essary to assure the correctness and verification 
of the information and reports under subpara-
graph (A) and otherwise to carry out the pur-
poses of this title. 
‘‘(5) SURETY BOND.—A contract with a medi-
care administrative contractor under this section 
may require the medicare administrative contractor, 
and any of its officers or employees certifying pay-
ments or disbursing funds pursuant to the contract, 
or otherwise participating in carrying out the con-
tract, to give surety bond to the United States in 
such amount as the Secretary may deem appro-
priate.
‘‘(c) TERMS AND CONDITIONS.—
‘‘(1) IN GENERAL.—A contract with any medi-
care administrative contractor under this section 
may contain such terms and conditions as the Sec-
retary finds necessary or appropriate and may pro-
vide for advances of funds to the medicare adminis-
trative contractor for the making of payments by it 
under subsection (a)(4)(B). 
‘‘(2) PROHIBITION ON MANDATES FOR CERTAIN 
DATA COLLECTION.—The Secretary may not require, 
as a condition of entering into, or renewing, a con-
tract under this section, that the medicare adminis-
trative contractor match data obtained other than in 
its activities under this title with data used in the 
administration of this title for purposes of identi-
fying situations in which the provisions of section 
1862(b) may apply. 
‘‘(d) LIMITATION ON LIABILITY OF MEDICARE AD-
MINISTRATIVE CONTRACTORS AND CERTAIN OFFICERS.—
‘‘(1) CERTIFYING OFFICER.—No individual des-
ignated pursuant to a contract under this section as 
a certifying officer shall, in the absence of the reck-
less disregard of the individual’s obligations or the 
intent by that individual to defraud the United 
States, be liable with respect to any payments cer-
tified by the individual under this section. 
‘‘(2) DISBURSING OFFICER.—No disbursing of-
ficer shall, in the absence of the reckless disregard 
of the officer’s obligations or the intent by that offi-
cer to defraud the United States, be liable with re-
spect to any payment by such officer under this sec-
tion if it was based upon an authorization (which 
meets the applicable requirements for such internal 
controls established by the Comptroller General of 
the United States) of a certifying officer designated 
as provided in paragraph (1) of this subsection.
‘‘(3) LIABILITY OF MEDICARE ADMINISTRATIVE 
CONTRACTOR.—
‘‘(A) IN GENERAL.—No medicare adminis-
trative contractor shall be liable to the United 
States for a payment by a certifying or dis-
bursing officer unless, in connection with such 
payment, the medicare administrative con-
tractor acted with reckless disregard of its obli-
gations under its medicare administrative con-
tract or with intent to defraud the United 
States. 
‘‘(B) RELATIONSHIP
TO
FALSE
CLAIMS 
ACT.—Nothing in this subsection shall be con-
strued to limit liability for conduct that would 
constitute a violation of sections 3729 through 
3731 of title 31, United States Code. 
‘‘(4) INDEMNIFICATION BY SECRETARY.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graphs (B) and (D), in the case of a medicare 
administrative contractor (or a person who is a 
director, officer, or employee of such a con-
tractor or who is engaged by the contractor to 
participate directly in the claims administration 
process) who is made a party to any judicial or 
administrative proceeding arising from or relat-
ing directly to the claims administration process 
under this title, the Secretary may, to the ex-
tent the Secretary determines to be appropriate 
and as specified in the contract with the con-
tractor, indemnify the contractor and such per-
sons. 
‘‘(B) CONDITIONS.—The Secretary may 
not provide indemnification under subparagraph 
(A) insofar as the liability for such costs arises 
directly from conduct that is determined by the 
judicial proceeding or by the Secretary to be 
criminal in nature, fraudulent, or grossly neg-
ligent. If indemnification is provided by the Sec-
retary with respect to a contractor before a de-
termination that such costs arose directly from 
such conduct, the contractor shall reimburse the 
Secretary for costs of indemnification. 
‘‘(C) SCOPE
OF
INDEMNIFICATION.—In-
demnification by the Secretary under subpara-
graph (A) may include payment of judgments, 
settlements (subject to subparagraph (D)), 
awards, and costs (including reasonable legal 
expenses). 
‘‘(D) WRITTEN
APPROVAL
FOR
SETTLE-
MENTS
OR
COMPROMISES.—A contractor or
other person described in subparagraph (A) 
may not propose to negotiate a settlement or 
compromise of a proceeding described in such 
subparagraph without the prior written ap-
proval of the Secretary to negotiate such settle-
ment or compromise. Any indemnification under 
subparagraph (A) with respect to amounts paid 
under a settlement or compromise of a pro-
ceeding described in such subparagraph are 
conditioned upon prior written approval by the 
Secretary of the final settlement or compromise. 
‘‘(E) CONSTRUCTION.—Nothing in this 
paragraph shall be construed—
‘‘(i) to change any common law immu-
nity that may be available to a medicare 
administrative contractor or person de-
scribed in subparagraph (A); or 
‘‘(ii) to permit the payment of costs 
not otherwise allowable, reasonable, or allo-
cable under the Federal Acquisition Regu-
lation.’’. 
(2) CONSIDERATION
OF
INCORPORATION
OF 
CURRENT LAW STANDARDS.—In developing contract 
performance requirements under section 1874A(b) 
of the Social Security Act, as inserted by paragraph
(1), the Secretary shall consider inclusion of the per-
formance standards described in sections 1816(f)(2) 
of such Act (relating to timely processing of recon-
siderations and applications for exemptions) and sec-
tion 1842(b)(2)(B) of such Act (relating to timely 
review of determinations and fair hearing requests), 
as such sections were in effect before the date of the 
enactment of this Act. 
(b) CONFORMING AMENDMENTS TO SECTION 1816 
(RELATING TO FISCAL INTERMEDIARIES).—Section 1816 
(42 U.S.C. 1395h) is amended as follows: 
(1) The heading is amended to read as follows: 
‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF 
PART A’’. 
(2) Subsection (a) is amended to read as fol-
lows: 
‘‘(a) The administration of this part shall be con-
ducted through contracts with medicare administrative 
contractors under section 1874A.’’. 
(3) Subsection (b) is repealed. 
(4) Subsection (c) is amended—
(A) by striking paragraph (1); and 
(B) in each of paragraphs (2)(A) and 
(3)(A), by striking ‘‘agreement under this sec-
tion’’ and inserting ‘‘contract under section
1874A that provides for making payments 
under this part’’. 
(5) Subsections (d) through (i) are repealed. 
(6) Subsections (j) and (k) are each amended—
(A) by striking ‘‘An agreement with an 
agency or organization under this section’’ and 
inserting ‘‘A contract with a medicare adminis-
trative contractor under section 1874A with re-
spect to the administration of this part’’; and 
(B) by striking ‘‘such agency or organiza-
tion’’ and inserting ‘‘such medicare administra-
tive contractor’’ each place it appears. 
(7) Subsection (l) is repealed. 
(c) CONFORMING AMENDMENTS TO SECTION 1842 
(RELATING
TO CARRIERS).—Section 1842 (42 U.S.C. 
1395u) is amended as follows: 
(1) The heading is amended to read as follows: 
‘‘PROVISIONS RELATING TO THE ADMINISTRATION OF 
PART B’’. 
(2) Subsection (a) is amended to read as fol-
lows: 
‘‘(a) The administration of this part shall be con-
ducted through contracts with medicare administrative 
contractors under section 1874A.’’. 
(3) Subsection (b) is amended—
(A) by striking paragraph (1);
(B) in paragraph (2)—
(i) by striking subparagraphs (A) and 
(B); 
(ii) in subparagraph (C), by striking 
‘‘carriers’’ and inserting ‘‘medicare admin-
istrative contractors’’; and 
(iii) by striking subparagraphs (D) 
and (E); 
(C) in paragraph (3)—
(i) in the matter before subparagraph 
(A), by striking ‘‘Each such contract shall 
provide that the carrier’’ and inserting 
‘‘The Secretary’’; 
(ii) by striking ‘‘will’’ the first place it 
appears in each of subparagraphs (A), (B), 
(F), (G), (H), and (L) and inserting 
‘‘shall’’; 
(iii) in subparagraph (B), in the mat-
ter before clause (i), by striking ‘‘to the 
policyholders and subscribers of the car-
rier’’ and inserting ‘‘to the policyholders 
and subscribers of the medicare adminis-
trative contractor’’; 
(iv) by striking subparagraphs (C), 
(D), and (E);
(v) in subparagraph (H)—
(I) by striking ‘‘if it makes deter-
minations or payments with respect to 
physicians’ services,’’ in the matter 
preceding clause (i); and 
(II) by striking ‘‘carrier’’ and in-
serting ‘‘medicare administrative con-
tractor’’ in clause (i); 
(vi) by striking subparagraph (I); 
(vii) in subparagraph (L), by striking 
the semicolon and inserting a period; 
(viii) in the first sentence, after sub-
paragraph (L), by striking ‘‘and shall con-
tain’’ and all that follows through the pe-
riod; and
(ix) in the seventh sentence, by insert-
ing ‘‘medicare administrative contractor,’’ 
after ‘‘carrier,’’; 
(D) by striking paragraph (5); 
(E) in paragraph (6)(D)(iv), by striking 
‘‘carrier’’ and inserting ‘‘medicare administra-
tive contractor’’; and 
(F) in paragraph (7), by striking ‘‘the car-
rier’’ and inserting ‘‘the Secretary’’ each place 
it appears.
(4) Subsection (c) is amended—
(A) by striking paragraph (1); 
(B) in paragraph (2)(A), by striking ‘‘con-
tract under this section which provides for the 
disbursement of funds, as described in sub-
section (a)(1)(B),’’ and inserting ‘‘contract 
under section 1874A that provides for making 
payments under this part’’; 
(C) in paragraph (3)(A), by striking ‘‘sub-
section 
(a)(1)(B)’’ 
and 
inserting 
‘‘section 
1874A(a)(3)(B)’’; 
(D) in paragraph (4), in the matter pre-
ceding subparagraph (A), by striking ‘‘carrier’’ 
and inserting ‘‘medicare administrative con-
tractor’’; and 
(E) by striking paragraphs (5) and (6). 
(5) Subsections (d), (e), and (f) are repealed. 
(6) Subsection (g) is amended by striking ‘‘car-
rier or carriers’’ and inserting ‘‘medicare administra-
tive contractor or contractors’’. 
(7) Subsection (h) is amended—
(A) in paragraph (2)—
(i) by striking ‘‘Each carrier having 
an agreement with the Secretary under
subsection (a)’’ and inserting ‘‘The Sec-
retary’’; and 
(ii) by striking ‘‘Each such carrier’’ 
and inserting ‘‘The Secretary’’; 
(B) in paragraph (3)(A)—
(i) by striking ‘‘a carrier having an 
agreement with the Secretary under sub-
section (a)’’ and inserting ‘‘medicare ad-
ministrative contractor having a contract 
under section 1874A that provides for 
making payments under this part’’; and 
(ii) by striking ‘‘such carrier’’ and in-
serting ‘‘such contractor’’; 
(C) in paragraph (3)(B)—
(i) by striking ‘‘a carrier’’ and insert-
ing ‘‘a medicare administrative contractor’’ 
each place it appears; and 
(ii) by striking ‘‘the carrier’’ and in-
serting ‘‘the contractor’’ each place it ap-
pears; and 
(D) in paragraphs (5)(A) and (5)(B)(iii), 
by striking ‘‘carriers’’ and inserting ‘‘medicare 
administrative contractors’’ each place it ap-
pears. 
(8) Subsection (l) is amended—
(A) in paragraph (1)(A)(iii), by striking 
‘‘carrier’’ and inserting ‘‘medicare administra-
tive contractor’’; and 
(B) in paragraph (2), by striking ‘‘carrier’’ 
and inserting ‘‘medicare administrative con-
tractor’’. 
(9) Subsection (p)(3)(A) is amended by striking 
‘‘carrier’’ and inserting ‘‘medicare administrative 
contractor’’. 
(10) Subsection (q)(1)(A) is amended by strik-
ing ‘‘carrier’’. 
(d) EFFECTIVE DATE; TRANSITION RULE.—
(1) EFFECTIVE DATE.—
(A) IN
GENERAL.—Except as otherwise 
provided in this subsection, the amendments 
made by this section shall take effect on Octo-
ber 1, 2005, and the Secretary is authorized to 
take such steps before such date as may be nec-
essary to implement such amendments on a 
timely basis. 
(B) CONSTRUCTION
FOR
CURRENT
CON-
TRACTS.—Such amendments shall not apply to 
contracts in effect before the date specified 
under subparagraph (A) that continue to retain 
the terms and conditions in effect on such date
(except as otherwise provided under this Act, 
other than under this section) until such date 
as the contract is let out for competitive bid-
ding under such amendments. 
(C) DEADLINE
FOR
COMPETITIVE
BID-
DING.—The Secretary shall provide for the let-
ting by competitive bidding of all contracts for 
functions of medicare administrative contrac-
tors for annual contract periods that begin on 
or after October 1, 2011. 
(2) GENERAL TRANSITION RULES.—
(A) AUTHORITY TO CONTINUE TO ENTER 
INTO NEW AGREEMENTS AND CONTRACTS AND 
WAIVER OF PROVIDER NOMINATION PROVISIONS 
DURING
TRANSITION.—Prior to October 1, 
2005, the Secretary may, consistent with sub-
paragraph (B), continue to enter into agree-
ments under section 1816 and contracts under 
section 1842 of the Social Security Act (42 
U.S.C. 1395h, 1395u). The Secretary may 
enter into new agreements under section 1816 
prior to October 1, 2005, without regard to any 
of the provider nomination provisions of such 
section.
(B) APPROPRIATE TRANSITION.—The Sec-
retary shall take such steps as are necessary to 
provide for an appropriate transition from 
agreements under section 1816 and contracts 
under section 1842 of the Social Security Act 
(42 U.S.C. 1395h, 1395u) to contracts under 
section 1874A, as added by subsection (a)(1).
(3) AUTHORIZING
CONTINUATION
OF
MIP 
FUNCTIONS
UNDER
CURRENT
CONTRACTS
AND 
AGREEMENTS
AND
UNDER
TRANSITION
CON-
TRACTS.—Notwithstanding the amendments made 
by this section, the provisions contained in the ex-
ception in section 1893(d)(2) of the Social Security 
Act (42 U.S.C. 1395ddd(d)(2)) shall continue to 
apply during the period that begins on the date of 
the enactment of this Act and ends on October 1, 
2011, and any reference in such provisions to an 
agreement or contract shall be deemed to include a 
contract under section 1874A of such Act, as in-
serted by subsection (a)(1), that continues the activi-
ties referred to in such provisions. 
(e) REFERENCES.—On and after the effective date 
provided under subsection (d)(1), any reference to a fiscal 
intermediary or carrier under title XI or XVIII of the So-
cial Security Act (or any regulation, manual instruction,
interpretative rule, statement of policy, or guideline issued 
to carry out such titles) shall be deemed a reference to 
a medicare administrative contractor (as provided under 
section 1874A of the Social Security Act). 
(f) SECRETARIAL SUBMISSION OF LEGISLATIVE PRO-
POSAL.—Not later than 6 months after the date of the 
enactment of this Act, the Secretary shall submit to the 
appropriate committees of Congress a legislative proposal 
providing for such technical and conforming amendments 
in the law as are required by the provisions of this section.
(g) REPORTS ON IMPLEMENTATION.—
(1) PLAN FOR IMPLEMENTATION.—By not later 
than October 1, 2004, the Secretary shall submit a 
report to Congress and the Comptroller General of
the United States that describes the plan for imple-
mentation of the amendments made by this section. 
The Comptroller General shall conduct an evaluation 
of such plan and shall submit to Congress, not later 
than 6 months after the date the report is received, 
a report on such evaluation and shall include in such 
report such recommendations as the Comptroller 
General deems appropriate. 
(2) STATUS OF IMPLEMENTATION.—The Sec-
retary shall submit a report to Congress not later 
than October 1, 2008, that describes the status of
implementation of such amendments and that in-
cludes a description of the following: 
(A) The number of contracts that have 
been competitively bid as of such date. 
(B) The distribution of functions among 
contracts and contractors. 
(C) A timeline for complete transition to 
full competition. 
(D) A detailed description of how the Sec-
retary has modified oversight and management 
of medicare contractors to adapt to full com-
petition. 
SEC. 212. REQUIREMENTS FOR INFORMATION SECURITY 
FOR MEDICARE ADMINISTRATIVE CONTRAC-
TORS. 
(a) IN GENERAL.—Section 1874A, as added by sec-
tion 211(a)(1), is amended by adding at the end the fol-
lowing new subsection: 
‘‘(e) REQUIREMENTS
FOR
INFORMATION
SECU-
RITY.—
‘‘(1) DEVELOPMENT
OF
INFORMATION
SECU-
RITY
PROGRAM.—A medicare administrative con-
tractor that performs the functions referred to in 
subparagraphs (A) and (B) of subsection (a)(4) (re-
lating to determining and making payments) shall
implement a contractor-wide information security 
program to provide information security for the op-
eration and assets of the contractor with respect to 
such functions under this title. An information secu-
rity program under this paragraph shall meet the re-
quirements for information security programs im-
posed on Federal agencies under paragraphs (1) 
through (8) of section 3544(b) of title 44, United 
States Code (other than the requirements under 
paragraphs (2)(D)(i), (5)(A), and (5)(B) of such 
section). 
‘‘(2) INDEPENDENT AUDITS.—
‘‘(A) PERFORMANCE OF ANNUAL EVALUA-
TIONS.—Each year a medicare administrative 
contractor that performs the functions referred 
to in subparagraphs (A) and (B) of subsection 
(a)(4) (relating to determining and making pay-
ments) shall undergo an evaluation of the infor-
mation security of the contractor with respect 
to such functions under this title. The evalua-
tion shall—
‘‘(i) be performed by an entity that 
meets such requirements for independence 
as the Inspector General of the Depart-
ment of Health and Human Services may 
establish; and 
‘‘(ii) test the effectiveness of informa-
tion security control techniques of an ap-
propriate subset of the contractor’s infor-
mation systems (as defined in section 
3502(8) of title 44, United States Code) 
relating to such functions under this title 
and an assessment of compliance with the 
requirements of this subsection and related 
information security policies, procedures, 
standards and guidelines, including policies 
and procedures as may be prescribed by 
the Director of the Office of Management 
and Budget and applicable information se-
curity standards promulgated under sec-
tion 11331 of title 40, United States Code. 
‘‘(B) DEADLINE
FOR
INITIAL
EVALUA-
TION.—
‘‘(i) NEW CONTRACTORS.—In the case 
of a medicare administrative contractor 
covered by this subsection that has not 
previously performed the functions referred 
to in subparagraphs (A) and (B) of sub-
section (a)(4) (relating to determining and