‘‘(C) potential adverse reactions to covered 
outpatient prescription drugs; 
‘‘(D) inappropriate use of antibiotics; 
‘‘(E) appropriate use of generic products; 
and 
‘‘(F) the importance of using covered out-
patient prescription drugs in accordance with 
the instruction of prescribing providers. 
‘‘(4) 
COORDINATION.—The 
pharmacy 
con-
tractor shall coordinate with State prescription drug 
programs, other pharmacy contractors, pharmacies, 
and other relevant entities as necessary to ensure 
appropriate coordination of benefits with respect to 
enrolled individuals when such individual is traveling 
outside the home service area, and under such other 
circumstances as the Secretary may specify. 
‘‘(5) COST DATA.— 
‘‘(A) The pharmacy contractor shall make 
data on prescription drug negotiated prices (in-
cluding data on discounts) available to the Sec-
retary. 
‘‘(B) The Secretary shall require, either di-
rectly or through a pharmacy contractor, that 
participating pharmacists, physicians, and man-
ufacturers—
‘‘(i) maintain their prescription drug 
cost data (including data on discounts) in 
a form and manner specified by the Sec-
retary; 
‘‘(ii) make such prescription drug cost 
data available for review and audit by the 
Secretary; and 
‘‘(iii) certify that the prescription 
drug cost data are current, accurate, and 
complete, and reflect all discounts obtained 
by the pharmacist or physician in the pur-
chasing of covered outpatient prescription 
drugs. 
Discounts referred to in subparagraphs (A) and (B) 
shall include all volume discounts, manufacturer re-
bates, prompt payment discounts, free goods, in-kind 
services, or any other thing of financial value pro-
vided explicitly or implicitly in exchange for the pur-
chase of a covered outpatient prescription drug. 
‘‘(6) REPORTING.—The pharmacy contractor 
shall provide the Secretary with periodic reports 
on— 
‘‘(A) the contractor’s costs of admin-
istering this part; 
‘‘(B) utilization of benefits under this part;
‘‘(C) marketing and advertising expendi-
tures related to enrolling and retaining individ-
uals under this part; and 
‘‘(D) grievances and appeals. 
‘‘(7) RECORDS
AND
AUDITS.—The pharmacy 
contractor shall maintain adequate records related to 
the administration of benefits under this part and 
afford the Secretary access to such records for au-
diting purposes. 
‘‘(8) APPROVAL OF MARKETING MATERIAL AND 
APPLICATION
FORMS.—The pharmacy contractor 
shall comply with requirements of section 1851(h) 
(relating to marketing material and application 
forms) with respect to this part in the same manner 
as such requirements apply under part C, except 
that the provisions of paragraph (4)(A) of such sec-
tion shall not apply with respect to discounts or re-
bates provided in accordance with this part. 
‘‘(c) INCENTIVES FOR COST AND UTILIZATION MAN-
AGEMENT AND QUALITY IMPROVEMENT.— 
‘‘(1) IN GENERAL.—The Secretary shall include 
in a contract awarded under subsection (b) with a 
pharmacy contractor such incentives for cost and 
utilization management and quality improvement as 
the Secretary may deem appropriate. The contract
may provide financial or other incentives to encour-
age greater savings to the program under this part. 
‘‘(2) PERFORMANCE
STANDARDS.—The Sec-
retary shall provide for performance standards 
(which may include monetary bonuses if the stand-
ards are met and penalties if the standards are not 
met), including standards relating to the time taken 
to answer member and pharmacy inquiries (written 
or by telephone), the accuracy of responses, claims 
processing accuracy, online system availability, ap-
peal procedure turnaround time, system availability, 
the accuracy and timeliness of reports, and level of 
beneficiary satisfaction. 
‘‘(3) OTHER
INCENTIVES.—Such incentives 
under this subsection may also include— 
‘‘(A) financial incentives under which sav-
ings derived from the substitution of generic 
and other preferred multi-source drugs in lieu 
of nongeneric and nonpreferred drugs are made 
available to pharmacy contractors, pharmacies, 
beneficiaries, and the Federal Medicare Pre-
scription Drug Trust Fund; and 
‘‘(B) any other incentive that the Secretary 
deems appropriate and likely to be effective in 
managing costs or utilization or improving qual-
ity that does not reduce the access of bene-
ficiaries to medically necessary covered out-
patient drugs. 
‘‘(4) REQUIREMENTS FOR PROCEDURES.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
establish procedures for making payments to 
each pharmacy contractor with a contract under 
this part for the administration of the benefits 
under this part. The procedures shall provide 
for the following: 
‘‘(i) 
ADMINISTRATIVE
PAYMENT.— 
Payment of administrative fees for such 
administration. 
‘‘(ii) RISK
REQUIREMENT.—An ad-
justment of a percentage (determined 
under subparagraph (B)) of the adminis-
trative fee payments made to a pharmacy 
contractor to ensure that the contractor, in 
administering the benefits under this part, 
pursues performance requirements estab-
lished by the Secretary, including the fol-
lowing: 
‘‘(I) 
QUALITY
SERVICE.—The 
contractor 
provides 
eligible 
bene-
ficiaries for whom it administers bene-
fits with quality services, as measured 
by such factors as sustained pharmacy 
network access, timeliness and accu-
racy of service delivery in claims proc-
essing and card production, pharmacy 
and member service support access, 
and timely action with regard to ap-
peals and current beneficiary service 
surveys. 
‘‘(II) QUALITY CLINICAL CARE.— 
The contractor provides such bene-
ficiaries with quality clinical care, as 
measured by such factors as providing 
notification to such beneficiaries and 
to providers in order to prevent ad-
verse drug reactions and reduce medi-
cation errors and specific clinical sug-
gestions to improve health and patient 
and prescriber education as appro-
priate. 
‘‘(III) CONTROL
OF
MEDICARE 
COSTS.—The contractor contains costs 
under this part to the Federal Medi-
care Prescription Drug Trust Fund 
and enrollees, as measured by generic
substitution rates, price discounts, 
and other factors determined appro-
priate by the Secretary that do not re-
duce the access of beneficiaries to 
medically necessary covered outpatient 
prescription drugs. 
‘‘(B) PERCENTAGE OF PAYMENT TIED TO 
RISK.— 
‘‘(i) IN GENERAL.—Subject to clause 
(ii), the Secretary shall determine the per-
centage of the administrative payments to 
a pharmacy contractor that will be tied to 
the performance requirements described in 
subparagraph (A)(ii). 
‘‘(ii) LIMITATION ON RISK TO ENSURE 
PROGRAM STABILITY.—In order to provide 
for program stability, the Secretary may 
not establish a percentage to be adjusted 
under this paragraph at a level that jeop-
ardizes the ability of a pharmacy con-
tractor to administer the benefits under 
this part or administer such benefits in a 
quality manner. 
‘‘(C) RISK
ADJUSTMENT
OF
PAYMENTS 
BASED ON ENROLLEES IN PLAN.—To the extent
that a pharmacy contractor is at risk under this 
paragraph, the procedures established under 
this paragraph may include a methodology for 
risk adjusting the payments made to such con-
tractor based on the differences in actuarial 
risk of different enrollees being served if the 
Secretary determines such adjustments to be 
necessary and appropriate. 
‘‘(d) AUTHORITY RELATING TO PHARMACY PARTICI-
PATION.— 
‘‘(1) IN GENERAL.—Subject to the succeeding 
provisions of this subsection, a pharmacy contractor 
may establish consistent with this part conditions for 
the participation of pharmacies, including conditions 
relating to quality (including reduction of medical 
errors) and technology. 
‘‘(2) AGREEMENTS WITH PHARMACIES.—Each 
pharmacy contractor shall enter into a participation 
agreement with any pharmacy that meets the re-
quirements of this subsection and section 1860D–6 
to furnish covered outpatient prescription drugs to 
individuals enrolled under this part. 
‘‘(3) TERMS OF AGREEMENT.—An agreement 
under this subsection shall include the following 
terms and conditions:
‘‘(A) APPLICABLE
REQUIREMENTS.—The 
pharmacy shall meet (and throughout the con-
tract period continue to meet) all applicable 
Federal requirements and State and local li-
censing requirements. 
‘‘(B) ACCESS AND QUALITY STANDARDS.— 
The pharmacy shall comply with such standards 
as the Secretary (and such a pharmacy con-
tractor) shall establish concerning the quality 
of, and enrolled individuals’ access to, phar-
macy services under this part. Such standards 
shall require the pharmacy— 
‘‘(i) not to refuse to dispense covered 
outpatient prescription drugs to any indi-
vidual enrolled under this part; 
‘‘(ii) to keep patient records (includ-
ing records on expenses) for all covered 
outpatient prescription drugs dispensed to 
such enrolled individuals; 
‘‘(iii) to submit information (in a 
manner specified by the Secretary to be 
necessary to administer this part) on all 
purchases of such drugs dispensed to such 
enrolled individuals; and
‘‘(iv) to comply with periodic audits to 
assure compliance with the requirements of 
this part and the accuracy of information 
submitted. 
‘‘(C) 
ADHERENCE
TO
NEGOTIATED 
PRICES.—(i) The total charge for each prescrip-
tion drug dispensed by the pharmacy to an en-
rolled individual under this part, without regard 
to whether the individual is financially respon-
sible for any or all of such charge, shall not ex-
ceed the price negotiated under section 1860D– 
2(a) or, if lower, negotiated under subsection 
(a)(5) (or, if less, the retail price for the drug 
involved) with respect to such drug plus a rea-
sonable dispensing fee determined contractually 
with the pharmacy contractor. 
‘‘(ii) The pharmacy does not charge (or 
collect from) an enrolled individual an amount 
that exceeds the individual’s obligation (as de-
termined in accordance with the provisions of 
this part) of the applicable price described in 
clause (i). 
‘‘(D) ELECTRONIC TRANSMITTAL OF PAY-
MENT.—At the option of a participating phar-
macy, the pharmacy shall be promptly provided
in an electronic manner reimbursement for pre-
scription drugs dispensed under this part. 
‘‘(E) ADDITIONAL
REQUIREMENTS.—The 
pharmacy shall meet such additional contract 
requirements as the applicable pharmacy con-
tractor specifies under this section. 
‘‘(4) APPLICABILITY
OF
FRAUD
AND
ABUSE 
PROVISIONS.—The 
provisions 
of 
section 
1128 
through 1128C (relating to fraud and abuse) apply 
to pharmacies participating in the program under 
this part. 
‘‘ELIGIBILITY; VOLUNTARY ENROLLMENT; COVERAGE 
‘‘SEC. 1860D–4. (a) ELIGIBILITY.— 
‘‘(1) IN GENERAL.—Each individual who is en-
titled to hospital insurance benefits under part A or 
is eligible to be enrolled in the medical insurance 
program under part B shall, subject to subsection 
(b)(3), be enrolled in accordance with this section 
for outpatient prescription drug benefits under this 
part. 
‘‘(2) PUBLICITY.—The Secretary shall widely 
disseminate, through public service announcements 
and other means, the benefits availability through 
enrollment under this part. The Secretary shall 
enter into arrangements with hospitals and senior