I
107TH CONGRESS
2D SESSION
H. R. 4741
To amend title XVIII of the Social Security Act to provide affordable prescrip-
tion drugs to low-income Medicare beneficiaries and stop-loss prescription
drug coverage for all Medicare beneficiaries.
IN THE HOUSE OF REPRESENTATIVES
MAY 15, 2002
Mrs. EMERSON introduced the following bill; which was referred to the Com-
mittee on Energy and Commerce, and in addition to the Committee on
Ways and Means, for a period to be subsequently determined by the
Speaker, in each case for consideration of such provisions as fall within
the jurisdiction of the committee concerned
A BILL
To amend title XVIII of the Social Security Act to provide
affordable prescription drugs to low-income Medicare
beneficiaries and stop-loss prescription drug coverage for
all Medicare beneficiaries.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; FINDINGS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medicare Pharmacy Benefit Act of 2002’’.
(b) FINDINGS.—The Congress finds that:
(1) It is essential for seniors to have access to
prescription medications for life and health. Pre-
scription medications and medication therapy man-
agement services are a critical component of medical
therapy, and are among the most cost-effective med-
ical interventions available in the health care system.
Medicare does not have an outpatient prescription
drug benefit for seniors. A pharmacy benefit pro-
gram is needed to help assure that seniors have ac-
cess to necessary prescription medications.
(2) A market-based pharmacy benefit program
is the best method of ensuring that medicare bene-
ficiaries have access to necessary prescription drugs.
Rather than rely on Government price controls, Con-
gress intends to harness the innovation and cost sav-
ings of the private marketplace to help meet the
needs of seniors.
(3) No prescription drug program will be truly
effective unless it addresses the increasing cost of
medications. In order to provide real relief to sen-
iors, a pharmacy benefit program must ensure that
manufacturers’ price subsidies are passed on to con-
sumers. Manufacturers’ rebates collected by phar-
macy benefits middlemen are not always passed on
to consumers. Seniors who lack coverage for pre-
scription medications need access to price subsidies
that are often available only to large pharmacy bene-
fits managers.
(4) A market-based approach will limit the tax-
payer funding burden of a pharmacy benefit for sen-
iors. However, seniors who face unusually large ex-
penditures for prescription medications need assist-
ance to purchase prescription medications. Limited
Federal funding of catastrophic losses is necessary
to protect our most vulnerable seniors.
(5) Seniors deserve access to quality services
and cost-effective drug prices at the pharmacy of
their choice. A pharmacy benefit for seniors will not
succeed without robust participation by pharmacy
providers. A pharmacy benefit program must provide
adequate payment to pharmacy providers so they are
able to provide the level of care that seniors need
and deserve.
(6) A truly market-based pharmacy benefit pro-
gram must be voluntary for all participants—manu-
facturers, pharmacy providers, and beneficiaries.
SEC. 2. MEDICARE PHARMACY BENEFIT PROGRAM.
(a) ESTABLISHMENT OF PROGRAM.—Title XVIII of
the Social Security Act (42 U.S.C. 1395 et seq.) is amend-
ed by redesignating part D as part E and by inserting
after part C the following new part:
‘‘PART D—MEDICARE PHARMACY BENEFIT PROGRAM
‘‘ESTABLISHMENT OF PROGRAM
‘‘SEC. 1860. (a) PROVISION OF BENEFIT.—There is
established the Medicare Pharmacy Benefit Program
under which medicare beneficiaries who are eligible for en-
rollment may receive the following benefits:
‘‘(1) DRUG DISCOUNTS.—Subsidies or discounts
from participating pharmacy providers off the price
of covered outpatient drugs under section 1860B.
‘‘(2) CATASTROPHIC
BENEFITS.—Catastrophic
coverage benefits under section 1860C.
‘‘(3) 
MEDICATION
REVIEW
AND
MANAGE-
MENT.—Covered medication review and medication
therapy 
management 
services 
under 
section
1860C(b).
‘‘(b) VOLUNTARY PROGRAM.—Nothing in this part
shall be construed as requiring a medicare beneficiary, a
manufacturer, or a pharmacy provider to participate in
the program.
‘‘ENROLLMENT OF ELIGIBLE BENEFICIARIES
‘‘SEC. 1860A. (a) BENEFICIARY ELIGIBILITY.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
an individual is eligible to enroll in the Medicare
Pharmacy Benefit Program under this part if the in-
dividual is entitled to benefits under part A, enrolled
under part B, or both.
‘‘(2) INELIGIBLE INDIVIDUALS.—
‘‘(A) MEDICAID ELIGIBLES.—An individual
may not enroll in the Medicare Pharmacy Ben-
efit Program under this part to the extent the
individual is, with respect to a year eligible for
medical assistance for covered outpatient drugs
under section 1927 under a State plan under
title XIX.
‘‘(B) DRUG DISCOUNTS.—
‘‘(i) IN
GENERAL.—In the case of
drug subsidies and discounts from drugs of
a manufacturer under section 1860B, an
individual whose annual income exceeds
the applicable percentage of the Federal
poverty line or who does not otherwise sat-
isfy additional requirements established by
each participating manufacturer.
‘‘(ii) APPLICABLE PERCENTAGE.—For
purposes of clause (i), the applicable per-
centage of the Federal poverty line is a
percentage established by the manufac-
turer of a covered outpatient drug, but in
no case less than 200 percent.
‘‘(b) ENROLLMENT PROCESS.—
‘‘(1) IN GENERAL.—The Secretary shall estab-
lish an open enrollment process for eligible bene-
ficiaries to enroll under this part.
‘‘(2) PROCESSING
OF
ENROLLMENT
APPLICA-
TIONS.—The Secretary shall provide that applica-
tions to enroll under the Medicare Pharmacy Benefit
Program may be collected by pharmacy providers,
manufacturers, or their agents. Applications col-
lected shall be forwarded to the appropriate Phar-
macy Benefit Administrator.
‘‘(3) APPROVAL OF APPLICATION.—Each Phar-
macy Benefit Administrator shall process applica-
tions for enrollment and approve or reject such ap-
plications based upon standards established by the
Secretary in accordance with this part.
‘‘(4) NOTICE.—Upon acceptance of an applica-
tion, the Pharmacy Benefit Administrator shall no-
tify the beneficiary and shall enter all applicable
data into an electronic system to allow pharmacy
providers to process and certify enrollment of bene-
ficiaries.
‘‘(c) INITIAL ENROLLMENT FEE.—The Secretary
shall require that, prior to enrollment in the Medicare
Pharmacy Benefit Program, the beneficiary pay a one-
time initial enrollment fee in such amount as the Secretary
determines appropriate. Fees collected pursuant to this
subsection shall be deposited into the Pharmacy Benefit
Fund established in section 1860E to carry out this part.
‘‘(d) NONDISCRIMINATION.—An eligible beneficiary
shall not be denied enrollment based on any health status-
related factor described in section 2702(a)(1) of the Public
Health Service Act.
‘‘(e) STANDARD PHARMACY BENEFIT CARD.—Upon
enrollment, the Pharmacy Benefit Administrator shall
issue to each enrolled beneficiary a Standard Pharmacy
Benefit Card that conforms to the most recent standards
adopted by an appropriate accredited organization, as de-
termined by the Secretary.
‘‘(f) INITIAL COVERAGE PERIOD.—An enrolled bene-
ficiary shall be entitled to the benefits under this part be-
ginning on the first day of the month following the month
in which such enrollment occurs.
‘‘(g) TERMINATION OF COVERAGE.—
‘‘(1) IN GENERAL.—A Pharmacy Benefit Ad-
ministrator shall terminate an enrolled beneficiary’s
coverage under this part if the beneficiary is no
longer eligible by reason of subsection (a)(2)(B).
‘‘(2) NOTICE OF TERMINATION.—Upon termi-
nation, the Pharmacy Benefit Administrator shall
immediately notify the beneficiary, manufacturers,
and pharmacy providers.
‘‘(h) 
PROVIDING
INFORMATION
TO
BENE-
FICIARIES.—The Secretary shall provide for the broad dis-
semination of information to eligible beneficiaries and en-
rolled beneficiaries regarding enrollment under this part
and of the price subsidies and discounts and catastrophic
coverage available under this part.
‘‘ACCESS TO DRUG SUBSIDIES AND DISCOUNTS
‘‘SEC. 1860B. (a) IN GENERAL.—The manner in
which a medicare beneficiary who is enrolled in the Medi-
care Pharmacy Benefit Program under this part may re-
ceive a subsidy or a discount for the price of a covered
outpatient drug made available for sale by a manufacturer
is as follows:
‘‘(1) VOLUNTARY NATURE OF SUBSIDY OR DIS-
COUNT.—A manufacturer may offer subsidies or dis-
counts for the covered outpatient drugs it makes
available for sale subject to the terms and conditions
established in a term sheet submitted by the manu-
facturer to the Pharmacy Benefit Administrator
for—
‘‘(A) eligibility of the beneficiary for the
subsidy or discount; and
‘‘(B) provisions for payment.
‘‘(2) VOLUNTARY NATURE OF PHARMACIES TO
PARTICIPATE.—A pharmacy provider may accept or
reject each manufacturer’s term sheet.
‘‘(3) PAYMENTS
INTO
PHARMACY
BENEFIT
FUND.—A manufacturer shall make payments into
the Pharmacy Benefit Fund in an amount equal to
the aggregate amount the manufacturer agrees to
pay for subsidies and reimbursements to pharmacy
providers under the term sheet.
‘‘(4) PAYMENT TO PHARMACY PROVIDER FOR
SUBSIDIES
OR
DISCOUNTS
PASSED-ON
TO
BENE-
FICIARIES.—A pharmacy provider shall provide sub-
sidies or discounts to beneficiaries enrolled under the
Medicare Pharmacy Benefit Program for covered
outpatient drugs for which a subsidy or discount has
been made available by a manufacturer in the
amount specified in the term sheet that the phar-
macy provider has accepted, and shall be reimbursed
by the Pharmacy Benefit Administrator for each
such subsidy or discount passed-on to the beneficiary
from the Pharmacy Benefit Fund.
‘‘(b) MANUFACTURER TERM SHEETS.—A manufac-
turer that wishes to participate in the program shall sub-
mit a binding term sheet to the Pharmacy Benefit Admin-
istrator that contains all of the terms and conditions of
the manufacturer’s subsidies or discounts. The term sheet
shall describe the method of calculating any price sub-
sidies for beneficiaries, and the method of calculating any
rates that pharmacy providers may charge beneficiaries,
for each dosage form and strength of the manufacturer’s
covered outpatient drugs dispensed to enrolled bene-
ficiaries under the program. The term sheet shall also de-
scribe participation requirements for beneficiaries, the du-
ration of the term sheet, and any other terms and condi-
tions of receiving any subsidies, discounts, and payments
made available under the term sheet. The terms and con-
ditions contained in the term sheets shall not impose
quantity restrictions of any kind on dispensing covered
outpatient drugs, and shall not vary based upon the class
of trade of the pharmacy provider or the method of deliv-
ering covered outpatient drugs.
‘‘(c) MANUFACTURER PAYMENTS.—To the extent
that the manufacturer’s term sheet provides that the man-
ufacturer will make payments to pharmacy providers
through the Pharmacy Benefit Administrator, the manu-
facturer shall make such payments into the Pharmacy
Benefit Fund not less frequently than each calendar quar-
ter, in compliance with procedures established by the Sec-
retary. Each calendar quarter the Pharmacy Benefit Ad-
ministrator shall report to each manufacturer, in a stand-
ard reporting format established by the Secretary, infor-
mation on the total number of units of each dosage form
and strength and package size of each covered outpatient
drug dispensed during the preceding quarter under the
program. The manufacturer shall remit payments required
by its term sheet to that Pharmacy Benefit Administrator
no later than 30 days after receiving the report from the
Pharmacy Benefit Administrator. The Pharmacy Benefit
Administrator shall deposit the payments into the Phar-
macy Benefit Fund.
‘‘(d) PHARMACY AGREEMENTS.—Any pharmacy pro-
vider may voluntarily enter into a provider agreement with
the Pharmacy Benefit Administrator for the program
upon such terms and conditions as the Secretary deter-
mines are necessary and appropriate to carry out the pur-
poses of this part.
‘‘(e) 
ACCEPTANCE
OR
REJECTION
OF
TERM
SHEETS.—
‘‘(1) ACCEPTANCE.—A pharmacy provider may
accept a manufacturer’s term sheet at any time dur-
ing the manufacturer’s participation in the program.
Each term sheet accepted by the pharmacy provider
shall become a part of the provider agreement.
‘‘(2) REJECTION.—
‘‘(A) NEGOTIATION.—If a pharmacy pro-
vider rejects a manufacturer’s term sheet, the
pharmacy provider and the manufacturer may
negotiate modifications to the pricing provisions
of the term sheet. If the pharmacy provider and
manufacturer reach an agreement pursuant to
such negotiations, the Pharmacy Benefit Ad-
ministrator shall incorporate the pricing modi-
fications into the electronic claims information
sent to the pharmacy provider whenever the
pharmacy provider dispenses the manufactur-
er’s covered outpatient drugs to enrolled bene-
ficiaries.
‘‘(B) NOTICE
TO
BENEFICIARY.—If the
pharmacy provider rejects the manufacturer’s
term sheet, the pharmacy provider may inform
beneficiaries who are purchasing the drug prod-
ucts mentioned in the term sheet that the phar-
macy provider does not participate in the manu-
facturer’s subsidy program.
‘‘(C) ADDITIONAL AUTHORITY.—The phar-
macy provider may encourage beneficiaries to
purchase appropriate alternatives for the manu-
facturer’s products after consultation with other
medical professionals as may be required by
State law.
‘‘(f) PHARMACY PRICE DISCOUNTS.—
‘‘(1) IN GENERAL.—Upon the presentation by
an enrolled beneficiary of a valid prescription for a
covered outpatient prescription drug product, a par-
ticipating pharmacy provider shall process the pre-
scription in accordance with the manufacturer’s
term sheet.
‘‘(2) REAL-TIME CLAIMS PROCESSING.—Pricing
and payment information and other relevant provi-
sions of the term sheet applicable to the drug prod-
uct shall be calculated and communicated to the
pharmacy providers by the Pharmacy Benefit Ad-
ministrator on a real-time basis at the time a claim
is submitted.
‘‘(g) PHARMACY CLAIMS.—
‘‘(1) IN GENERAL.—A pharmacy provider shall
submit claims to the Pharmacy Benefit Adminis-
trator through an online, real-time claims processing
system. The Pharmacy Benefit Administrator shall
promptly reimburse the pharmacy provider as pro-
vided in the manufacturer’s term sheet, as soon as
practicable and in no case later than 15 days of the
date the claim was submitted.