I
107TH CONGRESS
2D SESSION
H. R. 3626
To amend title XVIII of the Social Security Act to provide for an outpatient
prescription drug benefit under the Medicare Program.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 24, 2002
Mrs. EMERSON (for herself and Mr. ROSS) introduced the following bill; which
was referred to the Committee on Energy and Commerce, and in addition
to the Committee on Ways and Means, for a period to be subsequently
determined by the Speaker, in each case for consideration of such provi-
sions as fall within the jurisdiction of the committee concerned
A BILL
To amend title XVIII of the Social Security Act to provide
for an outpatient prescription drug benefit under the
Medicare Program.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; FINDINGS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medicare Drug and Service Coverage Act of 2002’’.
(b) FINDINGS.—Congress makes the following find-
ings:
(1) It is important for seniors to have access to
prescription drugs for life and health. Prescription
drugs are an important part of medical therapy, but
medicare does not have a voluntary prescription
drug benefit for seniors who need and want drug
coverage.
(2) A comprehensive prescription drug benefit
program for seniors would help assure that seniors
have access to necessary prescription drugs and
medication therapy management services, which are
among the most cost-effective medical interventions
available in the health care system.
(3) Seniors use more pharmaceuticals than any
other population group, and are in greater need of
medication therapy management services to assist
them in proper medication utilization. These services
will help reduce the chance for adverse medication
events, which result in increased medicare spending
for hospitalizations, nursing home stays, emergency
room visits, and physician office visits.
(4) A new prescription drug benefit for seniors
should be structured so that seniors have access to
the distribution method of their choice without any
form of economic or other inducement to use an al-
ternative distribution system.
(5) To assure appropriate and meaningful cost
controls under the program, and in order to have
their drugs covered, manufacturers should be re-
quired to contribute to cost reductions in the medi-
care program.
SEC. 2. PRESCRIPTION DRUG BENEFIT PROGRAM.
(a) IN GENERAL.—Title XVIII of the Social Security
Act is amended—
(1) by redesignating part D as part E; and
(2) by inserting after part C the following new
part:
‘‘PART D—OUTPATIENT PRESCRIPTION DRUG BENEFIT
PROGRAM
‘‘OUTPATIENT PRESCRIPTION DRUG BENEFIT PROGRAM
ESTABLISHED
‘‘SEC. 1860. There is established a voluntary pre-
scription drug benefit program to provide covered out-
patient drugs and medication therapy management serv-
ices in accordance with the provisions of this part for bene-
ficiaries who elect to enroll under such program, to be fi-
nanced with contributions from funds appropriated by the
Federal Government and premiums collected from partici-
pating beneficiaries.
‘‘SCOPE OF BENEFITS
‘‘SEC. 1860A. (a) COVERED OUTPATIENT PRESCRIP-
TION DRUGS AND ASSOCIATED SERVICES.—
‘‘(1) IN GENERAL.—The benefits provided to a
beneficiary under this part shall consist of payments
made in accordance with the provisions of this part
for the following services furnished by any pharmacy
provider (as defined in section 1860I(e):
‘‘(A) PRESCRIPTION DRUGS.—Covered out-
patient prescription drugs, as specified in sub-
section (b).
‘‘(B) MEDICATION
PREPARATION
SERV-
ICES.—Covered medication preparation services,
as specified in subsection (c).
‘‘(C) MEDICATION THERAPY MANAGEMENT
SERVICES.—Covered medication therapy man-
agement services, as specified in subsection(d).
‘‘(2) WILLING
PHARMACY
PROVIDERS.—Any
pharmacy provider that is authorized by the applica-
ble State agency to engage in the practice of phar-
macy may participate in the program established
under this part.
‘‘(b) 
COVERED
OUTPATIENT
PRESCRIPTION
DRUGS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
benefits under this part for outpatient prescription
drugs means, subject to section 1860B, payment for
all prescribed drugs within the meaning of the term
covered outpatient prescription drugs, as defined in
section 1860I(a).
‘‘(2) AVOIDANCE
OF
DUPLICATE
PAYMENT
UNDER MEDICARE.—Payment under paragraph (1)
for covered outpatient prescription drugs may only
be made, with respect to such drugs for which pay-
ment may be made under part A or B, only if bene-
fits under part A or part B for such drugs have
been exhausted.
‘‘(c) COVERED MEDICATION PREPARATION SERV-
ICES.—Covered medication preparation services, for pur-
poses of this part, means services provided by pharmacy
providers involving prescription drug compounding, the
provision of special packaging, and such other services in-
volved in the preparation and delivery of prescription
drugs as the Secretary may prescribe.
‘‘(d) COVERED MEDICATION THERAPY MANAGE-
MENT SERVICES.—
‘‘(1) IN GENERAL.—Covered medication ther-
apy management services means—
‘‘(A) services or programs furnished by a
pharmacy provider which are designed—
‘‘(i) to assure that medications are
used appropriately by beneficiaries;
‘‘(ii) to enhance beneficiaries’ under-
standing of the appropriate use of medica-
tions;
‘‘(iii) to increase beneficiaries’ compli-
ance with prescription medication regi-
mens;
‘‘(iv) to reduce the risk of potential
adverse events associated with medications;
and
‘‘(v) to reduce the need for other cost-
ly medical services through better manage-
ment of medication therapy; and
‘‘(B) services provided in collaboration
with physicians, pharmacists, and other health
care professionals when necessary, involving
case management, disease management, patient
training and education, medication refill re-
minders, medication therapy problem resolution,
laboratory testing conducted to monitor medica-
tion therapy, other services that enhance the
use of prescription medications, and such other
professional services consistent with the scope
of the practice of pharmacy as defined by appli-
cable State law or regulation.
‘‘(2) PROGRAM OPERATION.—The program es-
tablished under this subsection will—
‘‘(A) identify and provide medication ther-
apy management services to beneficiaries at
risk for potential medication problems, such as
beneficiaries taking multiple medications and
beneficiaries with complex or chronic medical
conditions;
‘‘(B) be developed and structured in co-
operation with organizations representing phar-
macy providers, including identifying those
medication therapy management services that
will be provided, as well as payment mecha-
nisms for such services;
‘‘(C) structure and update payments to re-
flect the resources and time involved in the pro-
vision of such services, the level of risk associ-
ated with the use of particular medications, and
the health status of beneficiaries to whom medi-
cation therapy management services are pro-
vided; and
‘‘(D) provide for ongoing evaluation and
documentation of these services in improving
quality of care and reducing health care costs.
‘‘PAYMENT OF BENEFITS; BENEFIT LIMITS; BENEFICIARY
COPAY
‘‘SEC. 1860B. (a) ESTABLISHMENT OF ACCOUNT.—
There is established within the Supplementary Medical In-
surance Trust Fund an account to be known as the Pre-
scription Drug Benefit Insurance Account (hereinafter in
this part referred to as the ‘Account’).
‘‘(b) PAYMENT OF BENEFITS.—Subject to the suc-
ceeding provisions of this section, there shall be paid from
the Account to a pharmacy provider that furnishes serv-
ices for which payment may be made under this part to
an individual who is enrolled under this part an amount,
for each such service, equal to the lesser of—
‘‘(1) the reasonable charges for the benefits, as
determined under section 1860G; or
‘‘(2) 
the 
pharmacy 
provider’s 
customary
charges with respect to such benefits.
‘‘(c) ANNUAL DEDUCTIBLE.—Before applying sub-
section (b) with respect to expenses incurred by an indi-
vidual enrolled under this part during any calendar year,
the total amount of the expenses incurred by such indi-
vidual during such year (which would, except for this sub-
section, constitute incurred expenses from which benefits
payable under subsection (b) are determinable) shall be
reduced by a deductible of $250.
‘‘(d) COINSURANCE.—
‘‘(1) IN GENERAL.—Subject to paragraphs (3)
and (4), the amount payable for services for which
payment may be made under this part furnished an
individual enrolled under this part shall be reduced
by a coinsurance amount equal to established under
paragraph (2).
‘‘(2) ESTABLISHING
ANNUAL
COINSURANCE
PERCENTAGE.—Each year the Secretary shall, with
the advice of the Medicare Prescription Drug Ben-
efit Advisory Commission established in section
1860H, determine and promulgate a coinsurance
amount (as a percentage of the benefits provided)
that qualified beneficiaries pay with benefits covered
under this program for the next calendar year and
in accordance with the limitations of this subsection.
‘‘(3) MAXIMUM
COINSURANCE.—The coinsur-
ance established in paragraph (2) may not exceed 20
percent.
‘‘(4) 
LIMITS
ON
VARYING
COINSURANCE
AMOUNTS.—The Secretary may not vary the coin-
surance amounts or make any differentiation of
scope or quantity of benefits coverage provided
based on the method of providing the services.
‘‘PROCEDURE FOR PAYMENT OF CLAIMS
‘‘SEC. 1860C. Payment for services described in sec-
tion 1860A may be made only to pharmacy providers and
only if a claim is filed for such payment in such form and
manner as the Secretary may by regulation require. In no
case may payment be made later than 12 months following
the year in which such services are furnished.
‘‘ELIGIBILITY AND ENROLLMENT
‘‘SEC. 1860D. Every individual who, during or after
2003, is entitled to hospital insurance benefits under part
A and is enrolled in part B shall be eligible to enroll in
the program under this part in such form and manner
as the Secretary may require by regulation.
‘‘PREMIUM FEES AND PAYMENT
‘‘SEC. 1860E. (a) ANNUAL ESTABLISHMENT
OF
PREMIUM AMOUNT.—Each year the Secretary shall, with
the advice of the Medicare Prescription Drug Benefit Ad-
visory Commission established in section 1860H, deter-
mine and promulgate a monthly premium for beneficiaries
who enroll under this part, taking into account the total
amount of payments expected to be made from Account
for furnishing services under this part for the next cal-
endar year and in accordance with the provisions of this
section.
‘‘(b) PAYMENT OF PREMIUMS.—An individual en-
rolled in the program under this part shall pay the pre-
mium established under subsection (a) to the Secretary
at such times and in such manner as the Secretary shall
by regulation require.
‘‘(c) DEPOSIT OF FUNDS.—Amounts paid to the Sec-
retary under subsection (a) shall be deposited in the
Treasury to the credit of the Account.
‘‘ADMINISTRATION OF BENEFITS THROUGH CARRIERS
‘‘SEC. 1860F. (a) IN GENERAL.—The Secretary shall
contract with carriers designated in accordance with sub-
section (d), based on a competitive bid, fixed fee per trans-
action basis, to perform some or all of the following ad-
ministrative functions:
‘‘(1) PROCESS AND ADJUDICATE CLAIMS.—The
carrier shall receive, process, and make payment for
claims to pharmacy providers through an online, real
time claims adjudication system that conforms to
current industry standards, and shall disburse and
account for funds in making payments to pharmacy
providers under this part.
‘‘(2) COMMUNICATE
INFORMATION.—The car-
rier shall serve as a channel of communication of eli-
gibility and coverage information to beneficiaries and
pharmacy providers.
‘‘(3) QUALITY ASSURANCE.—The carrier shall
provide the information and computer system sup-
port, either directly or through a contract with an
outside entity, for the pharmacy provider to conduct
a drug utilization review program conforming to the
standards established by section 1927(g)(2), with
modifications as the Secretary determines by regula-
tion to be appropriate.
‘‘(4) 
PROTECTION
AGAINST
FRAUD
AND
ABUSE.—The carrier shall conduct activities to con-
trol fraud, abuse, and waste in accordance with reg-
ulations promulgated by the Secretary.
‘‘(5) COLLECTION OF PAYMENTS.—The carrier
shall collect payments from participating pharma-
ceutical manufacturers as specified in subsection (e).
‘‘(b) LIMITS ON CARRIER FUNCTION.—The Secretary
shall not contract with carriers—
‘‘(1) to make determinations of the rates and
amounts of payments to be made to pharmacy pro-
viders under this part;
‘‘(2) to make determinations of any limitations
on covered benefits, such as the nature, scope,
choice, or amount of benefits available, as referred
to in section 1860A;
‘‘(3) to make determinations of pharmacy pro-
vider eligibility;
‘‘(4) to carry out any tasks beyond the adminis-
trative and ministerial duties authorized by this sec-
tion, including aggregate purchasing; or
‘‘(5) to practice medicine or pharmacy.
‘‘(c) REQUIREMENTS
FOR
PAYING
CLAIMS
AND
GRIEVANCE PROCEDURES.—Each contract under this sec-
tion that provides for the disbursement of funds as de-
scribed in subsection (a)(1) shall provide that—
‘‘(1) payment shall be issued, mailed, or other-
wise transmitted for claims submitted under this
part in accordance with the procedures established
by section 1842(c); and
‘‘(2) each carrier shall have in place such proce-
dures as the Secretary shall specify for hearing and
resolving grievances brought by enrolled beneficiaries
against the carrier or pharmacy provider and the
pharmacy provider against the carrier concerning
benefits under this part.
‘‘(d) ELIGIBLE ENTITIES.—Each carrier responsible
for administering the program established under this part
shall meet at least the following criteria:
‘‘(1) PERFORMANCE
CAPABILITY.—The entity
shall have sufficient expertise, personnel, and re-
sources to perform the contracted benefit adminis-
trations.
‘‘(2) PERFORMANCE RATING.—The entity shall
be subject to such review as required by the Sec-
retary, both prior to issuing a contract under this
part and in review of performance administering
contracts under this part.
‘‘(3) FINANCIAL
INTEGRITY.—The entity and
its officers, directors, agents, and managing employ-
ees shall have a satisfactory record of professional
competence and professional and financial integrity,
and the entity shall have adequate financial re-
sources to perform services under the contract with-
out risk of insolvency.
‘‘(4) CAPABILITY TO MAINTAIN RECORDS.—The
entity shall have systems to maintain adequate
records and afford the Secretary access to such
records (including for audit purposes).
‘‘(5) COMPLIANCE
WITH
INDUSTRY
STAND-
ARDS.—The entity shall comply with standards
adopted by the National Council on Prescription
Drug Programs for uniform identification cards,
telecommunication standards, and drug utilization
review messaging.
‘‘(6) COST
AND
PRICING
DATA.—The entity
shall submit to the Secretary as part of its bid sub-
mission all relevant cost and pricing data, including
all fees charged by the entity for performing the ad-
ministrative functions pursuant to any competitively
bid contract awarded to the carrier under this sec-
tion, plus any and all administrative fees or other
payments received by the entity from drug manufac-
turers pursuant to the contract award.
‘‘(7) CAPABILITY
TO
GENERATE
REPORTS.—
The entity shall have systems to make such reports
and submissions of financial and utilization data as
the Secretary may require, including reports describ-
ing the nature and type of direct and indirect manu-
facturers’ payments received by the carrier, assur-
ance that payments made to pharmacy providers are
based on such standards as the Secretary may pre-
scribe, and any other types of administrative or
claims processing fees received by the carrier.
‘‘(e) MANUFACTURER PAYMENTS.—
‘‘(1) IN GENERAL.—The Secretary shall only
make payment under this part for innovator multiple
source drugs or single source drugs (as defined in
clauses (ii) and (iv), respectively, of section
1927(k)(7)(A)) for which payment may be made
under this part of a manufacturer if that manufac-
turer has entered into and has in effect an agree-
ment with the Secretary that requires the manufac-
turer to make periodic payments in the amount de-
scribed in this subsection. A payment agreement
shall be effective for an initial period of not less
than 1 year and shall be automatically renewed for
a period of not less than 1 year.
‘‘(2) AMOUNT OF PAYMENT.—
‘‘(A) IN GENERAL.—The payment amount
for a covered outpatient prescription drug fur-
nished under this part shall be equal to not less
than the sum of the basic rebate amount (deter-
mined under subparagraph (B)) for each dos-
age form and strength of such drug increased
by the amount of the inflation adjustment re-
bate (determined under subparagraph (C)) for
each dosage form and strength of such drug.
‘‘(B) BASIC REBATE AMOUNT.—The basic
rebate amount shall be equal to the product of
the total number of units of each dosage form
and strength paid for by the carrier in the pay-
ment period (as defined in section 1927(b)),
and the average manufacturers’ price (as de-
fined in section 1860I) for the quarter for the
dosage form and strength of the covered out-
patient drug minus not less than 18 percent of
the average manufacturers’ price for the quar-
ter, or such amount as determined by the Sec-
retary through negotiations with the manufac-
turer of such drug.
‘‘(C) INFLATION ADJUSTMENT AMOUNT.—
The amount of the basic rebate payment shall
be increased by an amount equal to the product
of the number of units of each dosage form and
strength paid for by the carrier in the payment
period and the amount by which the average
manufacturers’ price for such drug and dosage
form and strength for the calendar quarter in-
creased in excess of the percentage by which the
consumer price index for all urban consumers
increased during the calendar quarter.
‘‘(3) CARRIER
RESPONSIBILITY.—The carrier
shall report to each manufacturer not later than 60
days after the end of each payment period and in a
form consistent with a standard reporting format es-
tablished by the Secretary, information on the total
number of units of each dosage form and strength
and package size of each covered outpatient drug
dispensed in the quarter for which payment was
made under the plan during the period, and shall
promptly transmit a copy of such report to the Sec-
retary.
‘‘(4) MANUFACTURER
RESPONSIBILITY.—The
manufacturer shall remit payments to the Secretary
through the carrier not later than 30 days after re-
ceiving information from the carrier on the total
number of units of each dosage form and strength
of the manufacturers’ drugs paid for by the carrier
in the quarter.
‘‘(5) COLLECTION
OF
PAYMENTS.—The Sec-
retary shall deposit the payments collected under
this subsection from manufacturers in the Account,
and shall use the payments to reduce the premiums
paid by beneficiaries for the purpose of providing the
prescription drug benefit.
‘‘PHARMACY PROVIDER ELIGIBILITY AND PAYMENT
AMOUNTS
‘‘SEC. 1860G. (a) IN GENERAL.—Any pharmacy pro-
vider that meets the requirements of this section shall be
eligible to enter into an agreement with the Secretary to
furnish covered benefits to enrolled beneficiaries.
‘‘(b) TERMS OF AGREEMENT.—An agreement under
this section shall include the following terms and require-
ments:
‘‘(1) LICENSING.—The pharmacy provider shall
meet (and throughout the contract period will con-
tinue to meet) all applicable Federal, State, and
local licensing requirements.
‘‘(2) PERFORMANCE
STANDARDS.—The phar-
macy provider shall comply with quality assurance
standards applicable to pharmacists under section
1927(g).
‘‘(3) PAYMENT.—The Secretary shall, after
consultation with the Medicare Prescription Drug
Benefit Advisory Commission established in section
1860H, establish payment rates to—
‘‘(A) pharmacy providers that—
‘‘(i) are reasonable and adequate to
cover all direct and indirect costs of fur-
nishing the items and services covered by
this part, and a reasonable return;
‘‘(ii) are sufficient to enlist enough
pharmacy providers to ensure that items
and services covered under this part are
available to beneficiaries at least to the ex-
tent that such items and services are avail-
able to the general public;
‘‘(iii) do not vary based on the size or
corporate structure of the pharmacy pro-
vider or factors commonly associated with
the size of the provider, such as prescrip-
tion volume;
‘‘(iv) provide appropriate incentives
for dispensing lower cost multiple source
prescription drugs; and
‘‘(v) recognize and provide appro-
priate payment incentives for pharmacy
providers located in rural and underserved
areas (as the Secretary may define by reg-
ulation); and
‘‘(B) carriers that reflect the administra-
tive costs of providing administration of the
prescription drug benefit as specified under sec-
tion 1860F.
‘‘MEDICARE PRESCRIPTION DRUG BENEFIT ADVISORY
COMMISSION
‘‘SEC. 1860H. (a) ESTABLISHMENT.—There is estab-
lished the Medicare Prescription Drug Benefit Advisory
Commission.
‘‘(b) COMPOSITION.—The Commission, appointed by
the Secretary, shall consist of an equal number of actively
practicing physicians, consumers, and actively practicing
pharmacists. Other individuals may advise the Commis-
sion as necessary, but may not participate as Commission
members.
‘‘(c) DUTIES.—
‘‘(1) CONSULTATION
WITH
SECRETARY.—The
Medicare Prescription Drug Benefit Advisory Com-
mission shall consult with the Secretary as required
by this part.
‘‘(2) REVIEW OF PAYMENT POLICIES AND AN-
NUAL REPORTS.—The Medicare Prescription Drug
Benefit Advisory Commission shall—
‘‘(A) review payment and eligibility policies
under this part and make recommendations to
Congress concerning such payment policies;
‘‘(B) review the impact on cost and quality
of care of medication therapy management serv-
ices; and
‘‘(C) by not later than May 1 of each year
(beginning in 2004), submit a report to Con-
gress containing the results of such reviews and
recommendations concerning such policies.
‘‘DEFINITIONS
‘‘SEC. 1860I. In this part:
‘‘(a) COVERED OUTPATIENT PRESCRIPTION DRUG.—
‘‘(1) IN GENERAL.—Subject to paragraph (2),
the term ‘covered outpatient prescription drug’
means—
‘‘(A) a drug or biological that may be dis-
pensed only upon a prescription;
‘‘(B) insulin certified under section 506 of
the Federal Food, Drug, and Cosmetic Act, and
needles, syringes, and disposable pumps for the
administration of such insulin; and
‘‘(C) such nonprescription drugs as defined
under section 503 of the Federal Food, Drug,
and Cosmetic Act that are prescribed and de-
termined medically necessary by a physician or
other health care provider licensed by the State
to prescribe medications.
‘‘(2) EXCLUSION
OF
COSMETIC
AGENTS
AND
FERTILITY
AGENTS.—Such term does not include
medications or classes of outpatient prescription
drugs described in subparagraphs (B) and (C) of
section 1927(d)(2).
‘‘(b) AVERAGE MANUFACTURERS’ PRICE.—The term
‘average manufacturers’ price’ means, with respect to a
prescription drug of a manufacturer provided under this
part for a calendar quarter, the average unit price paid
to the manufacturer by wholesalers for drugs distributed
to the retail pharmacy class of trade (excluding direct
sales to hospitals, health maintenance organizations, and
wholesalers where the drug is relabeled under the distribu-
tor’s national drug code.) Average manufacturers’ price
includes cash discounts allowed and all other price reduc-
tions that reduce the actual price paid.