185
‘‘(C) DETERMINATION
OF
AVERAGE
PER 
CAPITA
MONTHLY
SAVINGS.—The average per 
capita monthly savings described in this sub-
paragraph is equal to the amount (if any) by 
which—
‘‘(i) 
the 
risk-adjusted 
benchmark 
amount 
computed 
under 
subparagraph 
(B)(i), exceeds 
‘‘(ii) the risk-adjusted bid computed 
under subparagraph (B)(ii). 
‘‘(3) COMPUTATION
OF
EFFS
REGION-SPECIFIC 
NON-DRUG MONTHLY BENCHMARK AMOUNT.—For pur-
poses of this part, the term ‘EFFS region-specific 
non-drug monthly benchmark amount’ means, with 
respect to an EFFS region for a month in a year, an 
amount equal to 1⁄12 of the average (weighted by num-
ber of EFFS eligible individuals in each payment 
area described in section 1853(d)) of the annual capi-
tation rate as calculated under section 1853(c)(1) for 
that area. 
‘‘(c) PAYMENT OF PLANS BASED ON BID AMOUNTS.—
‘‘(1) NON-DRUG
BENEFITS.—Under a contract 
under section 1860E–4(c) and subject to section 
1853(g) (as made applicable under subsection (d)), 
the Administrator shall make monthly payments
186
under this subsection in advance to each EFFS orga-
nization, with respect to coverage of an individual 
under this part in an EFFS region for a month, in 
an amount determined as follows: 
‘‘(A) PLANS
WITH
BIDS
BELOW
BENCH-
MARK.—In the case of a plan for which there are 
average per capita monthly savings described in 
subsection (b)(2)(C), the payment under this sub-
section is equal to the unadjusted EFFS statu-
tory non-drug monthly bid amount, adjusted 
under paragraphs (3) and (4), plus the amount 
of the monthly rebate computed under subsection 
(b)(1)(A) for that plan and year. 
‘‘(B) PLANS
WITH
BIDS
AT
OR
ABOVE 
BENCHMARK.—In the case of a plan for which 
there are no average per capita monthly savings 
described in subsection (b)(2)(C), the payment 
amount under this subsection is equal to the 
EFFS region-specific non-drug monthly bench-
mark amount, adjusted under paragraphs (3) 
and (4). 
‘‘(2) FOR FEDERAL DRUG SUBSIDIES.—In the 
case in which an enrollee who elects under part D to 
be provided qualified prescription drug coverage
187
through the plan, the EFFS organization offering 
such plan also is entitled—
‘‘(A) to direct subsidy payment under sec-
tion 1860D–8(a)(1); 
‘‘(B) to reinsurance subsidy payments 
under section 1860D–8(a)(2); and 
‘‘(C) to reimbursement for premium and 
cost-sharing reductions for low-income individ-
uals under section 1860D–7(c)(3). 
‘‘(3) DEMOGRAPHIC RISK ADJUSTMENT, INCLUD-
ING ADJUSTMENT FOR HEALTH STATUS.—The Admin-
istrator shall adjust under paragraph (1)(A) the 
unadjusted EFFS statutory non-drug monthly bid 
amount and under paragraph (1)(B) the EFFS re-
gion-specific non-drug monthly benchmark amount 
for such risk factors as age, disability status, gender, 
institutional status, and such other factors as the Ad-
ministrator determines to be appropriate, including 
adjustment for health status under section 1853(a)(3) 
(as applied under subsection (d)), so as to ensure ac-
tuarial equivalence. The Administrator may add to, 
modify, or substitute for such adjustment factors if 
such changes will improve the determination of actu-
arial equivalence.
188
‘‘(4) ADJUSTMENT
FOR
INTRA-REGIONAL
GEO-
GRAPHIC VARIATIONS.—The Administrator shall also 
adjust such amounts in a manner to take into ac-
count variations in payments rates under part C 
among the different payment areas under such part 
included in each EFFS region. 
‘‘(d) 
APPLICATION
OF
ADDITIONAL
PAYMENT 
RULES.—The provisions of section 1853 (other than sub-
sections (a)(1)(A), (d), and (e)) shall apply to an EFFS 
plan under this part, except as otherwise provided in this 
section. 
‘‘PREMIUMS; ORGANIZATIONAL AND FINANCIAL REQUIRE-
MENTS; ESTABLISHMENT OF STANDARDS; CONTRACTS 
WITH EFFS ORGANIZATIONS 
‘‘SEC. 1860E–4. (a) PREMIUMS.—
‘‘(1) IN
GENERAL.—The provisions of section 
1854 (other than subsections (a)(6)(C) and (h)), in-
cluding subsection (b)(5) relating to the consolidation 
of drug and non-drug beneficiary premiums and sub-
section (c) relating to uniform bids and premiums, 
shall apply to an EFFS plan under this part, subject 
to paragraph (2). 
‘‘(2) CROSS-WALK.—In applying paragraph (1), 
any reference in section 1854(b)(1)(A) or 1854(d) 
to—
189
‘‘(A) a Medicare Advantage monthly basic 
beneficiary premium is deemed a reference to the 
EFFS monthly basic beneficiary premium (as 
defined in paragraph (3)(A)); 
‘‘(B) a Medicare Advantage monthly pre-
scription drug beneficiary premium is deemed a 
reference to the EFFS monthly prescription drug 
beneficiary premium (as defined in paragraph 
(3)(B)); and 
‘‘(C) a Medicare Advantage monthly supple-
mental beneficiary premium is deemed a ref-
erence to the EFFS monthly supplemental bene-
ficiary premium (as defined in paragraph 
(3)(C)). 
‘‘(3) DEFINITIONS.—For purposes of this part: 
‘‘(A) EFFS MONTHLY BASIC BENEFICIARY 
PREMIUM.—The term ‘EFFS monthly basic ben-
eficiary premium’ means, with respect to an 
EFFS plan—
‘‘(i) 
described 
in 
section 
1860E–
3(c)(1)(A) (relating to plans providing re-
bates), zero; or 
‘‘(ii) described in section 1860E–
3(c)(1)(B), the amount (if any) by which 
the unadjusted EFFS statutory non-drug
190
monthly bid amount exceeds the EFFS re-
gion-specific non-drug monthly benchmark 
amount (as defined in section 1860E–
3(b)(3)). 
‘‘(B) EFFS MONTHLY PRESCRIPTION DRUG 
BENEFICIARY
PREMIUM.—The 
term 
‘EFFS 
monthly prescription drug beneficiary premium’ 
means, with respect to an EFFS plan, the por-
tion of the aggregate monthly bid amount sub-
mitted under clause (i) of section 1860E–
3(a)(3)(A) for the year that is attributable under 
such section to the provision of statutory pre-
scription drug benefits. 
‘‘(C) EFFS MONTHLY SUPPLEMENTAL BEN-
EFICIARY PREMIUM.—The term ‘EFFS monthly 
supplemental beneficiary premium’ means, with 
respect to an EFFS plan, the portion of the ag-
gregate monthly bid amount submitted under 
clause (i) of section 1860E–3(a)(3)(A) for the 
year that is attributable under such section to 
the provision of nonstatutory benefits.
‘‘(b) ORGANIZATIONAL
AND
FINANCIAL
REQUIRE-
MENTS.—The provisions of section 1855 shall apply to an 
EFFS plan offered by an EFFS organization under this 
part.
191
‘‘(c) CONTRACTS WITH EFFS ORGANIZATIONS.—The 
provisions of section 1857 shall apply to an EFFS plan 
offered by an EFFS organization under this part, except 
that any reference in such section to part C is deemed a 
reference to this part.’’. 
(b) PROHIBITION
ON COVERAGE UNDER MEDIGAP 
PLANS OF DEDUCTIBLE IMPOSED UNDER EFFS PLANS.—
Section 1882 (42 U.S.C. 1395ss), as amended by section 
104(a), is amended by adding at the end the following new 
subsection: 
‘‘(w) PROHIBITION ON COVERAGE OF DEDUCTIBLE 
AND CERTAIN COST-SHARING IMPOSED UNDER EFFS 
PLANS.—Notwithstanding any other provision of law, no 
medicare supplemental policy (other than the 2 benefit 
packages described in subsection (v)(3)) may provide for 
coverage of the single deductible or more than 50 percent 
of other cost-sharing imposed under an EFFS plan under 
part E.’’. 
(c) CONFORMING PROVISIONS.—Section 1882 of the 
Social Security Act (42 U.S.C. 1395ss) shall be adminis-
tered as if any reference to a Medicare+Choice organization 
offering a Medicare+Choice plan under part C of title 
XVIII of such Act were a reference both to a Medicare Ad-
vantage organization offering a Medicare Advantage plan
192
under such part and an EFFS organization offering an 
EFFS plan under part E of such title. 
Subtitle B—Medicare Advantage 
Program 
CHAPTER 1—IMPLEMENTATION OF 
PROGRAM 
SEC. 211. IMPLEMENTATION OF MEDICARE ADVANTAGE 
PROGRAM. 
(a) IN GENERAL.—There is hereby established the 
Medicare Advantage program. The Medicare Advantage 
program shall consist of the program under part C of title 
XVIII of the Social Security Act, as amended by this title. 
(b) REFERENCES.—Any reference to the program 
under part C of title XVIII of the Social Security Act shall 
be deemed a reference to the Medicare Advantage program 
and, with respect to such part, any reference to 
‘‘Medicare+Choice’’ is deemed a reference to ‘‘Medicare Ad-
vantage’’. 
SEC. 212. MEDICARE ADVANTAGE IMPROVEMENTS. 
(a) EQUALIZING PAYMENTS WITH FEE-FOR-SERV-
ICE.—
(1) IN GENERAL.—Section 1853(c)(1) (42 U.S.C. 
1395w–23(c)(1)) is amended by adding at the end the 
following:
193
‘‘(D) BASED ON 100 PERCENT OF FEE-FOR-
SERVICE COSTS.—
‘‘(i) IN GENERAL.—For 2004, the ad-
justed average per capita cost for the year 
involved, 
determined 
under 
section 
1876(a)(4) for the Medicare Advantage pay-
ment area for services covered under parts 
A and B for individuals entitled to benefits 
under part A and enrolled under part B 
who are not enrolled in a Medicare Advan-
tage under this part for the year, but ad-
justed to exclude costs attributable to pay-
ments under section 1886(h). 
‘‘(ii) INCLUSION OF COSTS OF VA AND 
DOD MILITARY FACILITY SERVICES TO MEDI-
CARE-ELIGIBLE BENEFICIARIES.—In deter-
mining the adjusted average per capita cost 
under clause (i) for a year, such cost shall 
be adjusted to include the Secretary’s esti-
mate, on a per capita basis, of the amount 
of additional payments that would have 
been made in the area involved under this 
title if individuals entitled to benefits under 
this title had not received services from fa-
194
cilities of the Department of Veterans Af-
fairs or the Department of Defense.’’.
(2) CONFORMING AMENDMENT.—Such section is 
further amended, in the matter before subparagraph 
(A), by striking ‘‘or (C)’’ and inserting ‘‘(C), or (D)’’. 
(b) CHANGE IN BUDGET NEUTRALITY FOR BLEND.—
Section 1853(c) (42 U.S.C. 1395w–23(c)) is amended—
(1) in paragraph (1)(A), by inserting ‘‘(for a 
year other than 2004)’’ after ‘‘multiplied’’; and 
(2) in paragraph (5), by inserting ‘‘(other than 
2004)’’ after ‘‘for each year’’.
(c) INCREASING MINIMUM PERCENTAGE INCREASE TO 
NATIONAL GROWTH RATE.—
(1) IN GENERAL.—Section 1853(c)(1) (42 U.S.C. 
1395w–23(c)(1)) is amended—
(A) in subparagraph (B)(iv), by striking 
‘‘and each succeeding year’’ and inserting ‘‘, 
2003, and 2004’’; 
(B) in subparagraph (C)(iv), by striking 
‘‘and each succeeding year’’ and inserting ‘‘and 
2003’’; and 
(C) by adding at the end of subparagraph 
(C) the following new clause: 
‘‘(v) For 2004 and each succeeding 
year, the greater of—
195
‘‘(I) 102 percent of the annual 
Medicare Advantage capitation rate 
under this paragraph for the area for 
the previous year; or 
‘‘(II) the annual Medicare Advan-
tage capitation rate under this para-
graph for the area for the previous 
year increased by the national per cap-
ita Medicare Advantage growth per-
centage, described in paragraph (6) for 
that succeeding year, but not taking 
into account any adjustment under 
paragraph (6)(C) for a year before 
2004.’’. 
(2) 
CONFORMING
AMENDMENT.—Section 
1853(c)(6)(C) (42 U.S.C. 1395w–23(c)(6)(C)) is 
amended by inserting before the period at the end the 
following: ‘‘, except that for purposes of paragraph 
(1)(C)(v)(II), no such adjustment shall be made for a 
year before 2004’’.
(d) INCLUSION OF COSTS OF DOD AND VA MILITARY 
FACILITY
SERVICES
TO
MEDICARE-ELIGIBLE
BENE-
FICIARIES IN CALCULATION OF MEDICARE+CHOICE PAY-
MENT RATES.—Section 1853(c)(3) (42 U.S.C. 1395w–
23(c)(3)) is amended—
196
(1) in subparagraph (A), by striking ‘‘subpara-
graph (B)’’ and inserting ‘‘subparagraphs (B) and 
(E)’’, and 
(2) by adding at the end the following new sub-
paragraph: 
‘‘(E) INCLUSION OF COSTS OF DOD AND VA 
MILITARY FACILITY SERVICES TO MEDICARE-ELI-
GIBLE
BENEFICIARIES.—In 
determining 
the 
area-specific Medicare+Choice capitation rate 
under subparagraph (A) for a year (beginning 
with 2004), the annual per capita rate of pay-
ment 
for 
1997 
determined 
under 
section 
1876(a)(1)(C) shall be adjusted to include in the 
rate the Secretary’s estimate, on a per capita 
basis, of the amount of additional payments that 
would have been made in the area involved 
under this title if individuals entitled to benefits 
under this title had not received services from fa-
cilities of the Department of Defense or the De-
partment of Veterans Affairs.’’. 
(e) EXTENDING SPECIAL RULE FOR CERTAIN INPA-
TIENT
HOSPITAL
STAYS
TO
REHABILITATION
HOS-
PITALS.—
(1) IN GENERAL.—Section 1853(g) (42 U.S.C. 
1395w–23(g)) is amended—
197
(A) by inserting ‘‘or from a rehabilitation 
facility (as defined in section 1886(j)(1)(A))’’ 
after ‘‘1886(d)(1)(B))’’; and 
(B) in paragraph (2)(B), by inserting ‘‘or 
section 1886(j), as the case may be,’’ after 
‘‘1886(d)’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to contract years begin-
ning on or after January 1, 2004. 
(f) APPLICATION OF PRIVACY REGULATIONS.—Section 
1852(h) (42 U.S.C. 1395w–22(h)) is amended by adding 
after and below paragraph (3) the following: 
‘‘A Medicare Advantage organization shall be treated as a 
covered entity for purposes of the provisions of subpart E 
of part 164 of title 45, Code of Federal Regulations, adopted 
pursuant to the authority of the Secretary under section 
264(c) of the Health Insurance Portability and Account-
ability Act of 1996 (42 U.S. C. 1320d-2 note).’’. 
(g) MEDPAC STUDY OF AAPCC.—
(1) STUDY.—The Medicare Payment Advisory 
Commission shall conduct a study that assesses the 
method used for determining the adjusted average per 
capita cost (AAPCC) under section 1876(a)(4) of the 
Social Security Act (42 U.S.C. 1395mm(a)(4)) as ap-
plied under section 1853(c)(1)(A) of such Act (as
198
amended by subsection (a)). Such study shall include 
an examination of—
(A) the bases for variation in such costs be-
tween different areas, including differences in 
input prices, utilization, and practice patterns; 
(B) the appropriate geographic area for 
payment under the Medicare Advantage program 
under part C of title XVIII of such Act; and 
(C) the accuracy of risk adjustment methods 
in reflecting differences in costs of providing care 
to different groups of beneficiaries served under 
such program. 
(2) REPORT.—Not later than 18 months after the 
date of the enactment of this Act, the Commission 
shall submit to Congress a report on the study con-
ducted under paragraph (1). 
(h) REPORT ON IMPACT OF INCREASED FINANCIAL AS-
SISTANCE TO MEDICARE ADVANTAGE PLANS.—Not later 
than July 1, 2006, the Medicare Benefits Administrator 
shall submit to Congress a report that describes the impact 
of additional financing provided under this Act and other 
Acts (including the Medicare, Medicaid, and SCHIP Bal-
anced Budget Refinement Act of 1999 and BIPA) on the 
availability of Medicare Advantage plans in different areas
199
and its impact on lowering premiums and increasing bene-
fits under such plans. 
CHAPTER 2—IMPLEMENTATION OF 
COMPETITION PROGRAM
SEC. 221. COMPETITION PROGRAM BEGINNING IN 2006. 
(a) SUBMISSION OF EFFS-LIKE BIDDING INFORMA-
TION BEGINNING
IN 2006.—Section 1854 (42 U.S.C. 
1395w–24) is amended—
(1) by amending the section heading to read as 
follows: 
‘‘PREMIUMS AND BID AMOUNT’’; 
(2) in subsection (a)(1)(A)—
(A) by striking ‘‘(A)’’ and inserting ‘‘(A)(i) 
if the following year is before 2006,’’; and 
(B) by inserting before the semicolon at the 
end the following: ‘‘or (ii) if the following year 
is 2006 or later, the information described in 
paragraph (3) or (6)(A) for the type of plan in-
volved’’; and 
(3) by adding at the end of subsection (a) the fol-
lowing: 
‘‘(6) SUBMISSION OF BID AMOUNTS BY MEDICARE 
ADVANTAGE ORGANIZATIONS.—
‘‘(A) INFORMATION
TO
BE
SUBMITTED.—
The information described in this subparagraph 
is as follows:
200
‘‘(i) 
The 
monthly 
aggregate 
bid 
amount for provision of all items and serv-
ices under this part, which amount shall be 
based on average costs for a typical bene-
ficiary residing in the area, and the actu-
arial basis for determining such amount. 
‘‘(ii) The proportions of such bid 
amount that are attributable to—
‘‘(I) the provision of statutory 
non-drug benefits (such portion re-
ferred 
to 
in 
this 
part 
as 
the 
‘unadjusted Medicare Advantage statu-
tory non-drug monthly bid amount’); 
‘‘(II) the provision of statutory 
prescription drug benefits; and 
‘‘(III) the provision of non-statu-
tory benefits; 
and the actuarial basis for determining 
such proportions. 
‘‘(iii) Such additional information as 
the Administrator may require to verify the 
actuarial bases described in clauses (i) and 
(ii). 
‘‘(B) STATUTORY BENEFITS DEFINED.—For 
purposes of this part:
201
‘‘(i) The term ‘statutory non-drug ben-
efits’ 
means 
benefits 
under 
section 
1852(a)(1). 
‘‘(ii) The term ‘statutory prescription 
drug benefits’ means benefits under part D. 
‘‘(iii) The term ‘statutory benefits’ 
means statutory prescription drug benefits 
and statutory non-drug benefits.
‘‘(C) ACCEPTANCE
AND
NEGOTIATION
OF 
BID AMOUNTS.—
‘‘(i) IN
GENERAL.—Subject to clause 
(ii)—
‘‘(I) the Administrator has the au-
thority to negotiate regarding monthly 
bid amounts submitted under subpara-
graph (A) (and the proportion de-
scribed in subparagraph (A)(ii)), and 
for such purpose and subject to such 
clause, the Administrator has negotia-
tion authority that the Director of the 
Office of Personnel Management has 
with respect to health benefits plans 
under chapter 89 of title 5, United 
States Code; and
202
‘‘(II) the Administrator may re-
ject such a bid amount or proportion if 
the Administrator determines that such 
amount or proportion is not supported 
by the actuarial bases provided under 
subparagraph (A). 
‘‘(ii) EXCEPTION.—In the case of a 
plan described in section 1851(a)(2)(C), the 
provisions of clause (i) shall not apply and 
the provisions of paragraph (5)(B), prohib-
iting the review, approval, or disapproval of 
amounts described in such paragraph, shall 
apply to the negotiation and rejection of the 
monthly bid amounts and proportion re-
ferred to in subparagraph (A).’’. 
(b) PROVIDING FOR BENEFICIARY SAVINGS FOR CER-
TAIN PLANS.—
(1) IN GENERAL.—Section 1854(b) (42 U.S.C. 
1395w–24(b)) is amended—
(A) by adding at the end of paragraph (1) 
the following new subparagraph: 
‘‘(C) BENEFICIARY REBATE RULE.—
‘‘(i) 
REQUIREMENT.—The 
Medicare 
Advantage plan shall provide to the enrollee 
a monthly rebate equal to 75 percent of the
203
average per capita savings (if any) de-
scribed in paragraph (3) applicable to the 
plan and year involved. 
‘‘(iii) FORM OF REBATE.—A rebate re-
quired under this subparagraph shall be 
provided—
‘‘(I) through the crediting of the 
amount of the rebate towards the Medi-
care 
Advantage 
monthly 
supple-
mentary beneficiary premium or the 
premium imposed for prescription 
drug coverage under part D; 
‘‘(II) through a direct monthly 
payment 
(through 
electronic 
funds 
transfer or otherwise); or 
‘‘(III) through other means ap-
proved by the Medicare Benefits Ad-
ministrator, 
or any combination thereof.’’; and 
(B) by adding at the end the following new 
paragraphs: 
‘‘(3) COMPUTATION
OF
AVERAGE
PER
CAPITA 
MONTHLY
SAVINGS.—For purposes of paragraph 
(1)(C)(i), the average per capita monthly savings re-
204
ferred to in such paragraph for a Medicare Advantage 
plan and year is computed as follows: 
‘‘(A) DETERMINATION OF STATE-WIDE AV-
ERAGE RISK ADJUSTMENT.—
‘‘(i) IN GENERAL.—The Medicare Ben-
efits Administrator shall determine, at the 
same time rates are promulgated under sec-
tion 1853(b)(1) (beginning with 2006), for 
each State the average of the risk adjust-
ment factors to be applied under section 
1853(a)(1)(A) to payment for enrollees in 
that State. In the case of a State in which 
a Medicare Advantage plan was offered in 
the previous year, the Administrator may 
compute such average based upon risk ad-
justment factors applied in that State in a 
previous year. 
‘‘(ii) TREATMENT OF NEW STATES.—In 
the case of a State in which no Medicare 
Advantage plan was offered in the previous 
year, the Administrator shall estimate such 
average. In making such estimate, the Ad-
ministrator may use average risk adjust-
ment factors applied to comparable States 
or applied on a national basis.
205
‘‘(B) DETERMINATION OF RISK ADJUSTED 
BENCHMARK
AND
RISK-ADJUSTED
BID.—For 
each Medicare Advantage plan offered in a State, 
the Administrator shall—
‘‘(i) adjust the Medicare Advantage 
area-specific non-drug monthly benchmark 
amount (as defined in subsection (j)) by the 
applicable average risk adjustment factor 
computed under subparagraph (A); and 
‘‘(ii) adjust the unadjusted Medicare 
Advantage statutory non-drug monthly bid 
amount by such applicable average risk ad-
justment factor. 
‘‘(C) DETERMINATION
OF
AVERAGE
PER 
CAPITA
MONTHLY
SAVINGS.—The average per 
capita monthly savings described in this sub-
paragraph is equal to the amount (if any) by 
which—
‘‘(i) 
the 
risk-adjusted 
benchmark 
amount 
computed 
under 
subparagraph 
(B)(i), exceeds 
‘‘(ii) the risk-adjusted bid computed 
under subparagraph (B)(ii). 
‘‘(D) AUTHORITY TO DETERMINE RISK AD-
JUSTMENT FOR AREAS OTHER THAN STATES.—
206
The Administrator may provide for the deter-
mination and application of risk adjustment fac-
tors under this paragraph on the basis of areas 
other than States. 
‘‘(4) 
BENEFICIARY’S
OPTION
OF
PAYMENT 
THROUGH
WITHHOLDING
FROM
SOCIAL
SECURITY 
PAYMENT OR USE OF ELECTRONIC FUNDS TRANSFER 
MECHANISM.—In accordance with regulations, a 
Medicare Advantage organization shall permit each 
enrollee, at the enrollee’s option, to make payment of 
premiums under this part to the organization indi-
rectly through withholding from benefit payments in 
the manner provided under section 1840 with respect 
to monthly premiums under section 1839 or through 
an electronic funds transfer mechanism (such as auto-
matic charges of an account at a financial institution 
or a credit or debit card account) or otherwise. All 
premium payments that are withheld under this 
paragraph that are credited to the Federal Supple-
mentary Medical Insurance Drug Trust Fund shall be 
paid to the Medicare Advantage organization in-
volved.’’. 
(2) PROVISION OF SINGLE CONSOLIDATED PRE-
MIUM.—Section 1854(b) (42 U.S.C. 1395w–24(b)), as
207
amended by paragraph (1), is further amended by 
adding at the end the following new paragraph: 
‘‘(5) SINGLE CONSOLIDATED PREMIUM.—In the 
case of an enrollee in a Medicare Advantage plan who 
elects under part D to be provided qualified prescrip-
tion drug coverage through the plan, the Adminis-
trator shall provide a mechanism for the consolida-
tion of the beneficiary premium amount for non-drug 
benefits under this part with the premium amount for 
prescription drug coverage under part D provided 
through the plan.’’. 
(3) COMPUTATION
OF
MEDICARE
ADVANTAGE 
AREA-SPECIFIC
NON-DRUG
BENCHMARK.—Section 
1853 (42 U.S.C. 1395w–23) is amended by adding at 
the end the following new subsection: 
‘‘(j) COMPUTATION OF MEDICARE ADVANTAGE AREA-
SPECIFIC NON-DRUG MONTHLY BENCHMARK AMOUNT.—
For purposes of this part, the term ‘Medicare Advantage 
area-specific non-drug monthly benchmark amount’ means, 
with respect to a Medicare Advantage payment area for a 
month in a year, an amount equal to 1⁄12 of the annual 
Medicare 
Advantage 
capitation 
rate 
under 
section 
1853(c)(1) for the area for the year.’’. 
(c) PAYMENT OF PLANS BASED ON BID AMOUNTS.—
208
(1) IN
GENERAL.—Section 1853(a)(1)(A) (42 
U.S.C. 1395w–23) is amended by striking ‘‘in an 
amount’’ and all that follows and inserting the fol-
lowing: ‘‘in an amount determined as follows: 
‘‘(i) 
PAYMENT
BEFORE
2006.—For 
years before 2006, the payment amount 
shall be equal to 1⁄12 of the annual Medicare 
Advantage capitation rate (as calculated 
under subsection (c)(1)) with respect to that 
individual for that area, reduced by the 
amount of any reduction elected under sec-
tion 1854(f )(1)(E) and adjusted under 
clause (iv). 
‘‘(ii) PAYMENT FOR STATUTORY NON-
DRUG
BENEFITS
BEGINNING
WITH
2006.—
For years beginning with 2006—
‘‘(I) PLANS
WITH
BIDS
BELOW 
BENCHMARK.—In the case of a plan 
for which there are average per capita 
monthly savings described in section 
1854(b)(3)(C), the payment under this 
subsection is equal to the unadjusted 
Medicare Advantage statutory non-
drug monthly bid amount, adjusted 
under clause (iv), plus the amount of
209
the monthly rebate computed under 
section 1854(b)(1)(C)(i) for that plan 
and year. 
‘‘(II) PLANS
WITH
BIDS
AT
OR 
ABOVE BENCHMARK.—In the case of a 
plan for which there are no average 
per capita monthly savings described 
in section 1854(b)(3)(C), the payment 
amount under this subsection is equal 
to the Medicare Advantage area-spe-
cific non-drug monthly benchmark 
amount, adjusted under clause (iv). 
‘‘(iii) 
FOR
FEDERAL
DRUG
SUB-
SIDIES.—In the case in which an enrollee 
who elects under part D to be provided 
qualified prescription drug coverage through 
the plan, the Medicare Advantage organiza-
tion offering such plan also is entitled—
‘‘(I) to direct subsidy payment 
under section 1860D–8(a)(1); 
‘‘(II) to reinsurance subsidy pay-
ments under section 1860D–8(a)(2); 
and 
‘‘(III) to reimbursement for pre-
mium and cost-sharing reductions for
210
low-income individuals under section 
1860D–7(c)(3). 
‘‘(iv) DEMOGRAPHIC ADJUSTMENT, IN-
CLUDING
ADJUSTMENT
FOR
HEALTH
STA-
TUS.—The Administrator shall adjust the 
payment amount under clause (i), the 
unadjusted Medicare Advantage statutory 
non-drug monthly bid amount under clause 
(ii)(I), and the Medicare Advantage area-
specific 
non-drug 
monthly 
benchmark 
amount under clause (ii)(II) for such risk 
factors as age, disability status, gender, in-
stitutional status, and such other factors as 
the Administrator determines to be appro-
priate, including adjustment for health sta-
tus under paragraph (3), so as to ensure ac-
tuarial equivalence. The Administrator may 
add to, modify, or substitute for such ad-
justment factors if such changes will im-
prove the determination of actuarial equiva-
lence.’’. 
(d) CONFORMING AMENDMENTS.—
(1) PROTECTION AGAINST BENEFICIARY SELEC-
TION.—Section 1852(b)(1)(A) (42 U.S.C. 1395w–
22(b)(1)(A)) is amended by adding at the end the fol-
211
lowing: ‘‘The Administrator shall not approve a plan 
of an organization if the Administrator determines 
that the benefits are designed to substantially discour-
age enrollment by certain Medicare Advantage eligible 
individuals with the organization.’’. 
(2) CONFORMING AMENDMENT TO PREMIUM TER-
MINOLOGY.—Section 1854(b)(2) (42 U.S.C. 1395w–
24(b)(2)) is amended by redesignating subparagraph 
(C) as subparagraph (D) and by striking subpara-
graphs (A) and (B) and inserting the following: 
‘‘(A) 
MEDICARE
ADVANTAGE
MONTHLY 
BASIC BENEFICIARY PREMIUM.—The term ‘Medi-
care Advantage monthly basic beneficiary pre-
mium’ means, with respect to a Medicare Advan-
tage plan—
‘‘(i) 
described 
in 
section 
1853(a)(1)(A)(ii)(I) (relating to plans pro-
viding rebates), zero; or 
‘‘(ii) 
described 
in 
section 
1853(a)(1)(A)(ii)(II), the amount (if any) 
by which the unadjusted Medicare Advan-
tage 
statutory 
non-drug 
monthly 
bid 
amount exceeds the Medicare Advantage 
area-specific non-drug monthly benchmark 
amount;
212
except that, in the case of a Medicare Advantage 
private fee-for-service plan, such term means 
such premium as the plan files with the Admin-
istrator under this section. 
‘‘(B) MEDICARE ADVANTAGE MONTHLY PRE-
SCRIPTION DRUG BENEFICIARY PREMIUM.—The 
term ‘Medicare Advantage monthly prescription 
drug beneficiary premium’ means, with respect 
to a Medicare Advantage plan, that portion of 
the bid amount submitted under clause (i) of 
subsection (a)(6)(A) for the year that is attrib-
utable under such section to the provision of stat-
utory prescription drug benefits. 
‘‘(C) MEDICARE ADVANTAGE MONTHLY SUP-
PLEMENTAL BENEFICIARY PREMIUM.—The term 
‘Medicare Advantage monthly supplemental ben-
eficiary premium’ means, with respect to a 
Medicare Advantage plan, the portion of the ag-
gregate monthly bid amount submitted under 
clause (i) of subsection (a)(6)(A) for the year 
that is attributable under such section to the pro-
vision of nonstatutory benefits.’’. 
(3) REQUIREMENT FOR UNIFORM PREMIUM AND 
BID AMOUNTS.—Section 1854(c) (42 U.S.C. 1395w–
24(c)) is amended to read as follows:
213
‘‘(c) UNIFORM PREMIUM AND BID AMOUNTS.—The 
Medicare Advantage monthly bid amount submitted under 
subsection (a)(6), the Medicare Advantage monthly basic, 
prescription drug, and supplemental beneficiary premiums, 
and the Medicare Advantage monthly MSA premium 
charged under subsection (b) of a Medicare Advantage orga-
nization under this part may not vary among individuals 
enrolled in the plan.’’. 
(4) PERMITTING BENEFICIARY REBATES.—
(A) 
Section 
1851(h)(4)(A) 
(42 
U.S.C. 
1395w–21(h)(4)(A)) is amended by inserting 
‘‘except as provided under section 1854(b)(1)(C)’’ 
after ‘‘or otherwise’’. 
(B) Section 1854(d) (42 U.S.C. 1395w–
24(d)) is amended by inserting ‘‘, except as pro-
vided under subsection (b)(1)(C),’’ after ‘‘and 
may not provide’’. 
(5) OTHER CONFORMING AMENDMENTS RELATING 
TO
BIDS.—Section 1854 (42 U.S.C. 1395w–24) is 
amended—
(A) in the heading of subsection (a), by in-
serting ‘‘AND BID AMOUNTS’’ after ‘‘PREMIUMS’’; 
and
214
(B) in subsection (a)(5)(A), by inserting 
‘‘paragraphs (2), (3), and (4) of’’ after ‘‘filed 
under’’. 
(e) ADDITIONAL CONFORMING AMENDMENTS.—
(1) ANNUAL
DETERMINATION
AND
ANNOUNCE-
MENT OF CERTAIN FACTORS.—Section 1853(b)(1) (42 
U.S.C. 1395w–23(b)(1)) is amended by striking ‘‘the 
respective calendar year’’ and all that follows and in-
serting the following: ‘‘the calendar year concerned 
with respect to each Medicare Advantage payment 
area, the following: 
‘‘(A) 
PRE-COMPETITION
INFORMATION.—
For years before 2006, the following: 
‘‘(i) MEDICARE
ADVANTAGE
CAPITA-
TION RATES.—The annual Medicare Advan-
tage capitation rate for each Medicare Ad-
vantage payment area for the year. 
‘‘(ii) ADJUSTMENT FACTORS.—The risk 
and other factors to be used in adjusting 
such rates under subsection (a)(1)(A) for 
payments for months in that year. 
‘‘(B) 
COMPETITION
INFORMATION.—For 
years beginning with 2006, the following:
215
‘‘(i) BENCHMARK.—The Medicare Ad-
vantage area-specific non-drug benchmark 
under section 1853(j). 
‘‘(ii) ADJUSTMENT FACTORS.—The ad-
justment factors applied under section 
1853(a)(1)(A)(iv) (relating to demographic 
adjustment), section 1853(a)(1)(B) (relating 
to adjustment for end-stage renal disease), 
and section 1853(a)(3) (relating to health 
status adjustment).’’. 
(2) REPEAL OF PROVISIONS RELATING TO AD-
JUSTED COMMUNITY RATE (ACR).—
(A) IN GENERAL.—Subsections (e) and (f) 
of section 1854 (42 U.S.C. 1395w–24) are re-
pealed. 
(B) CONFORMING
AMENDMENTS.—(i) Sec-
tion 1839(a)(2) (42 U.S.C. 1395r(a)(2)) is 
amended by striking ‘‘, and to reflect’’ and all 
that follows and inserting a period. 
(ii) Section 1852(a)(1) (42 U.S.C. 1395w–
22(a)(1)) is amended by striking ‘‘title XI’’ and 
all that follows and inserting the following: ‘‘title 
XI those items and services (other than hospice 
care) for which benefits are available under parts
216
A and B to individuals residing in the area 
served by the plan.’’. 
(iii) Section 1857(d)(1) (42 U.S.C. 1395w–
27(d)(1)) is amended by striking ‘‘, costs, and 
computation of the adjusted community rate’’ 
and inserting ‘‘and costs’’. 
(f) REFERENCES UNDER PART E.—Section 1859 (42 
U.S.C. 1395w–29) is amended by adding at the end the fol-
lowing new subsection: 
‘‘(f) APPLICATION UNDER PART E.—In the case of any 
reference under part E to a requirement or provision of this 
part in the relation to an EFFS plan or organization under 
such part, except as otherwise specified any such require-
ment or provision shall be applied to such organization or 
plan in the same manner as such requirement or provision 
applies to a Medicare Advantage private fee-for-service plan 
(and the Medicare Advantage organization that offers such 
plan) under this part.’’. 
(g) EFFECTIVE DATE.—The amendments made by this 
section shall apply to payments and premiums for months 
beginning with January 2006.
217
CHAPTER 3—ADDITIONAL REFORMS
SEC. 231. MAKING PERMANENT CHANGE IN MEDICARE AD-
VANTAGE REPORTING DEADLINES AND AN-
NUAL, COORDINATED ELECTION PERIOD. 
(a) CHANGE
IN
REPORTING
DEADLINE.—Section 
1854(a)(1) (42 U.S.C. 1395w–24(a)(1)), as amended by sec-
tion 532(b)(1) of the Public Health Security and Bioter-
rorism Preparedness and Response Act of 2002, is amended 
by striking ‘‘2002, 2003, and 2004 (or July 1 of each other 
year)’’ and inserting ‘‘2002 and each subsequent year’’. 
(b) DELAY IN ANNUAL, COORDINATED ELECTION PE-
RIOD.—Section 
1851(e)(3)(B) 
(42 
U.S.C. 
1395w–
21(e)(3)(B)), as amended by section 532(c)(1)(A) of the 
Public Health Security and Bioterrorism Preparedness and 
Response Act of 2002, is amended—
(1) by striking ‘‘and after 2005’’; and 
(2) by striking ‘‘, 2004, and 2005’’ and inserting 
‘‘and any subsequent year’’. 
(c) ANNUAL ANNOUNCEMENT OF PAYMENT RATES.—
Section 1853(b)(1) (42 U.S.C. 1395w–23(b)(1)), as amend-
ed by section 532(d)(1) of the Public Health Security and 
Bioterrorism Preparedness and Response Act of 2002, is 
amended—
(1) by striking ‘‘and after 2005’’; and
218
(2) by striking ‘‘and 2005’’ and inserting ‘‘and 
each subsequent year’’. 
(d) REQUIRING PROVISION OF AVAILABLE INFORMA-
TION COMPARING PLAN OPTIONS.—The first sentence of sec-
tion 1851(d)(2)(A)(ii) (42 U.S.C. 1395w–21(d)(2)(A)(ii)) is 
amended by inserting before the period the following: ‘‘to 
the extent such information is available at the time of prep-
aration of materials for the mailing’’. 
SEC. 232. AVOIDING DUPLICATIVE STATE REGULATION. 
(a) IN GENERAL.—Section 1856(b)(3) (42 U.S.C. 
1395w–26(b)(3)) is amended to read as follows: 
‘‘(3) RELATION TO STATE LAWS.—The standards 
established under this subsection shall supersede any 
State law or regulation (other than State licensing 
laws or State laws relating to plan solvency) with re-
spect to Medicare Advantage plans which are offered 
by Medicare Advantage organizations under this 
part.’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the date of the enactment 
of this Act. 
SEC. 233. SPECIALIZED MEDICARE ADVANTAGE PLANS FOR 
SPECIAL NEEDS BENEFICIARIES. 
(a) TREATMENT AS COORDINATED CARE PLAN.—Sec-
tion 1851(a)(2)(A) (42 U.S.C. 1395w–21(a)(2)(A)) is
219
amended by adding at the end the following new sentence: 
‘‘Specialized Medicare Advantage plans for special needs 
beneficiaries (as defined in section 1859(b)(4)) may be any 
type of coordinated care plan.’’. 
(b) SPECIALIZED MEDICARE ADVANTAGE PLAN FOR 
SPECIAL
NEEDS
BENEFICIARIES
DEFINED.—Section 
1859(b) (42 U.S.C. 1395w–29(b)) is amended by adding at 
the end the following new paragraph: 
‘‘(4) SPECIALIZED MEDICARE ADVANTAGE PLANS 
FOR SPECIAL NEEDS BENEFICIARIES.—
‘‘(A) IN GENERAL.—The term ‘specialized 
Medicare Advantage plan for special needs bene-
ficiaries’ means a Medicare Advantage plan that 
exclusively serves special needs beneficiaries (as 
defined in subparagraph (B)). 
‘‘(B) SPECIAL
NEEDS
BENEFICIARY.—The 
term ‘special needs beneficiary’ means a Medi-
care Advantage eligible individual who—
‘‘(i) is institutionalized (as defined by 
the Secretary); 
‘‘(ii) is entitled to medical assistance 
under a State plan under title XIX; or 
‘‘(iii) meets such requirements as the 
Secretary may determine would benefit 
from enrollment in such a specialized Medi-
220
care Advantage plan described in subpara-
graph (A) for individuals with severe or 
disabling chronic conditions.’’. 
(c) RESTRICTION ON ENROLLMENT PERMITTED.—Sec-
tion 1859 (42 U.S.C. 1395w–29) is amended by adding at 
the end the following new subsection: 
‘‘(f) RESTRICTION ON ENROLLMENT FOR SPECIALIZED 
MEDICARE ADVANTAGE PLANS FOR SPECIAL NEEDS BENE-
FICIARIES.—In the case of a specialized Medicare Advan-
tage plan (as defined in subsection (b)(4)), notwithstanding 
any other provision of this part and in accordance with 
regulations of the Secretary and for periods before January 
1, 2007, the plan may restrict the enrollment of individuals 
under the plan to individuals who are within one or more 
classes of special needs beneficiaries.’’. 
(d) AUTHORITY TO DESIGNATE OTHER PLANS
AS 
SPECIALIZED MEDICARE ADVANTAGE PLANS.—In promul-
gating regulations to carry out the last sentence of section 
1851(a)(2)(A) of the Social Security Act (as added by sub-
section (a)) and section 1859(b)(4) of such Act (as added 
by subsection (b)), the Secretary may provide (notwith-
standing section 1859(b)(4)(A) of such Act) for the offering 
of specialized Medicare Advantage plans by Medicare Ad-
vantage plans that disproportionately serve special needs 
beneficiaries who are frail, elderly medicare beneficiaries.
221
(e) REPORT TO CONGRESS.—Not later than December 
31, 2005, the Medicare Benefits Administrator shall submit 
to Congress a report that assesses the impact of specialized 
Medicare Advantage plans for special needs beneficiaries on 
the cost and quality of services provided to enrollees. Such 
report shall include an assessment of the costs and savings 
to the medicare program as a result of amendments made 
by subsections (a), (b), and (c). 
(f) EFFECTIVE DATES.—
(1) IN
GENERAL.—The amendments made by 
subsections (a), (b), and (c) shall take effect upon the 
date of the enactment of this Act. 
(2) DEADLINE FOR ISSUANCE OF REQUIREMENTS 
FOR SPECIAL NEEDS BENEFICIARIES; TRANSITION.—
No later than 6 months after the date of the enact-
ment of this Act, the Secretary shall issue interim 
final regulations to establish requirements for special 
needs beneficiaries under section 1859(b)(4)(B)(iii) of 
the Social Security Act, as added by subsection (b). 
SEC. 234. MEDICARE MSAS. 
(a) EXEMPTION
FROM REPORTING ENROLLEE EN-
COUNTER DATA.—
(1) IN GENERAL.—Section 1852(e)(1) (42 U.S.C. 
1395w–22(e)(1)) is amended by inserting ‘‘(other than 
MSA plans)’’ after ‘‘plans’’.
222
(2) CONFORMING
AMENDMENTS.—Section 1852 
(42 U.S.C. 1395w–22) is amended—
(A) in subsection (c)(1)(I), by inserting be-
fore the period at the end the following: ‘‘if re-
quired under such section’’; and 
(B) in subparagraphs (A) and (B) of sub-
section (e)(2), by striking ‘‘, a non-network MSA 
plan,’’ and ‘‘, NON-NETWORK MSA PLANS,’’ each 
place it appears. 
(b) MAKING PROGRAM PERMANENT AND ELIMINATING 
CAP.—Section 1851(b)(4) (42 U.S.C. 1395w–21(b)(4)) is 
amended—
(1) in the heading, by striking ‘‘ON
A
DEM-
ONSTRATION BASIS’’; 
(2) by striking the first sentence of subparagraph 
(A); and 
(3) by striking the second sentence of subpara-
graph (C). 
(c) APPLYING LIMITATIONS ON BALANCE BILLING.—
Section 1852(k)(1) (42 U.S.C. 1395w–22(k)(1)) is amended 
by inserting ‘‘or with an organization offering a MSA 
plan’’ after ‘‘section 1851(a)(2)(A)’’. 
(d) ADDITIONAL AMENDMENT.—Section 1851(e)(5)(A) 
(42 U.S.C. 1395w–21(e)(5)(A)) is amended—
(1) by adding ‘‘or’’ at the end of clause (i);
223
(2) by striking ‘‘, or’’ at the end of clause (ii) 
and inserting a semicolon; and 
(3) by striking clause (iii). 
SEC. 235. EXTENSION OF REASONABLE COST CONTRACTS. 
Subparagraph (C) of section 1876(h)(5) (42 U.S.C. 
1395mm(h)(5)) is amended to read as follows: 
‘‘(C)(i) Subject to clause (ii), may be extended or re-
newed under this subsection indefinitely. 
‘‘(ii) For any period beginning on or after January 
1, 2008, a reasonable cost reimbursement contract under 
this subsection may not be extended or renewed for a service 
area insofar as such area, during the entire previous year, 
was within the service area of 2 or more plans which were 
coordinated care Medicare Advantage plans under part C 
or 2 or more enhanced fee-for-service plans under part E 
and each of which plan for that previous year for the area 
involved meets the following minimum enrollment require-
ments: 
‘‘(I) With respect to any portion of the area in-
volved that is within a Metropolitan Statistical Area 
with a population of more than 250,000 and counties 
contiguous to such Metropolitan Statistical Area, 
5,000 individuals. 
‘‘(II) With respect to any other portion of such 
area, 1,500 individuals.’’.
224
Subtitle C—Application of FEHBP-
Style Competitive Reforms
SEC. 241. APPLICATION OF FEHBP-STYLE COMPETITIVE RE-
FORM BEGINNING IN 2010.
(a) IDENTIFICATION OF COMPETITIVE EFFS REGIONS; 
COMPUTATION OF COMPETITIVE EFFS NON-DRUG BENCH-
MARKS UNDER EFFS PROGRAM.—
(1) IN GENERAL.—Section 1860E–3, as added by 
section 201(a), is amended by adding at the end the 
following new subsection: 
‘‘(e) APPLICATION OF COMPETITION.—
‘‘(1) DETERMINATION OF COMPETITIVE EFFS RE-
GIONS.—
‘‘(A) IN
GENERAL.—For purposes of this 
part, the term ‘competitive EFFS region’ means, 
for a year beginning with 2010, an EFFS region 
that the Administrator finds—
‘‘(i) there will be offered in the region 
during the annual, coordinated election pe-
riod under section 1851(e)(3)(B) (as ap-
plied under section 1860E–1(c)) before the 
beginning of the year at least 2 EFFS plans 
(in addition to the fee-for-service program 
under parts A and B), each offered by a dif-
ferent EFFS organization and each of
225
which met the minimum enrollment re-
quirements of paragraph (1) of section 
1857(b) (as applied without regard to para-
graph (3) thereof) as of March of the pre-
vious year; and 
‘‘(ii) during March of the previous 
year at least the percentage specified in sub-
paragraph (C) of the number of EFFS eli-
gible individuals who reside in the region 
were enrolled in an EFFS plan. 
‘‘(B) PERCENTAGE SPECIFIED.—
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A), subject to clause (ii), the 
percentage specified in this subparagraph 
for a year is equal the lesser of 20 percent 
or to the sum of—
‘‘(I) the percentage, as estimated 
by the Administrator, of EFFS eligible 
individuals in the United States who 
are enrolled in EFFS plans during 
March of the previous year; and 
‘‘(II) the percentage, as estimated 
by the Administrator, of Medicare Ad-
vantage eligible individuals in the 
United States who are enrolled in
226
Medicare 
Advantage 
plans 
during 
March of the previous year. 
‘‘(ii) EXCEPTION.—In the case of an 
EFFS region that was a competitive EFFS 
region for the previous year, the Medicare 
Benefits Administrator may continue to 
treat the region as meeting the requirement 
of subparagraph (A)(ii) if the region would 
meet such requirement but for a de minimis 
reduction below the percentage specified in 
clause (i). 
‘‘(2) COMPETITIVE
EFFS
NON-DRUG
MONTHLY 
BENCHMARK AMOUNT.—For purposes of this part, the 
term ‘competitive EFFS non-drug monthly bench-
mark amount’ means, with respect to an EFFS re-
gion for a month in a year and subject to paragraph 
(8), the sum of the 2 components described in para-
graph (3) for the region and year. The Administrator 
shall compute such benchmark amount for each com-
petitive EFFS region before the beginning of each an-
nual, coordinated election period under section 
1851(e)(3)(B) for each year (beginning with 2010) in 
which it is designated as such a region. 
‘‘(3) 2 COMPONENTS.—For purposes of para-
graph (2), the 2 components described in this para-
227
graph for an EFFS region and a year are the fol-
lowing: 
‘‘(A) EFFS COMPONENT.—The product of 
the following: 
‘‘(i) WEIGHTED
AVERAGE
OF
PLAN 
BIDS IN REGION.—The weighted average of 
the EFFS plan bids for the region and year 
(as determined under paragraph (4)(A)). 
‘‘(ii) NON-FFS
MARKET
SHARE.—1 
minus the fee-for-service market share per-
centage determined under paragraph (5) for 
the region and the year. 
‘‘(B) FEE-FOR-SERVICE
COMPONENT.—The 
product of the following: 
‘‘(i) FEE-FOR-SERVICE
REGION-SPE-
CIFIC NON-DRUG AMOUNT.—The fee-for-serv-
ice region-specific non-drug amount (as de-
fined in paragraph (6)) for the region and 
year. 
‘‘(ii) 
FEE-FOR-SERVICE
MARKET 
SHARE.—The fee-for-service market share 
percentage (determined under paragraph 
(5)) for the region and the year. 
‘‘(4) DETERMINATION
OF
WEIGHTED
AVERAGE 
EFFS PLAN BIDS FOR A REGION.—
228
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(A)(i), the weighted average of EFFS 
plan bids for an EFFS region and a year is the 
sum of the following products for EFFS plans 
described in subparagraph (C) in the region and 
year: 
‘‘(i) UNADJUSTED
EFFS
STATUTORY 
NON-DRUG
MONTHLY
BID
AMOUNT.—The 
unadjusted 
EFFS 
statutory 
non-drug 
monthly bid amount (as defined in sub-
section (a)(3)(A)(ii)(I)) for the region and 
year. 
‘‘(ii) PLAN’S SHARE OF EFFS ENROLL-
MENT IN REGION.—The number of individ-
uals described in subparagraph (B), divided 
by the total number of such individuals for 
all EFFS plans described in subparagraph 
(C) for that region and year. 
‘‘(B) COUNTING OF INDIVIDUALS.—The Ad-
ministrator shall count, for each EFFS plan de-
scribed in subparagraph (C) for an EFFS region 
and year, the number of individuals who reside 
in the region and who were enrolled under such 
plan under this part during March of the pre-
vious year.
229
‘‘(C) EXCLUSION OF PLANS NOT OFFERED 
IN PREVIOUS YEAR.—For an EFFS region and 
year, the EFFS plans described in this subpara-
graph are plans that are offered in the region 
and year and were offered in the region in 
March of the previous year. 
‘‘(5) COMPUTATION OF FEE-FOR-SERVICE MAR-
KET SHARE PERCENTAGE.—The Administrator shall 
determine, for a year and an EFFS region, the pro-
portion (in this subsection referred to as the ‘fee-for-
service market share percentage’) of the EFFS eligible 
individuals who are residents of the region during 
March of the previous year, of such individuals who 
were not enrolled in an EFFS plan or in a Medicare 
Advantage plan (or, if greater, such proportion deter-
mined for individuals nationally). 
‘‘(6) FEE-FOR-SERVICE
REGION-SPECIFIC
NON-
DRUG AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(B)(i) and section 1839(h)(2)(A), sub-
ject to subparagraph (B), the term ‘fee-for-service 
region-specific non-drug amount’ means, for a 
competitive EFFS region and a year, the ad-
justed average per capita cost for the year in-
volved, determined under section 1876(a)(4) for
230
such region for services covered under parts A 
and B for individuals entitled to benefits under 
part A and enrolled under this part who are not 
enrolled in an EFFS plan under part E or a 
Medicare Advantage plan under part C for the 
year, but adjusted to exclude costs attributable to 
payments under section 1886(h). 
‘‘(B) INCLUSION OF COSTS OF VA AND DOD 
MILITARY FACILITY SERVICES TO MEDICARE-ELI-
GIBLE BENEFICIARIES.—In determining the ad-
justed average per capita cost under subpara-
graph (A) for a year, such cost shall be adjusted 
to include the Administrator’s estimate, on a per 
capita basis, of the amount of additional pay-
ments that would have been made in the region 
involved under this title if individuals entitled to 
benefits under this title had not received services 
from facilities of the Department of Veterans Af-
fairs or the Department of Defense. 
‘‘(7) APPLICATION OF COMPETITION.—In the case 
of an EFFS region that is a competitive EFFS re-
gion for a year, for purposes of applying subsections 
(b) and (c)(1) and section 1860E–4(a), any reference 
to an EFFS region-specific non-drug monthly bench-
mark amount shall be treated as a reference to the
231
competitive EFFS non-drug monthly benchmark 
amount under paragraph (2) for the region and year. 
‘‘(8) PHASE-IN OF BENCHMARK FOR EACH RE-
GION.—
‘‘(A) USE OF BLENDED BENCHMARK.—In 
the case of a region that has not been a competi-
tive EFFS region for each of the previous 4 
years, the competitive EFFS non-drug monthly 
benchmark amount shall be equal to the sum of 
the following: 
‘‘(i) NEW COMPETITIVE COMPONENT.—
The product of—
‘‘(I) the weighted average phase-in 
proportion for that area and year, as 
specified in subparagraph (B); and 
‘‘(II) the competitive EFFS non-
drug monthly benchmark amount for 
the region and year, determined under 
paragraph (2) without regard to this 
paragraph. 
‘‘(ii) OLD COMPETITIVE COMPONENT.—
The product of—
‘‘(I) 1 minus the weighted average 
phase-in proportion for that region 
and year; and
232
‘‘(II) the EFFS region-specific 
non-drug benchmark amount for the 
region and the year. 
‘‘(B) COMPUTATION OF WEIGHTED AVERAGE 
PHASE-IN
PROPORTION.—For purposes of this 
paragraph, the ‘weighted average phase-in pro-
portion’ for an EFFS region for a year shall be 
determined as follows: 
‘‘(i) FIRST
YEAR
(AND
REGION
NOT 
COMPETITIVE
REGION
IN
PREVIOUS 
YEAR).—If the area was not a competitive 
EFFS region in the previous year, the 
weighted average phase-in proportion for 
the region for the year is equal to 1⁄5. 
‘‘(ii) COMPETITIVE
REGION
IN
PRE-
VIOUS YEAR.—If the region was a competi-
tive EFFS region in the previous year, the 
weighted average phase-in proportion for 
the region for the year is equal to the 
weighted average phase-in proportion deter-
mined under this subparagraph for the re-
gion for the previous year plus 1⁄5, but in 
no case more than 1.’’. 
(2) CONFORMING AMENDMENTS.—
233
(A) Such section 1860E–3 is further amend-
ed—
(i) in subsection (b), by adding at the 
end the following new paragraph: 
‘‘(4) APPLICATION
IN
COMPETITIVE
RE-
GIONS.—For special rules applying this sub-
section in competitive EFFS regions, see sub-
section (e)(7).’’; 
(ii) in subsection (c)(1), by inserting 
‘‘and subsection (e)(7)’’ after ‘‘(as made ap-
plicable under subsection (d))’’; and 
(iii) in subsection (d) , by striking 
‘‘and (e)’’ and inserting ‘‘(e), and (k) ’’. 
(B) Section 1860E–4(a)(1), as inserted by 
section 201(a)(2), is amended by inserting ‘‘, ex-
cept as provided in section 1860E–3(e)(7)’’ after 
‘‘paragraph (2)’’.
(b) IDENTIFICATION OF COMPETITIVE MEDICARE AD-
VANTAGE AREAS; APPLICATION OF COMPETITIVE MEDICARE 
ADVANTAGE NON-DRUG BENCHMARKS UNDER MEDICARE 
ADVANTAGE PROGRAM.—
(1) IN GENERAL.—Section 1853, as amended by 
section 221(b)(3), is amended by adding at the end 
the following new subsection: 
‘‘(k) APPLICATION OF COMPETITION.—
234
‘‘(1) DETERMINATION
OF
COMPETITIVE
MEDI-
CARE ADVANTAGE AREAS.—
‘‘(A) IN
GENERAL.—For purposes of this 
part, the terms ‘competitive Medicare Advantage 
area’ and ‘CMA area’ mean, for a year begin-
ning with 2010, an area (which is a metropoli-
tan statistical area or other area with a substan-
tial number of Medicare Advantage enrollees) 
that the Administrator finds—
‘‘(i) there will be offered during the an-
nual, coordinated election period under sec-
tion 1851(e)(3)(B) under this part before 
the beginning of the year at least 2 Medi-
care Advantage plans (in addition to the 
fee-for-service program under parts A and 
B), each offered by a different Medicare Ad-
vantage organization and each of which met 
the minimum enrollment requirements of 
paragraph (1) of section 1857(b) (as ap-
plied without regard to paragraph (3) 
thereof) as of March of the previous year 
with respect to the area; and 
‘‘(ii) during March of the previous 
year at least the percentage specified in sub-
paragraph (B) of the number of Medicare
235
Advantage eligible individuals who reside in 
the area were enrolled in a Medicare Ad-
vantage plan. 
‘‘(B) PERCENTAGE SPECIFIED.—
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A), subject to clause (ii), the 
percentage specified in this subparagraph 
for a year is equal the lesser of 20 percent 
or to the sum of—
‘‘(I) the percentage, as estimated 
by the Administrator, of EFFS eligible 
individuals in the United States who 
are enrolled in EFFS plans during 
March of the previous year; and 
‘‘(II) the percentage, as estimated 
by the Administrator, of Medicare Ad-
vantage eligible individuals in the 
United States who are enrolled in 
Medicare 
Advantage 
plans 
during 
March of the previous year. 
‘‘(ii) EXCEPTION.—In the case of an 
area that was a competitive area for the 
previous year, the Medicare Benefits Ad-
ministrator may continue to treat the area 
as meeting the requirement of subparagraph
236
(A)(ii) if the area would meet such require-
ment but for a de minimis reduction below 
the percentage specified in clause (i). 
‘‘(2) COMPETITIVE MEDICARE ADVANTAGE NON-
DRUG MONTHLY BENCHMARK AMOUNT.—For purposes 
of this part, the term ‘competitive Medicare Advan-
tage non-drug monthly benchmark amount’ means, 
with respect to a competitive Medicare Advantage 
area for a month in a year subject to paragraph (8), 
the sum of the 2 components described in paragraph 
(3) for the area and year. The Administrator shall 
compute such benchmark amount for each competitive 
Medicare Advantage area before the beginning of each 
annual, coordinated election period under section 
1851(e)(3)(B) for each year (beginning with 2010) in 
which it is designated as such an area. 
‘‘(3) 2 COMPONENTS.—For purposes of para-
graph (2), the 2 components described in this para-
graph for a competitive Medicare Advantage area and 
a year are the following: 
‘‘(A) MEDICARE ADVANTAGE COMPONENT.—
The product of the following: 
‘‘(i) WEIGHTED
AVERAGE
OF
MEDI-
CARE ADVANTAGE PLAN BIDS IN AREA.—The 
weighted average of the plan bids for the
237
area and year (as determined under para-
graph (4)(A)). 
‘‘(ii) NON-FFS
MARKET
SHARE.—1 
minus the fee-for-service market share per-
centage, determined under paragraph (5) 
for the area and year. 
‘‘(B) FEE-FOR-SERVICE
COMPONENT.—The 
product of the following: 
‘‘(i) FEE-FOR-SERVICE AREA-SPECIFIC 
NON-DRUG
AMOUNT.—The 
fee-for-service 
area-specific non-drug amount (as defined 
in paragraph (6)) for the area and year. 
‘‘(ii) 
FEE-FOR-SERVICE
MARKET 
SHARE.—The fee-for-service market share 
percentage, determined under paragraph (5) 
for the area and year. 
‘‘(4) DETERMINATION
OF
WEIGHTED
AVERAGE 
MEDICARE ADVANTAGE BIDS FOR AN AREA.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(A)(i), the weighted average of plan 
bids for an area and a year is the sum of the 
following products for Medicare Advantage plans 
described in subparagraph (C) in the area and 
year:
238
‘‘(i) MONTHLY MEDICARE ADVANTAGE 
STATUTORY NON-DRUG BID AMOUNT.—The 
unadjusted Medicare Advantage statutory 
non-drug monthly bid amount. 
‘‘(ii) PLAN’S SHARE OF MEDICARE AD-
VANTAGE
ENROLLMENT
IN
AREA.—The 
number of individuals described in subpara-
graph (B), divided by the total number of 
such individuals for all Medicare Advantage 
plans described in subparagraph (C) for 
that area and year. 
‘‘(B) COUNTING OF INDIVIDUALS.—The Ad-
ministrator shall count, for each Medicare Ad-
vantage plan described in subparagraph (C) for 
an area and year, the number of individuals 
who reside in the area and who were enrolled 
under such plan under this part during March 
of the previous year. 
‘‘(C) EXCLUSION OF PLANS NOT OFFERED 
IN PREVIOUS YEAR.—For an area and year, the 
Medicare Advantage plans described in this sub-
paragraph are plans described in the first sen-
tence of section 1851(a)(2)(A) that are offered in 
the area and year and were offered in the area 
in March of the previous year.
239
‘‘(5) COMPUTATION OF FEE-FOR-SERVICE MAR-
KET SHARE PERCENTAGE.—The Administrator shall 
determine, for a year and a competitive Medicare Ad-
vantage area, the proportion (in this subsection re-
ferred to as the ‘fee-for-service market share percent-
age’) of Medicare Advantage eligible individuals re-
siding in the area who during March of the previous 
year were not enrolled in a Medicare Advantage plan 
or in an EFFS plan (or, if greater, such proportion 
determined for individuals nationally). 
‘‘(6) FEE-FOR-SERVICE
AREA-SPECIFIC
NON-
DRUG AMOUNT.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (3)(B)(i) and section 1839(h)(1)(A), sub-
ject to subparagraph (B), the term ‘fee-for-service 
area-specific non-drug amount’ means, for a 
competitive Medicare Advantage area and a 
year, the adjusted average per capita cost for the 
year 
involved, 
determined 
under 
section 
1876(a)(4) for such area for services covered 
under parts A and B for individuals entitled to 
benefits under part A and enrolled under this 
part who are not enrolled in a Medicare Advan-
tage plan under part C or an EFFS plan under
240
part E for the year, but adjusted to exclude costs 
attributable to payments under section 1886(h). 
‘‘(B) INCLUSION OF COSTS OF VA AND DOD 
MILITARY FACILITY SERVICES TO MEDICARE-ELI-
GIBLE BENEFICIARIES.—In determining the ad-
justed average per capita cost under subpara-
graph (A) for a year, such cost shall be adjusted 
to include the Administrator’s estimate, on a per 
capita basis, of the amount of additional pay-
ments that would have been made in the area in-
volved under this title if individuals entitled to 
benefits under this title had not received services 
from facilities of the Department of Veterans Af-
fairs or the Department of Defense. 
‘‘(7) APPLICATION OF COMPETITION.—In the case 
of an area that is a competitive Medicare Advantage 
area for a year, for purposes of applying subsection 
(a)(1)(A)(ii) and sections 1854(b)(2)(A)(ii) and 
1854(b)(3)(B)(i), any reference to a Medicare Advan-
tage area-specific non-drug monthly benchmark 
amount shall be treated as a reference to the competi-
tive Medicare Advantage non-drug monthly bench-
mark amount under paragraph (2) for the area and 
year.
241
‘‘(8) PHASE-IN
OF
BENCHMARK
FOR
EACH 
AREA.—
‘‘(A) USE OF BLENDED BENCHMARK.—In 
the case of an area that has not been a competi-
tive Medicare Advantage area for each of the pre-
vious 4 years, the competitive Medicare Advan-
tage non-drug monthly benchmark amount shall 
be equal to the sum of the following: 
‘‘(i) NEW COMPETITIVE COMPONENT.—
The product of—
‘‘(I) the weighted average phase-in 
proportion for that area and year, as 
specified in subparagraph (B); and 
‘‘(II) the competitive Medicare 
Advantage non-drug monthly bench-
mark amount for the area and year, 
determined under paragraph (2) with-
out regard to this paragraph. 
‘‘(ii) OLD COMPETITIVE COMPONENT.—
The product of—
‘‘(I) 1 minus the weighted average 
phase-in proportion for that area and 
year; and
242
‘‘(II) the Medicare Advantage 
area-wide non-drug benchmark amount 
for the area and the year. 
‘‘(B) COMPUTATION OF WEIGHTED AVERAGE 
PHASE-IN
PROPORTION.—For purposes of this 
paragraph, the ‘weighted average phase-in pro-
portion’ for a Medicare Advantage payment area 
for a year shall be determined as follows: 
‘‘(i) FIRST YEAR (AND AREA NOT COM-
PETITIVE AREA IN PREVIOUS YEAR).—If the 
area was not a Medicare Advantage com-
petitive area in the previous year, the 
weighted average phase-in proportion for 
the area for the year is equal to 1⁄5. 
‘‘(ii) COMPETITIVE AREA IN PREVIOUS 
YEAR.—If the area was a competitive Medi-
care Advantage area in the previous year, 
the weighted average phase-in proportion 
for the area for the year is equal to the 
weighted average phase-in proportion deter-
mined under this subparagraph for the area 
for the previous year plus 1⁄5, but in no case 
more than 1. 
‘‘(C) MEDICARE
ADVANTAGE
AREA-WIDE 
NON-DRUG BENCHMARK AMOUNT.—For purposes
243
of subparagraph (A)(ii)(II), the term ‘Medicare 
Advantage 
area-wide 
non-drug 
benchmark 
amount’ means, for an area and year, the 
weighted average of the amounts described in sec-
tion 1853(j) for Medicare Advantage payment 
area or areas included in the area (based on the 
number of traditional fee-for-service enrollees in 
such payment area or areas) and year.’’. 
(2) APPLICATION.—Section 1854 (42 U.S.C. 
1395w–24) is amended—
(A) in subsection (b)(1)(C)(i), as added by 
section 221(b)(1)(A), by striking ‘‘(i) REQUIRE-
MENT.—The’’ and inserting ‘‘(i) REQUIREMENT 
FOR NON-COMPETITIVE AREAS.—In the case of a 
Medicare Advantage payment area that is not a 
competitive Medicare Advantage area designated 
under section 1853(k)(1), the’’; 
(B) in subsection (b)(1)(C), as so added, by 
inserting after clause (i) the following new 
clause: 
‘‘(ii) REQUIREMENT FOR COMPETITIVE 
MEDICARE ADVANTAGE AREAS.—In the case 
of a Medicare Advantage payment area that 
is designated as a competitive Medicare Ad-
vantage area under section 1853(k)(1), if
244
there are average per capita monthly sav-
ings described in paragraph (6) for a Medi-
care Advantage plan and year, the Medicare 
Advantage plan shall provide to the enrollee 
a monthly rebate equal to 75 percent of such 
savings.’’; and 
(C) by adding at the end of subsection (b), 
as amended by sections 221(b)(1)(B) and 
221(b)(2), the following new paragraph: 
‘‘(6) COMPUTATION
OF
AVERAGE
PER
CAPITA 
MONTHLY SAVINGS FOR COMPETITIVE MEDICARE AD-
VANTAGE
AREAS.—For 
purposes 
of 
paragraph 
(1)(C)(ii), the average per capita monthly savings re-
ferred to in such paragraph for a Medicare Advantage 
plan and year shall be computed in the same manner 
as the average per capita monthly savings is com-
puted under paragraph (3) except that the reference 
to the Medicare Advantage area-specific non-drug 
monthly benchmark amount in paragraph (3)(B)(i) 
(or to the benchmark amount as adjusted under para-
graph (3)(C)(i)) is deemed to be a reference to the 
competitive Medicare Advantage non-drug monthly 
benchmark amount (or such amount as adjusted in 
the manner described in paragraph (3)(B)(i)).’’. 
(3) ADDITIONAL CONFORMING AMENDMENTS.—
245
(A) 
PAYMENT
OF
PLANS.—Section 
1853(a)(1)(A)(ii), 
as 
amended 
by 
section 
221(c)(1), is amended—
(i) in subclauses (I) and (II), by in-
serting ‘‘(or, insofar as such payment area 
is a competitive Medicare Advantage area, 
described in section 1854(b)(6))’’ after ‘‘sec-
tion 1854(b)(3)(C)’’; and 
(ii) in subclause (II), by inserting 
‘‘(or, insofar as such payment area is a 
competitive Medicare Advantage area, the 
competitive Medicare Advantage non-drug 
monthly benchmark amount)’’ after ‘‘Medi-
care 
Advantage 
area-specific 
non-drug 
monthly benchmark amount’’; and 
(B) DISCLOSURE
OF
INFORMATION.—Sec-
tion 1853(b)(1)(B), as amended by section 
221(e)(1), is amended to read as follows: 
‘‘(B) 
COMPETITION
INFORMATION.—For 
years beginning with 2006, the following: 
‘‘(i) BENCHMARKS.—The Medicare Ad-
vantage area-specific non-drug benchmark 
under section 1853(j) and, if applicable, the 
competitive Medicare Advantage non-drug 
benchmark under section 1853(k)(2), for the
246
year and competitive Medicare Advantage 
area involved and the national fee-for-serv-
ice market share percentage for the area 
and year. 
‘‘(ii) ADJUSTMENT FACTORS.—The ad-
justment factors applied under section 
1853(a)(1)(A)(iv) (relating to demographic 
adjustment), section 1853(a)(1)(B) (relating 
to adjustment for end-stage renal disease), 
and section 1853(a)(3) (relating to health 
status adjustment). 
‘‘(iii) 
CERTAIN
BENCHMARKS
AND 
AMOUNTS.—In the case of a competitive 
Medicare Advantage area, the Medicare Ad-
vantage area-wide non-drug benchmark 
amount (as defined in subsection (k)(8)(C)) 
and the fee-for-service area-specific non-
drug 
amount 
(as 
defined 
in 
section 
1853(k)(6)) for the area. 
‘‘(iv) INDIVIDUALS.—The number of 
individuals 
counted 
under 
subsection 
(k)(4)(B) and enrolled in each Medicare Ad-
vantage plan in the area.’’. 
(C) DEFINITION OF MONTHLY BASIC PRE-
MIUM.—Section 1854(b)(2)(A)(ii), as amended
247
by section 221(d)(2), is amended by inserting 
‘‘(or, in the case of a competitive Medicare Ad-
vantage area, the competitive Medicare Advan-
tage non-drug monthly benchmark amount or, in 
applying this paragraph under part E in the 
case of a competitive EFFS region, the competi-
tive 
EFFS 
non-drug 
monthly 
benchmark 
amount)’’ after ‘‘benchmark amount’’. 
(c) PREMIUM ADJUSTMENT.—
(1) IN
GENERAL.—Section 1839 (42 U.S.C. 
1395r) is amended by adding at the end the following 
new subsection: 
‘‘(h)(1)(A) In the case of an individual who resides in 
a competitive Medicare Advantage area under section 
1853(k)(1) (regardless of whether such area is in a competi-
tive EFFS region under section 1860E–3(e)) and who is 
not enrolled in a Medicare Advantage plan under part C 
or in an EFFS plan under part E, the monthly premium 
otherwise applied under this part (determined without re-
gard to subsections (b) and (f) or any adjustment under 
this subsection) shall be adjusted as follows: If the fee-for-
service area-specific non-drug amount (as defined in section 
1853(k)(6)) for the competitive Medicare Advantage area in 
which the individual resides for a month—
248
‘‘(i) does not exceed the competitive Medicare Ad-
vantage non-drug benchmark (as determined under 
paragraph (2) of section 1853(k), without regard to 
paragraph (8) thereof) for such area, the amount of 
the premium for the individual for the month shall be 
reduced by an amount equal to the product of the ad-
justment factor under subparagraph (C) and 75 per-
cent of the amount by which such competitive bench-
mark exceeds such fee-for-service area-specific non-
drug amount; or 
‘‘(ii) exceeds such competitive Medicare Advan-
tage non-drug benchmark, the amount of the premium 
for the individual for the month shall be adjusted to 
ensure, subject to subparagraph (B), that—
‘‘(I) the sum of the amount of the adjusted 
premium and the competitive Medicare Advan-
tage non-drug benchmark for the area, is equal 
to 
‘‘(II) the sum of the unadjusted premium 
plus amount of the fee-for-service area-specific 
non-drug amount for the area. 
‘‘(B) In no case shall the actual amount of an adjust-
ment under subparagraph (A)(ii) exceed the product of the 
adjustment factor under subparagraph (C) and the amount
249
of the adjustment otherwise computed under subparagraph 
(A)(ii) without regard to this subparagraph. 
‘‘(C) The adjustment factor under this subparagraph 
for an area for a year is equal to—
‘‘(i) the number of consecutive years (in the 5-
year period ending with the year involved) in which 
such area was a competitive Medicare Advantage 
area; divided by 
‘‘(ii) 5. 
‘‘(2)(A) In the case of an individual who resides in 
an area that is within a competitive EFFS region under 
section 1860E–3(e) but is not within a competitive Medi-
care Advantage area under section 1853(k)(1) and who is 
not enrolled in a Medicare Advantage plan under part C 
or in an EFFS plan under part E, the monthly premium 
otherwise applied under this part (determined without re-
gard to subsections (b) and (f) or any adjustment under 
this subsection) shall be adjusted as follows: If the fee-for-
service region-specific non-drug amount (as defined in sec-
tion 1860E–3(e)(6)) for a region for a month—
‘‘(i) does not exceed the competitive EFFS non-
drug monthly benchmark amount (as determined 
under paragraph (2) of section 1860E–3(e), without 
regard to paragraph (8) thereof) for such region, the 
amount of the premium for the individual for the
250
month shall be reduced by an amount equal to the 
product of the adjustment factor under subparagraph 
(C) and 75 percent of the amount by which such com-
petitive benchmark amount exceeds such fee-for-service 
region-specific non-drug benchmark amount; or 
‘‘(ii) exceeds such competitive EFFS non-drug 
monthly benchmark amount, the amount of the pre-
mium for the individual for the month shall be ad-
justed to ensure, subject to subparagraph (B), that—
‘‘(I) the sum of the amount of the adjusted 
premium and the competitive EFFS non-drug 
monthly benchmark amount for the region, is 
equal to 
‘‘(II) the sum of the unadjusted premium 
plus the amount of the EFFS region-specific 
non-drug monthly bid for the region. 
‘‘(B) In no case shall the actual amount of an adjust-
ment under subparagraph (A)(ii) exceed the product of the 
adjustment factor under subparagraph (C) and the amount 
of the adjustment otherwise computed under subparagraph 
(A)(ii) without regard to this subparagraph. 
‘‘(C) The adjustment factor under this subparagraph 
for an EFFS region for a year is equal to—
‘‘(i) the number of consecutive years (in the 5-
year period ending with the year involved) in which
251
such region was a competitive EFFS region; divided 
by 
‘‘(ii) 5. 
‘‘(3) Nothing in this subsection shall be construed as 
preventing a reduction under paragraph (1)(A) or para-
graph (2)(A) in the premium otherwise applicable under 
this part to zero or from requiring the provision of a rebate 
to the extent such premium would otherwise be required to 
be less than zero. 
‘‘(4) The adjustment in the premium under this sub-
section shall be effected in such manner as the Medicare 
Benefits Administrator determines appropriate. 
‘‘(5) In order to carry out this subsection (insofar as 
it is effected through the manner of collection of premiums 
under 1840(a)), the Medicare Benefits Administrator shall 
transmit to the Commissioner of Social Security—
‘‘(A) at the beginning of each year, the name, so-
cial security account number, and the amount of the 
adjustment (if any) under this subsection for each in-
dividual enrolled under this part for each month dur-
ing the year; and 
‘‘(B) periodically throughout the year, informa-
tion to update the information previously transmitted 
under this paragraph for the year.’’.
252
(2) CONFORMING AMENDMENT.—Section 1844(c) 
(42 U.S.C. 1395w(c)) is amended by inserting ‘‘and 
without regard to any premium adjustment effected 
under section 1839(h)’’ before the period at the end. 
(d) EFFECTIVE DATE.—The amendments made by this 
section shall take effect on January 1, 2010.
TITLE III—COMBATTING WASTE, 
FRAUD, AND ABUSE 
SEC. 301. MEDICARE SECONDARY PAYOR (MSP) PROVI-
SIONS. 
(a) TECHNICAL
AMENDMENT
CONCERNING
SEC-
RETARY’S AUTHORITY TO MAKE CONDITIONAL PAYMENT 
WHEN CERTAIN PRIMARY PLANS DO NOT PAY PROMPT-
LY.—
(1) IN GENERAL.—Section 1862(b)(2) (42 U.S.C. 
1395y(b)(2)) is amended—
(A) in subparagraph (A)(ii), by striking 
‘‘promptly (as determined in accordance with 
regulations)’’; 
(B) in subparagraph (B)—
(i) by redesignating clauses (i) through 
(iii) as clauses (ii) through (iv), respec-
tively; and 
(ii) by inserting before clause (ii), as 
so redesignated, the following new clause:
253
‘‘(i) AUTHORITY
TO
MAKE
CONDI-
TIONAL
PAYMENT.—The 
Secretary 
may 
make payment under this title with respect 
to an item or service if a primary plan de-
scribed in subparagraph (A)(ii) has not 
made or cannot reasonably be expected to 
make payment with respect to such item or 
service promptly (as determined in accord-
ance with regulations). Any such payment 
by the Secretary shall be conditioned on re-
imbursement to the appropriate Trust Fund 
in accordance with the succeeding provi-
sions of this subsection.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall be effective as if included in 
the enactment of title III of the Medicare and Med-
icaid Budget Reconciliation Amendments of 1984 
(Public Law 98-369). 
(b) CLARIFYING AMENDMENTS TO CONDITIONAL PAY-
MENT
PROVISIONS.—Section 
1862(b)(2) 
(42 
U.S.C. 
1395y(b)(2)) is further amended—
(1) in subparagraph (A), in the matter following 
clause (ii), by inserting the following sentence at the 
end: ‘‘An entity that engages in a business, trade, or 
profession shall be deemed to have a self-insured plan
254
if it carries its own risk (whether by a failure to ob-
tain insurance, or otherwise) in whole or in part.’’; 
(2) in subparagraph (B)(ii), as redesignated by 
subsection (a)(2)(B)—
(A) by striking the first sentence and insert-
ing the following: ‘‘A primary plan, and an enti-
ty that receives payment from a primary plan, 
shall reimburse the appropriate Trust Fund for 
any payment made by the Secretary under this 
title with respect to an item or service if it is 
demonstrated that such primary plan has or had 
a responsibility to make payment with respect to 
such item or service. A primary plan’s responsi-
bility for such payment may be demonstrated by 
a judgment, a payment conditioned upon the re-
cipient’s compromise, waiver, or release (whether 
or not there is a determination or admission of 
liability) of payment for items or services in-
cluded in a claim against the primary plan or 
the primary plan’s insured, or by other means.’’; 
and 
(B) in the final sentence, by striking ‘‘on 
the date such notice or other information is re-
ceived’’ and inserting ‘‘on the date notice of, or 
information related to, a primary plan’s respon-
255
sibility for such payment or other information is 
received’’; and 
(3) in subparagraph (B)(iii), as redesignated by 
subsection (a)(2)(B), by striking the first sentence and 
inserting the following: ‘‘In order to recover payment 
made under this title for an item or service, the 
United States may bring an action against any or all 
entities that are or were required or responsible (di-
rectly, as an insurer or self-insurer, as a third-party 
administrator, as an employer that sponsors or con-
tributes to a group health plan, or large group health 
plan, or otherwise) to make payment with respect to 
the same item or service (or any portion thereof) 
under a primary plan. The United States may, in ac-
cordance with paragraph (3)(A) collect double dam-
ages against any such entity. In addition, the United 
States may recover under this clause from any entity 
that has received payment from a primary plan or 
from the proceeds of a primary plan’s payment to 
any entity.’’. 
(c) CLERICAL AMENDMENTS.—Section 1862(b) (42 
U.S.C. 1395y(b)) is amended—
(1) in paragraph (1)(A), by moving the indenta-
tion of clauses (ii) through (v) 2 ems to the left; and
256
(2) in paragraph (3)(A), by striking ‘‘such’’ be-
fore ‘‘paragraphs’’. 
SEC. 302. COMPETITIVE ACQUISITION OF CERTAIN ITEMS 
AND SERVICES. 
(a) IN GENERAL.—Section 1847 (42 U.S.C. 1395w–
3) is amended to read as follows:
‘‘COMPETITIVE ACQUISITION OF CERTAIN ITEMS AND 
SERVICES 
‘‘SEC. 1847. (a) ESTABLISHMENT OF COMPETITIVE 
ACQUISITION PROGRAMS.—
‘‘(1) IMPLEMENTATION OF PROGRAMS.—
‘‘(A) IN GENERAL.—The Secretary shall es-
tablish and implement programs under which 
competitive acquisition areas are established 
throughout the United States for contract award 
purposes for the furnishing under this part of 
competitively priced items and services (de-
scribed in paragraph (2)) for which payment is 
made under this part. Such areas may differ for 
different items and services. 
‘‘(B) PHASED-IN
IMPLEMENTATION.—The 
programs shall be phased-in—
‘‘(i) among competitive acquisition 
areas over a period of not longer than 3 
years in a manner so that the competition 
under the programs occurs in—
257
‘‘(I) at least 1⁄3 of such areas in 
2005; and 
‘‘(II) at least 2⁄3 of such areas in 
2006; and 
‘‘(ii) among items and services in a 
manner such that the programs apply to the 
highest cost and highest volume items and 
services first. 
‘‘(C) WAIVER OF CERTAIN PROVISIONS.—In 
carrying out the programs, the Secretary may 
waive such provisions of the Federal Acquisition 
Regulation as are necessary for the efficient im-
plementation of this section, other than provi-
sions relating to confidentiality of information 
and such other provisions as the Secretary deter-
mines appropriate. 
‘‘(2) ITEMS
AND
SERVICES
DESCRIBED.—The 
items and services referred to in paragraph (1) are 
the following: 
‘‘(A) DURABLE MEDICAL EQUIPMENT AND 
MEDICAL SUPPLIES.—Covered items (as defined 
in section 1834(a)(13)) for which payment is 
otherwise made under section 1834(a), including 
items used in infusion and drugs and supplies 
used in conjunction with durable medical equip-