106TH CONGRESS
2D SESSION
H. R. 4680
AN ACT
To amend title XVIII of the Social Security Act to provide
for a voluntary program for prescription drug coverage
under the Medicare Program, to modernize the Medicare
Program, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medicare Rx 2000 Act’’.
(b) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; table of contents.
TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT
Sec. 101. Establishment of a medicare prescription drug benefit.
Sec. 102. Offering of qualified prescription drug coverage under the
Medicare+Choice program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition provisions.
Sec. 105. State Pharmaceutical Assistance Transition Commission.
Sec. 106. Demonstration project for disease management for severely chron-
ically ill medicare beneficiaries.
TITLE II—MODERNIZATION OF ADMINISTRATION OF MEDICARE
Subtitle A—Medicare Benefits Administration
Sec. 201. Establishment of administration.
Sec. 202. Miscellaneous administrative provisions.
Subtitle B—Oversight of Financial Sustainability of the Medicare Program
Sec. 211. Additional requirements for annual financial report and oversight on
medicare program.
Subtitle C—Changes in Medicare Coverage and Appeals Process
Sec. 221. Revisions to medicare appeals process.
Sec. 222. Provisions with respect to limitations on liability of beneficiaries.
Sec. 223. Waivers of liability for cost sharing amounts.
Sec. 224. Elimination of motions by the Secretary on decisions of the Provider
Reimbursement Review Board.
Sec. 225. Effective date of subtitle.
TITLE III—MEDICARE+CHOICE REFORMS; PRESERVATION OF
MEDICARE PART B DRUG BENEFIT
Subtitle A—Medicare+Choice Reforms
Sec. 301. Increase in national per capita Medicare+Choice growth percentage
in 2001 and 2002.
Sec. 302. Permanently removing application of budget neutrality beginning in
2002.
Sec. 303. Increasing minimum payment amount.
Sec. 304. Allowing movement to 50:50 percent blend in 2002.
Sec. 305. Increased update for payment areas with only one or no
Medicare+Choice contracts.
Sec. 306. Permitting higher negotiated rates in certain Medicare+Choice pay-
ment areas below national average.
Sec. 307. 10-year phase in of risk adjustment based on data from all settings.
Sec. 308. Delay from July to October, 2000 in deadline for offering and with-
drawing Medicare+Choice plans for 2001.
Subtitle B—Preservation of Medicare Coverage of Drugs and Biologicals
Sec. 311. Preservation of coverage of drugs and biologicals under part B of the
medicare program.
Sec. 312. GAO report on part B payment for drugs and biologicals and related
services.
TITLE I—MEDICARE
PRESCRIPTION DRUG BENEFIT
SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION
DRUG BENEFIT.
(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—VOLUNTARY PRESCRIPTION DRUG BENEFIT
PROGRAM
‘‘SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND
COVERAGE PERIOD.
‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG
COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject
to the succeeding provisions of this part, each individual
who is enrolled under part B is entitled to obtain qualified
prescription 
drug 
coverage 
(described 
in 
section
1860B(a)) as follows:
‘‘(1) MEDICARE+CHOICE
PLAN.—If the indi-
vidual is eligible to enroll in a Medicare+Choice plan
that provides qualified prescription drug coverage
under section 1851(j), the individual may enroll in
the plan and obtain coverage through such plan.
‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi-
vidual is not enrolled in a Medicare+Choice plan
that provides qualified prescription drug coverage,
the individual may enroll under this part in a pre-
scription drug plan (as defined in section 1860C(a)).
Such individuals shall have a choice of such plans under
section 1860E(d).
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN GENERAL.—An individual may elect to
enroll in a prescription drug plan under this part, or
elect the option of qualified prescription drug cov-
erage under a Medicare+Choice plan under part C,
and change such election only in such manner and
form as may be prescribed by regulations of the Ad-
ministrator of the Medicare Benefits Administration
(appointed under section 1807(b)) (in this part re-
ferred to as the ‘Medicare Benefits Administrator’)
and only during an election period prescribed in or
under this subsection.
‘‘(2) ELECTION PERIODS.—
‘‘(A) IN GENERAL.—Except as provided in
this paragraph, the election periods under this
subsection shall be the same as the coverage
election periods under the Medicare+Choice
program under section 1851(e), including—
‘‘(i) annual coordinated election peri-
ods; and
‘‘(ii) special election periods.
In applying the last sentence of section
1851(e)(4) (relating to discontinuance of a
Medicare+Choice election during the first year
of eligibility) under this subparagraph, in the
case of an election described in such section in
which the individual had elected or is provided
qualified prescription drug coverage at the time
of such first enrollment, the individual shall be
permitted to enroll in a prescription drug plan
under this part at the time of the election of
coverage under the original fee-for-service plan.
‘‘(B) INITIAL ELECTION PERIODS.—
‘‘(i) INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who is
enrolled under part B as of November 1,
2002, there shall be an initial election pe-
riod of 6 months beginning on that date.
‘‘(ii) INDIVIDUAL
COVERED
IN
FU-
TURE.—In the case of an individual who is
first enrolled under part B after November
1, 2002, there shall be an initial election
period which is the same as the initial en-
rollment period under section 1837(d).
‘‘(C) ADDITIONAL SPECIAL ELECTION PE-
RIODS.—The Medicare Benefits Administrator
shall establish special election periods—
‘‘(i) in cases of individuals who have
and involuntarily lose prescription drug
coverage described in subsection (c)(2)(C);
‘‘(ii) in cases described in section
1837(h) (relating to errors in enrollment),
in the same manner as such section applies
to part B; and
‘‘(iii) in the case of an individual who
meets such exceptional conditions (includ-
ing conditions recognized under section
1851(d)(4)(D)) as the Administrator may
provide.
‘‘(D) ONE-TIME ENROLLMENT PERMITTED
FOR CURRENT PART A ONLY BENEFICIARIES.—
In the case of an individual who as of Novem-
ber 1, 2002—
‘‘(i) is entitled to benefits under part
A; and
‘‘(ii) is not (and has not previously
been) enrolled under part B,
the individual shall be eligible to enroll in a pre-
scription drug plan under this part but only
during the period described in subparagraph
(B)(i). If the individual enrolls in such a plan,
the individual may change such enrollment
under this part, but the individual may not en-
roll in a Medicare+Choice plan under part C
unless the individual enrolls under part B.
Nothing in this subparagraph shall be con-
strued as providing for coverage under a pre-
scription drug plan of benefits that are excluded
because 
of 
the 
application 
of 
section
1860B(f)(2)(B).
‘‘(c) GUARANTEED ISSUE; COMMUNITY RATING; AND
NONDISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible individual
who is eligible to elect qualified prescription
drug coverage under a prescription drug plan or
Medicare+Choice plan at a time during which
elections are accepted under this part with re-
spect to the plan shall not be denied enrollment
based on any health status-related factor (de-
scribed in section 2702(a)(1) of the Public
Health Service Act) or any other factor.
‘‘(B) 
MEDICARE+CHOICE
LIMITATIONS
PERMITTED.—The provisions of paragraphs (2)
and (3) (other than subparagraph (C)(i), relat-
ing to default enrollment) of section 1851(g)
(relating to priority and limitation on termi-
nation of election) shall apply to PDP sponsors
under this subsection.
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who maintains (as determined under sub-
paragraph (C)) continuous prescription drug
coverage since first qualifying to elect prescrip-
tion drug coverage under this part, a PDP
sponsor or Medicare+Choice organization offer-
ing 
a 
prescription 
drug 
plan 
or
Medicare+Choice plan that provides qualified
prescription drug coverage and in which the in-
dividual is enrolled may not deny, limit, or con-
dition the coverage or provision of covered pre-
scription drug benefits or increase the premium
under the plan based on any health status-re-
lated factor described in section 2702(a)(1) of
the Public Health Service Act or any other fac-
tor.
‘‘(B) LATE
ENROLLMENT
PENALTY.—In
the case of an individual who does not maintain
such continuous prescription drug coverage, a
PDP sponsor or Medicare+Choice organization
may (notwithstanding any provision in this
title) increase the premium otherwise applicable
or impose a pre-existing condition exclusion
with respect to qualified prescription drug cov-
erage in a manner that reflects additional actu-
arial risk involved. Such a risk shall be estab-
lished through an appropriate actuarial opinion
of the type described in subparagraphs (A)
through (C) of section 2103(c)(4).
‘‘(C) CONTINUOUS
PRESCRIPTION
DRUG
COVERAGE.—An individual is considered for
purposes of this part to be maintaining contin-
uous prescription drug coverage on and after a
date if the individual establishes that there is
no period of 63 days or longer on and after
such date (beginning not earlier than January
1, 2003) during all of which the individual did
not have any of the following prescription drug
coverage:
‘‘(i) COVERAGE UNDER PRESCRIPTION
DRUG
PLAN
OR
MEDICARE+CHOICE
PLAN.—Qualified prescription drug cov-
erage under a prescription drug plan or
under a Medicare+Choice plan.
‘‘(ii) MEDICAID PRESCRIPTION DRUG
COVERAGE.—Prescription drug coverage
under a medicaid plan under title XIX, in-
cluding through the Program of All-inclu-
sive Care for the Elderly (PACE) under
section 1934, through a social health main-
tenance organization (referred to in section
4104(c) of the Balanced Budget Act of
1997), or through a Medicare+Choice
project that demonstrates the application
of capitation payment rates for frail elderly
medicare beneficiaries through the use of a
interdisciplinary team and through the
provision of primary care services to such
beneficiaries by means of such a team at
the nursing facility involved.
‘‘(iii) PRESCRIPTION DRUG COVERAGE
UNDER GROUP HEALTH PLAN.—Any out-
patient prescription drug coverage under a
group health plan, including a health bene-
fits plan under the Federal Employees
Health Benefit Plan under chapter 89 of
title 5, United States Code, and a qualified
retiree prescription drug plan as defined in
section 1860H(f)(1).
‘‘(iv) PRESCRIPTION DRUG COVERAGE
UNDER
CERTAIN
MEDIGAP
POLICIES.—
Coverage under a medicare supplemental
policy under section 1882 that provides
benefits for prescription drugs (whether or
not such coverage conforms to the stand-
ards for packages of benefits under section
1882(p)(1)), but only if the policy was in
effect on January 1, 2003, and only until
the date such coverage is terminated.
‘‘(v) STATE PHARMACEUTICAL ASSIST-
ANCE PROGRAM.—Coverage of prescription
drugs under a State pharmaceutical assist-
ance program.
‘‘(vi) VETERANS’ COVERAGE OF PRE-
SCRIPTION DRUGS.—Coverage of prescrip-
tion drugs for veterans under chapter 17
of title 38, United States Code.
‘‘(D) CERTIFICATION.—For purposes of
carrying out this paragraph, the certifications
of the type described in sections 2701(e) of the
Public Health Service Act and in section
9801(e) of the Internal Revenue Code shall also
include a statement for the period of coverage
of whether the individual involved had prescrip-
tion drug coverage described in subparagraph
(C).
‘‘(E) CONSTRUCTION.—Nothing in this
section shall be construed as preventing the
disenrollment of an individual from a prescrip-
tion drug plan or a Medicare+Choice plan
based on the termination of an election de-
scribed in section 1851(g)(3), including for non-
payment of premiums or for other reasons spec-
ified in subsection (d)(3), which takes into ac-
count a grace period described in section
1851(g)(3)(B)(i).
‘‘(3) NONDISCRIMINATION.—A PDP sponsor of-
fering a prescription drug plan shall not establish a
service area in a manner that would discriminate
based on health or economic status of potential en-
rollees.
‘‘(d) EFFECTIVE DATE OF ELECTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this
section, the Medicare Benefits Administrator shall
provide that elections under subsection (b) take ef-
fect at the same time as the Secretary provides that
similar elections under section 1851(e) take effect
under section 1851(f).
‘‘(2) NO ELECTION EFFECTIVE BEFORE 2003.—
In no case shall any election take effect before Janu-
ary 1, 2003.
‘‘(3) TERMINATION.—The Medicare Benefits
Administrator shall provide for the termination of an
election in the case of—
‘‘(A) termination of coverage under part B
(other than the case of an individual described
in subsection (b)(2)(D) (relating to part A only
individuals)); and
‘‘(B) termination of elections described in
section 1851(g)(3) (including failure to pay re-
quired premiums).
‘‘SEC. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIP-
TION DRUG COVERAGE.
‘‘(a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part
and part C, the term ‘qualified prescription drug
coverage’ means either of the following:
‘‘(A) STANDARD COVERAGE WITH ACCESS
TO
NEGOTIATED
PRICES.—Standard coverage
(as defined in subsection (b)) and access to ne-
gotiated prices under subsection (d).
‘‘(B) ACTUARIALLY
EQUIVALENT
COV-
ERAGE
WITH
ACCESS
TO
NEGOTIATED
PRICES.—Coverage of covered outpatient drugs
which meets the alternative coverage require-
ments of subsection (c) and access to negotiated
prices under subsection (d).
‘‘(2) PERMITTING
ADDITIONAL
OUTPATIENT
PRESCRIPTION DRUG COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), nothing in this part shall be con-
strued as preventing qualified prescription drug
coverage from including coverage of covered
outpatient drugs that exceeds the coverage re-
quired under paragraph (1), but any such addi-
tional coverage shall be limited to coverage of
covered outpatient drugs.
‘‘(B) 
DISAPPROVAL
AUTHORITY.—The
Medicare Benefits Administrator shall review
the offering of qualified prescription drug cov-
erage under this part or part C. If the Adminis-
trator finds that, in the case of a qualified pre-
scription drug coverage under a prescription
drug plan or a Medicare+Choice plan, that the
organization or sponsor offering the coverage is
purposefully engaged in activities intended to
result in favorable selection of those eligible
medicare 
beneficiaries 
obtaining 
coverage
through the plan, the Administrator may termi-
nate the contract with the sponsor or organiza-
tion under this part or part C.
‘‘(3) APPLICATION OF SECONDARY PAYOR PRO-
VISIONS.—The provisions of section 1852(a)(4) shall
apply under this part in the same manner as they
apply under part C.
‘‘(b) STANDARD COVERAGE.—For purposes of this
part, the ‘standard coverage’ is coverage of covered out-
patient drugs (as defined in subsection (f)) that meets the
following requirements:
‘‘(1) DEDUCTIBLE.—The coverage has an an-
nual deductible—
‘‘(A) for 2003, that is equal to $250; or
‘‘(B) for a subsequent year, that is equal
to the amount specified under this paragraph
for the previous year increased by the percent-
age specified in paragraph (5) for the year in-
volved.
Any amount determined under subparagraph (B)
that is not a multiple of $5 shall be rounded to the
nearest multiple of $5.
‘‘(2) LIMITS ON COST-SHARING.—The coverage
has cost-sharing (for costs above the annual deduct-
ible specified in paragraph (1) and up to the initial
coverage limit under paragraph (3)) that is equal to
50 percent or that is actuarially consistent (using
processes established under subsection (e)) with an
average expected payment of 50 percent of such
costs.
‘‘(3) INITIAL
COVERAGE
LIMIT.—Subject to
paragraph (4), the coverage has an initial coverage
limit on the maximum costs that may be recognized
for payment purposes (above the annual deduct-
ible)—
‘‘(A) for 2003, that is equal to $2,100; or
‘‘(B) for a subsequent year, that is equal
to the amount specified in this paragraph for
the previous year, increased by the annual per-
centage increase described in paragraph (5) for
the year involved.
Any amount determined under subparagraph (B)
that is not a multiple of $25 shall be rounded to the
nearest multiple of $25.
‘‘(4) LIMITATION ON OUT-OF-POCKET EXPENDI-
TURES BY BENEFICIARY.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (3), the coverage provides benefits with-
out any cost-sharing after the individual has in-
curred costs (as described in subparagraph (C))
for covered outpatient drugs in a year equal to
the annual out-of-pocket limit specified in sub-
paragraph (B).
‘‘(B) ANNUAL
OUT-OF-POCKET
LIMIT.—
For purposes of this part, the ‘annual out-of-
pocket limit’ specified in this subparagraph—
‘‘(i) for 2003, is equal to $6,000; or
‘‘(ii) for a subsequent year, is equal to
the amount specified in this subparagraph
for the previous year, increased by the an-
nual percentage increase described in para-
graph (5) for the year involved.
Any amount determined under clause (ii) that
is not a multiple of $100 shall be rounded to
the nearest multiple of $100.
‘‘(C) APPLICATION.—In applying subpara-
graph (A)—
‘‘(i) incurred costs shall only include
costs incurred for the annual deductible
‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIV-
ALENT COVERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE
OF
TOTAL COVERAGE.—The actuarial value of the
total coverage (as determined under subsection
(e)) is at least equal to the actuarial value (as
so determined) of standard coverage.
‘‘(B) 
ASSURING
EQUIVALENT
UNSUB-
SIDIZED
VALUE
OF
COVERAGE.—The unsub-
sidized value of the coverage is at least equal to
the unsubsidized value of standard coverage.
For purposes of this subparagraph, the unsub-
sidized value of coverage is the amount by
which the actuarial value of the coverage (as
determined under subsection (e)) exceeds the
actuarial value of the reinsurance subsidy pay-
ments under section 1860H with respect to
such coverage.
‘‘(C) ASSURING STANDARD PAYMENT FOR
COSTS AT INITIAL COVERAGE LIMIT.—The cov-
erage is designed, based upon an actuarially
representative pattern of utilization (as deter-
mined under subsection (e)), to provide for the
payment, with respect to costs incurred that are
equal to the sum of the deductible under sub-
section (b)(1) and the initial coverage limit
under subsection (b)(3), of an amount equal to
at least such initial coverage limit multiplied by
the percentage specified in subsection (b)(2).
‘‘(2) LIMITATION ON OUT-OF-POCKET EXPENDI-
TURES BY BENEFICIARIES.—The coverage provides
the limitation on out-of-pocket expenditures by bene-
ficiaries described in subsection (b)(4).
‘‘(d) ACCESS
TO
NEGOTIATED
PRICES.—Under
qualified prescription drug coverage offered by a PDP
sponsor or a Medicare+Choice organization, the sponsor
or organization shall provide beneficiaries with access to
negotiated prices (including applicable discounts) used for
payment for covered outpatient drugs, regardless of the
fact that no benefits may be payable under the coverage
with respect to such drugs because of the application of
cost-sharing or an initial coverage limit (described in sub-
section (b)(3)). Insofar as a State elects to provide medical
assistance under title XIX for a drug based on the prices
negotiated by a prescription drug plan under this part,
the requirements of section 1927 shall not apply to such
drugs.
‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF
ANNUAL PERCENTAGE INCREASES.—
‘‘(1) PROCESSES.—For purposes of this section,
the Medicare Benefits Administrator shall establish
processes and methods—
‘‘(A) for determining the actuarial valu-
ation of prescription drug coverage, including—
‘‘(i) an actuarial valuation of standard
coverage and of the reinsurance subsidy
payments under section 1860H;
‘‘(ii) the use of generally accepted ac-
tuarial principles and methodologies; and
‘‘(iii) applying the same methodology
for determinations of alternative coverage
under subsection (c) as is used with re-
spect to determinations of standard cov-
erage under subsection (b); and
‘‘(B) for determining annual percentage in-
creases described in subsection (b)(5).
‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the
processes under paragraph (1)(A), PDP sponsors
and Medicare+Choice organizations may use actu-
arial opinions certified by independent, qualified ac-
tuaries to establish actuarial values.
‘‘(f) COVERED OUTPATIENT DRUGS DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, for purposes of this part, the term ‘cov-
ered outpatient drug’ means—
‘‘(A) a drug that may be dispensed only
upon a prescription and that is described in
subparagraph (A)(i) or (A)(ii) of section
1927(k)(2); or
‘‘(B) a biological product described in
clauses (i) through (iii) of subparagraph (B) of
such section or insulin described in subpara-
graph (C) of such section,
and such term includes any use of a covered out-
patient drug for a medically accepted indication (as
defined in section 1927(k)(6)).
‘‘(2) EXCLUSIONS.—
‘‘(A) IN GENERAL.—Such term does not
include drugs or classes of drugs, or their med-
ical uses, which may be excluded from coverage
or 
otherwise 
restricted 
under 
section
1927(d)(2), other than subparagraph (E) there-
of (relating to smoking cessation agents) and
except to the extent otherwise specifically pro-
vided by the Medicare Benefits Administrator
with respect to a drug in any of such classes.
‘‘(B) AVOIDANCE
OF
DUPLICATE
COV-
ERAGE.—A drug prescribed for an individual
that would otherwise be a covered outpatient
drug under this part shall not be so considered
if payment for such drug is available under part
A or B (but shall be so considered if such pay-
ment is not available because benefits under
part A or B have been exhausted), without re-
gard to whether the individual is entitled to
benefits under part A or enrolled under part B.
‘‘(3) APPLICATION
OF
FORMULARY
RESTRIC-
TIONS.—A drug prescribed for an individual that
would otherwise be a covered outpatient drug under
this part shall not be so considered under a plan if
the plan excludes the drug under a formulary that
meets the requirements of section 1860C(f)(2) (in-
cluding providing an appeal process).
‘‘(4) APPLICATION
OF
GENERAL
EXCLUSION
PROVISIONS.—A 
prescription 
drug 
plan 
or
Medicare+Choice plan may exclude from qualified
prescription drug coverage any covered outpatient
drug—
‘‘(A) for which payment would not be
made if section 1862(a) applied to part D; or
information described in section 1852(c)(1) relating
to such plan. Such information includes the fol-
lowing:
‘‘(A) Access to covered outpatient drugs,
including access through pharmacy networks.
‘‘(B) How any formulary used by the spon-
sor functions.
‘‘(C) Co-payments and deductible require-
ments.
‘‘(D) Grievance and appeals procedures.
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an individual eligible to en-
roll under a prescription drug plan, the PDP spon-
sor shall provide the information described in section
1852(c)(2) (other than subparagraph (D)) to such
individual.
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
Each PDP sponsor offering a prescription drug plan
shall have a mechanism for providing specific infor-
mation to enrollees upon request. The sponsor shall
make available, through an Internet website and in
writing upon request, information on specific
changes in its formulary.
‘‘(4) CLAIMS INFORMATION.—Each PDP spon-
sor offering a prescription drug plan must furnish to
enrolled individuals in a form easily understandable
to such individuals an explanation of benefits (in ac-
cordance with section 1806(a) or in a comparable
manner) and a notice of the benefits in relation to
initial coverage limit and annual out-of-pocket limit
for the current year, whenever prescription drug
benefits are provided under this part (except that
such notice need not be provided more often than
monthly).
‘‘(c) ACCESS TO COVERED BENEFITS.—
‘‘(1) ASSURING PHARMACY ACCESS.—The PDP
sponsor of the prescription drug plan shall secure
the participation of sufficient numbers of pharmacies
(which may include mail order pharmacies) to en-
sure convenient access (including adequate emer-
gency access) for enrolled beneficiaries, in accord-
ance with standards established under section
1860D(e) that ensure such convenient access. Noth-
ing in this paragraph shall be construed as requiring
the participation of (or permitting the exclusion of)
all pharmacies in any area under a plan.
‘‘(2) ACCESS TO NEGOTIATED PRICES FOR PRE-
SCRIPTION DRUGS.—The PDP sponsor of a prescrip-
tion drug plan shall issue such a card that may be
used by an enrolled beneficiary to assure access to
negotiated prices under section 1860B(d) for the
purchase of prescription drugs for which coverage is
not otherwise provided under the prescription drug
plan.
‘‘(3) REQUIREMENTS
ON
DEVELOPMENT
AND
APPLICATION OF FORMULARIES.—Insofar as a PDP
sponsor of a prescription drug plan uses a for-
mulary, the following requirements must be met:
‘‘(A) FORMULARY COMMITTEE.—The spon-
sor must establish a pharmaceutical and thera-
peutic committee that develops the formulary.
Such committee shall include at least one physi-
cian and at least one pharmacist.
‘‘(B) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES.—The formulary must in-
clude drugs within all therapeutic categories
and classes of covered outpatient drugs (al-
though not necessarily for all drugs within such
categories and classes).
‘‘(C) APPEALS AND EXCEPTIONS TO APPLI-
CATION.—The PDP sponsor must have, as part
of the appeals process under subsection (f)(2),
a process for appeals for denials of coverage
based on such application of the formulary.
‘‘(d) COST AND UTILIZATION MANAGEMENT; QUAL-
ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT
PROGRAM.—
‘‘(1) IN
GENERAL.—The PDP sponsor shall
have in place—
‘‘(A) an effective cost and drug utilization
management program, including appropriate in-
centives to use generic drugs, when appropriate;
‘‘(B) quality assurance measures and sys-
tems to reduce medical errors and adverse drug
interactions, including a medication therapy
management program described in paragraph
(2); and
‘‘(C) a program to control fraud, abuse,
and waste.
‘‘(2) MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(A) IN GENERAL.—A medication therapy
management program described in this para-
graph is a program of drug therapy manage-
ment and medication administration that is de-
signed to assure that covered outpatient drugs
under the prescription drug plan are appro-
priately used to achieve therapeutic goals and
reduce the risk of adverse events, including ad-
verse drug interactions.
‘‘(B) ELEMENTS.—Such program may
include—
‘‘(i) 
enhanced 
beneficiary 
under-
standing of such appropriate use through
beneficiary 
education, 
counseling, 
and
other appropriate means; and
‘‘(ii) increased beneficiary adherence
with 
prescription 
medication 
regimens
through medication refill reminders, special
packaging, and other appropriate means.
‘‘(C) DEVELOPMENT OF PROGRAM IN CO-
OPERATION
WITH
LICENSED
PHARMACISTS.—
The program shall be developed in cooperation
with licensed pharmacists and physicians.
‘‘(D) 
CONSIDERATIONS
IN
PHARMACY
FEES.—The PDP sponsor of a prescription
drug program shall take into account, in estab-
lishing fees for pharmacists and others pro-
viding services under the medication therapy
management program, the resources and time
used in implementing the program.
‘‘(3) TREATMENT OF ACCREDITATION.—Section
1852(e)(4) (relating to treatment of accreditation)
shall apply to prescription drug plans under this
part with respect to the following requirements, in
the same manner as they apply to Medicare+Choice
plans under part C with respect to the requirements
described in a clause of section 1852(e)(4)(B):
‘‘(A) Paragraph (1) (including quality as-
surance), including medication therapy manage-
ment program under paragraph (2).
‘‘(B) Subsection (c)(1) (relating to access
to covered benefits).
‘‘(C) Subsection (g) (relating to confiden-
tiality and accuracy of enrollee records).
‘‘(4) PUBLIC DISCLOSURE OF PHARMACEUTICAL
PRICES FOR GENERIC EQUIVALENT DRUGS.—Each
PDP sponsor shall provide that each pharmacy or
other dispenser that arranges for the dispensing of
a covered outpatient drug shall inform the bene-
ficiary at the time of purchase of the drug of any
differential between the price of the prescribed drug
to the enrollee and the price of the lowest cost ge-
neric drug that is therapeutically and pharmaceuti-
cally equivalent and bioequivalent.
‘‘(e) GRIEVANCE MECHANISM.—Each PDP sponsor
shall provide meaningful procedures for hearing and re-
solving grievances between the organization (including any
entity or individual through which the sponsor provides
covered benefits) and enrollees with prescription drug
plans of the sponsor under this part in accordance with
section 1852(f).
‘‘(f) COVERAGE
DETERMINATIONS, RECONSIDER-
ATIONS, AND APPEALS.—
‘‘(1) IN GENERAL.—A PDP sponsor shall meet
the requirements of section 1852(g) with respect to
covered benefits under the prescription drug plan it
offers under this part in the same manner as such
requirements apply to a Medicare+Choice organiza-
tion with respect to benefits it offers under a
Medicare+Choice plan under part C.
‘‘(2) APPEALS
OF
FORMULARY
DETERMINA-
TIONS.—Under the appeals process under paragraph
(1) an individual who is enrolled in a prescription
drug plan offered by a PDP sponsor may appeal to
obtain coverage for a covered outpatient drug that
is not on the formulary of the sponsor (established
under subsection (c)) if the prescribing physician de-
termines that the therapeutically similar drug that is
on the formulary is not as effective for the enrollee
or has significant adverse effects for the enrollee.
‘‘(g) CONFIDENTIALITY
AND ACCURACY
OF EN-
ROLLEE RECORDS.—A PDP sponsor shall meet the re-
quirements of section 1852(h) with respect to enrollees
under this part in the same manner as such requirements
apply to a Medicare+Choice organization with respect to
enrollees under part C.
‘‘SEC. 1860D. REQUIREMENTS FOR PRESCRIPTION DRUG
PLAN (PDP) SPONSORS; CONTRACTS; ESTAB-
LISHMENT OF STANDARDS.
‘‘(a) GENERAL REQUIREMENTS.—Each PDP sponsor
of a prescription drug plan shall meet the following re-
quirements:
‘‘(1) LICENSURE.—Subject to subsection (c),
the sponsor is organized and licensed under State
law as a risk-bearing entity eligible to offer health
insurance or health benefits coverage in each State
in which it offers a prescription drug plan.
‘‘(2) ASSUMPTION OF FULL FINANCIAL RISK.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B) and section 1860E(d)(2), the entity
assumes full financial risk on a prospective
basis for qualified prescription drug coverage
that it offers under a prescription drug plan
and that is not covered under reinsurance
under section 1860H.
‘‘(B) REINSURANCE PERMITTED.—The en-
tity may obtain insurance or make other ar-
rangements for the cost of coverage provided to
any enrolled member under this part.
‘‘(3) SOLVENCY FOR UNLICENSED SPONSORS.—
In the case of a sponsor that is not described in
paragraph (1), the sponsor shall meet solvency
standards established by the Medicare Benefits Ad-
ministrator under subsection (d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Medicare Benefits Ad-
ministrator shall not permit the election under sec-
tion 1860A of a prescription drug plan offered by a
PDP sponsor under this part, and the sponsor shall
not be eligible for payments under section 1860G or
1860H, unless the Administrator has entered into a
contract under this subsection with the sponsor with
respect to the offering of such plan. Such a contract
with a sponsor may cover more than one prescrip-
tion drug plan. Such contract shall provide that the
sponsor agrees to comply with the applicable require-
ments and standards of this part and the terms and
conditions of payment as provided for in this part.
‘‘(2) NEGOTIATION
REGARDING
TERMS
AND
CONDITIONS.—The Medicare Benefits Administrator
shall have the same authority to negotiate the terms
and conditions of prescription drug plans under this
part as the Director of the Office of Personnel Man-
agement has with respect to health benefits plans
under chapter 89 of title 5, United States Code. In
negotiating the terms and conditions regarding pre-
miums for which information is submitted under sec-
tion 1860F(a)(2), the Administrator shall take into
account the reinsurance subsidy payments under
section 1860H and the adjusted community rate (as
defined in section 1854(f)(3)) for the benefits cov-
ered.
‘‘(3) 
INCORPORATION
OF
CERTAIN
MEDICARE+CHOICE
CONTRACT
REQUIREMENTS.—
The following provisions of section 1857 shall apply,
subject to subsection (c)(5), to contracts under this
section in the same manner as they apply to con-
tracts under section 1857(a):
‘‘(A) 
MINIMUM
ENROLLMENT.—Para-
graphs (1) and (3) of section 1857(b).
‘‘(B) CONTRACT PERIOD AND EFFECTIVE-
NESS.—Paragraphs (1) through (3) and (5) of
section 1857(c).
‘‘(C) PROTECTIONS AGAINST FRAUD AND
BENEFICIARY PROTECTIONS.—Section 1857(d).
‘‘(D) ADDITIONAL
CONTRACT
TERMS.—
Section 1857(e); except that in applying section
1857(e)(2) under this part—
‘‘(i) such section shall be applied sepa-
rately to costs relating to this part (from
costs under part C);
‘‘(ii) in no case shall the amount of
the fee established under this subpara-
graph for a plan exceed 20 percent of the
maximum amount of the fee that may be
established under subparagraph (B) of
such section; and
‘‘(iii) no fees shall be applied under
this 
subparagraph 
with 
respect 
to
Medicare+Choice plans.
‘‘(E) INTERMEDIATE SANCTIONS.—Section
1857(g).
‘‘(F) PROCEDURES
FOR
TERMINATION.—
Section 1857(h).
‘‘(4) RULES
OF
APPLICATION
FOR
INTER-
MEDIATE
SANCTIONS.—In 
applying 
paragraph
(3)(E)—
‘‘(A) 
the 
reference 
in 
section
1857(g)(1)(B) to section 1854 is deemed a ref-
erence to this part; and
‘‘(B) 
the 
reference 
in 
section
1857(g)(1)(F) to section 1852(k)(2)(A)(ii) shall
not be applied.
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO EX-
PAND CHOICE.—
‘‘(1) IN GENERAL.—In the case of an entity
that seeks to offer a prescription drug plan in a
State, the Medicare Benefits Administrator shall
waive the requirement of subsection (a)(1) that the
entity be licensed in that State if the Administrator
determines, based on the application and other evi-
dence presented to the Administrator, that any of
the grounds for approval of the application described
in paragraph (2) has been met.
‘‘(2) GROUNDS FOR APPROVAL.—The grounds
for approval under this paragraph are the grounds
for approval described in subparagraph (B), (C),
and (D) of section 1855(a)(2), and also include the
application by a State of any grounds other than
those required under Federal law.
‘‘(3) APPLICATION OF WAIVER PROCEDURES.—
With respect to an application for a waiver (or a
waiver granted) under this subsection, the provisions
of subparagraphs (E), (F), and (G) of section
1855(a)(2) shall apply.
‘‘(4) LICENSURE DOES NOT SUBSTITUTE FOR
OR CONSTITUTE CERTIFICATION.—The fact that an
entity is licensed in accordance with subsection
(a)(1) does not deem the entity to meet other re-
quirements imposed under this part for a PDP spon-
sor.
‘‘(5) REFERENCES TO CERTAIN PROVISIONS.—
For purposes of this subsection, in applying provi-
sions of section 1855(a)(2) under this subsection to
prescription drug plans and PDP sponsors—
‘‘(A) any reference to a waiver application
under section 1855 shall be treated as a ref-
erence to a waiver application under paragraph
(1); and
‘‘(B) any reference to solvency standards
shall be treated as a reference to solvency
standards established under subsection (d).
‘‘(d) SOLVENCY STANDARDS
FOR NON-LICENSED
SPONSORS.—
‘‘(1) ESTABLISHMENT.—The Medicare Benefits
Administrator shall establish, by not later than Oc-
tober 1, 2001, financial solvency and capital ade-
quacy standards that an entity that does not meet
the requirements of subsection (a)(1) must meet to
qualify as a PDP sponsor under this part.
‘‘(2) COMPLIANCE
WITH
STANDARDS.—Each
PDP sponsor that is not licensed by a State under
subsection (a)(1) and for which a waiver application
has been approved under subsection (c) shall meet
solvency and capital adequacy standards established
under paragraph (1). The Medicare Benefits Admin-
istrator shall establish certification procedures for
such PDP sponsors with respect to such solvency
standards in the manner described in section
1855(c)(2).
‘‘(e) OTHER STANDARDS.—The Medicare Benefits
Administrator shall establish by regulation other stand-
ards (not described in subsection (d)) for PDP sponsors
and plans consistent with, and to carry out, this part. The
Administrator shall publish such regulations by October
1, 2001. In order to carry out this requirement in a timely
manner, the Administrator may promulgate regulations
that take effect on an interim basis, after notice and pend-
ing opportunity for public comment.
‘‘(f) RELATION TO STATE LAWS.—
‘‘(1) IN GENERAL.—The standards established
under this section shall supersede any State law or
regulation (including standards described in para-
graph (2)) with respect to prescription drug plans
which are offered by PDP sponsors under this part
to the extent such law or regulation is inconsistent
with such standards.
‘‘(2) 
STANDARDS
SPECIFICALLY
SUPER-
SEDED.—State standards relating to the following
are superseded under this subsection:
‘‘(A) Benefit requirements.
‘‘(B) Requirements relating to inclusion or
treatment of providers.
‘‘(C) Coverage determinations (including
related appeals and grievance processes).
‘‘(D) Establishment and regulation of pre-
miums.
‘‘(3) PROHIBITION OF STATE IMPOSITION OF
PREMIUM TAXES.—No State may impose a premium
tax or similar tax with respect to premiums paid to
PDP sponsors for prescription drug plans under this
part, or with respect to any payments made to such
a sponsor by the Medicare Benefits Administrator
under this part.
‘‘SEC. 1860E. PROCESS FOR BENEFICIARIES TO SELECT
QUALIFIED PRESCRIPTION DRUG COVERAGE.
‘‘(a) IN GENERAL.—The Medicare Benefits Adminis-
trator, through the Office of Beneficiary Assistance, shall
establish, based upon and consistent with the procedures
used under part C (including section 1851), a process for
the 
selection 
of 
the 
prescription 
drug 
plan 
or
Medicare+Choice plan which offer qualified prescription
drug coverage through which eligible individuals elect
qualified prescription drug coverage under this part.
‘‘(b) ELEMENTS.—Such process shall include the fol-
lowing:
‘‘(1) Annual, coordinated election periods, in
which such individuals can change the qualifying
plans through which they obtain coverage, in accord-
ance with section 1860A(b)(2).
‘‘(2) Active dissemination of information to pro-
mote an informed selection among qualifying plans
based upon price, quality, and other features, in the
manner described in (and in coordination with) sec-
tion 1851(d), including the provision of annual com-
parative information, maintenance of a toll-free hot-
line, and the use of non-Federal entities.
‘‘(3) Coordination of elections through filing
with a Medicare+Choice organization or a PDP
sponsor, in the manner described in (and in coordi-
nation with) section 1851(c)(2).
‘‘(c) MEDICARE+CHOICE ENROLLEE IN PLAN OF-
FERING PRESCRIPTION DRUG COVERAGE MAY ONLY OB-
TAIN BENEFITS THROUGH
THE PLAN.—An individual
who is enrolled under a Medicare+Choice plan that offers
qualified prescription drug coverage may only elect to re-
ceive qualified prescription drug coverage under this part
through such plan.
‘‘(d) ASSURING ACCESS TO A CHOICE OF QUALIFIED
PRESCRIPTION DRUG COVERAGE.—
‘‘(1) CHOICE OF AT LEAST TWO PLANS IN EACH
AREA.—
‘‘(A) IN GENERAL.—The Medicare Bene-
fits Administrator shall assure that each indi-
vidual who is enrolled under part B and who is
residing in an area has available, consistent
with subparagraph (B), a choice of enrollment
in at least two qualifying plans (as defined in
paragraph (5)) in the area in which the indi-
vidual resides, at least one of which is a pre-
scription drug plan.
‘‘(B) 
REQUIREMENT
FOR
DIFFERENT
PLAN SPONSORS.—The requirement in subpara-
graph (A) is not satisfied with respect to an
area 
if 
only 
one 
PDP 
sponsor 
or
Medicare+Choice organization offers all the
qualifying plans in the area.
‘‘(2) GUARANTEEING ACCESS TO COVERAGE.—
In order to assure access under paragraph (1) and
consistent with paragraph (3), the Medicare Benefits
Administrator may provide financial incentives (in-
cluding partial underwriting of risk) for a PDP
sponsor to expand the service area under an existing
prescription drug plan to adjoining or additional
areas or to establish such a plan (including offering
such a plan on a regional or nationwide basis), but
only so long as (and to the extent) necessary to as-
sure the access guaranteed under paragraph (1).
‘‘(3) LIMITATION
ON
AUTHORITY.—In exer-
cising authority under this subsection, the Medicare
Benefits Administrator—
‘‘(A) shall not provide for the full under-
writing of financial risk for any PDP sponsor;
‘‘(B) shall not provide for any under-
writing of financial risk for a public PDP spon-
sor with respect to the offering of a nationwide
prescription drug plan; and
‘‘(C) shall seek to maximize the assump-
tion of financial risk by PDP sponsors or
Medicare+Choice organizations.
‘‘(4) REPORTS.—The Medicare Benefits Admin-
istrator shall, in each annual report to Congress
under section 1807(f), include information on the
exercise of authority under this subsection. The Ad-
ministrator also shall include such recommendations
as may be appropriate to minimize the exercise of
such authority, including minimizing the assumption
of financial risk.
‘‘(5) QUALIFYING
PLAN
DEFINED.—For pur-
poses of this subsection, the term ‘qualifying plan’
means 
a 
prescription 
drug 
plan 
or 
a
Medicare+Choice plan that includes qualified pre-
scription drug coverage.
‘‘SEC. 1860F. PREMIUMS.
‘‘(a) SUBMISSION OF PREMIUMS AND RELATED IN-
FORMATION.—
‘‘(1) IN GENERAL.—Each PDP sponsor shall
submit to the Medicare Benefits Administrator in-
formation of the type described in paragraph (2) in
the same manner as information is submitted by a
Medicare+Choice 
organization 
under 
section
1854(a)(1).
‘‘(2) TYPE OF INFORMATION.—The information
described in this paragraph is the following:
‘‘(A) Information on the qualified prescrip-
tion drug coverage to be provided.
‘‘(B) Information on the actuarial value of
the coverage.
‘‘(C) Information on the monthly premium
to be charged for the coverage, including an ac-
tuarial certification of—
‘‘(i) the actuarial basis for such pre-
mium;
‘‘(ii) the portion of such premium at-
tributable to benefits in excess of standard
coverage; and
‘‘(iii) the reduction in such premium
resulting from the reinsurance subsidy
payments provided under section 1860H.
‘‘(D) Such other information as the Medi-
care Benefits Administrator may require to
carry out this part.
‘‘(3) REVIEW.—The Medicare Benefits Admin-
istrator shall review the information filed under
paragraph (2) for the purpose of conducting negotia-
tions under section 1860D(b)(2).
‘‘(b) UNIFORM PREMIUM.—The premium for a pre-
scription drug plan charged under this section may not
vary among individuals enrolled in the plan in the same
service area, except as is permitted under section
1860A(c)(2)(B) (relating to late enrollment penalties).
‘‘(c) TERMS AND CONDITIONS FOR IMPOSING PRE-
MIUMS.—The provisions of section 1854(d) shall apply
under this part in the same manner as they apply under
part C, and, for this purpose, the reference in such section
to section 1851(g)(3)(B)(i) is deemed a reference to sec-
tion 1860A(d)(3)(B) (relating to failure to pay premiums
required under this part).
‘‘(d) ACCEPTANCE
OF REFERENCE PREMIUM
AS
FULL PREMIUM IF NO STANDARD (OR EQUIVALENT) COV-
ERAGE IN AN AREA.—
‘‘(1) IN GENERAL.—If there is no standard pre-
scription drug coverage (as defined in paragraph
(2)) offered in an area, in the case of an individual
who is eligible for a premium subsidy under section
1860G and resides in the area, the PDP sponsor of
any prescription drug plan offered in the area (and
any Medicare+Choice organization that offers quali-
fied prescription drug coverage in the area) shall ac-
cept 
the 
reference 
premium 
under 
section
1860G(b)(2) as payment in full for the premium
charge for qualified prescription drug coverage.
‘‘(2) STANDARD
PRESCRIPTION
DRUG
COV-
ERAGE DEFINED.—For purposes of this subsection,
the term ‘standard prescription drug coverage’
means qualified prescription drug coverage that is
standard coverage or that has an actuarial value
equivalent to the actuarial value for standard cov-
erage.
‘‘SEC. 1860G. PREMIUM AND COST-SHARING SUBSIDIES FOR
LOW-INCOME INDIVIDUALS.
‘‘(a) IN GENERAL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION
OF COST-SHARING FOR INDIVIDUALS WITH INCOME
BELOW
135
PERCENT
OF
FEDERAL
POVERTY
LEVEL.—In the case of a subsidy eligible individual
(as defined in paragraph (3)) who is determined to
have income that does not exceed 135 percent of the
Federal poverty level, the individual is entitled under
this section—
‘‘(A) to a premium subsidy equal to 100
percent of the amount described in subsection
(b)(1); and
‘‘(B) subject to subsection (c), to the sub-
stitution for the beneficiary cost-sharing de-
scribed in paragraphs (1) and (2) of section
1860B(b) (up to the initial coverage limit speci-
fied in paragraph (3) of such section) of
amounts that are nominal.
‘‘(2) SLIDING
SCALE
PREMIUM
SUBSIDY
FOR
INDIVIDUALS WITH INCOME ABOVE 135, BUT BELOW
150
PERCENT, OF
FEDERAL
POVERTY
LEVEL.—In
the case of a subsidy eligible individual who is deter-
mined to have income that exceeds 135 percent, but
does not exceed 150 percent, of the Federal poverty
level, the individual is entitled under this section to
a premium subsidy determined on a linear sliding
scale ranging from 100 percent of the amount de-
scribed in subsection (b)(1) for individuals with in-
comes at 135 percent of such level to 0 percent of
such amount for individuals with incomes at 150
percent of such level.
‘‘(3) DETERMINATION OF ELIGIBILITY.—
‘‘(A) SUBSIDY ELIGIBLE INDIVIDUAL DE-
FINED.—For purposes of this section, subject
to subparagraph (D), the term ‘subsidy eligible
individual’ means an individual who—
‘‘(i) is eligible to elect, and has elect-
ed, to obtain qualified prescription drug
coverage under this part;
‘‘(ii) has income below 150 percent of
the Federal poverty line; and
‘‘(iii) meets the resources requirement
described in section 1905(p)(1)(C).
‘‘(B) DETERMINATIONS.—The determina-
tion of whether an individual residing in a State
is a subsidy eligible individual and the amount
of such individual’s income shall be determined
under the State medicaid plan for the State
under section 1935(a). In the case of a State
that does not operate such a medicaid plan (ei-
ther under title XIX or under a statewide waiv-
er granted under section 1115), such deter-
mination shall be made under arrangements
made by the Medicare Benefits Administrator.
‘‘(C) INCOME DETERMINATIONS.—For pur-
poses of applying this section—
‘‘(i) income shall be determined in the
manner 
described 
in 
section
1905(p)(1)(B); and
‘‘(ii) the term ‘Federal poverty line’
means the official poverty line (as defined
by the Office of Management and Budget,
and revised annually in accordance with
section 673(2) of the Omnibus Budget
Reconciliation Act of 1981) applicable to a
family of the size involved.
‘‘(D) TREATMENT OF TERRITORIAL RESI-
DENTS.—In the case of an individual who is not
a resident of the 50 States or the District of
Columbia, the individual is not eligible to be a
subsidy eligible individual but may be eligible
for financial assistance with prescription drug
expenses under section 1935(e).
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) IN
GENERAL.—The premium subsidy
amount described in this subsection for an individual
residing in an area is the reference premium (as de-
fined in paragraph (2)) for qualified prescription
drug coverage offered by the prescription drug plan
or the Medicare+Choice plan in which the individual
is enrolled.
‘‘(2) REFERENCE
PREMIUM
DEFINED.—For
purposes of this subsection, the term ‘reference pre-
mium’ means, with respect to qualified prescription
drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the
actuarial value is equivalent to that of
standard coverage), the premium imposed
for enrollment under the plan under this
part (determined without regard to any
subsidy under this section or any late en-
rollment 
penalty 
under 
section
1860A(c)(2)(B)); or
‘‘(ii) provides alternative prescription
drug coverage the actuarial value of which
is greater than that of standard coverage,
the premium described in clause (i) multi-
plied by the ratio of (I) the actuarial value
of standard coverage, to (II) the actuarial
value of the alternative coverage; or
‘‘(B) a Medicare+Choice plan, the stand-
ard 
premium 
computed 
under 
section
1851(j)(5)(A)(iii), determined without regard to
any 
reduction 
effected 
under 
section
1851(j)(5)(B).
‘‘(c) RULES
IN
APPLYING
COST-SHARING
SUB-
SIDIES.—
‘‘(1) IN
GENERAL.—In applying subsection
(a)(1)(B)—
‘‘(A) the maximum amount of subsidy that
may be provided with respect to an enrollee for
a year may not exceed 95 percent of the max-
nization involved that the individual is eligible for a
subsidy and the amount of the subsidy under sub-
section (a);
‘‘(2) the sponsor or organization involved re-
duces the premiums or cost-sharing otherwise im-
posed by the amount of the applicable subsidy and
submits to the Administrator information on the
amount of such reduction; and
‘‘(3) the Administrator periodically and on a
timely basis reimburses the sponsor or organization
for the amount of such reductions.
The reimbursement under paragraph (3) with respect to
cost-sharing subsidies may be computed on a capitated
basis, taking into account the actuarial value of the sub-
sidies and with appropriate adjustments to reflect dif-
ferences in the risks actually involved.
‘‘(e) RELATION TO MEDICAID PROGRAM.—
‘‘(1) IN
GENERAL.—For provisions providing
for eligibility determinations, and additional financ-
ing, under the medicaid program, see section 1935.
‘‘(2) MEDICAID PROVIDING WRAP AROUND BEN-
EFITS.—The coverage provided under this part is
primary payor to benefits for prescribed drugs pro-
vided under the medicaid program under title XIX.
‘‘SEC. 
1860H. 
SUBSIDIES 
FOR 
ALL 
MEDICARE 
BENE-
FICIARIES 
THROUGH 
REINSURANCE 
FOR
QUALIFIED PRESCRIPTION DRUG COVERAGE.
‘‘(a) REINSURANCE SUBSIDY PAYMENT.—In order to
reduce premium levels applicable to qualified prescription
drug coverage for all medicare beneficiaries, to reduce ad-
verse selection among prescription drug plans and
Medicare+Choice plans that provide qualified prescription
drug coverage, and to promote the participation of PDP
sponsors under this part, the Medicare Benefits Adminis-
trator shall provide in accordance with this section for
payment to a qualifying entity (as defined in subsection
(b)) of the reinsurance payment amount (as defined in
subsection (c)) for excess costs incurred in providing quali-
fied prescription drug coverage—
‘‘(1) for individuals enrolled with a prescription
drug plan under this part;
‘‘(2) 
for 
individuals 
enrolled 
with 
a
Medicare+Choice plan that provides qualified pre-
scription drug coverage under part C; and
‘‘(3) for medicare primary individuals (de-
scribed in subsection (f)(3)(D)) who are enrolled in
a qualified retiree prescription drug plan.
This section constitutes budget authority in advance of ap-
propriations Acts and represents the obligation of the Ad-
ministrator to provide for the payment of amounts pro-
vided under this section.
‘‘(b) QUALIFYING ENTITY DEFINED.—For purposes
of this section, the term ‘qualifying entity’ means any of
the following that has entered into an agreement with the
Administrator to provide the Administrator with such in-
formation as may be required to carry out this section:
‘‘(1) A PDP sponsor offering a prescription
drug plan under this part.
‘‘(2) A Medicare+Choice organization that pro-
vides qualified prescription drug coverage under a
Medicare+Choice plan under part C.
‘‘(3) The sponsor of a qualified retiree prescrip-
tion drug plan (as defined in subsection (f)).
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) IN
GENERAL.—Subject to subsection
(d)(2) and paragraph (4), the reinsurance payment
amount under this subsection for a qualifying cov-
ered individual (as defined in subsection (g)(1)) for
a coverage year (as defined in subsection (g)(2)) is
equal to the sum of the following:
‘‘(A) For the portion of the individual’s
gross covered prescription drug costs (as de-
fined in paragraph (3)) for the year that ex-
ceeds $1,250, but does not exceed $1,350, an
amount equal to 30 percent of the allowable
costs (as defined in paragraph (2)) attributable
to such gross covered prescription drug costs.
‘‘(B) For the portion of the individual’s
gross covered prescription drug costs for the
year that exceeds $1,350, but does not exceed
$1,450, an amount equal to 50 percent of the
allowable costs attributable to such gross cov-
ered prescription drug costs.
‘‘(C) For the portion of the individual’s
gross covered prescription drug costs for the
year that exceeds $1,450, but does not exceed
$1,550, an amount equal to 70 percent of the
allowable costs attributable to such gross cov-
ered prescription drug costs.
‘‘(D) For the portion of the individual’s
gross covered prescription drug costs for the
year that exceeds $1,550, but does not exceed
$2,350, an amount equal to 90 percent of the
allowable costs attributable to such gross cov-
ered prescription drug costs.
‘‘(E) For the portion of the individual’s
gross covered prescription drug costs for the
year that exceeds $7,050, an amount equal to
90 percent of the allowable costs attributable to
such gross covered prescription drug costs.
‘‘(2) ALLOWABLE COSTS.—For purposes of this
section, the term ‘allowable costs’ means, with re-
spect to gross covered prescription drug costs under
a plan described in subsection (b) offered by a quali-
fying entity, the part of such costs that are actually
paid under the plan, but in no case more than the
part of such costs that would have been paid under
the plan if the prescription drug coverage under the
plan were standard coverage.
‘‘(3) GROSS
COVERED
PRESCRIPTION
DRUG
COSTS.—For purposes of this section, the term
‘gross covered prescription drug costs’ means, with
respect to an enrollee with a qualifying entity under
a plan described in subsection (b) during a coverage
year, the costs incurred under the plan for covered
prescription drugs dispensed during the year, includ-
ing costs relating to the deductible, whether paid by
the enrollee or under the plan, regardless of whether
the coverage under the plan exceeds standard cov-
erage and regardless of when the payment for such
drugs is made.
‘‘(4) INDEXING DOLLAR AMOUNTS.—
‘‘(A) AMOUNTS
FOR
2003.—The dollar
amounts applied under paragraph (1) for 2003
shall be the dollar amounts specified in such
paragraph.
‘‘(B) FOR 2004.—The dollar amounts ap-
plied under paragraph (1) for 2004 shall be the
dollar amounts specified in such paragraph in-
creased by the annual percentage increase de-
scribed in section 1860B(b)(5) for 2004.
‘‘(C) FOR SUBSEQUENT YEARS.—The dol-
lar amounts applied under paragraph (1) for a
year after 2004 shall be the amounts (under
this paragraph) applied under paragraph (1)
for the preceding year increased by the annual
percentage 
increase 
described 
in 
section
1860B(b)(5) for the year involved.
‘‘(D) ROUNDING.—Any amount, deter-
mined under the preceding provisions of this
paragraph for a year, which is not a multiple of
$5 shall be rounded to the nearest multiple of
$5.
‘‘(d) ADJUSTMENT OF PAYMENTS.—
‘‘(1) IN GENERAL.—The Medicare Benefits Ad-
ministrator shall estimate—
‘‘(A) the total payments to be made (with-
out regard to this subsection) during a year
under this section; and
‘‘(B) the total payments to be made by
qualifying entities for standard coverage under
plans described in subsection (b) during the
year.
‘‘(2) ADJUSTMENT
OF
PAYMENTS.—The Ad-
ministrator shall proportionally adjust the payments
made under this section for a coverage year in such
manner so that the total of the payments made for
the year under this section is equal to 35 percent of
the total payments described in paragraph (1)(B)
during the year.
‘‘(e) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this sec-
tion shall be based on such a method as the Medi-
care Benefits Administrator determines. The Admin-
istrator may establish a payment method by which
interim payments of amounts under this section are
made during a year based on the Administrator’s
best estimate of amounts that will be payable after
obtaining all of the information.
‘‘(2) SOURCE OF PAYMENTS.—Payments under
this section shall be made from the Medicare Pre-
scription Drug Account.
‘‘(f) QUALIFIED
RETIREE
PRESCRIPTION
DRUG
PLAN DEFINED.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified retiree prescription drug
plan’ means employment-based retiree health cov-
erage (as defined in paragraph (3)(A)) if, with re-
spect to an individual enrolled (or eligible to be en-
rolled) under this part who is covered under the
plan, the following requirements are met:
‘‘(A) ASSURANCE.—The sponsor of the
plan shall annually attest, and provide such as-
surances as the Medicare Benefits Adminis-
trator may require, that the coverage meets the
requirements for qualified prescription drug
coverage.
‘‘(B) AUDITS.—The sponsor (and the plan)
shall maintain, and afford the Medicare Bene-
fits Administrator access to, such records as the
Administrator may require for purposes of au-
dits and other oversight activities necessary to
ensure the adequacy of prescription drug cov-
erage, the accuracy of payments made, and
such other matters as may be appropriate.
‘‘(C) PROVISION
OF
CERTIFICATION
OF
PRESCRIPTION DRUG COVERAGE.—The sponsor
of the plan shall provide for issuance of certifi-
cations of the type described in section
1860A(c)(2)(D).
‘‘(D) OTHER REQUIREMENTS.—The spon-
sor of the plan shall comply with such other re-
quirements as the Medicare Benefits Adminis-
trator finds necessary to administer the pro-
gram under this section.
‘‘(2) LIMITATION ON BENEFIT ELIGIBILITY.—
No payment shall be provided under this section
with respect to an individual who is enrolled under
a qualified retiree prescription drug plan unless the
individual is a medicare primary individual who—
‘‘(A) is covered under the plan; and
‘‘(B) is eligible to obtain qualified prescrip-
tion drug coverage under section 1860A but did
not elect such coverage under this part (either
through a prescription drug plan or through a
Medicare+Choice plan).
‘‘(3) DEFINITIONS.—As used in this section:
‘‘(A) 
EMPLOYMENT-BASED
RETIREE
HEALTH
COVERAGE.—The term ‘employment-
based retiree health coverage’ means health in-
surance or other coverage of health care costs
for medicare primary individuals (or for such
individuals and their spouses and dependents)
based on their status as former employees or
labor union members.
‘‘(B) EMPLOYER.—The term ‘employer’
has the meaning given such term by section
3(5) of the Employee Retirement Income Secu-
rity Act of 1974 (except that such term shall
include only employers of two or more employ-
ees).
‘‘(C) 
SPONSOR.—The 
term 
‘sponsor’
means a plan sponsor, as defined in section
3(16)(B) of the Employee Retirement Income
Security Act of 1974.
‘‘(D) MEDICARE PRIMARY INDIVIDUAL.—
The term ‘medicare primary individual’ means,
with respect to a plan, an individual who is cov-
ered under the plan and with respect to whom
the plan is not a primary plan (as defined in
section 1862(b)(2)(A)).
‘‘(g) GENERAL DEFINITIONS.—For purposes of this
section:
‘‘(1) QUALIFYING COVERED INDIVIDUAL.—The
term ‘qualifying covered individual’ means an indi-
vidual who—
‘‘(A) is enrolled with a prescription drug
plan under this part;
‘‘(B) is enrolled with a Medicare+Choice
plan that provides qualified prescription drug
coverage under part C; or
‘‘(C) is covered as a medicare primary in-
dividual under a qualified retiree prescription
drug plan.
‘‘(2) COVERAGE
YEAR.—The term ‘coverage
year’ means a calendar year in which covered out-
patient drugs are dispensed if a claim for payment
is made under the plan for such drugs, regardless of
when the claim is paid.
‘‘SEC. 1860I. MEDICARE PRESCRIPTION DRUG ACCOUNT IN
FEDERAL SUPPLEMENTARY MEDICAL INSUR-
ANCE TRUST FUND.
‘‘(a) IN GENERAL.—There is created within the Fed-
eral Supplementary Medical Insurance Trust Fund estab-
lished by section 1841 an account to be known as the
‘Medicare Prescription Drug Account’ (in this section re-
ferred to as the ‘Account’). The Account shall consist of
such gifts and bequests as may be made as provided in
section 201(i)(1), and such amounts as may be deposited
in, or appropriated to, such fund as provided in this part.
Funds provided under this part to the Account shall be
kept separate from all other funds within the Federal Sup-
plementary Medical Insurance Trust Fund.
‘‘(b) PAYMENTS FROM ACCOUNT.—
‘‘(1) IN
GENERAL.—The Managing Trustee
shall pay from time to time from the Account such
amounts as the Medicare Benefits Administrator
certifies are necessary to make—
‘‘(A) payments under section 1860G (relat-
ing to low-income subsidy payments);
‘‘(B) payments under section 1860H (re-
lating to reinsurance subsidy payments); and
‘‘(C) payments with respect to administra-
tive expenses under this part in accordance with
section 201(g).
‘‘(2) TRANSFERS TO MEDICAID ACCOUNT FOR
INCREASED
ADMINISTRATIVE
COSTS.—The Man-
aging Trustee shall transfer from time to time from
the Account to the Grants to States for Medicaid ac-
count amounts the Secretary certifies are attrib-
utable to increases in payment resulting from the
‘‘(B) provides qualified prescription drug
coverage; and
‘‘(C) meets the applicable requirements of
the section 1860C for a prescription drug plan.
‘‘(6) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘qualified prescription drug cov-
erage’ is defined in section 1860B(a).
‘‘(7) STANDARD COVERAGE.—The term ‘stand-
ard coverage’ is defined in section 1860B(b).
‘‘(b) APPLICATION OF MEDICARE+CHOICE PROVI-
SIONS UNDER THIS PART.—For purposes of applying pro-
visions of part C under this part with respect to a pre-
scription drug plan and a PDP sponsor, unless otherwise
provided in this part such provisions shall be applied as
if—
‘‘(1) any reference to a Medicare+Choice plan
included a reference to a prescription drug plan;
‘‘(2) any reference to a provider-sponsored or-
ganization included a reference to a PDP sponsor;
‘‘(3) any reference to a contract under section
1857 included a reference to a contract under sec-
tion 1860D(b); and
‘‘(4) any reference to part C included a ref-
erence to this part.’’.
(b) CONFORMING AMENDMENTS TO FEDERAL SUP-
PLEMENTARY MEDICAL INSURANCE TRUST FUND.—Sec-
tion 1841 of the Social Security Act (42 U.S.C. 1395t)
is amended—
(1) in the last sentence of subsection (a)—
(A) by striking ‘‘and’’ before ‘‘such
amounts’’; and
(B) by inserting before the period the fol-
lowing: ‘‘and such amounts as may be deposited
in, or appropriated to, the Medicare Prescrip-
tion Drug Account established by section
1860I’’; and
(2) in subsection (g), by inserting after ‘‘by this
part,’’ the following: ‘‘the payments provided for
under part D (in which case the payments shall
come from the Medicare Prescription Drug Account
in the Trust Fund),’’.
(c) ADDITIONAL CONFORMING CHANGES.—
(1) CONFORMING
REFERENCES
TO
PREVIOUS
PART D.—Any reference in law (in effect before the
date of the enactment of this Act) to part D of title
XVIII of the Social Security Act is deemed a ref-
erence to part E of such title (as in effect after such
date).
(2) SECRETARIAL SUBMISSION OF LEGISLATIVE
PROPOSAL.—Not later than 6 months after the date
of the enactment of this Act, the Secretary of
Health and Human Services shall submit to the ap-
propriate committees of Congress a legislative pro-
posal providing for such technical and conforming
amendments in the law as are required by the provi-
sions of this subtitle.
SEC. 102. OFFERING OF QUALIFIED PRESCRIPTION DRUG
COVERAGE UNDER THE MEDICARE+CHOICE
PROGRAM.
(a) IN GENERAL.—Section 1851 of the Social Secu-
rity Act (42 U.S.C. 1395w–21) is amended by adding at
the end the following new subsection:
‘‘(j) AVAILABILITY OF PRESCRIPTION DRUG BENE-
FITS.—
‘‘(1) IN GENERAL.—A Medicare+Choice orga-
nization may not offer prescription drug coverage
(other than that required under parts A and B) to
an enrollee under a Medicare+Choice plan unless
such drug coverage is at least qualified prescription
drug coverage and unless the requirements of this
subsection with respect to such coverage are met.
‘‘(2) COMPLIANCE
WITH
ADDITIONAL
BENE-
FICIARY PROTECTIONS.—With respect to the offer-
ing of qualified prescription drug coverage by a
Medicare+Choice 
organization 
under 
a
Medicare+Choice plan, the organization and plan
shall meet the requirements of section 1860C, in-
cluding requirements relating to information dis-
semination and grievance and appeals, in the same
manner as they apply to a PDP sponsor and a pre-
scription drug plan under part D. The Medicare
Benefits Administrator shall waive such require-
ments to the extent the Administrator determines
that such requirements duplicate requirements oth-
erwise applicable to the organization or plan under
this part.
‘‘(3) TREATMENT
OF
COVERAGE.—Except as
provided in this subsection, qualified prescription
drug coverage offered under this subsection shall be
treated under this part in the same manner as sup-
plemental health care benefits described in section
1852(a)(3)(A).
‘‘(4) AVAILABILITY
OF
PREMIUM
AND
COST-
SHARING SUBSIDIES FOR LOW-INCOME ENROLLEES
AND REINSURANCE SUBSIDY PAYMENTS FOR ORGA-
NIZATIONS.—For provisions—
‘‘(A) providing premium and cost-sharing
subsidies to low-income individuals receiving
qualified prescription drug coverage through a
Medicare+Choice plan, see section 1860G; and
‘‘(B) providing a Medicare+Choice organi-
zation with reinsurance subsidy payments for
providing qualified prescription drug coverage
under this part, see section 1860H.
‘‘(5) SPECIFICATION OF SEPARATE AND STAND-
ARD PREMIUM.—
‘‘(A) IN GENERAL.—For purposes of ap-
plying section 1854 and section 1860G(b)(2)(B)
with respect to qualified prescription drug cov-
erage offered under this subsection under a
plan, the Medicare+Choice organization shall
compute and publish the following:
‘‘(i) SEPARATE
PRESCRIPTION
DRUG
PREMIUM.—A premium for prescription
drug benefits that constitute qualified pre-
scription drug coverage that is separate
from other coverage under the plan.
‘‘(ii) PORTION OF COVERAGE ATTRIB-
UTABLE
TO
STANDARD
BENEFITS.—The
ratio of the actuarial value of standard
coverage to the actuarial value of the
qualified prescription drug coverage offered
under the plan.
‘‘(iii) PORTION OF PREMIUM ATTRIB-
UTABLE
TO
STANDARD
BENEFITS.—A
standard premium equal to the product of
the premium described in clause (i) and
the ratio under clause (ii).
The premium under clause (i) shall be compute
without regard to any reduction in the premium
permitted under subparagraph (B).
‘‘(B) 
REDUCTION
OF
PREMIUMS
AL-
LOWED.—Nothing in this subsection shall be
construed as preventing a Medicare+Choice or-
ganization from reducing the amount of a pre-
mium charged for prescription drug coverage
because 
of 
the 
application 
of 
section
1854(f)(1)(A) to other coverage.
‘‘(C) ACCEPTANCE
OF
REFERENCE
PRE-
MIUM AS FULL PREMIUM IF NO STANDARD (OR
EQUIVALENT) COVERAGE IN AN AREA.—For re-
quirement to accept reference premium as full
premium if there is no standard (or equivalent)
coverage in the area of a Medicare+Choice
plan, see section 1860F(d).
‘‘(6) TRANSITION IN INITIAL ENROLLMENT PE-
RIOD.—Notwithstanding any other provision of this
part, the annual, coordinated election period under
subsection (e)(3)(B) for 2003 shall be the 6-month
period beginning with November 2002.
‘‘(7) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE; STANDARD
COVERAGE.—For purposes of
this part, the terms ‘qualified prescription drug cov-
erage’ and ‘standard coverage’ have the meanings
given such terms in section 1860B.’’.
(b) CONFORMING AMENDMENTS.—Section 1851 of
such Act (42 U.S.C. 1395w–21) is amended—
(1) in subsection (a)(1)—
(A) by inserting ‘‘(other than qualified pre-
scription drug benefits)’’ after ‘‘benefits’’;
(B) by striking the period at the end of
subparagraph (B) and inserting a comma; and
(C) by adding after and below subpara-
graph (B) the following:
‘‘and may elect qualified prescription drug coverage
in accordance with section 1860A.’’; and
(2) in subsection (g)(1), by inserting ‘‘and sec-
tion 1860A(c)(2)(B)’’ after ‘‘in this subsection’’.
(c) EFFECTIVE DATE.—The amendments made by
this section apply to coverage provided on or after January
1, 2003.
SEC. 103. MEDICAID AMENDMENTS.
(a) DETERMINATIONS OF ELIGIBILITY FOR LOW-IN-
COME SUBSIDIES.—
(1) REQUIREMENT.—Section 1902 of the Social
Security Act (42 U.S.C. 1396a) is amended—
(A) in subsection (a)—
(i) by striking ‘‘and’’ at the end of
paragraph (64);
(ii) by striking the period at the end
of paragraph (65) and inserting ‘‘; and’’;
and
(iii) by inserting after paragraph (65)
the following new paragraph:
‘‘(66) provide for making eligibility determina-
tions under section 1935(a).’’.
(2) NEW SECTION.—Title XIX of such Act is
further amended—
(A) by redesignating section 1935 as sec-
tion 1936; and
(B) by inserting after section 1934 the fol-
lowing new section:
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE
PRESCRIPTION DRUG BENEFIT
‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI-
BILITY
DETERMINATIONS
FOR
LOW-INCOME
SUB-
SIDIES.—As a condition of its State plan under this title
under section 1902(a)(66) and receipt of any Federal fi-
nancial assistance under section 1903(a), a State shall—
‘‘(1) make determinations of eligibility for pre-
mium and cost-sharing subsidies under (and in ac-
cordance with) section 1860G;
‘‘(2) inform the Administrator of the Medicare
Benefits Administration of such determinations in
cases in which such eligibility is established; and
‘‘(3) otherwise provide such Administrator with
such information as may be required to carry out
part D of title XVIII (including section 1860G).
‘‘(b) PAYMENTS FOR ADDITIONAL ADMINISTRATIVE
COSTS.—
‘‘(1) IN GENERAL.—The amounts expended by
a State in carrying out subsection (a) are, subject to
paragraph (2), expenditures reimbursable under the
appropriate paragraph of section 1903(a); except
that, notwithstanding any other provision of such
section, the applicable Federal matching rates with
respect to such expenditures under such section shall
be increased as follows:
‘‘(A) For expenditures attributable to costs
incurred during 2003, the otherwise applicable
Federal matching rate shall be increased by 20
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(B) For expenditures attributable to costs
incurred during 2004, the otherwise applicable
Federal matching rate shall be increased by 40
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(C) For expenditures attributable to costs
incurred during 2005, the otherwise applicable
Federal matching rate shall be increased by 60
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(D) For expenditures attributable to costs
incurred during 2006, the otherwise applicable
Federal matching rate shall be increased by 80
percent of the percentage otherwise payable
(but for this subsection) by the State.
‘‘(E) For expenditures attributable to costs
incurred after 2006, the otherwise applicable
Federal matching rate shall be increased to 100
percent.
‘‘(2) COORDINATION.—The State shall provide
the Secretary with such information as may be nec-
essary to properly allocate administrative expendi-
tures described in paragraph (1) that may otherwise
be made for similar eligibility determinations.’’.
(b) PHASED-IN FEDERAL ASSUMPTION OF MEDICAID
RESPONSIBILITY FOR PREMIUM AND COST-SHARING SUB-
SIDIES FOR DUALLY ELIGIBLE INDIVIDUALS.—
(1) IN GENERAL.—Section 1903(a)(1) of the
Social Security Act (42 U.S.C. 1396b(a)(1)) is
amended by inserting before the semicolon the fol-
lowing: ‘‘, reduced by the amount computed under
section 1935(c)(1) for the State and the quarter’’.
(2) AMOUNT
DESCRIBED.—Section 1935 of
such Act, as inserted by subsection (a)(2), is amend-
ed by adding at the end the following new sub-
section:
‘‘(c) FEDERAL ASSUMPTION
OF MEDICAID PRE-
SCRIPTION DRUG COSTS FOR DUALLY-ELIGIBLE BENE-
FICIARIES.—
‘‘(1) IN
GENERAL.—For purposes of section
1903(a)(1), for a State that is one of the 50 States
or the District of Columbia for a calendar quarter
in a year (beginning with 2003) the amount com-
puted under this subsection is equal to the product
of the following:
‘‘(A) MEDICARE
SUBSIDIES.—The total
amount of payments made in the quarter under
section 1860G (relating to premium and cost-
sharing prescription drug subsidies for low-in-
come medicare beneficiaries) that are attrib-
utable to individuals who are residents of the
State and are entitled to benefits with respect
to prescribed drugs under the State plan under
this title (including such a plan operating under
a waiver under section 1115).
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent
the Federal medical assistance percentage (as
defined in section 1905(b)) applicable to the
State and the quarter.
‘‘(C) 
PHASE-OUT
PROPORTION.—The
phase-out proportion (as defined in paragraph
(2)) for the quarter.
‘‘(2) PHASE-OUT PROPORTION.—For purposes
of paragraph (1)(C), the ‘phase-out proportion’ for
a calendar quarter in—
‘‘(A) 2003 is 80 percent;
‘‘(B) 2004 is 60 percent;
‘‘(C) 2005 is 40 percent;
‘‘(D) 2006 is 20 percent; or
‘‘(E) a year after 2006 is 0 percent.’’.
(c) MEDICAID PROVIDING WRAP-AROUND BENE-
FITS.—Section 1935 of such Act, as so inserted and
amended, is further amended by adding at the end the
following new subsection:
‘‘(d) ADDITIONAL PROVISIONS.—
‘‘(1) MEDICAID AS SECONDARY PAYOR.—In the
case of an individual dually entitled to qualified pre-
scription drug coverage under a prescription drug
plan under part D of title XVIII (or under a
Medicare+Choice plan under part C of such title)
and medical assistance for prescribed drugs under
this title, medical assistance shall continue to be pro-
vided under this title for prescribed drugs to the ex-
tent payment is not made under the prescription
drug plan or the Medicare+Choice plan selected by
the individual.
‘‘(2) CONDITION.—A State may require, as a
condition for the receipt of medical assistance under
this title with respect to prescription drug benefits
for an individual eligible to obtain qualified prescrip-
tion drug coverage described in paragraph (1), that
the individual elect qualified prescription drug cov-
erage under section 1860A.’’.
(d) TREATMENT OF TERRITORIES.—
(1) IN GENERAL.—Section 1935 of such Act, as
so inserted and amended, is further amended—
(A) in subsection (a) in the matter pre-
ceding paragraph (1), by inserting ‘‘subject to
subsection (e)’’ after ‘‘section 1903(a)’’;
(B) in subsection (c)(1), by inserting ‘‘sub-
ject to subsection (e)’’ after ‘‘1903(a)(1)’’; and
(C) by adding at the end the following new
subsection:
‘‘(e) TREATMENT OF TERRITORIES.—
‘‘(1) IN
GENERAL.—In the case of a State,
other than the 50 States and the District of
Columbia—
‘‘(A) the previous provisions of this section
shall not apply to residents of such State; and
‘‘(B) if the State establishes a plan de-
scribed in paragraph (2) (for providing medical
assistance with respect to the provision of pre-
scription drugs to medicare beneficiaries), the
amount otherwise determined under section
1108(f) (as increased under section 1108(g))
for the State shall be increased by the amount
specified in paragraph (3).
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of covered outpatient
drugs (as defined in section 1860B(f)) to low-
income medicare beneficiaries; and
‘‘(B) assures that additional amounts re-
ceived by the State that are attributable to the
operation of this subsection are used only for
such assistance.
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified
in this paragraph for a State for a year is equal
to the product of—
‘‘(i) the aggregate amount specified in
subparagraph (B); and
‘‘(ii) the amount specified in section
1108(g)(1) for that State, divided by the
sum of the amounts specified in such sec-
tion for all such States.
‘‘(B) AGGREGATE
AMOUNT.—The aggre-
gate amount specified in this subparagraph
for—
‘‘(i) 2003, is equal to $20,000,000; or
‘‘(ii) a subsequent year, is equal to the
aggregate amount specified in this sub-
paragraph for the previous year increased
by annual percentage increase specified in
section 1860B(b)(5) for the year involved.
‘‘(4) REPORT.—The Secretary shall submit to
Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Secretary deems appropriate.’’.
(2) 
CONFORMING
AMENDMENT.—Section
1108(f) of such Act is amended by inserting ‘‘and
section 1935(e)(1)(B)’’ after ‘‘Subject to subsection
(g)’’.
SEC. 104. MEDIGAP TRANSITION PROVISIONS.
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, no new medicare supplemental policy that pro-
vides coverage of expenses for prescription drugs may be
issued under section 1882 of the Social Security Act on
or after January 1, 2003, to an individual unless it re-
places a medicare supplemental policy that was issued to
that individual and that provided some coverage of ex-
penses for prescription drugs.
(b) ISSUANCE OF SUBSTITUTE POLICIES IF OBTAIN
PRESCRIPTION DRUG COVERAGE THROUGH MEDICARE.—
(1) IN
GENERAL.—The issuer of a medicare
supplemental policy—
(A) may not deny or condition the issuance
or effectiveness of a medicare supplemental pol-
icy that has a benefit package classified as ‘‘A’’,
‘‘B’’, ‘‘C’’, ‘‘D’’, ‘‘E’’, ‘‘F’’, or ‘‘G’’ (under the
standards established under subsection (p)(2) of
section 1882 of the Social Security Act, 42
U.S.C. 1395ss) and that is offered and is avail-
able for issuance to new enrollees by such
issuer;
(B) may not discriminate in the pricing of
such policy, because of health status, claims ex-
perience, receipt of health care, or medical con-
dition; and
(C) may not impose an exclusion of bene-
fits based on a pre-existing condition under
such policy,
in the case of an individual described in paragraph
(2) who seeks to enroll under the policy not later
than 63 days after the date of the termination of en-
rollment described in such paragraph and who sub-
mits evidence of the date of termination or
disenrollment along with the application for such
medicare supplemental policy.
(2) INDIVIDUAL COVERED.—An individual de-
scribed in this paragraph is an individual who—
(A) enrolls in a prescription drug plan
under part D of title XVIII of the Social Secu-
rity Act; and
(B) at the time of such enrollment was en-
rolled and terminates enrollment in a medicare
supplemental policy which has a benefit pack-
age classified as ‘‘H’’, ‘‘I’’, or ‘‘J’’ under the
standards referred to in paragraph (1)(A) or
terminates enrollment in a policy to which such
standards do not apply but which provides ben-
efits for prescription drugs.
(3) ENFORCEMENT.—The provisions of para-
graph (1) shall be enforced as though they were in-
cluded in section 1882(s) of the Social Security Act
(42 U.S.C. 1395ss(s)).
(4) DEFINITIONS.—For purposes of this sub-
section, the term ‘‘medicare supplemental policy’’
has the meaning given such term in section 1882(g)
of the Social Security Act (42 U.S.C. 1395ss(g)).
SEC. 105. STATE PHARMACEUTICAL ASSISTANCE TRANSI-
TION COMMISSION.
(a) ESTABLISHMENT.—
(1) IN GENERAL.—There is established as of
October 1, 2000, a State Pharmaceutical Assistance
Transition Commission (in this section referred to as
the ‘‘Commission’’) to develop a proposal for ad-
dressing the unique transitional issues facing State
pharmaceutical assistance programs, and program
participants, due to the implementation of the medi-
care prescription drug program under part D of title
XVIII of the Social Security Act.
(2) DEFINITIONS.—For purposes of this sec-
tion:
(A) STATE PHARMACEUTICAL ASSISTANCE
PROGRAM DEFINED.—The term ‘‘State pharma-
ceutical assistance program’’ means a program
(other than the medicaid program) operated by
a State (or under contract with a State) that
provides as of the date of the enactment of this
Act assistance to low-income medicare bene-
ficiaries for the purchase of prescription drugs.
(B) PROGRAM PARTICIPANT.—The term ‘‘pro-
gram participant’’ means a low-income medicare
beneficiary who is a participant in a State pharma-
ceutical assistance program.
(b) COMPOSITION.—The Commission shall consist of
the following:
(1) A representative of each governor of each
State that the Secretary identifies as operating on a
statewide basis a State pharmaceutical assistance
program that provides for eligibility and benefits
that are comparable or more generous than the low-
income assistance eligibility and benefits offered
under part D of title XVIII of the Social Security
Act.
(2) Representatives from other States that the
Secretary identifies have in operation other State
pharmaceutical assistance programs, as appointed by
the Secretary.
(3) Representatives of organizations that rep-
resent the interests of program participants, as ap-
pointed by the Secretary but not to exceed the num-
ber of representatives under under paragraphs (1)
and (2).
(4) The Secretary (or the Secretary’s designee).
The Secretary shall designate a member to serve as chair
of the Commission and the Commission shall meet at the
call of the chair.
(c) DEVELOPMENT OF PROPOSAL.—The Commission
shall develop the proposal described in subsection (a) in
a manner consistent with the following principles:
(1) Protection of the interests of program par-
ticipants in a manner that is the least disruptive to
such participants.
(2) Protection of the financial interests of
States so that States are not financially worse off as
a result of the enactment of this title.
(d) REPORT.—By not later than July 1, 2001, the
Commission shall submit to the President and the Con-
gress a report that contains a detailed proposal (including
specific legislative or administrative recommendations, if
any) and such other recommendations as the Commission
deems appropriate.
(e) SUPPORT.—The Secretary shall provide the Com-
mission with the administrative support services necessary
for the Commission to carry out its responsibilities under
this section.
(f) TERMINATION.—The Commission shall terminate
30 days after the date of submission of the report under
subsection (d).
SEC. 106. DEMONSTRATION PROJECT FOR DISEASE MAN-
AGEMENT FOR SEVERELY CHRONICALLY ILL
MEDICARE BENEFICIARIES.
(a) IN GENERAL.—The Administrator of the Medi-
care Benefits Administration (in this section referred to
as the ‘‘Administrator’’) shall conduct a demonstration
project under this section (in this section referred to as
the ‘‘project’’) to demonstrate the impact on costs and
health outcomes of applying disease management to medi-
care beneficiaries with diagnosed, advanced-stage conges-
tive heart failure, diabetes, or coronary heart disease. In
no case may the number of participants in the project ex-
ceed 30,000 at any time.
(b) VOLUNTARY PARTICIPATION.—
(1) ELIGIBILITY.—Medicare beneficiaries are
eligible to participate in the project only if—
(A) they meet specific medical criteria
demonstrating the appropriate diagnosis and
the advanced nature of their disease;
(B) their physicians approve of participa-
tion in the project; and
(C) 
they 
are 
not 
enrolled 
in 
a
Medicare+Choice plan.
(2) BENEFITS.—A beneficiary who is enrolled
in the project shall be eligible—
(A) for disease management services re-
lated to their chronic health condition; and
(B) if the beneficiary—
(i) is enrolled in a prescription drug
plan under part D of title XVIII of the So-
cial Security Act, for payment of any pre-
miums for such plan, any deductible or
cost-sharing, and any amounts not covered
under the plan because of the application
of an initial coverage limit; or
(ii) is not enrolled in such a plan, for
payment for all costs for prescription drugs
without regard to whether or not they re-
late to the chronic health condition,
except that the project may provide for modest
cost-sharing with respect to prescription drug
coverage.
(3) TREATMENT
AS
QUALIFYING
COVERAGE
FOR
PURPOSES
OF
CONTINUOUS
COVERAGE.—For
purposes of applying section 1860A(c)(2)(C) of the
Social Security Act, coverage under the project shall
be treated as coverage under a prescription drug
plan under part D of title XVIII of such Act.
(c) CONTRACTS WITH DISEASE MANAGEMENT ORGA-
NIZATIONS.—
(1) IN
GENERAL.—The Administrator shall
carry out the project through contracts with up to
three disease management organizations. The Ad-
ministrator shall not enter into such a contract with
an organization unless the organization dem-
onstrates that it can produce improved health out-
comes and reduce aggregate medicare expenditures
consistent with paragraph (2).