees
under the plan for covered outpatient
drugs; and
‘‘(ii) the organization will take into
account, in any deductibles established
under the plan in a year with respect to
covered outpatient drugs under this part,
the amounts of expenses for covered out-
patient drugs incurred in the year by (or
on behalf of) the beneficiary and otherwise
counted toward the prescription drug de-
ductible in the year.
‘‘(D) DRUG BUY-OUT PLAN DEFINED.—In
this paragraph, the term ‘drug buy-out plan’
means a plan under section 1833(a)(1)(A) or
offered by a Medicare+Choice organization
under part C, or an organization under section
1876 and with respect to which—
‘‘(i) the amount of any deductible
under the plan with respect to covered out-
patient drugs under this title,
is less than 50 percent of—
‘‘(ii) the prescription drug deductible
specified in paragraph (1)(C).
‘‘(E) MEDICARE BENEFICIARY DEFINED.—
In this subsection, the term ‘Medicare bene-
ficiary’ means, with respect to a month, an in-
dividual covered for benefits under this part for
the month.
‘‘(F) TREATMENT OF PLAN CHARGES.—In
the case of covered outpatient drugs furnished
by a Medicare+Choice organization under part
C, an eligible organization under section
1876(b) or an organization described in section
1833(a)(1)(A) which does not impose charges
on covered outpatient drugs dispensed to its
members, for purposes of this subsection the
actual charges of the organization shall be the
organization’s standard charges to members,
and other individuals, not entitled to benefits
with respect to such drugs.
‘‘(7) PHYSICIAN GUIDE.—
‘‘(A) IN
GENERAL.—The Secretary shall
develop, and update annually, an information
guide for physicians concerning the comparative
average wholesale prices of at least 500 of the
most commonly prescribed covered outpatient
drugs. Such guide shall, to the extent prac-
ticable, group covered outpatient drugs (includ-
ing multiple source drugs) in a manner useful
to physicians by therapeutic category or with
respect to the conditions for which they are pre-
scribed. Such guide shall specify the average
wholesale prices on the basis of the amount of
the drug required for a typical daily therapeutic
regimen.
‘‘(B) MAILING
GUIDE.—The Secretary
shall provide for mailing, in January of each
year (beginning with 2003), a copy of the guide
developed and updated under subparagraph
(A)—
‘‘(i) to each hospital with an agree-
ment in effect under section 1866;
‘‘(ii) to each physician (as defined in
section 1861(r)(1)) who routinely provides
services under this part; and
‘‘(iii) to Social Security offices, senior
citizen centers, and other appropriate
places.
‘‘(8) REPORTS ON UTILIZATION AND EFFECTS
ON PRICES.—
‘‘(A) COMPILATION
OF
INFORMATION.—
The Secretary shall compile information on—
‘‘(i) manufacturers’ prices for covered
outpatient drugs, and on charges of phar-
macists for covered outpatient drugs, and
‘‘(ii) the use of covered outpatient
drugs by individuals entitled to benefits
under this part.
The information compiled under clause (i) shall
include a comparison of the increases in prices
and charges for covered outpatient drugs dur-
ing each 6 month period (beginning with Janu-
ary 1999) with the semiannual average increase
in such prices and charges during the 5 years
beginning with 1993.
‘‘(B) REPORTS.—The Secretary shall sub-
mit to the Committees on Ways and Means and
Commerce of the House of Representatives and
the Committee on Finance of the Senate a re-
port, in May and November of 2002 and 2003
and in May of each succeeding year, providing
the information compiled under subparagraph
(A). For each such report submitted after
2004, the report shall include an explanation of
the extent to which the increases in outlays for
covered outpatient drugs under this part are
due to the factors described in subparagraphs
(A)(i) and (A)(ii).
‘‘(9) DEFINITIONS.—In this subsection:
‘‘(A) MULTIPLE SOURCE DRUG.—
‘‘(i) IN
GENERAL.—The term ‘mul-
tiple source drug’ means, with respect to a
payment calculation period, a covered out-
patient drug for which there are 2 or more
drug products which—
‘‘(I) are rated as therapeutically
equivalent (under the Food and Drug
Administration’s most recent publica-
tion of ‘Approved Drug Products with
Therapeutic 
Equivalence 
Evalua-
tions’);
‘‘(II) except as provided in clause
(ii), are pharmaceutically equivalent
and bioequivalent, as defined in clause
(iii) and as determined by the Food
and Drug Administration; and
‘‘(III) are sold or marketed dur-
ing the period.
‘‘(ii) EXCEPTION.—Subclause (II) of
clause (i) shall not apply if the Food and
Drug Administration changes by regulation
(after an opportunity for public comment
of 90 days) the requirement that, for pur-
poses of the publication described in clause
(i)(I), in order for drug products to be
rated as therapeutically equivalent, they
must be pharmaceutically equivalent and
bioequivalent, as defined in clause (iii).
‘‘(iii) DEFINITIONS.—For purposes of
this subparagraph:
‘‘(I) PHARMACEUTICALLY EQUIV-
ALENT.—Drug products are pharma-
ceutically equivalent if the products
contain identical amounts of the same
active drug ingredient in the same
dosage form and meet compendial or
other applicable standards of strength,
quality, purity, and identity.
‘‘(II) 
BIOEQUIVALENT.—Drugs
are bioequivalent if they do not
present a known or potential bio-
equivalence problem or, if they do
present such a problem, are shown to
meet an appropriate standard of bio-
equivalence.
‘‘(III) SOLD OR MARKETED.—A
drug is considered to be sold or mar-
keted during a period if it is listed in
the publications referred to in clause
(i)(I), unless the Secretary determines
that such sale or marketing is not ac-
tually taking place.
‘‘(B) 
RESTRICTIVE
PRESCRIPTION.—A
drug has a ‘restrictive prescription’ only if—
‘‘(i) in the case of a written prescrip-
tion, the prescription for the drug indi-
cates, in the handwriting of the physician
or other person prescribing the drug and
with an appropriate phrase (such as ‘brand
medically necessary’) recognized by the
Secretary, that the particular drug must be
dispensed; or
‘‘(ii) in the case of a prescription
issued by telephone—
‘‘(I) the physician or other per-
son prescribing the drug (through use
of such an appropriate phrase) states
that the particular drug must be dis-
pensed, and
‘‘(II) the physician or other per-
son submits to the pharmacy involved,
within 30 days after the date of the
telephone prescription, a written con-
firmation which is in the handwriting
of the physician or other person pre-
scribing the drug and which indicates
with such appropriate phrase that the
particular drug was required to have
been dispensed.
‘‘(C) PAYMENT
CALCULATION
PERIOD.—
The term ‘payment calculation period’ means
the 6-month period beginning with January of
each year and the 6-month period beginning
with July of each year.’’.
(c) PARTICIPATING
PHARMACIES; CIVIL
MONEY
PENALTIES.—
(1) 
PARTICIPATING
PHARMACIES.—Section
1842 of such Act (42 U.S.C. 1395t) is amended—
(A) in subsection (h)(1), by inserting be-
fore the period at the end of the second sen-
tence the following: ‘‘, except that, with respect
to a supplier of covered outpatient drugs, the
term ‘participating supplier’ means a partici-
pating pharmacy (as defined in subsection
(u)(1))’’;
(B) in subsection (h)(4), by adding at the
end the following: ‘‘In publishing directories
under this paragraph, the Secretary shall pro-
vide for separate directories (wherever appro-
priate) for participating pharmacies.’’; and
(C) by inserting after subsection (t) the
following new subsection:
‘‘(u)(1) For purposes of this section, the term ‘par-
ticipating pharmacy’ means, with respect to covered out-
patient drugs dispensed on or after January 1, 2003, an
entity which is authorized under a State law to dispense
covered outpatient drugs and which has entered into an
agreement with the Secretary, providing at least the fol-
lowing:
‘‘(A) The entity agrees to accept payment under
this part on an assignment-related basis for all cov-
ered outpatient drugs dispensed to an individual en-
titled to benefits under this part (in this subsection
referred to as a ‘Medicare beneficiary’) during a
year after—
‘‘(i) the Secretary has notified the entity,
through the electronic system described in para-
graph (4); or
‘‘(ii) in the absence of such a system, the
entity is otherwise notified that the Secretary
has determined,
that the individual has met the prescription drug de-
ductible with respect to such drugs under section
1834(e)(1) for the year.
‘‘(B) The entity agrees—
‘‘(i) not to refuse to dispense covered out-
patient drugs stocked by the entity to any medi-
care beneficiary; and
‘‘(ii) not to charge Medicare beneficiaries
(regardless of whether or not the beneficiaries
are enrolled under a prepaid health plan, a
Medicare+Choice organization under part C, or
with eligible organization under section 1876)
more for such drugs than the amount it charges
to the general public (as determined by the Sec-
retary in regulations).
‘‘(C) The entity agrees to keep patient records
(including records on expenses) for all covered out-
patient drugs dispensed to all medicare beneficiaries.
‘‘(D) The entity agrees to submit information
(in a manner specified by the Secretary to be nec-
essary to administer this title) on all purchases of
covered outpatient drugs dispensed to medicare
beneficiaries.
‘‘(E) The entity agrees—
‘‘(i) to offer to counsel, or to offer to pro-
vide information (consistent with State law re-
specting the provision of such information) to,
each Medicare beneficiary on the appropriate
use of a drug to be dispensed and whether there
are potential interactions between the drug and
other drugs dispensed to the beneficiary; and
‘‘(ii) to advise the beneficiary on the avail-
ability (consistent with State laws respecting
substitution of drugs) of therapeutically equiva-
lent covered outpatient drugs.
‘‘(F) The entity agrees to provide the informa-
tion requested by the Secretary in surveys under sec-
tion 1834(e)(3)(C)(ii).
Nothing in this paragraph shall be construed as requiring
a pharmacy operated by a Medicare+Choice organization
under part C, an eligible organization (described in section
1876(b)) or an organization described in section
1833(a)(1)(A) for the exclusive benefit of its members to
dispense covered outpatient drugs to individuals who are
not members of the organization.
‘‘(2) The Secretary shall provide to each participating
pharmacy—
‘‘(A) a distinctive emblem (suitable for display
to the public) indicating that the pharmacy is a par-
ticipating pharmacy; and
‘‘(B) upon request, such electronic equipment
and technical assistance (other than the costs of ob-
taining, maintaining, or expanding telephone service)
as the Secretary determines may be necessary for
the pharmacy to submit claims using the electronic
system established under paragraph (4).
‘‘(3) The Secretary shall provide for periodic audits
of participating pharmacies to assure—
‘‘(A) compliance with the requirements for par-
ticipation under this title; and
‘‘(B) the accuracy of information submitted by
the pharmacies under this title.
‘‘(4) The Secretary shall establish, by not later than
January 1, 2003, a point-of-sale electronic system for use
by carriers and participating pharmacies in the submission
of information respecting covered outpatient drugs dis-
pensed to medicare beneficiaries under this part.
‘‘(5) Notwithstanding subsection (b)(3)(B), payment
for covered outpatient drugs may be made on the basis
of an assignment described in clause (ii) of that subsection
only to a participating pharmacy.’’.
(2) CIVIL MONEY PENALTIES FOR VIOLATION
OF
PARTICIPATION
AGREEMENT, FOR
EXCESSIVE
CHARGES FOR NONPARTICIPATING PHARMACIES AND
FOR FAILURE TO PROVIDE SURVEY INFORMATION.—
Section 1128A(a) of such Act (42 U.S.C. 1320a–
7a(a)) is amended—
(A) in paragraph (2)(C), by inserting ‘‘or
to be a participating pharmacy under section
1842(u)’’ after ‘‘1842(h)(1)’’;
(B) by striking ‘‘, or’’ at the end of para-
graph (6);
(C) by adding ‘‘or’’ at the end of para-
graph (7); and
(D) by inserting after paragraph (7) the
following new paragraph:
‘‘(8) in the case of a participating or non-
participating pharmacy (as defined for purposes of
part B of title XVIII)—
‘‘(A) presents or causes to be presented to
any person a request for payment for covered
outpatient drugs dispensed to an individual en-
titled to benefits under part B of title XVIII
and for which the amount charged by the phar-
macy is greater than the amount the pharmacy
charges the general public (as determined by
the Secretary in regulations), or
‘‘(B) fails to provide the information re-
quested by the Secretary in a survey under sec-
tion 1834(e)(3)(C)(ii);’’.
(d) LIMITATION ON LENGTH OF PRESCRIPTION.—
Section 1862(c) of such Act (42 U.S.C. 1395y(c)) is
amended—
(1) by redesignating subparagraphs (A) through
(D) of paragraph (1) as clauses (i) through (iv) re-
spectively;
(2) in paragraph (2)(A), by striking ‘‘paragraph
(1)’’ and inserting ‘‘subparagraph (A)’’;
(3) by redesignating subparagraphs (A) and
(B) of paragraph (2) as clauses (i) and (ii) respec-
tively;
(4) by redesignating paragraphs (1) and (2) as
subparagraphs (A) and (B) respectively;
(5) by inserting ‘‘(1)’’ after ‘‘(c)’’; and
(6) by adding at the end the following new
paragraph:
‘‘(2) No payment may be made under part B for any
expense incurred for a covered outpatient drug if the drug
is dispensed in a quantity exceeding a supply of 30 days
or such longer period of time (not to exceed 90 days, ex-
cept in exceptional circumstances) as the Secretary may
authorize.’’.
(e) USE
OF CARRIERS, FISCAL INTERMEDIARIES,
AND OTHER ENTITIES IN ADMINISTRATION.—
(1) AUTHORIZING USE OF OTHER ENTITIES IN
ELECTRONIC CLAIMS SYSTEM.—Section 1842(f) of
such Act (42 U.S.C. 1395u(f)) is amended—
(A) by striking ‘‘and’’ at the end of para-
graph (1);
(B) by striking the period at the end of
paragraph (2) and inserting ‘‘; and’’; and
(C) by adding at the end the following new
paragraph:
‘‘(3) with respect to implementation and oper-
ation (and related functions) of the electronic system
established under subsection (u)(4), a voluntary as-
sociation, corporation, partnership, or other non-
governmental organization, which the Secretary de-
termines to be qualified to conduct such activities.’’.
(2) ADDITIONAL
FUNCTIONS
OF
CARRIERS.—
Section 1842(b)(3) of such Act (42 U.S.C.
1395u(b)(3)) is amended—
(A) by striking ‘‘and’’ at the end of sub-
paragraph (I);
(B) by redesignating subparagraph (L) as
subparagraph (J); and
(C) by inserting after subparagraph (J)
(as so redesignated) the following new subpara-
graphs:
‘‘(K) if it makes determinations or payments
with respect to covered outpatient drugs, will—
‘‘(i) receive information transmitted under
the electronic system established under sub-
section (u)(4), and
‘‘(ii) respond to requests by participating
pharmacies (and individuals entitled to benefits
under this part) as to whether or not such an
individual has met the prescription drug de-
ductible 
established 
under 
section
1834(e)(1)(A) for a year; and
‘‘(L) will enter into such contracts with organi-
zations described in subsection (f)(3) as the Sec-
retary determines may be necessary to implement
and operate (and for related functions with respect
to) the electronic system established under sub-
section (u)(4) for covered outpatient drugs under
this part.’’.
(3) SPECIAL CONTRACT PROVISIONS FOR ELEC-
TRONIC CLAIMS SYSTEM.—
(A) PAYMENT
ON
OTHER
THAN
A
COST
BASIS.—Section 1842(c)(1) of such Act (42
U.S.C. 1395u(c)(1)) is amended—
(i) by inserting ‘‘(A)’’ after ‘‘(c)(1)’’;
(ii) in the first sentence, by inserting
‘‘, except as provided in subparagraph
(B),’’ after ‘‘under this part, and’’; and
(iii) by adding at the end the fol-
lowing new subparagraph:
‘‘(B) To the extent that a contract under this section
provides for implementation and operation (and related
functions) of the electronic system established under sub-
section (u)(4) for covered outpatient drugs, the Secretary
may provide for payment for such activities based on any
method of payment determined by the Secretary to be ap-
propriate.’’.