533
fiscal year as may be necessary. The purposes for 
which such amounts are available include increasing 
the number of administrative law judges (and their 
staffs) and the appellate level staff at the Depart-
mental Appeals Board of the Department of Health 
and Human Services and educating such judges and 
staffs on long-term care issues. 
SEC. 933. REVISIONS TO MEDICARE APPEALS PROCESS. 
(a) REQUIRING FULL AND EARLY PRESENTATION OF 
EVIDENCE.—
(1) IN GENERAL.—Section 1869(b) (42 U.S.C. 
1395ff(b)), as amended by BIPA and as amended by 
section 932(a), is further amended by adding at the 
end the following new paragraph: 
‘‘(3) REQUIRING
FULL
AND
EARLY
PRESEN-
TATION OF EVIDENCE BY PROVIDERS.—A provider of 
services or supplier may not introduce evidence in 
any appeal under this section that was not presented 
at the reconsideration conducted by the qualified 
independent contractor under subsection (c), unless 
there is good cause which precluded the introduction 
of such evidence at or before that reconsideration.’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall take effect on October 1, 2004.
534
(b) USE OF PATIENTS’ MEDICAL RECORDS.—Section 
1869(c)(3)(B)(i) (42 U.S.C. 1395ff(c)(3)(B)(i)), as amended 
by BIPA, is amended by inserting ‘‘(including the medical 
records of the individual involved)’’ after ‘‘clinical experi-
ence’’. 
(c) NOTICE
REQUIREMENTS
FOR
MEDICARE
AP-
PEALS.— 
(1) INITIAL
DETERMINATIONS
AND
REDETER-
MINATIONS.—Section 1869(a) (42 U.S.C. 1395ff(a)), 
as amended by BIPA, is amended by adding at the 
end the following new paragraphs: 
‘‘(4) REQUIREMENTS OF NOTICE OF DETERMINA-
TIONS.—With respect to an initial determination in-
sofar as it results in a denial of a claim for benefits—
‘‘(A) the written notice on the determina-
tion shall include—
‘‘(i) the reasons for the determination, 
including whether a local medical review 
policy or a local coverage determination 
was used; 
‘‘(ii) the procedures for obtaining addi-
tional information concerning the deter-
mination, including the information de-
scribed in subparagraph (B); and
535
‘‘(iii) notification of the right to seek a 
redetermination or otherwise appeal the de-
termination and instructions on how to ini-
tiate such a redetermination under this sec-
tion; and 
‘‘(B) the person provided such notice may 
obtain, upon request, the specific provision of the 
policy, manual, or regulation used in making 
the determination. 
‘‘(5) REQUIREMENTS OF NOTICE OF REDETER-
MINATIONS.—With respect to a redetermination inso-
far as it results in a denial of a claim for benefits—
‘‘(A) the written notice on the redetermina-
tion shall include—
‘‘(i) the specific reasons for the redeter-
mination; 
‘‘(ii) as appropriate, a summary of the 
clinical or scientific evidence used in mak-
ing the redetermination; 
‘‘(iii) a description of the procedures 
for obtaining additional information con-
cerning the redetermination; and 
‘‘(iv) notification of the right to appeal 
the redetermination and instructions on
536
how to initiate such an appeal under this 
section; 
‘‘(B) such written notice shall be provided 
in printed form and written in a manner cal-
culated to be understood by the individual enti-
tled to benefits under part A or enrolled under 
part B, or both; and 
‘‘(C) the person provided such notice may 
obtain, upon request, information on the specific 
provision of the policy, manual, or regulation 
used in making the redetermination.’’. 
(2) RECONSIDERATIONS.—Section 1869(c)(3)(E) 
(42 U.S.C. 1395ff(c)(3)(E)), as amended by BIPA, is 
amended—
(A) by inserting ‘‘be written in a manner 
calculated to be understood by the individual en-
titled to benefits under part A or enrolled under 
part B, or both, and shall include (to the extent 
appropriate)’’ after ‘‘in writing, ’’; and 
(B) by inserting ‘‘and a notification of the 
right to appeal such determination and instruc-
tions on how to initiate such appeal under this 
section’’ after ‘‘such decision,’’. 
(3) APPEALS.—Section 1869(d) (42 U.S.C. 
1395ff(d)), as amended by BIPA, is amended—
537
(A) in the heading, by inserting ‘‘; NOTICE’’ 
after ‘‘SECRETARY’’; and 
(B) by adding at the end the following new 
paragraph: 
‘‘(4) NOTICE.—Notice of the decision of an ad-
ministrative law judge shall be in writing in a man-
ner calculated to be understood by the individual en-
titled to benefits under part A or enrolled under part 
B, or both, and shall include—
‘‘(A) the specific reasons for the determina-
tion (including, to the extent appropriate, a 
summary of the clinical or scientific evidence 
used in making the determination); 
‘‘(B) the procedures for obtaining addi-
tional information concerning the decision; and 
‘‘(C) notification of the right to appeal the 
decision and instructions on how to initiate such 
an appeal under this section.’’. 
(4) SUBMISSION OF RECORD FOR APPEAL.—Sec-
tion 1869(c)(3)(J)(i) (42 U.S.C. 1395ff(c)(3)(J)(i)) by 
striking ‘‘prepare’’ and inserting ‘‘submit’’ and by 
striking ‘‘with respect to’’ and all that follows through 
‘‘and relevant policies’’. 
(d) QUALIFIED INDEPENDENT CONTRACTORS.—
538
(1) ELIGIBILITY REQUIREMENTS OF QUALIFIED 
INDEPENDENT CONTRACTORS.—Section 1869(c)(3) (42 
U.S.C. 1395ff(c)(3)), as amended by BIPA, is amend-
ed—
(A) in subparagraph (A), by striking ‘‘suffi-
cient training and expertise in medical science 
and legal matters’’ and inserting ‘‘sufficient 
medical, legal, and other expertise (including 
knowledge of the program under this title) and 
sufficient staffing’’; and 
(B) by adding at the end the following new 
subparagraph: 
‘‘(K) INDEPENDENCE REQUIREMENTS.—
‘‘(i) IN
GENERAL.—Subject to clause 
(ii), a qualified independent contractor 
shall not conduct any activities in a case 
unless the entity—
‘‘(I) is not a related party (as de-
fined in subsection (g)(5)); 
‘‘(II) does not have a material fa-
milial, financial, or professional rela-
tionship with such a party in relation 
to such case; and 
‘‘(III) does not otherwise have a 
conflict of interest with such a party.
539
‘‘(ii) EXCEPTION
FOR
REASONABLE 
COMPENSATION.—Nothing in clause (i) shall 
be construed to prohibit receipt by a quali-
fied independent contractor of compensation 
from the Secretary for the conduct of activi-
ties under this section if the compensation 
is provided consistent with clause (iii). 
‘‘(iii) LIMITATIONS
ON
ENTITY
COM-
PENSATION.—Compensation provided by the 
Secretary to a qualified independent con-
tractor in connection with reviews under 
this section shall not be contingent on any 
decision rendered by the contractor or by 
any reviewing professional.’’. 
(2) ELIGIBILITY
REQUIREMENTS
FOR
REVIEW-
ERS.—Section 1869 (42 U.S.C. 1395ff), as amended 
by BIPA, is amended—
(A) by amending subsection (c)(3)(D) to 
read as follows: 
‘‘(D) QUALIFICATIONS
FOR
REVIEWERS.—
The requirements of subsection (g) shall be met 
(relating to qualifications of reviewing profes-
sionals).’’; and 
(B) by adding at the end the following new 
subsection:
540
‘‘(g) QUALIFICATIONS OF REVIEWERS.—
‘‘(1) IN GENERAL.—In reviewing determinations 
under this section, a qualified independent contractor 
shall assure that—
‘‘(A) each individual conducting a review 
shall meet the qualifications of paragraph (2); 
‘‘(B) compensation provided by the con-
tractor to each such reviewer is consistent with 
paragraph (3); and 
‘‘(C) in the case of a review by a panel de-
scribed in subsection (c)(3)(B) composed of phy-
sicians or other health care professionals (each in 
this subsection referred to as a ‘reviewing profes-
sional’), a reviewing professional meets the 
qualifications described in paragraph (4) and, 
where a claim is regarding the furnishing of 
treatment by a physician (allopathic or osteo-
pathic) or the provision of items or services by 
a physician (allopathic or osteopathic), each re-
viewing professional shall be a physician 
(allopathic or osteopathic). 
‘‘(2) INDEPENDENCE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), each individual conducting a review 
in a case shall—
541
‘‘(i) not be a related party (as defined 
in paragraph (5)); 
‘‘(ii) not have a material familial, fi-
nancial, or professional relationship with 
such a party in the case under review; and 
‘‘(iii) not otherwise have a conflict of 
interest with such a party. 
‘‘(B) EXCEPTION.—Nothing in subpara-
graph (A) shall be construed to—
‘‘(i) prohibit an individual, solely on 
the basis of a participation agreement with 
a fiscal intermediary, carrier, or other con-
tractor, from serving as a reviewing profes-
sional if—
‘‘(I) the individual is not involved 
in the provision of items or services in 
the case under review; 
‘‘(II) the fact of such an agree-
ment is disclosed to the Secretary and 
the individual entitled to benefits 
under part A or enrolled under part B, 
or both, (or authorized representative) 
and neither party objects; and 
‘‘(III) the individual is not an 
employee of the intermediary, carrier,
542
or contractor and does not provide 
services exclusively or primarily to or 
on behalf of such intermediary, carrier, 
or contractor; 
‘‘(ii) prohibit an individual who has 
staff privileges at the institution where the 
treatment involved takes place from serving 
as a reviewer merely on the basis of having 
such staff privileges if the existence of such 
privileges is disclosed to the Secretary and 
such individual (or authorized representa-
tive), and neither party objects; or 
‘‘(iii) prohibit receipt of compensation 
by a reviewing professional from a con-
tractor if the compensation is provided con-
sistent with paragraph (3). 
For purposes of this paragraph, the term ‘par-
ticipation agreement’ means an agreement relat-
ing to the provision of health care services by the 
individual and does not include the provision of 
services as a reviewer under this subsection. 
‘‘(3) LIMITATIONS
ON
REVIEWER
COMPENSA-
TION.—Compensation provided by a qualified inde-
pendent contractor to a reviewer in connection with
543
a review under this section shall not be contingent on 
the decision rendered by the reviewer. 
‘‘(4) LICENSURE AND EXPERTISE.—Each review-
ing professional shall be—
‘‘(A) a physician (allopathic or osteopathic) 
who is appropriately credentialed or licensed in 
one or more States to deliver health care services 
and has medical expertise in the field of practice 
that is appropriate for the items or services at 
issue; or 
‘‘(B) a health care professional who is le-
gally authorized in one or more States (in ac-
cordance with State law or the State regulatory 
mechanism provided by State law) to furnish the 
health care items or services at issue and has 
medical expertise in the field of practice that is 
appropriate for such items or services. 
‘‘(5) RELATED PARTY DEFINED.—For purposes 
of this section, the term ‘related party’ means, with 
respect to a case under this title involving a specific 
individual entitled to benefits under part A or en-
rolled under part B, or both, any of the following: 
‘‘(A) The Secretary, the medicare adminis-
trative contractor involved, or any fiduciary, of-
ficer, director, or employee of the Department of
544
Health and Human Services, or of such con-
tractor. 
‘‘(B) The individual (or authorized rep-
resentative). 
‘‘(C) The health care professional that pro-
vides the items or services involved in the case. 
‘‘(D) The institution at which the items or 
services (or treatment) involved in the case are 
provided. 
‘‘(E) The manufacturer of any drug or 
other item that is included in the items or serv-
ices involved in the case. 
‘‘(F) Any other party determined under any 
regulations to have a substantial interest in the 
case involved.’’. 
(3) REDUCING MINIMUM NUMBER OF QUALIFIED 
INDEPENDENT CONTRACTORS.—Section 1869(c)(4) (42 
U.S.C. 1395ff(c)(4)) is amended by striking ‘‘not 
fewer than 12 qualified independent contractors under 
this subsection’’ and inserting ‘‘with a sufficient num-
ber of qualified independent contractors (but not 
fewer than 4 such contractors) to conduct reconsider-
ations consistent with the timeframes applicable 
under this subsection’’.
545
(4) EFFECTIVE DATE.—The amendments made 
by paragraphs (1) and (2) shall be effective as if in-
cluded in the enactment of the respective provisions of 
subtitle C of title V of BIPA, (114 Stat. 2763A–534). 
(5) TRANSITION.—In applying section 1869(g) of 
the Social Security Act (as added by paragraph (2)), 
any reference to a medicare administrative contractor 
shall be deemed to include a reference to a fiscal 
intermediary under section 1816 of the Social Secu-
rity Act (42 U.S.C. 1395h) and a carrier under sec-
tion 1842 of such Act (42 U.S.C. 1395u). 
SEC. 934. PREPAYMENT REVIEW. 
(a) IN GENERAL.—Section 1874A, as added by section 
911(a)(1) and as amended by sections 912(b), 921(b)(1), 
and 921(c)(1), is further amended by adding at the end the 
following new subsection: 
‘‘(h) CONDUCT OF PREPAYMENT REVIEW.—
‘‘(1) CONDUCT
OF
RANDOM
PREPAYMENT
RE-
VIEW.—
‘‘(A) IN GENERAL.—A medicare adminis-
trative contractor may conduct random prepay-
ment review only to develop a contractor-wide or 
program-wide claims payment error rates or 
under such additional circumstances as may be 
provided under regulations, developed in con-
546
sultation with providers of services and sup-
pliers. 
‘‘(B) USE OF STANDARD PROTOCOLS WHEN 
CONDUCTING
PREPAYMENT
REVIEWS.—When a 
medicare administrative contractor conducts a 
random prepayment review, the contractor may 
conduct such review only in accordance with a 
standard protocol for random prepayment audits 
developed by the Secretary. 
‘‘(C) 
CONSTRUCTION.—Nothing 
in 
this 
paragraph shall be construed as preventing the 
denial of payments for claims actually reviewed 
under a random prepayment review. 
‘‘(D) RANDOM PREPAYMENT REVIEW.—For 
purposes of this subsection, the term ‘random 
prepayment review’ means a demand for the 
production of records or documentation absent 
cause with respect to a claim. 
‘‘(2) LIMITATIONS ON NON-RANDOM PREPAYMENT 
REVIEW.—
‘‘(A) LIMITATIONS ON INITIATION OF NON-
RANDOM PREPAYMENT REVIEW.—A medicare ad-
ministrative contractor may not initiate non-
random prepayment review of a provider of serv-
ices or supplier based on the initial identifica-
547
tion by that provider of services or supplier of 
an improper billing practice unless there is a 
likelihood of sustained or high level of payment 
error (as defined in subsection (i)(3)(A)). 
‘‘(B) TERMINATION OF NON-RANDOM PRE-
PAYMENT
REVIEW.—The Secretary shall issue 
regulations relating to the termination, includ-
ing termination dates, of non-random prepay-
ment review. Such regulations may vary such a 
termination date based upon the differences in 
the circumstances triggering prepayment re-
view.’’. 
(b) EFFECTIVE DATE.—
(1) IN GENERAL.—Except as provided in this 
subsection, the amendment made by subsection (a) 
shall take effect 1 year after the date of the enactment 
of this Act. 
(2) DEADLINE FOR PROMULGATION OF CERTAIN 
REGULATIONS.—The Secretary shall first issue regula-
tions under section 1874A(h) of the Social Security 
Act, as added by subsection (a), by not later than 1 
year after the date of the enactment of this Act. 
(3) APPLICATION OF STANDARD PROTOCOLS FOR 
RANDOM
PREPAYMENT
REVIEW.—Section 
1874A(h)(1)(B) of the Social Security Act, as added
548
by subsection (a), shall apply to random prepayment 
reviews conducted on or after such date (not later 
than 1 year after the date of the enactment of this 
Act) as the Secretary shall specify. 
(c) APPLICATION TO FISCAL INTERMEDIARIES AND 
CARRIERS.—The provisions of section 1874A(h) of the So-
cial Security Act, as added by subsection (a), shall apply 
to each fiscal intermediary under section 1816 of the Social 
Security Act (42 U.S.C. 1395h) and each carrier under sec-
tion 1842 of such Act (42 U.S.C. 1395u) in the same man-
ner as they apply to medicare administrative contractors 
under such provisions. 
SEC. 935. RECOVERY OF OVERPAYMENTS. 
(a) IN GENERAL.—Section 1893 (42 U.S.C. 1395ddd) 
is amended by adding at the end the following new sub-
section: 
‘‘(f) RECOVERY OF OVERPAYMENTS.—
‘‘(1) USE OF REPAYMENT PLANS.—
‘‘(A) IN GENERAL.—If the repayment, with-
in 30 days by a provider of services or supplier, 
of an overpayment under this title would con-
stitute a hardship (as defined in subparagraph 
(B)), subject to subparagraph (C), upon request 
of the provider of services or supplier the Sec-
retary shall enter into a plan with the provider
549
of services or supplier for the repayment 
(through offset or otherwise) of such overpayment 
over a period of at least 6 months but not longer 
than 3 years (or not longer than 5 years in the 
case of extreme hardship, as determined by the 
Secretary). Interest shall accrue on the balance 
through the period of repayment. Such plan shall 
meet terms and conditions determined to be ap-
propriate by the Secretary. 
‘‘(B) HARDSHIP.—
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (A), the repayment of an 
overpayment (or overpayments) within 30 
days is deemed to constitute a hardship if—
‘‘(I) in the case of a provider of 
services that files cost reports, the ag-
gregate amount of the overpayments 
exceeds 10 percent of the amount paid 
under this title to the provider of serv-
ices for the cost reporting period cov-
ered by the most recently submitted 
cost report; or 
‘‘(II) in the case of another pro-
vider of services or supplier, the aggre-
gate amount of the overpayments ex-
550
ceeds 10 percent of the amount paid 
under this title to the provider of serv-
ices or supplier for the previous cal-
endar year. 
‘‘(ii) RULE
OF
APPLICATION.—The 
Secretary shall establish rules for the appli-
cation of this subparagraph in the case of a 
provider of services or supplier that was not 
paid under this title during the previous 
year or was paid under this title only dur-
ing a portion of that year. 
‘‘(iii) TREATMENT OF PREVIOUS OVER-
PAYMENTS.—If a provider of services or 
supplier has entered into a repayment plan 
under subparagraph (A) with respect to a 
specific overpayment amount, such payment 
amount under the repayment plan shall not 
be taken into account under clause (i) with 
respect to subsequent overpayment amounts. 
‘‘(C) 
EXCEPTIONS.—Subparagraph 
(A) 
shall not apply if—
‘‘(i) the Secretary has reason to suspect 
that the provider of services or supplier 
may file for bankruptcy or otherwise cease
551
to do business or discontinue participation 
in the program under this title; or 
‘‘(ii) there is an indication of fraud or 
abuse committed against the program. 
‘‘(D) IMMEDIATE COLLECTION IF VIOLATION 
OF REPAYMENT PLAN.—If a provider of services 
or supplier fails to make a payment in accord-
ance with a repayment plan under this para-
graph, the Secretary may immediately seek to 
offset or otherwise recover the total balance out-
standing (including applicable interest) under 
the repayment plan. 
‘‘(E) RELATION TO NO FAULT PROVISION.—
Nothing in this paragraph shall be construed as 
affecting the application of section 1870(c) (re-
lating to no adjustment in the cases of certain 
overpayments). 
‘‘(2) LIMITATION ON RECOUPMENT.—
‘‘(A) IN GENERAL.—In the case of a pro-
vider of services or supplier that is determined to 
have received an overpayment under this title 
and that seeks a reconsideration by a qualified 
independent contractor on such determination 
under section 1869(b)(1), the Secretary may not 
take any action (or authorize any other person,
552
including any medicare contractor, as defined in 
subparagraph (C)) to recoup the overpayment 
until the date the decision on the reconsideration 
has been rendered. If the provisions of section 
1869(b)(1) (providing for such a reconsideration 
by a qualified independent contractor) are not in 
effect, in applying the previous sentence any ref-
erence to such a reconsideration shall be treated 
as a reference to a redetermination by the fiscal 
intermediary or carrier involved. 
‘‘(B) COLLECTION WITH INTEREST.—Inso-
far as the determination on such appeal is 
against the provider of services or supplier, in-
terest on the overpayment shall accrue on and 
after the date of the original notice of overpay-
ment. Insofar as such determination against the 
provider of services or supplier is later reversed, 
the Secretary shall provide for repayment of the 
amount recouped plus interest at the same rate 
as would apply under the previous sentence for 
the period in which the amount was recouped. 
‘‘(C) MEDICARE
CONTRACTOR
DEFINED.—
For purposes of this subsection, the term ‘medi-
care contractor’ has the meaning given such term 
in section 1889(g).
553
‘‘(3) LIMITATION ON USE OF EXTRAPOLATION.—
A medicare contractor may not use extrapolation to 
determine overpayment amounts to be recovered by 
recoupment, offset, or otherwise unless—
‘‘(A) there is a sustained or high level of 
payment error (as defined by the Secretary by 
regulation); or 
‘‘(B) documented educational intervention 
has failed to correct the payment error (as deter-
mined by the Secretary). 
‘‘(4) PROVISION
OF
SUPPORTING
DOCUMENTA-
TION.—In the case of a provider of services or sup-
plier with respect to which amounts were previously 
overpaid, a medicare contractor may request the peri-
odic production of records or supporting documenta-
tion for a limited sample of submitted claims to en-
sure that the previous practice is not continuing. 
‘‘(5) CONSENT SETTLEMENT REFORMS.—
‘‘(A) IN GENERAL.—The Secretary may use 
a consent settlement (as defined in subparagraph 
(D)) to settle a projected overpayment. 
‘‘(B) OPPORTUNITY TO SUBMIT ADDITIONAL 
INFORMATION
BEFORE
CONSENT
SETTLEMENT 
OFFER.—Before offering a provider of services or
554
supplier a consent settlement, the Secretary 
shall—
‘‘(i) communicate to the provider of 
services or supplier—
‘‘(I) that, based on a review of the 
medical records requested by the Sec-
retary, a preliminary evaluation of 
those records indicates that there would 
be an overpayment; 
‘‘(II) the nature of the problems 
identified in such evaluation; and 
‘‘(III) the steps that the provider 
of services or supplier should take to 
address the problems; and 
‘‘(ii) provide for a 45-day period dur-
ing which the provider of services or sup-
plier may furnish additional information 
concerning the medical records for the 
claims that had been reviewed. 
‘‘(C) CONSENT
SETTLEMENT
OFFER.—The 
Secretary shall review any additional informa-
tion furnished by the provider of services or sup-
plier under subparagraph (B)(ii). Taking into 
consideration such information, the Secretary
555
shall determine if there still appears to be an 
overpayment. If so, the Secretary—
‘‘(i) shall provide notice of such deter-
mination to the provider of services or sup-
plier, including an explanation of the rea-
son for such determination; and 
‘‘(ii) in order to resolve the overpay-
ment, may offer the provider of services or 
supplier—
‘‘(I) the opportunity for a statis-
tically valid random sample; or 
‘‘(II) a consent settlement. 
The opportunity provided under clause (ii)(I) 
does not waive any appeal rights with respect to 
the alleged overpayment involved. 
‘‘(D) CONSENT
SETTLEMENT
DEFINED.—
For purposes of this paragraph, the term ‘con-
sent settlement’ means an agreement between the 
Secretary and a provider of services or supplier 
whereby both parties agree to settle a projected 
overpayment based on less than a statistically 
valid sample of claims and the provider of serv-
ices or supplier agrees not to appeal the claims 
involved.
556
‘‘(6) NOTICE OF OVER-UTILIZATION OF CODES.—
The Secretary shall establish, in consultation with or-
ganizations representing the classes of providers of 
services and suppliers, a process under which the Sec-
retary provides for notice to classes of providers of 
services and suppliers served by the contractor in 
cases in which the contractor has identified that par-
ticular billing codes may be overutilized by that class 
of providers of services or suppliers under the pro-
grams under this title (or provisions of title XI inso-
far as they relate to such programs). 
‘‘(7) PAYMENT AUDITS.—
‘‘(A) WRITTEN NOTICE FOR POST-PAYMENT 
AUDITS.—Subject to subparagraph (C), if a 
medicare contractor decides to conduct a post-
payment audit of a provider of services or sup-
plier under this title, the contractor shall provide 
the provider of services or supplier with written 
notice (which may be in electronic form) of the 
intent to conduct such an audit. 
‘‘(B) EXPLANATION OF FINDINGS FOR ALL 
AUDITS.—Subject to subparagraph (C), if a 
medicare contractor audits a provider of services 
or supplier under this title, the contractor 
shall—
557
‘‘(i) give the provider of services or 
supplier a full review and explanation of 
the findings of the audit in a manner that 
is understandable to the provider of services 
or supplier and permits the development of 
an appropriate corrective action plan; 
‘‘(ii) inform the provider of services or 
supplier of the appeal rights under this title 
as well as consent settlement options (which 
are at the discretion of the Secretary); 
‘‘(iii) give the provider of services or 
supplier an opportunity to provide addi-
tional information to the contractor; and 
‘‘(iv) take into account information 
provided, on a timely basis, by the provider 
of services or supplier under clause (iii). 
‘‘(C) EXCEPTION.—Subparagraphs (A) and 
(B) shall not apply if the provision of notice or 
findings would compromise pending law enforce-
ment activities, whether civil or criminal, or re-
veal findings of law enforcement-related audits. 
‘‘(8) STANDARD METHODOLOGY FOR PROBE SAM-
PLING.—The Secretary shall establish a standard 
methodology for medicare contractors to use in select-
558
ing a sample of claims for review in the case of an 
abnormal billing pattern.’’. 
(b) EFFECTIVE DATES AND DEADLINES.—
(1) 
USE
OF
REPAYMENT
PLANS.—Section 
1893(f)(1) of the Social Security Act, as added by 
subsection (a), shall apply to requests for repayment 
plans made after the date of the enactment of this Act. 
(2) 
LIMITATION
ON
RECOUPMENT.—Section 
1893(f)(2) of the Social Security Act, as added by 
subsection (a), shall apply to actions taken after the 
date of the enactment of this Act. 
(3) 
USE
OF
EXTRAPOLATION.—Section 
1893(f)(3) of the Social Security Act, as added by 
subsection (a), shall apply to statistically valid ran-
dom samples initiated after the date that is 1 year 
after the date of the enactment of this Act. 
(4) PROVISION
OF
SUPPORTING
DOCUMENTA-
TION.—Section 1893(f)(4) of the Social Security Act, 
as added by subsection (a), shall take effect on the 
date of the enactment of this Act. 
(5) CONSENT SETTLEMENT.—Section 1893(f)(5) 
of the Social Security Act, as added by subsection (a), 
shall apply to consent settlements entered into after 
the date of the enactment of this Act.
559
(6) NOTICE
OF
OVERUTILIZATION.—Not later 
than 1 year after the date of the enactment of this 
Act, the Secretary shall first establish the process for 
notice of overutilization of billing codes under section 
1893A(f)(6) of the Social Security Act, as added by 
subsection (a). 
(7) PAYMENT
AUDITS.—Section 1893A(f)(7) of 
the Social Security Act, as added by subsection (a), 
shall apply to audits initiated after the date of the 
enactment of this Act. 
(8) STANDARD
FOR
ABNORMAL
BILLING
PAT-
TERNS.—Not later than 1 year after the date of the 
enactment of this Act, the Secretary shall first estab-
lish a standard methodology for selection of sample 
claims for abnormal billing patterns under section 
1893(f)(8) of the Social Security Act, as added by 
subsection (a). 
SEC. 936. PROVIDER ENROLLMENT PROCESS; RIGHT OF AP-
PEAL. 
(a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc) 
is amended—
(1) by adding at the end of the heading the fol-
lowing: ‘‘; ENROLLMENT PROCESSES’’; and 
(2) by adding at the end the following new sub-
section:
560
‘‘(j) ENROLLMENT PROCESS FOR PROVIDERS OF SERV-
ICES AND SUPPLIERS.—
‘‘(1) ENROLLMENT PROCESS.—
‘‘(A) IN GENERAL.—The Secretary shall es-
tablish by regulation a process for the enrollment 
of providers of services and suppliers under this 
title. 
‘‘(B) DEADLINES.—The Secretary shall es-
tablish by regulation procedures under which 
there are deadlines for actions on applications 
for enrollment (and, if applicable, renewal of en-
rollment). The Secretary shall monitor the per-
formance of medicare administrative contractors 
in meeting the deadlines established under this 
subparagraph. 
‘‘(C) CONSULTATION
BEFORE
CHANGING 
PROVIDER ENROLLMENT FORMS.—The Secretary 
shall consult with providers of services and sup-
pliers before making changes in the provider en-
rollment forms required of such providers and 
suppliers to be eligible to submit claims for 
which payment may be made under this title. 
‘‘(2) HEARING RIGHTS IN CASES OF DENIAL OR 
NON-RENEWAL.—A provider of services or supplier 
whose application to enroll (or, if applicable, to renew
561
enrollment) under this title is denied may have a 
hearing and judicial review of such denial under the 
procedures that apply under subsection (h)(1)(A) to a 
provider of services that is dissatisfied with a deter-
mination by the Secretary.’’. 
(b) EFFECTIVE DATES.—
(1) ENROLLMENT PROCESS.—The Secretary shall 
provide for the establishment of the enrollment process 
under section 1866(j)(1) of the Social Security Act, as 
added by subsection (a)(2), within 6 months after the 
date of the enactment of this Act. 
(2) CONSULTATION.—Section 1866(j)(1)(C) of 
the Social Security Act, as added by subsection 
(a)(2), shall apply with respect to changes in provider 
enrollment forms made on or after January 1, 2004. 
(3) HEARING RIGHTS.—Section 1866(j)(2) of the 
Social Security Act, as added by subsection (a)(2), 
shall apply to denials occurring on or after such date 
(not later than 1 year after the date of the enactment 
of this Act) as the Secretary specifies. 
SEC. 937. PROCESS FOR CORRECTION OF MINOR ERRORS 
AND OMISSIONS WITHOUT PURSUING AP-
PEALS PROCESS. 
(a) CLAIMS.—The Secretary shall develop, in consulta-
tion with appropriate medicare contractors (as defined in
562
section 1889(g) of the Social Security Act, as inserted by 
section 301(a)(1)) and representatives of providers of serv-
ices and suppliers, a process whereby, in the case of minor 
errors or omissions (as defined by the Secretary) that are 
detected in the submission of claims under the programs 
under title XVIII of such Act, a provider of services or sup-
plier is given an opportunity to correct such an error or 
omission without the need to initiate an appeal. Such proc-
ess shall include the ability to resubmit corrected claims. 
(b) PERMITTING USE OF CORRECTED AND SUPPLE-
MENTARY DATA.—
(1) IN
GENERAL.—Section 1886(d)(10)(D)(vi) 
(42 U.S.C. 1395ww(d)(10)(D)(vi)) is amended by 
adding after subclause (II) at the end the following: 
‘‘Notwithstanding subclause (I), a hospital may submit, 
and the Secretary may accept upon verification, data that 
corrects or supplements the data described in such subclause 
without regard to whether the corrected or supplementary 
data relate to a cost report that has been settled.’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply to fiscal years beginning 
with fiscal year 2004. 
(3) SUBMITTAL AND RESUBMITTAL OF APPLICA-
TIONS PERMITTED FOR FISCAL YEAR 2004.—
563
(A) IN
GENERAL.—Notwithstanding any 
other provision of law, a hospital may submit 
(or resubmit) an application for a change de-
scribed in section 1886(d)(10)(C)(i)(II) of the 
Social Security Act for fiscal year 2004 if the 
hospital demonstrates on a timely basis to the 
satisfaction of the Secretary that the use of cor-
rected or supplementary data under the amend-
ment made by paragraph (1) would materially 
affect the approval of such an application. 
(B) 
APPLICATION
OF
BUDGET
NEU-
TRALITY.—If one or more hospital’s applications 
are approved as a result of paragraph (1) and 
subparagraph (A) for fiscal year 2004, the Sec-
retary shall make a proportional adjustment in 
the standardized amounts determined under sec-
tion 1886(d)(3) of the Social Security Act (42 
U.S.C. 1395ww(d)(3)) for fiscal year 2004 to as-
sure that approval of such applications does not 
result in aggregate payments under section 
1886(d) of such Act that are greater or less than 
those that would otherwise be made if paragraph 
(1) and subparagraph (A) did not apply.
564
SEC. 938. PRIOR DETERMINATION PROCESS FOR CERTAIN 
ITEMS 
AND 
SERVICES; 
ADVANCE 
BENE-
FICIARY NOTICES. 
(a) IN GENERAL.—Section 1869 (42 U.S.C. 1395ff(b)), 
as amended by sections 521 and 522 of BIPA and section 
933(d)(2)(B), is further amended by adding at the end the 
following new subsection: 
‘‘(h) PRIOR DETERMINATION PROCESS FOR CERTAIN 
ITEMS AND SERVICES.—
‘‘(1) ESTABLISHMENT OF PROCESS.—
‘‘(A) IN GENERAL.—With respect to a medi-
care administrative contractor that has a con-
tract under section 1874A that provides for mak-
ing payments under this title with respect to eli-
gible items and services described in subpara-
graph (C), the Secretary shall establish a prior 
determination process that meets the require-
ments of this subsection and that shall be applied 
by such contractor in the case of eligible request-
ers. 
‘‘(B) ELIGIBLE REQUESTER.—For purposes 
of this subsection, each of the following shall be 
an eligible requester: 
‘‘(i) A physician, but only with respect 
to eligible items and services for which the 
physician may be paid directly.
565
‘‘(ii) An individual entitled to benefits 
under this title, but only with respect to an 
item or service for which the individual re-
ceives, from the physician who may be paid 
directly for the item or service, an advance 
beneficiary notice under section 1879(a) 
that payment may not be made (or may no 
longer be made) for the item or service 
under this title. 
‘‘(C) ELIGIBLE ITEMS AND SERVICES.—For 
purposes of this subsection and subject to para-
graph (2), eligible items and services are items 
and services which are physicians’ services (as 
defined in paragraph (4)(A) of section 1848(f) 
for purposes of calculating the sustainable 
growth rate under such section). 
‘‘(2) SECRETARIAL FLEXIBILITY.—The Secretary 
shall establish by regulation reasonable limits on the 
categories of eligible items and services for which a 
prior determination of coverage may be requested 
under this subsection. In establishing such limits, the 
Secretary may consider the dollar amount involved 
with respect to the item or service, administrative 
costs and burdens, and other relevant factors. 
‘‘(3) REQUEST FOR PRIOR DETERMINATION.—
566
‘‘(A) IN GENERAL.—Subject to paragraph 
(2), under the process established under this sub-
section an eligible requester may submit to the 
contractor a request for a determination, before 
the furnishing of an eligible item or service in-
volved as to whether the item or service is cov-
ered under this title consistent with the applica-
ble requirements of section 1862(a)(1)(A) (relat-
ing to medical necessity). 
‘‘(B) ACCOMPANYING
DOCUMENTATION.—
The Secretary may require that the request be 
accompanied by a description of the item or 
service, supporting documentation relating to the 
medical necessity for the item or service, and 
any other appropriate documentation. In the 
case of a request submitted by an eligible re-
quester who is described in paragraph (1)(B)(ii), 
the Secretary may require that the request also 
be accompanied by a copy of the advance bene-
ficiary notice involved. 
‘‘(4) RESPONSE TO REQUEST.—
‘‘(A) IN GENERAL.—Under such process, the 
contractor shall provide the eligible requester 
with written notice of a determination as to 
whether—
567
‘‘(i) the item or service is so covered; 
‘‘(ii) the item or service is not so cov-
ered; or 
‘‘(iii) the contractor lacks sufficient in-
formation to make a coverage determina-
tion. 
If the contractor makes the determination de-
scribed in clause (iii), the contractor shall in-
clude in the notice a description of the addi-
tional information required to make the coverage 
determination. 
‘‘(B) DEADLINE TO RESPOND.—Such notice 
shall be provided within the same time period as 
the time period applicable to the contractor pro-
viding notice of initial determinations on a 
claim for benefits under subsection (a)(2)(A). 
‘‘(C) INFORMING BENEFICIARY IN CASE OF 
PHYSICIAN REQUEST.—In the case of a request 
in which an eligible requester is not the indi-
vidual described in paragraph (1)(B)(ii), the 
process shall provide that the individual to 
whom the item or service is proposed to be fur-
nished shall be informed of any determination 
described in clause (ii) (relating to a determina-
tion of non-coverage) and the right (referred to
568
in paragraph (6)(B)) to obtain the item or serv-
ice and have a claim submitted for the item or 
service. 
‘‘(5) EFFECT OF DETERMINATIONS.—
‘‘(A) BINDING NATURE OF POSITIVE DETER-
MINATION.—If the contractor makes the deter-
mination described in paragraph (4)(A)(i), such 
determination shall be binding on the contractor 
in the absence of fraud or evidence of misrepre-
sentation of facts presented to the contractor. 
‘‘(B) NOTICE AND RIGHT TO REDETERMINA-
TION IN CASE OF A DENIAL.—
‘‘(i) IN
GENERAL.—If the contractor 
makes the determination described in para-
graph (4)(A)(ii)—
‘‘(I) the eligible requester has the 
right to a redetermination by the con-
tractor on the determination that the 
item or service is not so covered; and 
‘‘(II) the contractor shall include 
in notice under paragraph (4)(A) a 
brief explanation of the basis for the 
determination, including on what na-
tional or local coverage or noncoverage 
determination (if any) the determina-
569
tion is based, and the right to such a 
redetermination. 
‘‘(ii) DEADLINE
FOR
REDETERMINA-
TIONS.—The contractor shall complete and 
provide notice of such redetermination with-
in the same time period as the time period 
applicable to the contractor providing notice 
of redeterminations relating to a claim for 
benefits under subsection (a)(3)(C)(ii). 
‘‘(6) LIMITATION ON FURTHER REVIEW.—
‘‘(A) IN GENERAL.—Contractor determina-
tions described in paragraph (4)(A)(ii) or 
(4)(A)(iii) (and redeterminations made under 
paragraph (5)(B)), relating to pre-service claims 
are not subject to further administrative appeal 
or judicial review under this section or other-
wise. 
‘‘(B) DECISION NOT TO SEEK PRIOR DETER-
MINATION OR NEGATIVE DETERMINATION DOES 
NOT IMPACT RIGHT TO OBTAIN SERVICES, SEEK 
REIMBURSEMENT, OR APPEAL RIGHTS.—Nothing 
in this subsection shall be construed as affecting 
the right of an individual who—
570
‘‘(i) decides not to seek a prior deter-
mination under this subsection with respect 
to items or services; or 
‘‘(ii) seeks such a determination and 
has received a determination described in 
paragraph (4)(A)(ii), 
from receiving (and submitting a claim for) such 
items services and from obtaining administrative 
or judicial review respecting such claim under 
the other applicable provisions of this section. 
Failure to seek a prior determination under this 
subsection with respect to items and services 
shall not be taken into account in such adminis-
trative or judicial review. 
‘‘(C) NO PRIOR DETERMINATION AFTER RE-
CEIPT OF SERVICES.—Once an individual is pro-
vided items and services, there shall be no prior 
determination under this subsection with respect 
to such items or services.’’. 
(b) EFFECTIVE DATE; TRANSITION.—
(1) EFFECTIVE DATE.—The Secretary shall es-
tablish the prior determination process under the 
amendment made by subsection (a) in such a manner 
as to provide for the acceptance of requests for deter-
571
minations under such process filed not later than 18 
months after the date of the enactment of this Act. 
(2) TRANSITION.—During the period in which 
the amendment made by subsection (a) has become ef-
fective but contracts are not provided under section 
1874A of the Social Security Act with medicare ad-
ministrative contractors, any reference in section 
1869(g) of such Act (as added by such amendment) to 
such a contractor is deemed a reference to a fiscal 
intermediary or carrier with an agreement under sec-
tion 1816, or contract under section 1842, respec-
tively, of such Act. 
(3) LIMITATION ON APPLICATION TO SGR.—For 
purposes of applying section 1848(f)(2)(D) of the So-
cial Security Act (42 U.S.C. 1395w–4(f)(2)(D)), the 
amendment made by subsection (a) shall not be con-
sidered to be a change in law or regulation. 
(c) PROVISIONS RELATING TO ADVANCE BENEFICIARY 
NOTICES; REPORT ON PRIOR DETERMINATION PROCESS.—
(1) DATA COLLECTION.—The Secretary shall es-
tablish a process for the collection of information on 
the instances in which an advance beneficiary notice 
(as defined in paragraph (5)) has been provided and 
on instances in which a beneficiary indicates on such 
a notice that the beneficiary does not intend to seek
572
to have the item or service that is the subject of the 
notice furnished. 
(2) OUTREACH AND EDUCATION.—The Secretary 
shall establish a program of outreach and education 
for beneficiaries and providers of services and other 
persons on the appropriate use of advance beneficiary 
notices and coverage policies under the medicare pro-
gram. 
(3) GAO REPORT REPORT ON USE OF ADVANCE 
BENEFICIARY
NOTICES.—Not later than 18 months 
after the date on which section 1869(g) of the Social 
Security Act (as added by subsection (a)) takes effect, 
the Comptroller General of the United States shall 
submit to Congress a report on the use of advance 
beneficiary notices under title XVIII of such Act. 
Such report shall include information concerning the 
providers of services and other persons that have pro-
vided such notices and the response of beneficiaries to 
such notices. 
(4) GAO REPORT ON USE OF PRIOR DETERMINA-
TION PROCESS.—Not later than 18 months after the 
date on which section 1869(g) of the Social Security 
Act (as added by subsection (a)) takes effect, the 
Comptroller General of the United States shall submit 
to Congress a report on the use of the prior deter-
573
mination process under such section. Such report 
shall include—
(A) information concerning the types of 
procedures for which a prior determination has 
been sought, determinations made under the 
process, and changes in receipt of services result-
ing from the application of such process; and 
(B) an evaluation of whether the process 
was useful for physicians (and other suppliers) 
and beneficiaries, whether it was timely, and 
whether the amount of information required was 
burdensome to physicians and beneficiaries. 
(5) ADVANCE BENEFICIARY NOTICE DEFINED.—
In this subsection, the term ‘‘advance beneficiary no-
tice’’ means a written notice provided under section 
1879(a) of the Social Security Act (42 U.S.C. 
1395pp(a)) to an individual entitled to benefits under 
part A or B of title XVIII of such Act before items 
or services are furnished under such part in cases 
where a provider of services or other person that 
would furnish the item or service believes that pay-
ment will not be made for some or all of such items 
or services under such title.
574
Subtitle V—Miscellaneous 
Provisions 
SEC. 941. POLICY DEVELOPMENT REGARDING EVALUATION 
AND MANAGEMENT (E & M) DOCUMENTATION 
GUIDELINES. 
(a) IN GENERAL.—The Secretary may not implement 
any new documentation guidelines for, or clinical examples 
of, evaluation and management physician services under 
the title XVIII of the Social Security Act on or after the 
date of the enactment of this Act unless the Secretary—
(1) has developed the guidelines in collaboration 
with practicing physicians (including both generalists 
and specialists) and provided for an assessment of the 
proposed guidelines by the physician community; 
(2) has established a plan that contains specific 
goals, including a schedule, for improving the use of 
such guidelines; 
(3) has conducted appropriate and representative 
pilot projects under subsection (b) to test modifica-
tions to the evaluation and management documenta-
tion guidelines; 
(4) finds that the objectives described in sub-
section (c) will be met in the implementation of such 
guidelines; and
575
(5) has established, and is implementing, a pro-
gram to educate physicians on the use of such guide-
lines and that includes appropriate outreach. 
The Secretary shall make changes to the manner in which 
existing evaluation and management documentation guide-
lines are implemented to reduce paperwork burdens on phy-
sicians. 
(b) PILOT PROJECTS TO TEST EVALUATION AND MAN-
AGEMENT DOCUMENTATION GUIDELINES.—
(1) IN GENERAL.—The Secretary shall conduct 
under this subsection appropriate and representative 
pilot projects to test new evaluation and management 
documentation guidelines referred to in subsection 
(a). 
(2) LENGTH
AND
CONSULTATION.—Each pilot 
project under this subsection shall—
(A) be voluntary; 
(B) be of sufficient length as determined by 
the Secretary to allow for preparatory physician 
and medicare contractor education, analysis, 
and use and assessment of potential evaluation 
and management guidelines; and 
(C) be conducted, in development and 
throughout the planning and operational stages 
of the project, in consultation with practicing
576
physicians (including both generalists and spe-
cialists). 
(3) RANGE OF PILOT PROJECTS.—Of the pilot 
projects conducted under this subsection—
(A) at least one shall focus on a peer review 
method by physicians (not employed by a medi-
care contractor) which evaluates medical record 
information for claims submitted by physicians 
identified as statistical outliers relative to defini-
tions published in the Current Procedures Ter-
minology (CPT) code book of the American Med-
ical Association; 
(B) at least one shall focus on an alter-
native method to detailed guidelines based on 
physician documentation of face to face encoun-
ter time with a patient; 
(C) at least one shall be conducted for serv-
ices furnished in a rural area and at least one 
for services furnished outside such an area; and 
(D) at least one shall be conducted in a set-
ting where physicians bill under physicians’ 
services in teaching settings and at least one 
shall be conducted in a setting other than a 
teaching setting.
577
(4) BANNING OF TARGETING OF PILOT PROJECT 
PARTICIPANTS.—Data collected under this subsection 
shall not be used as the basis for overpayment de-
mands or post-payment audits. Such limitation ap-
plies only to claims filed as part of the pilot project 
and lasts only for the duration of the pilot project 
and only as long as the provider is a participant in 
the pilot project. 
(5) STUDY OF IMPACT.—Each pilot project shall 
examine the effect of the new evaluation and manage-
ment documentation guidelines on—
(A) different types of physician practices, 
including those with fewer than 10 full-time-
equivalent employees (including physicians); and 
(B) the costs of physician compliance, in-
cluding education, implementation, auditing, 
and monitoring. 
(6) PERIODIC
REPORTS.—The Secretary shall 
submit to Congress periodic reports on the pilot 
projects under this subsection. 
(c) OBJECTIVES FOR EVALUATION AND MANAGEMENT 
GUIDELINES.—The objectives for modified evaluation and 
management documentation guidelines developed by the 
Secretary shall be to—
578
(1) identify clinically relevant documentation 
needed to code accurately and assess coding levels ac-
curately; 
(2) decrease the level of non-clinically pertinent 
and burdensome documentation time and content in 
the physician’s medical record; 
(3) increase accuracy by reviewers; and 
(4) educate both physicians and reviewers. 
(d) STUDY OF SIMPLER, ALTERNATIVE SYSTEMS OF 
DOCUMENTATION FOR PHYSICIAN CLAIMS.—
(1) STUDY.—The Secretary shall carry out a 
study of the matters described in paragraph (2). 
(2) MATTERS DESCRIBED.—The matters referred 
to in paragraph (1) are—
(A) the development of a simpler, alter-
native system of requirements for documentation 
accompanying claims for evaluation and man-
agement physician services for which payment is 
made under title XVIII of the Social Security 
Act; and 
(B) consideration of systems other than cur-
rent coding and documentation requirements for 
payment for such physician services. 
(3) CONSULTATION
WITH
PRACTICING
PHYSI-
CIANS.—In designing and carrying out the study
579
under paragraph (1), the Secretary shall consult with 
practicing physicians, including physicians who are 
part of group practices and including both generalists 
and specialists. 
(4) APPLICATION OF HIPAA UNIFORM CODING RE-
QUIREMENTS.—In developing an alternative system 
under paragraph (2), the Secretary shall consider re-
quirements of administrative simplification under 
part C of title XI of the Social Security Act. 
(5) REPORT TO CONGRESS.—(A) Not later than 
October 1, 2005, the Secretary shall submit to Con-
gress a report on the results of the study conducted 
under paragraph (1). 
(B) The Medicare Payment Advisory Commis-
sion shall conduct an analysis of the results of the 
study included in the report under subparagraph (A) 
and shall submit a report on such analysis to Con-
gress. 
(e) STUDY ON APPROPRIATE CODING OF CERTAIN EX-
TENDED OFFICE VISITS.—The Secretary shall conduct a 
study of the appropriateness of coding in cases of extended 
office visits in which there is no diagnosis made. Not later 
than October 1, 2005, the Secretary shall submit a report 
to Congress on such study and shall include recommenda-
tions on how to code appropriately for such visits in a man-
580
ner that takes into account the amount of time the physi-
cian spent with the patient. 
(f) DEFINITIONS.—In this section—
(1) the term ‘‘rural area’’ has the meaning given 
that term in section 1886(d)(2)(D) of the Social Secu-
rity Act, 42 U.S.C. 1395ww(d)(2)(D); and 
(2) the term ‘‘teaching settings’’ are those set-
tings described in section 415.150 of title 42, Code of 
Federal Regulations. 
SEC. 942. IMPROVEMENT IN OVERSIGHT OF TECHNOLOGY 
AND COVERAGE. 
(a) COUNCIL FOR TECHNOLOGY AND INNOVATION.—
Section 1868 (42 U.S.C. 1395ee), as amended by section 
921(a), is amended by adding at the end the following new 
subsection: 
‘‘(c) COUNCIL FOR TECHNOLOGY AND INNOVATION.—
‘‘(1) ESTABLISHMENT.—The Secretary shall es-
tablish a Council for Technology and Innovation 
within the Centers for Medicare & Medicaid Services 
(in this section referred to as ‘CMS’). 
‘‘(2) COMPOSITION.—The Council shall be com-
posed of senior CMS staff and clinicians and shall be 
chaired by the Executive Coordinator for Technology 
and Innovation (appointed or designated under para-
graph (4)).
581
‘‘(3) DUTIES.—The Council shall coordinate the 
activities of coverage, coding, and payment processes 
under this title with respect to new technologies and 
procedures, including new drug therapies, and shall 
coordinate the exchange of information on new tech-
nologies between CMS and other entities that make 
similar decisions. 
‘‘(4) EXECUTIVE
COORDINATOR
FOR
TECH-
NOLOGY AND INNOVATION.—The Secretary shall ap-
point (or designate) a noncareer appointee (as defined 
in section 3132(a)(7) of title 5, United States Code) 
who shall serve as the Executive Coordinator for Tech-
nology and Innovation. Such executive coordinator 
shall report to the Administrator of CMS, shall chair 
the Council, shall oversee the execution of its duties, 
and shall serve as a single point of contact for outside 
groups and entities regarding the coverage, coding, 
and payment processes under this title.’’. 
(b) METHODS
FOR DETERMINING PAYMENT BASIS 
FOR
NEW
LAB
TESTS.—Section 1833(h) (42 U.S.C. 
1395l(h)) is amended by adding at the end the following: 
‘‘(8)(A) The Secretary shall establish by regulation 
procedures for determining the basis for, and amount of, 
payment under this subsection for any clinical diagnostic 
laboratory test with respect to which a new or substantially
582
revised HCPCS code is assigned on or after January 1, 
2005 (in this paragraph referred to as ‘new tests’). 
‘‘(B) Determinations under subparagraph (A) shall be 
made only after the Secretary—
‘‘(i) makes available to the public (through an 
Internet site and other appropriate mechanisms) a 
list that includes any such test for which establish-
ment of a payment amount under this subsection is 
being considered for a year; 
‘‘(ii) on the same day such list is made avail-
able, causes to have published in the Federal Register 
notice of a meeting to receive comments and rec-
ommendations (and data on which recommendations 
are based) from the public on the appropriate basis 
under this subsection for establishing payment 
amounts for the tests on such list; 
‘‘(iii) not less than 30 days after publication of 
such notice convenes a meeting, that includes rep-
resentatives of officials of the Centers for Medicare & 
Medicaid Services involved in determining payment 
amounts, to receive such comments and recommenda-
tions (and data on which the recommendations are 
based); 
‘‘(iv) taking into account the comments and rec-
ommendations (and accompanying data) received at
583
such meeting, develops and makes available to the 
public (through an Internet site and other appro-
priate mechanisms) a list of proposed determinations 
with respect to the appropriate basis for establishing 
a payment amount under this subsection for each 
such code, together with an explanation of the reasons 
for each such determination, the data on which the 
determinations are based, and a request for public 
written comments on the proposed determination; and 
‘‘(v) taking into account the comments received 
during the public comment period, develops and 
makes available to the public (through an Internet 
site and other appropriate mechanisms) a list of final 
determinations of the payment amounts for such tests 
under this subsection, together with the rationale for 
each such determination, the data on which the deter-
minations are based, and responses to comments and 
suggestions received from the public. 
‘‘(C) Under the procedures established pursuant to sub-
paragraph (A), the Secretary shall—
‘‘(i) set forth the criteria for making determina-
tions under subparagraph (A); and 
‘‘(ii) make available to the public the data (other 
than proprietary data) considered in making such de-
terminations.
584
‘‘(D) The Secretary may convene such further public 
meetings to receive public comments on payment amounts 
for new tests under this subsection as the Secretary deems 
appropriate. 
‘‘(E) For purposes of this paragraph: 
‘‘(i) The term ‘HCPCS’ refers to the Health Care 
Procedure Coding System. 
‘‘(ii) A code shall be considered to be ‘substan-
tially revised’ if there is a substantive change to the 
definition of the test or procedure to which the code 
applies (such as a new analyte or a new methodology 
for measuring an existing analyte-specific test).’’. 
(c) GAO STUDY ON IMPROVEMENTS IN EXTERNAL 
DATA COLLECTION FOR USE IN THE MEDICARE INPATIENT 
PAYMENT SYSTEM.—
(1) STUDY.—The Comptroller General of the 
United States shall conduct a study that analyzes 
which external data can be collected in a shorter time 
frame by the Centers for Medicare & Medicaid Serv-
ices for use in computing payments for inpatient hos-
pital services. The study may include an evaluation 
of the feasibility and appropriateness of using of 
quarterly samples or special surveys or any other 
methods. The study shall include an analysis of 
whether other executive agencies, such as the Bureau
585
of Labor Statistics in the Department of Commerce, 
are best suited to collect this information. 
(2) REPORT.—By not later than October 1, 
2004, the Comptroller General shall submit a report 
to Congress on the study under paragraph (1). 
(d) PROCESS FOR ADOPTION OF ICD CODES AS DATA 
STANDARD.—Section 1172(f) (42 U.S.C. 1320d–1(f)) is 
amended by inserting after the first sentence the following: 
‘‘Notwithstanding the preceding sentence, if the National 
Committee on Vital and Health Statistics has not made a 
recommendation to the Secretary before the date of the en-
actment of this sentence, with respect to the adoption of the 
International Classification of Diseases, 10th Revision, 
Procedure Coding System (‘ICD–10–PCS’) and the Inter-
national Classification of Diseases, 10th Revision, Clinical 
Modification (‘ICD–10–CM’) as a standard under this part 
for the reporting of diagnoses, the Secretary may implement 
ICD-10-PCS only with respect to inpatient services as such 
a standard.’’. 
SEC. 943. TREATMENT OF HOSPITALS FOR CERTAIN SERV-
ICES UNDER MEDICARE SECONDARY PAYOR 
(MSP) PROVISIONS. 
(a) IN GENERAL.—The Secretary shall not require a 
hospital (including a critical access hospital) to ask ques-
tions (or obtain information) relating to the application of
586
section 1862(b) of the Social Security Act (relating to medi-
care secondary payor provisions) in the case of reference 
laboratory services described in subsection (b), if the Sec-
retary does not impose such requirement in the case of such 
services furnished by an independent laboratory. 
(b) 
REFERENCE
LABORATORY
SERVICES
DE-
SCRIBED.—Reference laboratory services described in this 
subsection are clinical laboratory diagnostic tests (or the 
interpretation of such tests, or both) furnished without a 
face-to-face encounter between the individual entitled to 
benefits under part A or enrolled under part B, or both, 
and the hospital involved and in which the hospital submits 
a claim only for such test or interpretation. 
SEC. 944. EMTALA IMPROVEMENTS. 
(a) PAYMENT FOR EMTALA-MANDATED SCREENING 
AND STABILIZATION SERVICES.—
(1) IN
GENERAL.—Section 1862 (42 U.S.C. 
1395y) is amended by inserting after subsection (c) 
the following new subsection: 
‘‘(d) For purposes of subsection (a)(1)(A), in the case 
of any item or service that is required to be provided pursu-
ant to section 1867 to an individual who is entitled to bene-
fits under this title, determinations as to whether the item 
or service is reasonable and necessary shall be made on the 
basis of the information available to the treating physician
587
or practitioner (including the patient’s presenting symp-
toms or complaint) at the time the item or service was or-
dered or furnished by the physician or practitioner (and 
not on the patient’s principal diagnosis). When making 
such determinations with respect to such an item or service, 
the Secretary shall not consider the frequency with which 
the item or service was provided to the patient before or 
after the time of the admission or visit.’’. 
(2) EFFECTIVE DATE.—The amendment made by 
paragraph (1) shall apply to items and services fur-
nished on or after January 1, 2004. 
(b) NOTIFICATION OF PROVIDERS WHEN EMTALA IN-
VESTIGATION CLOSED.—Section 1867(d) (42 U.S.C. 42 
U.S.C. 1395dd(d)) is amended by adding at the end the 
following new paragraph: 
‘‘(4) NOTICE
UPON
CLOSING
AN
INVESTIGA-
TION.—The Secretary shall establish a procedure to 
notify hospitals and physicians when an investigation 
under this section is closed.’’. 
(c) PRIOR REVIEW BY PEER REVIEW ORGANIZATIONS 
IN EMTALA CASES INVOLVING TERMINATION OF PARTICI-
PATION.—
(1) IN GENERAL.—Section 1867(d)(3) (42 U.S.C. 
1395dd(d)(3)) is amended—
588
(A) in the first sentence, by inserting ‘‘or in 
terminating a hospital’s participation under this 
title’’ after ‘‘in imposing sanctions under para-
graph (1)’’; and 
(B) by adding at the end the following new 
sentences: ‘‘Except in the case in which a delay 
would jeopardize the health or safety of individ-
uals, the Secretary shall also request such a re-
view before making a compliance determination 
as part of the process of terminating a hospital’s 
participation under this title for violations re-
lated to the appropriateness of a medical screen-
ing examination, stabilizing treatment, or an 
appropriate transfer as required by this section, 
and shall provide a period of 5 days for such re-
view. The Secretary shall provide a copy of the 
organization’s report to the hospital or physician 
consistent with confidentiality requirements im-
posed on the organization under such part B.’’. 
(2) EFFECTIVE DATE.—The amendments made 
by paragraph (1) shall apply to terminations of par-
ticipation initiated on or after the date of the enact-
ment of this Act.
589
SEC. 945. EMERGENCY MEDICAL TREATMENT AND ACTIVE 
LABOR ACT (EMTALA) TECHNICAL ADVISORY 
GROUP. 
(a) ESTABLISHMENT.—The Secretary shall establish a 
Technical Advisory Group (in this section referred to as the 
‘‘Advisory Group’’) to review issues related to the Emer-
gency Medical Treatment and Labor Act (EMTALA) and 
its implementation. In this section, the term ‘‘EMTALA’’ 
refers to the provisions of section 1867 of the Social Security 
Act (42 U.S.C. 1395dd). 
(b) MEMBERSHIP.—The Advisory Group shall be com-
posed of 19 members, including the Administrator of the 
Centers for Medicare & Medicaid Services and the Inspector 
General of the Department of Health and Human Services 
and of which—
(1) 4 shall be representatives of hospitals, includ-
ing at least one public hospital, that have experience 
with the application of EMTALA and at least 2 of 
which have not been cited for EMTALA violations; 
(2) 7 shall be practicing physicians drawn from 
the fields of emergency medicine, cardiology or 
cardiothoracic surgery, orthopedic surgery, neuro-
surgery, pediatrics or a pediatric subspecialty, obstet-
rics-gynecology, and psychiatry, with not more than 
one physician from any particular field; 
(3) 2 shall represent patients;
590
(4) 2 shall be staff involved in EMTALA inves-
tigations from different regional offices of the Centers 
for Medicare & Medicaid Services; and 
(5) 1 shall be from a State survey office involved 
in EMTALA investigations and 1 shall be from a 
peer review organization, both of whom shall be from 
areas other than the regions represented under para-
graph (4). 
In selecting members described in paragraphs (1) through 
(3), the Secretary shall consider qualified individuals nomi-
nated by organizations representing providers and patients. 
(c) 
GENERAL
RESPONSIBILITIES.—The 
Advisory 
Group—
(1) shall review EMTALA regulations; 
(2) may provide advice and recommendations to 
the Secretary with respect to those regulations and 
their application to hospitals and physicians; 
(3) shall solicit comments and recommendations 
from hospitals, physicians, and the public regarding 
the implementation of such regulations; and 
(4) may disseminate information on the applica-
tion of such regulations to hospitals, physicians, and 
the public. 
(d) ADMINISTRATIVE MATTERS.—
591
(1) CHAIRPERSON.—The members of the Advi-
sory Group shall elect a member to serve as chair-
person of the Advisory Group for the life of the Advi-
sory Group. 
(2) MEETINGS.—The Advisory Group shall first 
meet at the direction of the Secretary. The Advisory 
Group shall then meet twice per year and at such 
other times as the Advisory Group may provide. 
(e) TERMINATION.—The Advisory Group shall termi-
nate 30 months after the date of its first meeting. 
(f) WAIVER OF ADMINISTRATIVE LIMITATION.—The 
Secretary shall establish the Advisory Group notwith-
standing any limitation that may apply to the number of 
advisory committees that may be established (within the 
Department of Health and Human Services or otherwise). 
SEC. 946. AUTHORIZING USE OF ARRANGEMENTS TO PRO-
VIDE CORE HOSPICE SERVICES IN CERTAIN 
CIRCUMSTANCES. 
(a) IN GENERAL.—Section 1861(dd)(5) (42 U.S.C. 
1395x(dd)(5)) is amended by adding at the end the fol-
lowing: 
‘‘(D) In extraordinary, exigent, or other non-routine 
circumstances, such as unanticipated periods of high pa-
tient loads, staffing shortages due to illness or other events, 
or temporary travel of a patient outside a hospice pro-
592
gram’s service area, a hospice program may enter into ar-
rangements with another hospice program for the provision 
by that other program of services described in paragraph 
(2)(A)(ii)(I). The provisions of paragraph (2)(A)(ii)(II) 
shall apply with respect to the services provided under such 
arrangements. 
‘‘(E) A hospice program may provide services de-
scribed in paragraph (1)(A) other than directly by the pro-
gram if the services are highly specialized services of a reg-
istered professional nurse and are provided non-routinely 
and so infrequently so that the provision of such services 
directly would be impracticable and prohibitively expen-
sive.’’. 
(b) 
CONFORMING
PAYMENT
PROVISION.—Section 
1814(i) (42 U.S.C. 1395f(i)) is amended by adding at the 
end the following new paragraph: 
‘‘(4) In the case of hospice care provided by a hospice 
program under arrangements under section 1861(dd)(5)(D) 
made by another hospice program, the hospice program that 
made the arrangements shall bill and be paid for the hospice 
care.’’. 
(c) EFFECTIVE DATE.—The amendments made by this 
section shall apply to hospice care provided on or after the 
date of the enactment of this Act.
593
SEC. 947. APPLICATION OF OSHA BLOODBORNE PATHO-
GENS STANDARD TO CERTAIN HOSPITALS. 
(a) IN GENERAL.—Section 1866 (42 U.S.C. 1395cc) 
is amended—
(1) in subsection (a)(1)—
(A) in subparagraph (R), by striking ‘‘and’’ 
at the end; 
(B) in subparagraph (S), by striking the 
period at the end and inserting ‘‘, and’’; and 
(C) by inserting after subparagraph (S) the 
following new subparagraph: 
‘‘(T) in the case of hospitals that are not other-
wise subject to the Occupational Safety and Health 
Act of 1970, to comply with the Bloodborne Pathogens 
standard under section 1910.1030 of title 29 of the 
Code of Federal Regulations (or as subsequently redes-
ignated).’’; and 
(2) by adding at the end of subsection (b) the fol-
lowing new paragraph: 
‘‘(4)(A) A hospital that fails to comply with the re-
quirement of subsection (a)(1)(T) (relating to the 
Bloodborne Pathogens standard) is subject to a civil money 
penalty in an amount described in subparagraph (B), but 
is not subject to termination of an agreement under this 
section.
594
‘‘(B) The amount referred to in subparagraph (A) is 
an amount that is similar to the amount of civil penalties 
that may be imposed under section 17 of the Occupational 
Safety and Health Act of 1970 for a violation of the 
Bloodborne Pathogens standard referred to in subsection 
(a)(1)(T) by a hospital that is subject to the provisions of 
such Act. 
‘‘(C) A civil money penalty under this paragraph shall 
be imposed and collected in the same manner as civil money 
penalties under subsection (a) of section 1128A are imposed 
and collected under that section.’’. 
(b) EFFECTIVE DATE.—The amendments made by this 
subsection (a) shall apply to hospitals as of July 1, 2004. 
SEC. 948. BIPA-RELATED TECHNICAL AMENDMENTS AND 
CORRECTIONS. 
(a) TECHNICAL AMENDMENTS RELATING TO ADVISORY 
COMMITTEE UNDER BIPA SECTION 522.—(1) Subsection 
(i) of section 1114 (42 U.S.C. 1314)—
(A) is transferred to section 1862 and added at 
the end of such section; and 
(B) is redesignated as subsection (j). 
(2) Section 1862 (42 U.S.C. 1395y) is amended—
(A) in the last sentence of subsection (a), by 
striking ‘‘established under section 1114(f)’’; and
595
(B) in subsection (j), as so transferred and redes-
ignated—
(i) by striking ‘‘under subsection (f)’’; and 
(ii) by striking ‘‘section 1862(a)(1)’’ and 
inserting ‘‘subsection (a)(1)’’. 
(b) 
TERMINOLOGY
CORRECTIONS.—(1) 
Section 
1869(c)(3)(I)(ii) (42 U.S.C. 1395ff(c)(3)(I)(ii)), as amend-
ed by section 521 of BIPA, is amended—
(A) in subclause (III), by striking ‘‘policy’’ and 
inserting ‘‘determination’’; and 
(B) in subclause (IV), by striking ‘‘medical re-
view policies’’ and inserting ‘‘coverage determina-
tions’’. 
(2) 
Section 
1852(a)(2)(C) 
(42 
U.S.C. 
1395w–
22(a)(2)(C)) is amended by striking ‘‘policy’’ and ‘‘POLICY’’ 
and inserting ‘‘determination’’ each place it appears and 
‘‘DETERMINATION’’, respectively. 
(c) REFERENCE CORRECTIONS.—Section 1869(f)(4) 
(42 U.S.C. 1395ff(f)(4)), as added by section 522 of BIPA, 
is amended—
(1) in subparagraph (A)(iv), by striking ‘‘sub-
clause (I), (II), or (III)’’ and inserting ‘‘clause (i), 
(ii), or (iii)’’; 
(2) in subparagraph (B), by striking ‘‘clause 
(i)(IV)’’ and ‘‘clause (i)(III)’’ and inserting ‘‘sub-
596
paragraph (A)(iv)’’ and ‘‘subparagraph (A)(iii)’’, re-
spectively; and 
(3) in subparagraph (C), by striking ‘‘clause 
(i)’’, ‘‘subclause (IV)’’ and ‘‘subparagraph (A)’’ and 
inserting ‘‘subparagraph (A)’’, ‘‘clause (iv)’’ and 
‘‘paragraph (1)(A)’’, respectively each place it ap-
pears. 
(d) OTHER CORRECTIONS.—Effective as if included in 
the enactment of section 521(c) of BIPA, section 1154(e) 
(42 U.S.C. 1320c–3(e)) is amended by striking paragraph 
(5). 
(e) EFFECTIVE DATE.—Except as otherwise provided, 
the amendments made by this section shall be effective as 
if included in the enactment of BIPA. 
SEC. 949. CONFORMING AUTHORITY TO WAIVE A PROGRAM 
EXCLUSION. 
The first sentence of section 1128(c)(3)(B) (42 U.S.C. 
1320a–7(c)(3)(B)) is amended to read as follows: ‘‘Subject 
to subparagraph (G), in the case of an exclusion under sub-
section (a), the minimum period of exclusion shall be not 
less than five years, except that, upon the request of the ad-
ministrator of a Federal health care program (as defined 
in section 1128B(f)) who determines that the exclusion 
would impose a hardship on individuals entitled to benefits 
under part A of title XVIII or enrolled under part B of
597
such title, or both, the Secretary may waive the exclusion 
under subsection (a)(1), (a)(3), or (a)(4) with respect to 
that program in the case of an individual or entity that 
is the sole community physician or sole source of essential 
specialized services in a community.’’. 
SEC. 950. TREATMENT OF CERTAIN DENTAL CLAIMS. 
(a) IN GENERAL.—Section 1862 (42 U.S.C. 1395y) is 
amended by adding after subsection (g) the following new 
subsection: 
‘‘(h)(1) Subject to paragraph (2), a group health plan 
(as defined in subsection (a)(1)(A)(v)) providing supple-
mental or secondary coverage to individuals also entitled 
to services under this title shall not require a medicare 
claims determination under this title for dental benefits spe-
cifically excluded under subsection (a)(12) as a condition 
of making a claims determination for such benefits under 
the group health plan. 
‘‘(2) A group health plan may require a claims deter-
mination under this title in cases involving or appearing 
to involve inpatient dental hospital services or dental serv-
ices expressly covered under this title pursuant to actions 
taken by the Secretary.’’. 
(b) EFFECTIVE DATE.—The amendment made by sub-
section (a) shall take effect on the date that is 60 days after 
the date of the enactment of this Act.
598
SEC. 951. FURNISHING HOSPITALS WITH INFORMATION TO 
COMPUTE DSH FORMULA. 
Beginning not later than 1 year after the date of the 
enactment of this Act, the Secretary shall furnish to sub-
section (d) hospitals (as defined in section 1886(d)(1)(B) 
of the Social Security Act, 42 U.S.C. 1395ww(d)(1)(B)) the 
data necessary for such hospitals to compute the number 
of patient days described in subclause (II) of section 
1886(d)(5)(F)(vi) of the Social Security Act (42 U.S.C. 
1395ww(d)(5)(F)(vi)) used in computing the dispropor-
tionate patient percentage under such section for that hos-
pital. Such data shall also be furnished to other hospitals 
which would qualify for additional payments under part 
A of title XVIII of the Social Security Act on the basis of 
such data. 
SEC. 952. REVISIONS TO REASSIGNMENT PROVISIONS. 
(a) IN GENERAL.—Section 1842(b)(6)(A) (42 U.S.C. 
1395u(b)(6)(A)) is amended by striking ‘‘or (ii) (where the 
service was provided in a hospital, critical access hospital, 
clinic, or other facility) to the facility in which the service 
was provided if there is a contractual arrangement between 
such physician or other person and such facility under 
which such facility submits the bill for such service,’’ and 
inserting ‘‘or (ii) where the service was provided under a 
contractual arrangement between such physician or other 
person and an entity (as defined by the Secretary), to the
599
entity if, under the contractual arrangement, the entity sub-
mits the bill for the service and the contractual arrangement 
meets such other program integrity and other safeguards 
as the Secretary may determine to be appropriate,’’. 
(b) CONFORMING AMENDMENT.—The second sentence 
of section 1842(b)(6) (42 U.S.C. 1395u(b)(6)) is amended 
by striking ‘‘except to an employer or facility’’ and insert-
ing ‘‘except to an employer, entity, or other person’’. 
(c) EFFECTIVE DATE.—The amendments made by sec-
tion shall apply to payments made on or after the date of 
the enactment of this Act. 
SEC. 953. OTHER PROVISIONS. 
(a) GAO REPORTS ON THE PHYSICIAN COMPENSA-
TION.—
(1) SUSTAINABLE
GROWTH
RATE
AND
UP-
DATES.—Not later than 6 months after the date of the 
enactment of this Act, the Comptroller General of the 
United States shall submit to Congress a report on 
the appropriateness of the updates in the conversion 
factor under subsection (d)(3) of section 1848 of the 
Social Security Act (42 U.S.C. 1395w–4), including 
the appropriateness of the sustainable growth rate for-
mula under subsection (f) of such section for 2002 
and succeeding years. Such report shall examine the 
stability and predictability of such updates and rate
600
and alternatives for the use of such rate in the up-
dates. 
(2) PHYSICIAN COMPENSATION GENERALLY.—Not 
later than 12 months after the date of the enactment 
of this Act, the Comptroller General shall submit to 
Congress a report on all aspects of physician com-
pensation for services furnished under title XVIII of 
the Social Security Act, and how those aspects inter-
act and the effect on appropriate compensation for 
physician services. Such report shall review alter-
natives for the physician fee schedule under section 
1848 of such title (42 U.S.C. 1395w–4). 
(b) ANNUAL PUBLICATION OF LIST OF NATIONAL COV-
ERAGE DETERMINATIONS.—The Secretary shall provide, in 
an appropriate annual publication available to the public, 
a list of national coverage determinations made under title 
XVIII of the Social Security Act in the previous year and 
information on how to get more information with respect 
to such determinations. 
(c) GAO REPORT ON FLEXIBILITY IN APPLYING HOME 
HEALTH CONDITIONS
OF PARTICIPATION
TO PATIENTS 
WHO ARE NOT MEDICARE BENEFICIARIES.—Not later than 
6 months after the date of the enactment of this Act, the 
Comptroller General of the United States shall submit to 
Congress a report on the implications if there were flexi-
601
bility in the application of the medicare conditions of par-
ticipation for home health agencies with respect to groups 
or types of patients who are not medicare beneficiaries. The 
report shall include an analysis of the potential impact of 
such flexible application on clinical operations and the re-
cipients of such services and an analysis of methods for 
monitoring the quality of care provided to such recipients. 
(d) OIG REPORT ON NOTICES RELATING TO USE OF 
HOSPITAL LIFETIME RESERVE DAYS.—Not later than 1 
year after the date of the enactment of this Act, the Inspec-
tor General of the Department of Health and Human Serv-
ices shall submit a report to Congress on—
(1) the extent to which hospitals provide notice 
to medicare beneficiaries in accordance with applica-
ble requirements before they use the 60 lifetime reserve 
days described in section 1812(a)(1) of the Social Se-
curity Act (42 U.S.C. 1395d(a)(1)); and 
(2) the appropriateness and feasibility of hos-
pitals providing a notice to such beneficiaries before 
they completely exhaust such lifetime reserve days. 
TITLE X—MEDICAID 
SEC. 1001. MEDICAID DISPROPORTIONATE SHARE HOS-
PITAL (DSH) PAYMENTS. 
Section 1923(f)(3) (42 U.S.C. 1396r–4(f)(3)) is 
amended—
602
(1) in subparagraph (A), by striking ‘‘subpara-
graph (B)’’ and inserting ‘‘subparagraphs (B) and 
(C)’’; and 
(2) by adding at the end the following new sub-
paragraphs: 
‘‘(C) SPECIAL, TEMPORARY INCREASE
IN 
ALLOTMENTS ON A ONE-TIME, NON-CUMULATIVE 
BASIS.—The DSH allotment for any State—
‘‘(i) for fiscal year 2004 is equal to 106 
percent of the DSH allotment for the State 
for fiscal year 2003 under this paragraph, 
notwithstanding subparagraph (B); and 
‘‘(ii) for each succeeding fiscal year is 
equal to the DSH allotment for the State for 
the previous fiscal year under this subpara-
graph increased, subject to subparagraph 
(B), by 1.9 percent or, in the case of fiscal 
years beginning with the fiscal year speci-
fied in subparagraph (D) for that State, the 
percentage change in the consumer price 
index for all urban consumers (all items; 
U.S. city average), for the previous fiscal 
year. 
‘‘(D) FISCAL YEAR SPECIFIED.—For pur-
poses of subparagraph (C)(ii), the fiscal year
603
specified in this subparagraph for a State is the 
first fiscal year for which the Secretary estimates 
that the DSH allotment for that State will equal 
(or no longer exceed) the DSH allotment for that 
State under the law as in effect before the date 
of the enactment of this subparagraph.’’. 
SEC. 1002. CLARIFICATION OF INCLUSION OF INPATIENT 
DRUG PRICES CHARGED TO CERTAIN PUBLIC 
HOSPITALS IN THE BEST PRICE EXEMPTIONS 
FOR THE MEDICAID DRUG REBATE PROGRAM. 
(a) IN GENERAL.—Section 1927(c)(1)(C)(i)(I) (42 
U.S.C. 1396r–8(c)(1)(C)(i)(I)) is amended by inserting be-
fore the semicolon the following: ‘‘(including inpatient 
prices 
charged 
to 
hospitals 
described 
in 
section 
340B(a)(4)(L) of the Public Health Service Act)’’. 
(b) EFFECTIVE DATE.—The amendment made by this 
section shall take effect on the date of the enactment of this 
Act.
SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU-
RITY ACT; REFERENCES TO BIPA AND SEC-
RETARY; TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as 
the ‘‘Medicare Prescription Drug and Mod-
ernization Act of 2003’’.
604
(b) 
AMENDMENTS
TO
SOCIAL
SECURITY 
ACT.—Except as otherwise specifically pro-
vided, whenever in this Act an amendment is 
expressed in terms of an amendment to or re-
peal of a section or other provision, the ref-
erence shall be considered to be made to that 
section or other provision of the Social Secu-
rity Act. 
(c) BIPA; SECRETARY.—In this Act: 
(1) BIPA.—The term ‘‘BIPA’’ means 
the Medicare, Medicaid, and SCHIP Bene-
fits Improvement and Protection Act of 
2000, as enacted into law by section 
1(a)(6) of Public Law 106–554. 
(2) SECRETARY.—The term ‘‘Secretary’’ 
means 
the 
Secretary 
of 
Health 
and 
Human Services. 
(d) TABLE OF CONTENTS.—The table of con-
tents of this Act is as follows:
Sec. 1. Short title; amendments to Social Security Act; ref-
erences to BIPA and Secretary; table of contents. 
TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT 
Sec. 101. Establishment of a medicare prescription drug ben-
efit. 
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM 
‘‘Sec. 1860D–1. Benefits; eligibility; enrollment; and cov-
erage period. 
‘‘Sec. 1860D–2. Requirements 
for 
qualified 
prescription 
drug coverage.
605
‘‘Sec. 1860D–3. Beneficiary protections for qualified pre-
scription drug coverage. 
‘‘Sec. 1860D–4. Requirements for and contracts with pre-
scription drug plan (PDP) sponsors. 
‘‘Sec. 1860D–5. Process for beneficiaries to select qualified 
prescription drug coverage. 
‘‘Sec. 1860D–6. Submission of bids and premiums. 
‘‘Sec. 1860D–7. Premium and cost-sharing subsidies for low-
income individuals. 
‘‘Sec. 1860D–8. Subsidies for all medicare beneficiaries for 
qualified prescription drug coverage. 
‘‘Sec. 1860D–9. Medicare Prescription Drug Trust Fund. 
‘‘Sec. 1860D–10. Definitions; application to medicare advan-
tage and EFFS programs; treatment of ref-
erences to provisions in part C. 
Sec. 102. Offering of qualified prescription drug coverage 
under Medicare Advantage and enhanced fee-for-
service (EFFS) program. 
Sec. 103. Medicaid amendments. 
‘‘Sec. 1935. Special provisions relating to medicare pre-
scription drug benefit. 
Sec. 104. Medigap transition. 
Sec. 105. Medicare prescription drug discount card endorse-
ment program. 
Sec. 106. Disclosure of return information for purposes of car-
rying out medicare catastrophic prescription 
drug program. 
Sec. 107. State pharmaceutical assistance transition commis-
sion. 
TITLE II—MEDICARE ENHANCED FEE-FOR-SERVICE AND 
MEDICARE ADVANTAGE PROGRAMS; MEDICARE COM-
PETITION 
Sec. 200. Medicare modernization and revitalization. 
Subtitle A—Medicare Enhanced Fee-for-Service Program 
Sec. 201. Establishment of enhanced fee-for-service (EFFS) 
program under medicare. 
‘‘PART E—ENHANCED FEE-FOR-SERVICE PROGRAM 
‘‘Sec. 1860E–1. Offering of enhanced fee-for-service plans 
throughout the United States. 
‘‘Sec. 1860E–2. Offering of enhanced fee-for-service (EFFS) 
plans. 
‘‘Sec. 1860E–3. Submission of bids; beneficiary savings; pay-
ment of plans. 
‘‘Sec. 1860E–4. Premiums; organizational and financial re-
quirements; establishment of standards; con-
tracts with EFFS organizations. 
Subtitle B—Medicare Advantage Program 
CHAPTER 1—IMPLEMENTATION OF PROGRAM
606
Sec. 211. Implementation of medicare advantage program. 
Sec. 212. Medicare advantage improvements. 
CHAPTER 2—IMPLEMENTATION OF COMPETITION PROGRAM 
Sec. 221. Competition program beginning in 2006. 
CHAPTER 3—ADDITIONAL REFORMS 
Sec. 231. Making permanent change in medicare advantage re-
porting deadlines and annual, coordinated elec-
tion period. 
Sec. 232. Avoiding duplicative State regulation. 
Sec. 233. Specialized medicare advantage plans for special 
needs beneficiaries. 
Sec. 234. Medicare MSAs. 
Sec. 235. Extension of reasonable cost contracts. 
Sec. 236. Extension of municipal health service demonstration 
projects. 
Subtitle C—Application of FEHBP-Style Competitive Reforms 
Sec. 241. Application of FEHBP-style competitive reform begin-
ning in 2010. 
TITLE III—COMBATTING WASTE, FRAUD, AND ABUSE 
Sec. 301. Medicare secondary payor (MSP) provisions. 
Sec. 302. Competitive acquisition of certain items and services. 
Sec. 303. Competitive acquisition of covered outpatient drugs 
and biologicals. 
Sec. 304. Demonstration project for use of recovery audit con-
tractors. 
TITLE IV—RURAL HEALTH CARE IMPROVEMENTS 
Sec. 401. Enhanced disproportionate share hospital (DSH) 
treatment for rural hospitals and urban hospitals 
with fewer than 100 beds. 
Sec. 402. Immediate establishment of uniform standardized 
amount in rural and small urban areas. 
Sec. 403. Establishment of essential rural hospital classifica-
tion. 
Sec. 404. More frequent update in weights used in hospital 
market basket. 
Sec. 405. Improvements to critical access hospital program. 
Sec. 406. Redistribution of unused resident positions. 
Sec. 407. Two-year extension of hold harmless provisions for 
small rural hospitals and sole community hos-
pitals under prospective payment system for hos-
pital outpatient department services. 
Sec. 408. Exclusion of certain rural health clinic and federally 
qualified health center services from the prospec-
tive payment system for skilled nursing facilities. 
Sec. 409. Recognition of attending nurse practitioners as at-
tending physicians to serve hospice patients.
607
Sec. 410. Improvement in payments to retain emergency capac-
ity for ambulance services in rural areas. 
Sec. 411. Two-year increase for home health services furnished 
in a rural area. 
Sec. 412. Providing safe harbor for certain collaborative efforts 
that benefit medically underserved populations. 
Sec. 413. GAO study of geographic differences in payments for 
physicians’ services. 
Sec. 414. Treatment of missing cost reporting periods for sole 
community hospitals. 
Sec. 415. Extension of telemedicine demonstration project. 
Sec. 416. Adjustment to the medicare inpatient hospital PPS 
wage index to revise the labor-related share of 
such index. 
Sec. 417. Medicare incentive payment program improvements 
for physician scarcity. 
TITLE V—PROVISIONS RELATING TO PART A 
Subtitle A—Inpatient Hospital Services 
Sec. 501. Revision of acute care hospital payment updates. 
Sec. 502. Recognition of new medical technologies under inpa-
tient hospital PPS. 
Sec. 503. Increase in Federal rate for hospitals in Puerto Rico. 
Sec. 504. Wage index adjustment reclassification reform . 
Sec. 505. MedPAC report on specialty hospitals. 
Subtitle B—Other Provisions 
Sec. 511. Payment for covered skilled nursing facility services. 
Sec. 512. Coverage of hospice consultation services. 
TITLE VI—PROVISIONS RELATING TO PART B 
Subtitle A—Physicians’ Services 
Sec. 601. Revision of updates for physicians’ services. 
Sec. 602. Studies on access to physicians’ services. 
Sec. 603. MedPAC report on payment for physicians’ services. 
SUBTITLE B—PREVENTIVE SERVICES 
Sec. 611. Coverage of an initial preventive physical examina-
tion. 
Sec. 612. Coverage of cholesterol and blood lipid screening. 
Sec. 613. Waiver of deductible for colorectal cancer screening 
tests. 
Sec. 614. Improved payment for certain mammography serv-
ices. 
Subtitle C—Other Services 
Sec. 621. Hospital outpatient department (HOPD) payment re-
form. 
Sec. 622. Payment for ambulance services. 
Sec. 623. Renal dialysis services.
608
Sec. 624. One-year moratorium on therapy caps; provisions re-
lating to reports. 
Sec. 625. Adjustment to payments for services furnished in am-
bulatory surgical centers. 
Sec. 626. Payment for certain shoes and inserts under the fee 
schedule for orthotics and prosthetics. 
Sec. 627. Waiver of part B late enrollment penalty for certain 
military retirees; special enrollment period. 
Sec. 628. Part B deductible. 
Sec. 629. Extension of coverage of intravenous immune glob-
ulin (IVIG) for the treatment of primary immune 
deficiency diseases in the home. 
TITLE VII—PROVISIONS RELATING TO PARTS A AND B 
Subtitle A—Home Health Services 
Sec. 701. Update in home health services. 
Sec. 702. Establishment of reduced copayment for a home 
health service episode of care for certain bene-
ficiaries. 
Sec. 703. MedPAC study on medicare margins of home health 
agencies. 
Subtitle B—Direct Graduate Medical Education 
Sec. 711. Extension of update limitation on high cost programs. 
Subtitle C—Chronic Care Improvement 
Sec. 721. Voluntary chronic care improvement under tradi-
tional fee-for-service. 
Sec. 722. Chronic care improvement under medicare advan-
tage and enhanced fee-for-service programs. 
Sec. 723. Institute of Medicine report. 
Sec. 724. MedPAC report. 
Subtitle D—Other Provisions 
Sec. 731. Modifications to medicare payment advisory commis-
sion (MedPAC). 
Sec. 732. Demonstration project for medical adult day care 
services. 
Sec. 733. Improvements in national and local coverage deter-
mination process to respond to changes in tech-
nology. 
Sec. 734. Treatment of certain physician pathology services. 
TITLE VIII—MEDICARE BENEFITS ADMINISTRATION 
Sec. 801. Establishment of Medicare Benefits Administration. 
TITLE IX—REGULATORY REDUCTION AND CONTRACTING 
REFORM 
Subtitle A—Regulatory Reform 
Sec. 901. Construction; definition of supplier.
609
‘‘Supplier 
Sec. 902. Issuance of regulations. 
Sec. 903. Compliance with changes in regulations and policies. 
Sec. 904. Reports and studies relating to regulatory reform. 
Subtitle B—Contracting Reform 
Sec. 911. Increased flexibility in medicare administration. 
Sec. 912. Requirements for information security for medicare 
administrative contractors. 
Subtitle C—Education and Outreach 
Sec. 921. Provider education and technical assistance. 
‘‘Sec. 1889. Provider education and technical assistance. 
Sec. 922. Small provider technical assistance demonstration 
program. 
Sec. 923. Medicare Provider Ombudsman; Medicare Bene-
ficiary Ombudsman. 
Sec. 924. Beneficiary outreach demonstration program. 
Sec. 925. Inclusion of additional information in notices to 
beneficiaries about skilled nursing facility bene-
fits. 
Sec. 926. Information on medicare-certified skilled nursing fa-
cilities in hospital discharge plans. 
Subtitle D—Appeals and Recovery 
Sec. 931. Transfer of responsibility for medicare appeals. 
Sec. 932. Process for expedited access to review. 
Sec. 933. Revisions to medicare appeals process. 
Sec. 934. Prepayment review. 
Sec. 935. Recovery of overpayments. 
Sec. 936. Provider enrollment process; right of appeal. 
Sec. 937. Process for correction of minor errors and omissions 
without pursuing appeals process. 
Sec. 938. Prior determination process for certain items and 
services; advance beneficiary notices. 
Subtitle V—Miscellaneous Provisions 
Sec. 941. Policy development regarding evaluation and man-
agement (E & M) documentation guidelines. 
Sec. 942. Improvement in oversight of technology and cov-
erage. 
Sec. 943. Treatment of hospitals for certain services under 
medicare secondary payor (MSP) provisions. 
Sec. 944. EMTALA improvements. 
Sec. 945. Emergency Medical Treatment and Active Labor Act 
(EMTALA) technical advisory group. 
Sec. 946. Authorizing use of arrangements to provide core hos-
pice services in certain circumstances. 
Sec. 947. Application of osha bloodborne pathogens standard 
to certain hospitals. 
Sec. 948. BIPA-related technical amendments and corrections. 
Sec. 949. Conforming authority to waive a program exclusion.
610
Sec. 950. Treatment of certain dental claims. 
Sec. 951. Furnishing hospitals with information to compute 
dsh formula. 
Sec. 952. Revisions to reassignment provisions. 
Sec. 953. Other provisions. 
Sec. 954. Temporary suspension of OASIS requirement for col-
lection of data on non-medicare and non-medicaid 
patients.
TITLE I—MEDICARE 
PRESCRIPTION DRUG BENEFIT 
SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION 
DRUG BENEFIT. 
(a) IN GENERAL.—Title XVIII is amended—
(1) by redesignating part D as part F; 
and 
(2) by inserting after part C the fol-
lowing new part:
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG 
BENEFIT PROGRAM 
‘‘SEC. 1860D–1. 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 entitled to 
benefits under part A or is enrolled under 
part B is entitled to obtain qualified prescrip-
tion drug coverage (described in section 
1860D–2(a)) as follows:
611
‘‘(1) MEDICARE-RELATED PLANS.—
‘‘(A) MEDICARE ADVANTAGE.—If the 
individual is eligible to enroll in a 
Medicare Advantage plan that pro-
vides qualified prescription drug cov-
erage under section 1851(j), the indi-
vidual may enroll in such plan and 
obtain coverage through such plan. 
‘‘(B) EFFS 
PLANS.—If the indi-
vidual is eligible to enroll in an EFFS 
plan that provides qualified prescrip-
tion drug coverage under part E 
under section 1860E–2(d), the indi-
vidual may enroll in such plan and 
obtain coverage through such plan. 
‘‘(C) MA-EFFS PLAN; MA-EFFS RX 
PLAN.—For purposes of this part, the 
term ‘MA-EFFS plan’ means a Medi-
care Advantage plan under part C 
and an EFFS plan under part E and 
the term ‘MA-EFFS Rx plan’ means a 
MA-EFFS plan insofar as such plan 
provides qualified prescription drug 
coverage.
612
‘‘(2) PRESCRIPTION DRUG PLAN.—If the 
individual is not enrolled in a MA-EFFS 
plan , the individual may enroll under 
this part in a prescription drug plan (as 
defined in section 1860D–10(a)(5)). 
Such individuals shall have a choice of such 
plans under section 1860D–5(d). 
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN GENERAL.—An individual eligi-
ble to make an election under subsection 
(a) may elect to enroll in a prescription 
drug plan under this part, or elect the op-
tion of qualified prescription drug cov-
erage under a MA-EFFS Rx plan under 
part C or part E, and to change such elec-
tion only in such manner and form as 
may be prescribed by regulations of the 
Administrator of the Medicare Benefits 
Administration (appointed under section 
1809(b)) (in this part referred to as the 
‘Medicare Benefits Administrator’) and 
only during an election period prescribed 
in or under this subsection. 
‘‘(2) ELECTION PERIODS.—
613
‘‘(A) IN GENERAL.—Except as pro-
vided in this paragraph, the election 
periods under this subsection shall be 
the same as the coverage election pe-
riods under the Medicare Advantage 
and EFFS programs under section 
1851(e), including—
‘‘(i) annual coordinated elec-
tion periods; and 
‘‘(ii) special election periods. 
In applying the last sentence of sec-
tion 1851(e)(4) (relating to discontinu-
ance of an election during the first 
year of eligibility) under this sub-
paragraph, in the case of an election 
described in such section in which 
the individual had elected or is pro-
vided qualified prescription drug cov-
erage at the time of such first enroll-
ment, the individual shall be per-
mitted 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.—
614
‘‘(i) 
INDIVIDUALS
CURRENTLY 
COVERED.—In the case of an indi-
vidual who is entitled to benefits 
under part A or enrolled under 
part B as of October 1, 2005, there 
shall be an initial election period 
of 6 months beginning on that 
date. 
‘‘(ii) INDIVIDUAL COVERED IN FU-
TURE.—In the case of an indi-
vidual who is first entitled to ben-
efits under part A or enrolled 
under part B after such date, 
there shall be an initial election 
period which is the same as the 
initial enrollment period under 
section 1837(d). 
‘‘(C) ADDITIONAL SPECIAL ELECTION 
PERIODS.—The Administrator shall es-
tablish special election periods—
‘‘(i) in cases of individuals 
who have and involuntarily lose 
prescription drug coverage de-
scribed in subsection (c)(2)(C);
615
‘‘(ii) in cases described in sec-
tion 1837(h) (relating to errors in 
enrollment), in the same manner 
as such section applies to part B; 
‘‘(iii) in the case of an indi-
vidual who meets such excep-
tional conditions (including con-
ditions provided under section 
1851(e)(4)(D)) 
as 
the 
Adminis-
trator may provide; and 
‘‘(iv) in cases of individuals 
(as determined by the Adminis-
trator) who become eligible for 
prescription 
drug 
assistance 
under title XIX under section 
1935(d). 
‘‘(3) INFORMATION ON PLANS.—Informa-
tion described in section 1860D–3(b)(1) on 
prescription drug plans shall be made 
available during election periods. 
‘‘(c) GUARANTEED ISSUE; COMMUNITY RAT-
ING; AND NONDISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible indi-
vidual who is eligible to elect quali-
616
fied 
prescription 
drug 
coverage 
under a prescription drug plan or 
MA-EFFS Rx plan at a time during 
which elections are accepted under 
this part with respect to the plan 
shall not be denied enrollment based 
on any health status-related factor 
(described in section 2702(a)(1) of the 
Public Health Service Act) or any 
other factor. 
‘‘(B) MEDICARE ADVANTAGE LIMITA-
TIONS
PERMITTED.—The provisions of 
paragraphs (2) and (3) (other than 
subparagraph (C)(i), relating to de-
fault enrollment) of section 1851(g) 
(relating to priority and limitation on 
termination of election) shall apply to 
PDP sponsors under this subsection. 
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN
GENERAL.—In the case of 
an individual who enrolls under a 
prescription drug plan or in a MA-
EFFS Rx plan during the individual’s 
initial enrollment period under this 
part or maintains (as determined
617
under subparagraph (C)) continuous 
prescription drug coverage since the 
date the individual first qualifies to 
elect 
prescription 
drug 
coverage 
under this part, a PDP sponsor or en-
tity offering a prescription drug plan 
or MA-EFFS Rx plan and in which 
the individual is enrolled may not 
deny, limit, or condition the coverage 
or provision of covered prescription 
drug benefits or vary or increase the 
premium under the plan 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) LATE ENROLLMENT PENALTY.—
In the case of an individual who does 
not maintain such continuous pre-
scription drug coverage (as described 
in subparagraph (C)), a PDP sponsor 
or an entity offering a MA-EFFS Rx 
plan may (notwithstanding any provi-
sion in this title) adjust the premium 
otherwise applicable or impose a pre-
618
existing condition exclusion with re-
spect to qualified prescription drug 
coverage in a manner that reflects ad-
ditional actuarial risk involved. Such 
a risk shall be established 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 continuous pre-
scription drug coverage on and after 
the date the individual first qualifies 
to elect prescription drug coverage 
under this part if the individual es-
tablishes that as of such date the in-
dividual is covered under any of the 
following prescription drug coverage 
and before the date that is the last 
day of the 63-day period that begins 
on the date of termination of the par-
ticular prescription drug coverage in-
volved (regardless of whether the in-
dividual subsequently obtains any of
619
the following prescription drug cov-
erage): 
‘‘(i) 
COVERAGE
UNDER
PRE-
SCRIPTION
DRUG
PLAN
OR
MA-EFFS 
RX
PLAN.—Qualified prescription 
drug coverage under a prescrip-
tion drug plan or under a MA-
EFFS Rx plan. 
‘‘(ii) 
MEDICAID
PRESCRIPTION 
DRUG
COVERAGE.—Prescription 
drug coverage under a medicaid 
plan under title XIX, including 
through the Program of All-inclu-
sive Care for the Elderly (PACE) 
under section 1934, through a so-
cial health maintenance organiza-
tion (referred to in section 4104(c) 
of the Balanced Budget Act of 
1997), or through a demonstration 
project under part C that dem-
onstrates the application of capi-
tation payment rates for frail el-
derly 
medicare 
beneficiaries 
through the use of an inter-
disciplinary team and through
620
the provision of primary care 
services to such beneficiaries by 
means of such a team at the nurs-
ing facility involved. 
‘‘(iii) PRESCRIPTION DRUG COV-
ERAGE
UNDER
GROUP
HEALTH 
PLAN.—Any outpatient prescrip-
tion drug coverage under a group 
health plan, including a health 
benefits plan under the Federal 
Employees Health Benefit Plan 
under chapter 89 of title 5, United 
States Code, and a qualified re-
tiree prescription drug plan as 
defined in section 1860D–8(f)(1), 
but only if (subject to subpara-
graph (E)(ii)) the coverage pro-
vides benefits at least equivalent 
to the benefits under a qualified 
prescription drug plan. 
‘‘(iv) PRESCRIPTION DRUG COV-
ERAGE
UNDER
CERTAIN
MEDIGAP 
POLICIES.—Coverage 
under 
a 
medicare 
supplemental 
policy 
under section 1882 that provides
621
benefits for prescription drugs 
(whether or not such coverage 
conforms to the standards for 
packages of benefits under sec-
tion 1882(p)(1)), but only if the 
policy was in effect on January 1, 
2006, and if (subject to subpara-
graph (E)(ii)) the coverage pro-
vides benefits at least equivalent 
to the benefits under a qualified 
prescription drug plan. 
‘‘(v) STATE PHARMACEUTICAL AS-
SISTANCE
PROGRAM.—Coverage of 
prescription drugs under a State 
pharmaceutical 
assistance 
pro-
gram, but only if (subject to sub-
paragraph (E)(ii)) the coverage 
provides benefits at least equiva-
lent to the benefits under a quali-
fied prescription drug plan. 
‘‘(vi) VETERANS’ COVERAGE
OF 
PRESCRIPTION DRUGS.—Coverage of 
prescription drugs for veterans 
under chapter 17 of title 38, 
United States Code, but only if
622
(subject to subparagraph (E)(ii)) 
the coverage provides benefits at 
least equivalent to the benefits 
under a qualified prescription 
drug plan. 
‘‘(D) 
CERTIFICATION.—For 
pur-
poses of carrying out this paragraph, 
the certifications of the type de-
scribed in sections 2701(e) of the Pub-
lic 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 in-
dividual involved had prescription 
drug coverage described in subpara-
graph (C). 
‘‘(E) DISCLOSURE.—
‘‘(i) IN
GENERAL.—Each entity 
that offers coverage of the type 
described in clause (iii), (iv), (v), 
or (vi) of subparagraph (C) shall 
provide for disclosure, consistent 
with standards established by the 
Administrator, of whether such 
coverage 
provides 
benefits 
at
623
least equivalent to the benefits 
under a qualified prescription 
drug plan. 
‘‘(ii) WAIVER OF LIMITATIONS.—
An individual may apply to the 
Administrator to waive the re-
quirement that coverage of such 
type provide benefits at least 
equivalent to the benefits under a 
qualified prescription drug plan, 
if the individual establishes that 
the individual was not adequately 
informed that such coverage did 
not provide such level of benefits. 
‘‘(F) CONSTRUCTION.—Nothing in 
this section shall be construed as pre-
venting the disenrollment of an indi-
vidual from a prescription drug plan 
or a MA-EFFS Rx plan based on the 
termination of an election described 
in section 1851(g)(3), including for 
non-payment of premiums or for 
other reasons specified in subsection 
(d)(3), which takes into account a
624
grace period described in section 
1851(g)(3)(B)(i). 
‘‘(3) 
NONDISCRIMINATION.—A 
PDP 
sponsor that offers a prescription drug 
plan in an area designated under section 
1860D–4(b)(5) shall make such plan avail-
able to all eligible individuals residing in 
the area without regard to their health or 
economic status or their place of resi-
dence within the area. 
‘‘(d) EFFECTIVE DATE OF ELECTIONS.—
‘‘(1) IN GENERAL.—Except as provided 
in this section, the Administrator shall 
provide that elections under subsection 
(b) take effect at the same time as the Ad-
ministrator provides that similar elec-
tions under section 1851(e) take effect 
under section 1851(f). 
‘‘(2) NO
ELECTION
EFFECTIVE
BEFORE 
2006.—In no case shall any election take 
effect before January 1, 2006. 
‘‘(3) TERMINATION.—The Administrator 
shall provide for the termination of an 
election in the case of—
625
‘‘(A) 
termination 
of 
coverage 
under both part A and part B; and 
‘‘(B) termination of elections de-
scribed in section 1851(g)(3) (includ-
ing failure to pay required pre-
miums). 
‘‘SEC. 1860D–2. REQUIREMENTS FOR QUALIFIED PRESCRIP-
TION DRUG COVERAGE. 
‘‘(a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this 
part and part C and part E, the term 
‘qualified prescription drug coverage’ 
means either of the following: 
‘‘(A) STANDARD COVERAGE WITH AC-
CESS
TO
NEGOTIATED
PRICES.—Stand-
ard coverage (as defined in sub-
section (b)) and access to negotiated 
prices under subsection (d). 
‘‘(B) ACTUARIALLY EQUIVALENT COV-
ERAGE
WITH
ACCESS
TO
NEGOTIATED 
PRICES.—Coverage 
of 
covered 
out-
patient drugs which meets the alter-
native coverage requirements of sub-
section (c) and access to negotiated 
prices under subsection (d), but only
626
if it is approved by the Administrator, 
as provided under subsection (c). 
‘‘(2) 
PERMITTING
ADDITIONAL
OUT-
PATIENT PRESCRIPTION DRUG COVERAGE.—
‘‘(A) IN GENERAL.—Subject to sub-
paragraph (B), nothing in this part 
shall be construed as preventing 
qualified prescription drug coverage 
from including coverage of covered 
outpatient drugs that exceeds the 
coverage required under paragraph 
(1), but any such additional coverage 
shall be limited to coverage of cov-
ered outpatient drugs. 
‘‘(B) DISAPPROVAL AUTHORITY.—The 
Administrator shall review the offer-
ing of qualified prescription drug 
coverage under this part or part C or 
E. If the Administrator finds, in the 
case of a qualified prescription drug 
coverage under a prescription drug 
plan or a MA-EFFS Rx plan, that the 
organization or sponsor offering the 
coverage is engaged in activities in-
tended to discourage enrollment of
627
classes of eligible medicare bene-
ficiaries obtaining coverage through 
the plan on the basis of their higher 
likelihood of utilizing prescription 
drug 
coverage, 
the 
Administrator 
may terminate the contract with the 
sponsor or organization under this 
part or part C or E. 
‘‘(3) APPLICATION OF SECONDARY PAYOR 
PROVISIONS.—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 cov-
erage of covered outpatient drugs (as defined 
in subsection (f)) that meets the following re-
quirements: 
‘‘(1) DEDUCTIBLE.—The coverage has 
an annual deductible—
‘‘(A) for 2006, 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
628
increased by the percentage specified 
in paragraph (5) for the year in-
volved. 
Any amount determined under subpara-
graph (B) that is not a multiple of $10 
shall be rounded to the nearest multiple 
of $10. 
‘‘(2) 80:20 BENEFIT STRUCTURE.—
‘‘(A) 20 PERCENT
COINSURANCE.—
The coverage has cost-sharing (for 
costs above the annual deductible 
specified in paragraph (1) and up to 
the initial coverage limit under para-
graph (3)) that is—
‘‘(i) equal to 20 percent; or 
‘‘(ii) is actuarially equivalent 
(using 
processes 
established 
under subsection (e)) to an aver-
age expected payment of 20 per-
cent of such costs. 
‘‘(B) USE
OF
TIERS.—Nothing in 
this part shall be construed as pre-
venting a PDP sponsor from applying 
tiered copayments, so long as such
629
tiered 
copayments 
are 
consistent 
with subparagraph (A).
‘‘(3) INITIAL COVERAGE LIMIT.—Subject 
to paragraph (4), the coverage has an ini-
tial coverage limit on the maximum costs 
that may be recognized for payment pur-
poses—
‘‘(A) for 2006, that is equal to 
$2,000; or 
‘‘(B) for a subsequent year, that is 
equal to the amount specified in this 
paragraph for the previous year, in-
creased by the annual percentage in-
crease described in paragraph (5) for 
the year involved. 
Any amount determined under subpara-
graph (B) that is not a multiple of $25 
shall be rounded to the nearest multiple 
of $25.
‘‘(4) CATASTROPHIC PROTECTION.—
‘‘(A) 
IN
GENERAL.—Notwith-
standing paragraph (3), the coverage 
provides benefits with no cost-shar-
ing after the individual has incurred 
costs (as described in subparagraph
630
(C)) for covered outpatient drugs in a 
year equal to the annual out-of-pock-
et threshold specified in subpara-
graph (B). 
‘‘(B) 
ANNUAL
OUT-OF-POCKET 
THRESHOLD.—
‘‘(i) IN GENERAL.—For purposes 
of this part, the ‘annual out-of-
pocket threshold’ specified in this 
subparagraph is equal to $3,500 
(subject 
to 
adjustment 
under 
clause (ii) and subparagraph (D)). 
‘‘(ii) INFLATION INCREASE.—For 
a year after 2006, the dollar 
amount specified in clause (i) 
shall be increased by the annual 
percentage increase described in 
paragraph (5) for the year in-
volved. Any amount determined 
under the previous sentence that 
is not a multiple of $100 shall be 
rounded to the nearest multiple 
of $100. 
‘‘(C) 
APPLICATION.—In 
applying 
subparagraph (A)—
631
‘‘(i) incurred costs shall only 
include costs incurred for the an-
nual 
deductible 
(described 
in 
paragraph (1)), cost-sharing (de-
scribed in paragraph (2)), and 
amounts for which benefits are 
not provided because of the appli-
cation of the initial coverage limit 
described in paragraph (3); and 
‘‘(ii) such costs shall be treat-
ed as incurred only if they are 
paid by the individual (or by an-
other individual, such as a family 
member, on behalf of the indi-
vidual), under section 1860D–7, 
under title XIX, or under a State 
pharmaceutical 
assistance 
pro-
gram and the individual (or other 
individual) 
is 
not 
reimbursed 
through insurance or otherwise, a 
group health plan, or other third-
party 
payment 
arrangement 
(other than under such title or 
such program) for such costs.
632
‘‘(D) ADJUSTMENT OF ANNUAL OUT-
OF-POCKET THRESHOLDS.—
‘‘(i) IN GENERAL.—For each en-
rollee in a prescription drug plan 
or in a MA-EFFS Rx plan whose 
adjusted gross income exceeds 
the income threshold as defined 
in clause (ii) for a year, the an-
nual out-of-pocket threshold oth-
erwise 
determined 
under 
sub-
paragraph (B) for such year shall 
be increased by an amount equal 
to the percentage specified in 
clause (iii), multiplied by the less-
er of—
‘‘(I) the amount of such ex-
cess; or 
‘‘(II) the amount by which 
the income threshold limit ex-
ceeds the income threshold. 
Any amount determined under 
the previous sentence that is not 
a multiple of $100 shall be round-
ed to the nearest multiple of $100.
633
‘‘(ii) INCOME
THRESHOLD.—For 
purposes of clause (i)—
‘‘(I) IN
GENERAL.—Subject 
to subclause (II), the term ‘in-
come 
threshold’ 
means 
$60,000 and the term ‘income 
threshold 
limit’ 
means 
$200,000. 
‘‘(II) INCOME INFLATION AD-
JUSTMENT.—In the case of a 
year 
beginning 
after 
2006, 
each of the dollar amounts in 
subclause 
(I) 
shall 
be 
in-
creased by an amount equal 
to such dollar amount multi-
plied by the cost-of-living ad-
justment 
determined 
under 
section 1(f)(3) of the Internal 
Revenue Code of 1986 for 
such year, determined by sub-
stituting ‘calendar year 2005’ 
for ‘calendar year 1992’. If any 
amount increased under the 
previous sentence is not a 
multiple of $100, such amount
634
shall be rounded to the near-
est multiple of $100. 
‘‘(iii) PERCENTAGE.—The per-
centage specified in this clause 
for a year is a fraction (expressed 
as a percentage) equal to—
‘‘(I) 
the 
annual 
out-of-
pocket threshold for a year 
under subparagraph (B) (de-
termined without regard to 
this subparagraph), divided 
by 
‘‘(II) the income threshold 
under clause (ii) for that year. 
If 
any 
percentage 
determined 
under the previous sentence that 
is not a multiple of 1⁄10th of 1 per-
centage point, such percentage 
shall be rounded to the nearest 
multiple of 1⁄10th of 1 percentage 
point. 
‘‘(iv) USE OF MOST RECENT RE-
TURN INFORMATION.—For purposes 
of clause (i) for an enrollee for a 
year, except as provided in clause
635
(v), the adjusted gross income of 
an individual shall be based on 
the most recent information dis-
closed to the Secretary under sec-
tion 6109(l)(19) of the Internal 
Revenue Code of 1986 before the 
beginning of that year. 
‘‘(v) INDIVIDUAL
ELECTION
TO 
PRESENT
MOST
RECENT
INFORMA-
TION REGARDING INCOME.—The Sec-
retary shall provide, in coordina-
tion with the Secretary of the 
Treasury, 
a 
procedure 
under 
which, for purposes of applying 
this subparagraph for a calendar 
year, instead of using the infor-
mation described in clause (iv), 
an enrollee may elect to use more 
recent information, including in-
formation with respect to a tax-
able year ending in such calendar 
year. Such process shall—
‘‘(I) require the enrollee to 
provide the Secretary with a 
copy of the relevant portion
636
of the more recent return to 
be used under this clause; 
‘‘(II) provide for the Medi-
care Beneficiary Ombudsman 
(under section 1810) offering 
assistance to such enrollees in 
presenting such information 
and 
the 
toll-free 
number 
under such section being a 
point of contact for bene-
ficiaries to inquire as to how 
to present such information; 
‘‘(III) 
provide 
for 
the 
verification of the informa-
tion in such return by the 
Secretary 
of 
the 
Treasury 
under section 6103(l)(19) of 
the Internal Revenue Code of 
1986; and 
‘‘(IV) provide for the pay-
ment by the Secretary (in a 
manner specified by the Sec-
retary) to the enrollee of an 
amount equal to the excess of 
the 
benefit 
payments 
that
637
would 
have 
been 
payable 
under the plan if the more re-
cent return information were 
used, over the benefit pay-
ments that were made under 
the plan. 
In the case of a payment under 
subclause (III) for an enrollee 
under a prescription drug plan, 
the PDP sponsor of the plan shall 
pay to the Secretary the amount 
so paid, less the applicable rein-
surance amount that would have 
applied 
under 
section 
1860D–
8(c)(1)(B) if such payment had 
been treated as an allowable cost 
under such section. Such plan 
payment shall be deposited in the 
Treasury to the credit of the 
Medicare Prescription Drug Ac-
count in the Federal Supple-
mentary Medical Insurance Trust 
Fund (under section 1841). 
‘‘(vi) DISSEMINATION OF INFOR-
MATION
ON
PROCESS.—The 
Sec-
638
retary shall provide, through the 
annual medicare handbook under 
section 1804(a), for a general de-
scription of the adjustment of an-
nual out-of-pocket thresholds pro-
vided under this subparagraph, 
including the process for adjust-
ment based upon more recent in-
formation and the confidentiality 
provisions of subparagraph (F), 
and shall provide for dissemina-
tion of a table for each year that 
sets forth the amount of the ad-
justment 
that 
is 
made 
under 
clause (i) based on the amount of 
an enrollee’s adjusted gross in-
come. 
‘‘(E) REQUESTING
INFORMATION
ON 
ENROLLEES.—
‘‘(i) 
IN
GENERAL.—The 
Sec-
retary shall, periodically as re-
quired to carry out subparagraph 
(D), transmit to the Secretary of 
the Treasury a list of the names 
and TINs of enrollees in prescrip-
639
tion drug plans (or in MA-EFFS 
Rx plans) and request that such 
Secretary disclose to the Sec-
retary information under sub-
paragraph 
(A) 
of 
section 
6103(l)(19) of the Internal Rev-
enue Code of 1986 with respect to 
those enrollees for a specified tax-
able year for application in a par-
ticular calendar year. 
‘‘(ii) DISCLOSURE TO PLAN SPON-
SORS.—In the case of a specified 
taxpayer (as defined in section 
6103(l)(19)(B) of the Internal Rev-
enue Code of 1986) who is en-
rolled in a prescription drug plan 
or in an MA-EFFS Rx plan, the 
Secretary shall disclose to the en-
tity that offers the plan the an-
nual out-of-pocket threshold ap-
plicable to such individual under 
subparagraph (D). 
‘‘(F) MAINTAINING CONFIDENTIALITY 
OF INFORMATION.—
640
‘‘(i) IN GENERAL.—The amount 
of any increase in an annual out-
of-pocket threshold under sub-
paragraph (D) may not be dis-
closed by the Secretary except to 
a PDP sponsor or entity that of-
fers a MA-EFFS Rx plan to the ex-
tent necessary to carry out this 
part. 
‘‘(ii) CRIMINAL
AND
CIVIL
PEN-
ALTIES FOR UNAUTHORIZED DISCLO-
SURE.—A person who makes an 
unauthorized disclosure of infor-
mation disclosed under section 
6103(l)(19) of the Internal Rev-
enue Code of 1986 (including dis-
closure of any increase in an an-
nual 
out-of-pocket 
threshold 
under subparagraph (D)) shall be 
subject to penalty to the extent 
provided under—
‘‘(I) section 7213 of such 
Code 
(relating 
to 
criminal 
penalty for unauthorized dis-
closure of information);
641
‘‘(II) section 7213A of such 
Code 
(relating 
to 
criminal 
penalty for unauthorized in-
spection of returns or return 
information); 
‘‘(III) section 7431 of such 
Code (relating to civil dam-
ages for unauthorized inspec-
tion or disclosure of returns 
and return information); 
‘‘(IV) any other provision 
of the Internal Revenue Code 
of 1986; or 
‘‘(V) any other provision 
of law. 
‘‘(iii) 
APPLICATION
OF
ADDI-
TIONAL
CIVIL
MONETARY
PENALTY 
FOR UNAUTHORIZED DISCLOSURES.—
In addition to any penalty other-
wise provided under law, any per-
son who makes an unauthorized 
disclosure of such information 
shall be subject to a civil mone-
tary penalty of not to exceed 
$10,000 for each such unauthor-
642
ized disclosure. The provisions of 
section 1128A (other than sub-
sections (a) and (b)) shall apply to 
civil money penalties under this 
subparagraph in the same man-
ner as they apply to a penalty or 
proceeding 
under 
section 
1128A(a).
‘‘(5) ANNUAL
PERCENTAGE
INCREASE.—
For purposes of this part, the annual per-
centage increase specified in this para-
graph for a year is equal to the annual 
percentage increase in average per capita 
aggregate expenditures for covered out-
patient drugs in the United States for 
medicare beneficiaries, as determined by 
the Administrator for the 12-month pe-
riod ending in July of the previous year.
‘‘(c) 
ALTERNATIVE
COVERAGE
REQUIRE-
MENTS.—A prescription drug plan or MA-EFFS 
Rx plan may provide a different prescription 
drug benefit design from the standard cov-
erage described in subsection (b) so long as 
the Administrator determines (based on an 
actuarial analysis by the Administrator) that
643
the following requirements are met and the 
plan applies for, and receives, the approval of 
the Administrator for such benefit design: 
‘‘(1) ASSURING
AT
LEAST
ACTUARIALLY 
EQUIVALENT COVERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE 
OF
TOTAL
COVERAGE.—The actuarial 
value of the total coverage (as deter-
mined 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 un-
subsidized value of the coverage is at 
least equal to the unsubsidized value 
of standard coverage. For purposes of 
this subparagraph, the unsubsidized 
value of coverage is the amount by 
which the actuarial value of the cov-
erage (as determined under sub-
section (e)) exceeds the actuarial 
value of the subsidy payments under 
section 1860D–8 with respect to such 
coverage.
644
‘‘(C) ASSURING STANDARD PAYMENT 
FOR
COSTS
AT
INITIAL
COVERAGE 
LIMIT.—The 
coverage 
is 
designed, 
based upon an actuarially representa-
tive pattern of utilization (as deter-
mined under subsection (e)), to pro-
vide for the payment, with respect to 
costs incurred that are equal to the 
initial 
coverage 
limit 
under 
sub-
section (b)(3), of an amount equal to 
at least the product of—
‘‘(i) the amount by which the 
initial coverage limit described in 
subsection (b)(3) exceeds the de-
ductible described in subsection 
(b)(1); and 
‘‘(ii) 100 percent minus the 
cost-sharing percentage specified 
in subsection (b)(2)(A)(i). 
‘‘(2) CATASTROPHIC
PROTECTION.—The 
coverage provides for beneficiaries the 
catastrophic protection described in sub-
section (b)(4). 
‘‘(d) ACCESS TO NEGOTIATED PRICES.—
645
‘‘(1) IN GENERAL.—Under qualified pre-
scription drug coverage offered by a PDP 
sponsor or an entity offering a MA-EFFS 
Rx plan, the sponsor or entity shall pro-
vide beneficiaries with access to nego-
tiated prices (including applicable dis-
counts) used for payment for covered out-
patient drugs, regardless of the fact that 
no benefits may be payable under the 
coverage with respect to such drugs be-
cause of the application of cost-sharing 
or an initial coverage limit (described in 
subsection (b)(3)). Insofar as a State 
elects 
to 
provide 
medical 
assistance 
under title XIX to a beneficiary enrolled 
under such title and under a prescription 
drug plan or MA-EFFS Rx plan for a drug 
based on the prices negotiated by a pre-
scription drug plan or MA-EFFS Rx plan 
under this part, the requirements of sec-
tion 1927 shall not apply to such drugs. 
The prices negotiated by a prescription 
drug plan under this part, by a MA-EFFS 
Rx plan with respect to covered out-
patient drugs, or by a qualified retiree
646
prescription drug plan (as defined in sec-
tion 1860D–8(f)(1)) with respect to such 
drugs on behalf of individuals entitled to 
benefits under part A or enrolled under 
part B, shall (notwithstanding any other 
provision of law) not be taken into ac-
count for the purposes of establishing the 
best price under section 1927(c)(1)(C). 
‘‘(2) DISCLOSURE.—The PDP sponsor 
or entity offering a MA-EFFS Rx plan 
shall disclose to the Administrator (in a 
manner specified by the Administrator) 
the extent to which discounts or rebates 
or other remuneration or price conces-
sions made available to the sponsor or or-
ganization by a manufacturer are passed 
through to enrollees through pharmacies 
and other dispensers or otherwise. The 
provisions of section 1927(b)(3)(D) shall 
apply to information disclosed to the Ad-
ministrator under this paragraph in the 
same manner as such provisions apply to 
information disclosed under such section. 
‘‘(3) AUDITS AND REPORTS.—To protect 
against fraud and abuse and to ensure
647
proper disclosures and accounting under 
this part, in addition to any protections 
against fraud and abuse provided under 
section 1860D–4(b)(3)(C), the Adminis-
trator may periodically audit the finan-
cial statements and records of PDP spon-
sor or entities offering a MA-EFFS Rx 
plan.
‘‘(e) ACTUARIAL VALUATION; DETERMINATION 
OF ANNUAL PERCENTAGE INCREASES.—
‘‘(1) PROCESSES.—For purposes of this 
section, the Administrator shall establish 
processes and methods—
‘‘(A) for determining the actuarial 
valuation of prescription drug cov-
erage, including—
‘‘(i) an actuarial valuation of 
standard coverage and of the re-
insurance 
subsidy 
payments 
under section 1860D–8; 
‘‘(ii) the use of generally ac-
cepted actuarial principles and 
methodologies; and 
‘‘(iii) applying the same meth-
odology for determinations of al-
648
ternative coverage under sub-
section (c) as is used with respect 
to 
determinations 
of 
standard 
coverage under subsection (b); 
and 
‘‘(B) for determining annual per-
centage increases described in sub-
section (b)(5). 
‘‘(2) 
USE
OF
OUTSIDE
ACTUARIES.—
Under the processes under paragraph 
(1)(A), PDP sponsors and entities offering 
MA-EFFS Rx plans may use actuarial 
opinions certified by independent, quali-
fied actuaries to establish actuarial val-
ues, but the Administrator shall deter-
mine whether such actuarial values meet 
the requirements under subsection (c)(1). 
‘‘(f) 
COVERED
OUTPATIENT
DRUGS
DE-
FINED.—
‘‘(1) IN GENERAL.—Except as provided 
in this subsection, for purposes of this 
part, the term ‘covered outpatient drug’ 
means—
‘‘(A) a drug that may be dispensed 
only upon a prescription and that is
649
described in subparagraph (A)(i) or 
(A)(ii) of section 1927(k)(2); or 
‘‘(B) 
a 
biological 
product 
de-
scribed in clauses (i) through (iii) of 
subparagraph (B) of such section or 
insulin described in subparagraph (C) 
of such section, 
and such term includes a vaccine li-
censed under section 351 of the Public 
Health Service Act and any use of a cov-
ered outpatient drug for a medically ac-
cepted 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 medical uses, which may be 
excluded from coverage or otherwise 
restricted under section 1927(d)(2), 
other than subparagraph (E) thereof 
(relating 
to 
smoking 
cessation 
agents), or under section 1927(d)(3). 
‘‘(B) AVOIDANCE OF DUPLICATE COV-
ERAGE.—A drug prescribed for an in-
dividual that would otherwise be a
650
covered outpatient drug under this 
part shall not be so considered if pay-
ment for such drug is available under 
part A or B for an individual entitled 
to benefits under part A and enrolled 
under part B. 
‘‘(3) APPLICATION
OF
FORMULARY
RE-
STRICTIONS.—A drug prescribed for an in-
dividual that would otherwise be a cov-
ered outpatient drug under this part 
shall not be so considered under a plan if 
the plan excludes the drug under a for-
mulary and such exclusion is not success-
fully 
appealed 
under 
section 
1860D–
3(f)(2). 
‘‘(4) APPLICATION
OF
GENERAL
EXCLU-
SION
PROVISIONS.—A prescription drug 
plan or MA-EFFS Rx plan may exclude 
from qualified prescription drug cov-
erage any covered outpatient drug—
‘‘(A) for which payment would not 
be made if section 1862(a) applied to 
part D; or 
‘‘(B) which are not prescribed in 
accordance with the plan or this part.
651
Such exclusions are determinations sub-
ject to reconsideration and appeal pursu-
ant to section 1860D–3(f). 
‘‘SEC. 1860D–3. BENEFICIARY PROTECTIONS FOR QUALI-
FIED PRESCRIPTION DRUG COVERAGE. 
‘‘(a) GUARANTEED ISSUE, COMMUNITY-RATED 
PREMIUMS, ACCESS TO NEGOTIATED PRICES, AND 
NONDISCRIMINATION.—For provisions requir-
ing guaranteed issue, community-rated pre-
miums, access to negotiated prices, and non-
discrimination, see sections 1860D–1(c)(1), 
1860D–1(c)(2), 1860D–2(d), and 1860D–6(b), re-
spectively. 
‘‘(b) DISSEMINATION OF INFORMATION.—
‘‘(1) GENERAL
INFORMATION.—A PDP 
sponsor shall disclose, in a clear, accu-
rate, and standardized form to each en-
rollee with a prescription drug plan of-
fered by the sponsor under this part at 
the time of enrollment and at least annu-
ally thereafter, the information described 
in section 1852(c)(1) relating to such plan. 
Such information includes the following:
652
‘‘(A) Access to specific covered 
outpatient drugs, including access 
through pharmacy networks. 
‘‘(B) How any formulary used by 
the sponsor functions, including the 
drugs included in the formulary. 
‘‘(C) Co-payments and deductible 
requirements, including the identi-
fication of the tiered or other co-pay-
ment level applicable to each drug (or 
class of drugs). 
‘‘(D) Grievance and appeals proce-
dures. 
Such information shall also be made 
available upon request to prospective en-
rollees. 
‘‘(2) DISCLOSURE UPON REQUEST OF GEN-
ERAL
COVERAGE, UTILIZATION, AND
GRIEV-
ANCE
INFORMATION.—Upon request of an 
individual eligible to enroll under a pre-
scription drug plan, the PDP sponsor 
shall provide the information described 
in section 1852(c)(2) (other than subpara-
graph (D)) to such individual.
653
‘‘(3) RESPONSE
TO
BENEFICIARY
QUES-
TIONS.—Each PDP sponsor offering a pre-
scription drug plan shall have a mecha-
nism for providing specific information 
to enrollees upon request. The sponsor 
shall make available on a timely basis, 
through an Internet website and in writ-
ing upon request, information on specific 
changes in its formulary. 
‘‘(4) CLAIMS INFORMATION.—Each PDP 
sponsor offering a prescription drug plan 
must furnish to each enrollee in a form 
easily understandable to such enrollees 
an explanation of benefits (in accordance 
with section 1806(a) or in a comparable 
manner) and a notice of the benefits in 
relation to initial coverage limit and the 
annual out-of-pocket threshold applicable 
to such enrollee 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.—
654
‘‘(A) PARTICIPATION OF ANY WILLING 
PHARMACY.—A PDP sponsor and an 
entity offering a MA-EFFS Rx plan 
shall permit the participation of any 
pharmacy that meets terms and con-
ditions that the plan has established. 
‘‘(B) DISCOUNTS ALLOWED FOR NET-
WORK
PHARMACIES.—A 
prescription 
drug plan and a MA-EFFS Rx plan 
may, notwithstanding subparagraph 
(A), reduce coinsurance or copay-
ments for its enrolled beneficiaries 
below the level otherwise provided 
for covered outpatient drugs dis-
pensed 
through 
in-network 
phar-
macies, but in no case shall such a re-
duction result in an increase in pay-
ments made by the Administrator 
under section 1860D–8 to a plan. 
‘‘(C) CONVENIENT ACCESS FOR NET-
WORK PHARMACIES.—The PDP sponsor 
of the prescription drug plan and the 
entity offering a MA-EFFS Rx plan 
shall secure the participation in its 
network of a sufficient number of
655
pharmacies that dispense (other than 
by mail order) drugs directly to pa-
tients to ensure convenient access 
(consistent with rules of the Adminis-
trator). The Administrator shall es-
tablish convenient access rules under 
this subparagraph that are no less fa-
vorable to enrollees than the rules for 
convenient access to pharmacies of 
the Secretary of Defense established 
as of June 1, 2003, for purposes of the 
TRICARE Retail Pharmacy (TRRx) 
program. Such rules shall include 
adequate emergency access for en-
rolled beneficiaries. 
‘‘(D) LEVEL PLAYING FIELD.—Such a 
sponsor shall permit enrollees to re-
ceive benefits (which may include a 
90-day supply of drugs or biologicals) 
through 
a 
community 
pharmacy, 
rather than through mail order, with 
any differential in cost paid by such 
enrollees. 
‘‘(E) NOT REQUIRED TO ACCEPT IN-
SURANCE RISK.—The terms and condi-
656
tions under subparagraph (A) may 
not require participating pharmacies 
to accept insurance risk as a condi-
tion of participation. 
‘‘(2) 
USE
OF
STANDARDIZED
TECH-
NOLOGY.—
‘‘(A) IN GENERAL.—The PDP spon-
sor of a prescription drug plan and 
an entity offering a MA-EFFS Rx plan 
shall issue (and reissue, as appro-
priate) such a card (or other tech-
nology) that may be used by an en-
rollee to assure access to negotiated 
prices under section 1860D–2(d) for 
the purchase of prescription drugs 
for which coverage is not otherwise 
provided under the plan. 
‘‘(B) STANDARDS.—
‘‘(i) 
DEVELOPMENT.—The 
Ad-
ministrator shall provide for the 
development or utilization of uni-
form 
standards 
relating 
to 
a 
standardized format for the card 
or other technology referred to in 
subparagraph (A). Such standards
657
shall be compatible with stand-
ards established under part C of 
title XI. 
‘‘(ii) APPLICATION OF ADVISORY 
TASK
FORCE.—The advisory task 
force 
established 
under 
sub-
section (d)(3)(B)(ii) shall provide 
recommendations to the Adminis-
trator under such subsection re-
garding the standards developed 
under clause (i). 
‘‘(3) REQUIREMENTS
ON
DEVELOPMENT 
AND
APPLICATION
OF
FORMULARIES.—If a 
PDP sponsor of a prescription drug plan 
or an entity offering a MA-EFFS Rx plan 
uses a formulary, the following require-
ments must be met: 
‘‘(A) PHARMACY
AND
THERAPEUTIC 
(P&T) COMMITTEE.—The sponsor or en-
tity must establish a pharmacy and 
therapeutic committee that develops 
and reviews the formulary. Such com-
mittee shall include at least one prac-
ticing physician and at least one 
practicing pharmacist independent
658
and free of conflict with respect to 
the committee both with expertise in 
the care of elderly or disabled per-
sons and a majority of its members 
shall consist of individuals who are 
practicing physicians or practicing 
pharmacists (or both). 
‘‘(B) FORMULARY DEVELOPMENT.—In 
developing and reviewing the for-
mulary, the committee shall—
‘‘(i) base clinical decisions on 
the strength of scientific evidence 
and standards of practice, includ-
ing assessing peer-reviewed med-
ical literature, such as random-
ized 
clinical 
trials, 
pharmacoeconomic studies, out-
comes research data, and such 
other information as the com-
mittee determines to be appro-
priate; and 
‘‘(ii) shall take into account 
whether including in the for-
mulary particular covered out-
patient drugs has therapeutic ad-
659
vantages in terms of safety and 
efficacy. 
‘‘(C) INCLUSION
OF
DRUGS
IN
ALL 
THERAPEUTIC
CATEGORIES.—The 
for-
mulary must include drugs within 
each therapeutic category and class 
of covered outpatient drugs (although 
not necessarily for all drugs within 
such categories and classes). In estab-
lishing such classes, the committee 
shall take into account the standards 
published in the United States Phar-
macopeia-Drug Information. The com-
mittee shall make available to the en-
rollees under the plan through the 
Internet or otherwise the bases for 
the exclusion of coverage of any drug 
from the formulary. 
‘‘(D) PROVIDER
AND
PATIENT
EDU-
CATION.—The committee shall estab-
lish policies and procedures to edu-
cate and inform health care providers 
and enrollees concerning the for-
mulary.
660
‘‘(E) 
NOTICE
BEFORE
REMOVING 
DRUG FROM FORMULARY FOR CHANGING 
PREFERRED OR TIER STATUS OF DRUG.—
Any removal of a covered outpatient 
drug from a formulary and any 
change in the preferred or tier cost-
sharing status of such a drug shall 
take effect only after appropriate no-
tice is made available to beneficiaries 
and physicians. 
‘‘(F) PERIODIC EVALUATION OF PRO-
TOCOLS.—In connection with the for-
mulary, a prescription drug plan 
shall provide for the periodic evalua-
tion and analysis of treatment proto-
cols and procedures. 
‘‘(G) GRIEVANCES AND APPEALS RE-
LATING
TO
APPLICATION
OF 
FORMULARIES.—For provisions relat-
ing to grievances and appeals of cov-
erage, see subsections (e) and (f). 
‘‘(d) COST AND UTILIZATION MANAGEMENT; 
QUALITY
ASSURANCE; 
MEDICATION
THERAPY 
MANAGEMENT PROGRAM.—
661
‘‘(1) IN GENERAL.—The PDP sponsor or 
entity offering a MA-EFFS Rx plan shall 
have in place, directly or through appro-
priate arrangements, with respect to cov-
ered outpatient drugs—
‘‘(A) an effective cost and drug 
utilization management program, in-
cluding medically appropriate incen-
tives to use generic drugs and thera-
peutic 
interchange, 
when 
appro-
priate; 
‘‘(B) quality assurance measures 
and systems to reduce medical errors 
and adverse drug interactions, in-
cluding 
side-effects, 
and 
improve 
medication use, including a medica-
tion therapy management program 
described in paragraph (2) and for 
years beginning with 2007, an elec-
tronic 
prescription 
program 
de-
scribed in paragraph (3); and 
‘‘(C) a program to control fraud, 
abuse, and waste. 
Nothing in this section shall be construed 
as impairing a PDP sponsor or entity
662
from utilizing cost management tools (in-
cluding differential payments) under all 
methods of operation. 
‘‘(2) MEDICATION THERAPY MANAGEMENT 
PROGRAM.—
‘‘(A) IN
GENERAL.—A medication 
therapy management program de-
scribed in this paragraph is a pro-
gram of drug therapy management 
and medication administration that 
may be furnished by a pharmacy pro-
vider and that is designed to assure, 
with respect to beneficiaries at risk 
for potential medication problems, 
such as beneficiaries with complex or 
chronic diseases (such as diabetes, 
asthma, hypertension, and congestive 
heart failure) or multiple prescrip-
tions, that covered outpatient drugs 
under the prescription drug plan are 
appropriately used to optimize thera-
peutic outcomes through improved 
medication use and reduce the risk of 
adverse 
events, 
including 
adverse 
drug 
interactions. 
Such 
programs
663
may distinguish between services in 
ambulatory and institutional settings. 
‘‘(B) 
ELEMENTS.—Such 
program 
may include—
‘‘(i) enhanced beneficiary un-
derstanding to promote the ap-
propriate use of medications by 
beneficiaries and to reduce the 
risk of potential adverse events 
associated 
with 
medications, 
through 
beneficiary 
education, 
counseling, case management, dis-
ease state management programs, 
and other appropriate means; 
‘‘(ii) increased beneficiary ad-
herence with prescription medi-
cation regimens through medica-
tion 
refill 
reminders, 
special 
packaging, and other compliance 
programs and other appropriate 
means; and 
‘‘(iii) detection of patterns of 
overuse and underuse of prescrip-
tion drugs.
664
‘‘(C) DEVELOPMENT OF PROGRAM IN 
COOPERATION
WITH
LICENSED
PHAR-
MACISTS.—The program shall be devel-
oped in cooperation with licensed 
and practicing pharmacists and phy-
sicians. 
‘‘(D) CONSIDERATIONS IN PHARMACY 
FEES.—The PDP sponsor of a prescrip-
tion drug program and an entity of-
fering a MA-EFFS Rx plan shall take 
into account, in establishing fees for 
pharmacists and others providing 
services under the medication ther-
apy management program, the re-
sources and time used in imple-
menting the program. Each such 
sponsor or entity shall disclose to the 
Administrator 
upon 
request 
the 
amount of any such management or 
dispensing fees. 
‘‘(3) ELECTRONIC
PRESCRIPTION
PRO-
GRAM.—
‘‘(A) IN
GENERAL.—An electronic 
prescription drug program described 
in this paragraph is a program that
665
includes at least the following compo-
nents, consistent with uniform stand-
ards established under subparagraph 
(B): 
‘‘(i) ELECTRONIC
TRANSMITTAL 
OF
PRESCRIPTIONS.—Prescriptions 
must be written and transmitted 
electronically (other than by fac-
simile), except in emergency cases 
and 
other 
exceptional 
cir-
cumstances recognized by the Ad-
ministrator. 
‘‘(ii) PROVISION
OF
INFORMA-
TION TO PRESCRIBING HEALTH CARE 
PROFESSIONAL.—The program pro-
vides for the electronic trans-
mittal to the prescribing health 
care professional of information 
that includes—
‘‘(I) information (to the ex-
tent available and feasible) on 
the drug or drugs being pre-
scribed for that patient and 
other information relating to 
the medical history or condi-
666
tion of the patient that may 
be relevant to the appropriate 
prescription for that patient; 
‘‘(II) cost-effective alter-
natives (if any) for the use of 
the drug prescribed; and 
‘‘(III) information on the 
drugs included in the applica-
ble formulary. 
To the extent feasible, such pro-
gram shall permit the prescribing 
health care professional to pro-
vide (and be provided) related in-
formation on an interactive, real-
time basis. 
‘‘(B) STANDARDS.—
‘‘(i) 
DEVELOPMENT.—The 
Ad-
ministrator shall provide for the 
development of uniform stand-
ards relating to the electronic 
prescription drug program de-
scribed in subparagraph (A). Such 
standards 
shall 
be 
compatible 
with standards established under 
part C of title XI.
667
‘‘(ii) ADVISORY TASK FORCE.—In 
developing such standards and 
the standards described in sub-
section (c)(2)(B)(i) the Adminis-
trator shall establish a task force 
that includes representatives of 
physicians, hospitals, pharmacies, 
beneficiaries, pharmacy benefit 
managers, individuals with exper-
tise in information technology, 
and pharmacy benefit experts of 
the Departments of Veterans Af-
fairs and Defense and other ap-
propriate Federal agencies to pro-
vide recommendations to the Ad-
ministrator on such standards, in-
cluding recommendations relat-
ing to the following: 
‘‘(I) The range of available 
computerized 
prescribing 
software and hardware and 
their costs to develop and im-
plement. 
‘‘(II) The extent to which 
such standards and systems
668
reduce medication errors and 
can be readily implemented 
by 
physicians, 
pharmacies, 
and hospitals. 
‘‘(III) Efforts to develop 
uniform standards and a com-
mon software platform for the 
secure electronic communica-
tion of medication history, eli-
gibility, benefit, and prescrip-
tion information. 
‘‘(IV) Efforts to develop 
and 
promote 
universal 
connectivity 
and 
interoper-
ability for the secure elec-
tronic exchange of such infor-
mation.
‘‘(V) The cost of imple-
menting such systems in the 
range of hospital and physi-
cian office settings and phar-
macies, including hardware, 
software, and training costs. 
‘‘(VI) 
Implementation 
issues as they relate to part C
669
of title XI, and current Fed-
eral 
and 
State 
prescribing 
laws 
and 
regulations 
and 
their impact on implementa-
tion 
of 
computerized 
pre-
scribing. 
‘‘(iii) DEADLINES.—
‘‘(I) 
The 
Administrator 
shall constitute the task force 
under clause (ii) by not later 
than April 1, 2004. 
‘‘(II) Such task force shall 
submit recommendations to 
Administrator by not later 
than January 1, 2005. 
‘‘(III) The Administrator 
shall provide for the develop-
ment and promulgation, by 
not later than January 1, 
2006, of national standards re-
lating to the electronic pre-
scription drug program de-
scribed in clause (ii). Such 
standards shall be issued by a 
standards 
organization 
ac-
670
credited by the American Na-
tional 
Standards 
Institute 
(ANSI) and shall be compat-
ible 
with 
standards 
estab-
lished under part C of title XI. 
‘‘(4) TREATMENT
OF
ACCREDITATION.—
Section 1852(e)(4) (relating to treatment 
of accreditation) shall apply to prescrip-
tion drug plans under this part with re-
spect to the following requirements, in 
the same manner as they apply to plans 
under part C with respect to the require-
ments described in a clause of section 
1852(e)(4)(B): 
‘‘(A) 
Paragraph 
(1) 
(including 
quality assurance), including medica-
tion therapy management program 
under paragraph (2). 
‘‘(B) Subsection (c)(1) (relating to 
access to covered benefits). 
‘‘(C) Subsection (g) (relating to 
confidentiality and accuracy of en-
rollee records). 
‘‘(5) PUBLIC
DISCLOSURE
OF
PHARMA-
CEUTICAL PRICES FOR EQUIVALENT DRUGS.—
671
Each PDP sponsor and each entity offer-
ing a MA-EFFS Rx plan 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 en-
rollee and the price of the lowest cost 
available generic drug covered under the 
plan that is therapeutically equivalent 
and bioequivalent.
‘‘(e) GRIEVANCE MECHANISM, COVERAGE DE-
TERMINATIONS, AND RECONSIDERATIONS.—
‘‘(1) IN GENERAL.—Each PDP sponsor 
shall provide meaningful procedures for 
hearing and resolving grievances be-
tween the organization (including any en-
tity or individual through which the 
sponsor provides covered benefits) and 
enrollees with prescription drug plans of 
the sponsor under this part in accord-
ance with section 1852(f). 
‘‘(2) APPLICATION OF COVERAGE DETER-
MINATION
AND
RECONSIDERATION
PROVI-
672
SIONS.—A PDP sponsor shall meet the re-
quirements of paragraphs (1) through (3) 
of section 1852(g) with respect to covered 
benefits under the prescription drug plan 
it offers under this part in the same man-
ner as such requirements apply to an or-
ganization with respect to benefits it of-
fers under a plan under part C. 
‘‘(3) REQUEST
FOR
REVIEW
OF
TIERED 
FORMULARY DETERMINATIONS.—In the case 
of a prescription drug plan offered by a 
PDP sponsor or a MA-EFFS Rx plan that 
provides for tiered cost-sharing for drugs 
included within a formulary and provides 
lower cost-sharing for preferred drugs in-
cluded within the formulary, an indi-
vidual who is enrolled in the plan may re-
quest coverage of a nonpreferred drug 
under the terms applicable for preferred 
drugs if the prescribing physician deter-
mines that the preferred drug for treat-
ment of the same condition either would 
not be as effective for the individual or 
would have adverse effects for the indi-
vidual or both.
673
‘‘(f) APPEALS.—
‘‘(1) IN
GENERAL.—Subject to para-
graph (2), a PDP sponsor shall meet the 
requirements of paragraphs (4) and (5) of 
section 1852(g) with respect to drugs (in-
cluding a determination related to the 
application of tiered cost-sharing de-
scribed in subsection (e)(3)) in the same 
manner as such requirements apply to an 
organization with respect to benefits it 
offers under a plan under part C. 
‘‘(2) FORMULARY DETERMINATIONS.—An 
individual who is enrolled in a prescrip-
tion drug plan offered by a PDP sponsor 
or in a MA-EFFS Rx plan may appeal to 
obtain coverage for a covered outpatient 
drug that is not on a formulary of the 
sponsor or entity offering the plan if the 
prescribing physician determines that 
the formulary drug for treatment of the 
same condition either would not be as ef-
fective for the individual or would have 
adverse effects for the individual or both. 
‘‘(g) CONFIDENTIALITY AND ACCURACY OF EN-
ROLLEE RECORDS.—A PDP sponsor that offers
674
a prescription drug plan shall meet the re-
quirements of section 1852(h) with respect to 
enrollees under the plan in the same manner 
as such requirements apply to an organiza-
tion with respect to enrollees under part C. A 
PDP sponsor shall be treated as a business as-
sociate for purposes of the provisions of sub-
part E of part 164 of title 45, Code of Federal 
Regulations, adopted pursuant to the author-
ity of the Secretary under section 264(c) of the 
Health Insurance Portability and Account-
ability Act of 1996 (42 U.S. C. 1320d-2 note). 
‘‘SEC. 1860D–4. REQUIREMENTS FOR AND CONTRACTS WITH 
PRESCRIPTION DRUG PLAN (PDP) SPONSORS. 
‘‘(a) GENERAL REQUIREMENTS.—Each PDP 
sponsor of a prescription drug plan shall meet 
the following requirements: 
‘‘(1) 
LICENSURE.—Subject 
to 
sub-
section (c), the sponsor is organized and 
licensed under State law as a risk-bear-
ing entity eligible to offer health insur-
ance or health benefits coverage in each 
State in which it offers a prescription 
drug plan.
675
‘‘(2) ASSUMPTION OF FINANCIAL RISK FOR 
UNSUBSIDIZED COVERAGE.—
‘‘(A) IN GENERAL.—Subject to sub-
paragraph (B) and section 1860D–
5(d)(2), the entity assumes full finan-
cial risk on a prospective basis for 
qualified prescription drug coverage 
that it offers under a prescription 
drug plan and that is not covered 
under section 1860D–8. 
‘‘(B) 
REINSURANCE
PERMITTED.—
The entity may obtain insurance or 
make other arrangements for the cost 
of coverage provided to any enrollee. 
‘‘(3) SOLVENCY FOR UNLICENSED SPON-
SORS.—In the case of a sponsor that is not 
described in paragraph (1), the sponsor 
shall meet solvency standards established 
by the Administrator under subsection 
(d).
‘‘(b) CONTRACT REQUIREMENTS.—
‘‘(1) IN
GENERAL.—The Administrator 
shall not permit the election under sec-
tion 1860D–1 of a prescription drug plan 
offered by a PDP sponsor under this part,
676
and the sponsor shall not be eligible for 
payments 
under 
section 
1860D–7 
or 
1860D–8, unless the Administrator has en-
tered into a contract under this sub-
section with the sponsor with respect to 
the offering of such plan. Such a contract 
with a sponsor may cover more than one 
prescription drug plan. Such contract 
shall provide that the sponsor agrees to 
comply with the applicable requirements 
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 Administrator shall 
have the same authority to negotiate the 
terms and conditions of prescription 
drug plans under this part as the Direc-
tor of the Office of Personnel Manage-
ment has with respect to health benefits 
plans under chapter 89 of title 5, United 
States Code. In negotiating the terms and 
conditions regarding premiums for which 
information is submitted under section 
1860D–6(a)(2), the Administrator shall
677
take into account the subsidy payments 
under section 1860D–8. 
‘‘(3) INCORPORATION OF CERTAIN MEDI-
CARE
ADVANTAGE
CONTRACT
REQUIRE-
MENTS.—The following provisions of sec-
tion 1857 shall apply, subject to sub-
section (c)(5), to contracts under this sec-
tion in the same manner as they apply to 
contracts under section 1857(a): 
‘‘(A) MINIMUM ENROLLMENT.—Para-
graphs (1) and (3) of section 1857(b). 
‘‘(B) CONTRACT PERIOD AND EFFEC-
TIVENESS.—Paragraphs (1) through (3) 
and (5) of section 1857(c). 
‘‘(C) PROTECTIONS
AGAINST
FRAUD 
AND
BENEFICIARY
PROTECTIONS.—Sec-
tion 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 ap-
plied separately to costs relating 
to this part (from costs under 
part C and part E);
678
‘‘(ii) in no case shall the 
amount of the fee established 
under this subparagraph for a 
plan exceed 20 percent of the 
maximum amount of the fee that 
may be established under sub-
paragraph (B) of such section; 
and 
‘‘(iii) no fees shall be applied 
under this subparagraph with re-
spect to MA-EFFS Rx plans. 
‘‘(E) 
INTERMEDIATE
SANCTIONS.—
Section 1857(g). 
‘‘(F) 
PROCEDURES
FOR
TERMI-
NATION.—Section 1857(h). 
‘‘(4) RULES OF APPLICATION FOR INTER-
MEDIATE
SANCTIONS.—In applying para-
graph (3)(E)—
‘‘(A) 
the 
reference 
in 
section 
1857(g)(1)(B) 
to 
section 
1854 
is 
deemed a reference to this part; and 
‘‘(B) 
the 
reference 
in 
section 
1857(g)(1)(F) 
to 
section 
1852(k)(2)(A)(ii) shall not be applied.
679
‘‘(5) SERVICE AREA REQUIREMENT.—For 
purposes of this part, the Administrator 
shall designate at least 10 areas covering 
the entire United States and shall be con-
sistent with EFFS regions established 
under section 1860E–1(a)(2). 
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS TO 
EXPAND CHOICE.—
‘‘(1) IN GENERAL.—In the case of an en-
tity that seeks to offer a prescription 
drug plan in a State, the 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) have been met. 
‘‘(2) 
GROUNDS
FOR
APPROVAL.—The 
grounds for approval under this para-
graph are the grounds for approval de-
scribed in subparagraph (B), (C), and (D) 
of section 1855(a)(2), and also include the 
application by a State of any grounds
680
other than those required under Federal 
law. 
‘‘(3) APPLICATION
OF
WAIVER
PROCE-
DURES.—With respect to an application 
for a waiver (or a waiver granted) under 
this subsection, the provisions of sub-
paragraphs (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 accord-
ance with subsection (a)(1) does not deem 
the entity to meet other requirements im-
posed under this part for a PDP sponsor. 
‘‘(5) REFERENCES
TO
CERTAIN
PROVI-
SIONS.—For purposes of this subsection, 
in 
applying 
provisions 
of 
section 
1855(a)(2) under this subsection to pre-
scription drug plans and PDP sponsors—
‘‘(A) any reference to a waiver ap-
plication under section 1855 shall be 
treated as a reference to a waiver ap-
plication under paragraph (1); and 
‘‘(B) any reference to solvency 
standards shall be treated as a ref-
681
erence to solvency standards estab-
lished under subsection (d). 
‘‘(d) SOLVENCY
STANDARDS
FOR
NON-LI-
CENSED SPONSORS.—
‘‘(1) 
ESTABLISHMENT.—The 
Adminis-
trator shall establish, by not later than 
October 1, 2004, financial solvency and 
capital adequacy 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 ap-
proved under subsection (c) shall meet 
solvency and capital adequacy standards 
established under paragraph (1). The Ad-
ministrator shall establish certification 
procedures for such PDP sponsors with 
respect to such solvency standards in the 
manner described in section 1855(c)(2). 
‘‘(e) RELATION TO STATE LAWS.—
‘‘(1) IN
GENERAL.—The standards es-
tablished under this part shall supersede
682
any State law or regulation (other than 
State licensing laws or State laws relat-
ing to plan solvency, except as provided 
in subsection (d)) with respect to pre-
scription drug plans which are offered by 
PDP sponsors under this part. 
‘‘(2) 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 Administrator 
under this part. 
‘‘SEC. 1860D–5. PROCESS FOR BENEFICIARIES TO SELECT 
QUALIFIED PRESCRIPTION DRUG COVERAGE. 
‘‘(a) IN GENERAL.—The Administrator shall 
establish a process for the selection of the 
prescription drug plan or MA-EFFS Rx plan 
through which eligible individuals elect quali-
fied prescription drug coverage under this 
part. 
‘‘(b) ELEMENTS.—Such process shall in-
clude the following:
683
‘‘(1) Annual, coordinated election pe-
riods, in which such individuals can 
change the qualifying plans through 
which they obtain coverage, in accord-
ance with section 1860D–1(b)(2). 
‘‘(2) Active dissemination of informa-
tion to promote an informed selection 
among qualifying plans based upon price, 
quality, and other features, in the man-
ner described in (and in coordination 
with) section 1851(d), including the provi-
sion of annual comparative information, 
maintenance of a toll-free hotline, and 
the use of non-Federal entities. 
‘‘(3) Coordination of elections through 
filing with the entity offering a MA-EFFS 
Rx plan or a PDP sponsor, in the manner 
described in (and in coordination with) 
section 1851(c)(2). 
‘‘(4) Informing each enrollee before 
the beginning of each year of the annual 
out-of-pocket threshold applicable to the 
enrollee for that year under section 
1860D–2(b)(4) at such time.
684
‘‘(c) MA-EFFS RX ENROLLEE MAY ONLY OB-
TAIN BENEFITS THROUGH THE PLAN.—An indi-
vidual who is enrolled under a MA-EFFS Rx 
plan may only elect to receive qualified pre-
scription 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 Adminis-
trator shall assure that each indi-
vidual who is entitled to benefits 
under part A or enrolled under part 
B and who is residing in an area in 
the United States has available, con-
sistent 
with 
subparagraph 
(B), 
a 
choice of enrollment in at least two 
qualifying plans (as defined in para-
graph (5)) in the area in which the in-
dividual resides, at least one of which 
is a prescription drug plan. 
‘‘(B) REQUIREMENT FOR DIFFERENT 
PLAN SPONSORS.—The requirement in 
subparagraph (A) is not satisfied with
685
respect to an area if only one PDP 
sponsor or one entity that offers a 
MA-EFFS Rx plan offers all the quali-
fying plans in the area. 
‘‘(2) GUARANTEEING
ACCESS
TO
COV-
ERAGE.—In order to assure access under 
paragraph (1) and consistent with para-
graph (3), the Administrator may provide 
partial underwriting of risk for a PDP 
sponsor to expand the service area under 
an existing prescription drug plan to ad-
joining 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 assure the access guaran-
teed under paragraph (1). 
‘‘(3) LIMITATION ON AUTHORITY.—In ex-
ercising authority under this subsection, 
the Administrator—
‘‘(A) shall not provide for the full 
underwriting of financial risk for any 
PDP sponsor; and 
‘‘(B) shall seek to maximize the as-
sumption of financial risk by PDP
686
sponsors or entities offering a MA-
EFFS Rx plan. 
‘‘(4) 
REPORTS.—The 
Administrator 
shall, in each annual report to Congress 
under section 1809(f), include informa-
tion on the exercise of authority under 
this subsection. The Administrator also 
shall include such recommendations as 
may be appropriate to minimize the exer-
cise of such authority, including mini-
mizing the assumption of financial risk. 
‘‘(5) QUALIFYING
PLAN
DEFINED.—For 
purposes of this subsection, the term 
‘qualifying plan’ means a prescription 
drug plan or a MA-EFFS Rx plan. 
‘‘SEC. 1860D–6. SUBMISSION OF BIDS AND PREMIUMS. 
‘‘(a) SUBMISSION OF BIDS, PREMIUMS, AND 
RELATED INFORMATION.—
‘‘(1) IN GENERAL.—Each PDP sponsor 
shall submit to the Administrator the in-
formation described in paragraph (2) in 
the same manner as information is sub-
mitted by an organization under section 
1854(a)(1).
687
‘‘(2) INFORMATION SUBMITTED.—The in-
formation described in this paragraph is 
the following: 
‘‘(A) COVERAGE
PROVIDED.—Infor-
mation on the qualified prescription 
drug coverage to be provided. 
‘‘(B) ACTUARIAL
VALUE.—Informa-
tion on the actuarial value of the cov-
erage. 
‘‘(C) BID
AND
PREMIUM.—Informa-
tion on the bid and the premium for 
the coverage, including an actuarial 
certification of—
‘‘(i) the actuarial basis for 
such bid and premium; 
‘‘(ii) the portion of such bid 
and premium attributable to ben-
efits in excess of standard cov-
erage; 
‘‘(iii) the reduction in such bid 
resulting from the reinsurance 
subsidy payments provided under 
section 1860D–8(a)(2); and 
‘‘(iv) the reduction in such 
premium resulting from the di-
688
rect and reinsurance subsidy pay-
ments 
provided 
under 
section 
1860D–8. 
‘‘(D) ADDITIONAL
INFORMATION.—
Such other information as the Admin-
istrator may require to carry out this 
part. 
‘‘(3) REVIEW OF INFORMATION; NEGOTIA-
TION AND APPROVAL OF PREMIUMS.—
‘‘(A) IN GENERAL.—Subject to sub-
paragraph 
(B), 
the 
Administrator 
shall review the information filed 
under paragraph (2) for the purpose 
of conducting negotiations under sec-
tion 1860D–4(b)(2) (relating to using 
OPM-like 
authority 
under 
the 
FEHBP). The Administrator, using 
the information provided (including 
the 
actuarial 
certification 
under 
paragraph (2)(C)) shall approve the 
premium submitted under this sub-
section only if the premium accu-
rately reflects both (i) the actuarial 
value of the benefits provided, and 
(ii) the 73 percent average subsidy
689
provided under section 1860D–8 for 
the standard benefit. The Adminis-
trator shall apply actuarial principles 
to approval of a premium under this 
part in a manner similar to the man-
ner in which those principles are ap-
plied in establishing the monthly part 
B premium under section 1839. 
‘‘(B) EXCEPTION.—In the case of a 
plan 
described 
in 
section 
1851(a)(2)(C), the provisions of sub-
paragraph (A) shall not apply and the 
provisions of paragraph (5)(B) of sec-
tion 1854(a), prohibiting the review, 
approval, or disapproval of amounts 
described in such paragraph, shall 
apply to the negotiation and rejection 
of the monthly bid amounts and pro-
portion referred to in subparagraph 
(A). 
‘‘(b) UNIFORM BID AND PREMIUM.—
‘‘(1) IN
GENERAL.—The bid and pre-
mium for a prescription drug plan under 
this section may not vary among enroll-
ees in the plan in the same service area.
690
‘‘(2) CONSTRUCTION.—Nothing in para-
graph (1) shall be construed as pre-
venting the imposition of a late enroll-
ment 
penalty 
under 
section 
1860D–
1(c)(2)(B).
‘‘(c) COLLECTION.—
‘‘(1) BENEFICIARY’S OPTION OF PAYMENT 
THROUGH WITHHOLDING FROM SOCIAL SECU-
RITY PAYMENT OR USE OF ELECTRONIC FUNDS 
TRANSFER
MECHANISM.—In 
accordance 
with regulations, a PDP sponsor shall 
permit each enrollee, at the enrollee’s op-
tion, to make payment of premiums 
under this part to the sponsor through 
withholding from benefit payments in the 
manner provided under section 1840 with 
respect to monthly premiums under sec-
tion 1839 or through an electronic funds 
transfer mechanism (such as automatic 
charges of an account at a financial insti-
tution or a credit or debit card account) 
or otherwise. All premium payments that 
are withheld under this paragraph shall 
be credited to the Medicare Prescription
691
Drug Trust Fund and shall be paid to the 
PDP sponsor involved. 
‘‘(2) OFFSETTING.—Reductions in pre-
miums for coverage under parts A and B 
as a result of a selection of a MA-EFFS Rx 
plan may be used to reduce the premium 
otherwise imposed under paragraph (1). 
‘‘(d) ACCEPTANCE OF REFERENCE PREMIUM 
AMOUNT
AS
FULL
PREMIUM
FOR
SUBSIDIZED 
LOW-INCOME INDIVIDUALS IF NO STANDARD (OR 
EQUIVALENT) COVERAGE IN AN AREA.—
‘‘(1) IN GENERAL.—If there is no stand-
ard prescription drug coverage (as de-
fined in paragraph (2)) offered in an area, 
in the case of an individual who is eligi-
ble for a premium subsidy under section 
1860D–7 and resides in the area, the PDP 
sponsor of any prescription drug plan of-
fered in the area (and any entity offering 
a MA-EFFS Rx plan in the area) shall ac-
cept 
the 
reference 
premium 
amount 
(under paragraph (3)) as payment in full 
for the premium charge for qualified pre-
scription drug coverage.
692
‘‘(2) 
STANDARD
PRESCRIPTION
DRUG 
COVERAGE DEFINED.—For purposes of this 
subsection, the term ‘standard prescrip-
tion drug coverage’ means qualified pre-
scription drug coverage that is standard 
coverage or that has an actuarial value 
equivalent to the actuarial value for 
standard coverage. 
‘‘(3) REFERENCE PREMIUM AMOUNT DE-
FINED.—For purposes of this subsection, 
the term ‘reference premium amount’ 
means, with respect to qualified prescrip-
tion drug coverage offered under—
‘‘(A) a prescription drug plan 
that—
‘‘(i) provides standard cov-
erage (or alternative prescription 
drug coverage the actuarial value 
is equivalent to that of standard 
coverage), the plan’s PDP pre-
mium; or 
‘‘(ii) provides alternative pre-
scription drug coverage the actu-
arial value of which is greater 
than that of standard coverage,
693
the plan’s PDP premium multi-
plied by the ratio of (I) the actu-
arial value of standard coverage, 
to (II) the actuarial value of the 
alternative coverage; 
‘‘(B) an EFFS plan, the EFFS 
monthly 
prescription 
drug 
bene-
ficiary premium (as defined in sec-
tion 1860E–4(a)(3)(B)); or 
‘‘(C) a Medicare Advantage, the 
Medicare Advantage monthly pre-
scription drug beneficiary premium 
(as defined in section 1854(b)(2)(B)). 
For purposes of subparagraph (A), the 
term ‘PDP premium’ means, with respect 
to a prescription drug plan, the premium 
amount for enrollment under the plan 
under this part (determined without re-
gard to any low-income subsidy under 
section 1860D–7 or any late enrollment 
penalty under section 1860D–1(c)(2)(B)).
694
‘‘SEC. 1860D–7. PREMIUM AND COST-SHARING SUBSIDIES 
FOR LOW-INCOME INDIVIDUALS.
‘‘(a) INCOME-RELATED SUBSIDIES FOR INDI-
VIDUALS WITH INCOME BELOW 150 PERCENT OF 
FEDERAL POVERTY LEVEL.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUC-
TION
OF
COST-SHARING
FOR
INDIVIDUALS 
WITH INCOME BELOW 135 PERCENT OF FED-
ERAL
POVERTY
LEVEL.—In the case of a 
subsidy eligible individual (as defined in 
paragraph (4)) who is determined to have 
income that does not exceed 135 percent 
of the Federal poverty level, the indi-
vidual is entitled under this section—
‘‘(A) to an income-related pre-
mium subsidy equal to 100 percent of 
the amount described in subsection 
(b)(1); and 
‘‘(B) subject to subsection (c), to 
the substitution for the beneficiary 
cost-sharing described in paragraphs 
(1) and (2) of section 1860D–2(b) (up 
to the initial coverage limit specified 
in paragraph (3) of such section) of 
amounts that do not exceed $2 for a 
multiple source or generic drug (as
695
described in section 1927(k)(7)(A)) 
and $5 for a non-preferred drug.
‘‘(2) SLIDING
SCALE
PREMIUM
SUBSIDY 
FOR
INDIVIDUALS
WITH
INCOME
ABOVE
135, 
BUT BELOW 150 PERCENT, OF FEDERAL POV-
ERTY LEVEL.—In the case of a subsidy eli-
gible individual who is determined 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 an income-
related premium subsidy determined on 
a linear sliding scale ranging from 100 
percent of the amount described in sub-
section (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) CONSTRUCTION.—Nothing in this 
section shall be construed as preventing 
a PDP sponsor or entity offering a MA-
EFFS Rx plan from reducing to 0 the 
cost-sharing otherwise applicable to ge-
neric drugs. 
‘‘(4) DETERMINATION OF ELIGIBILITY.—
696
‘‘(A) SUBSIDY
ELIGIBLE
INDIVIDUAL 
DEFINED.—For purposes of this sec-
tion, subject to subparagraph (D), the 
term 
‘subsidy 
eligible 
individual’ 
means an individual who—
‘‘(i) is eligible to elect, and has 
elected, to obtain qualified pre-
scription drug coverage under 
this part; 
‘‘(ii) has income below 150 
percent of the Federal poverty 
line; and 
‘‘(iii) meets the resources re-
quirement described in subpara-
graph (D) . 
‘‘(B) DETERMINATIONS.—The deter-
mination of whether an individual re-
siding in a State is a subsidy eligible 
individual and the amount of such in-
dividual’s income shall be determined 
under the State medicaid plan for the 
State under section 1935(a) or by the 
Social Security Administration. In the 
case of a State that does not operate 
such a medicaid plan (either under
697
title XIX or under a statewide waiver 
granted under section 1115), such de-
termination shall be made under ar-
rangements made by the Adminis-
trator. There are authorized to be ap-
propriated to the Social Security Ad-
ministration such sums as may be 
necessary for the determination of 
eligibility under this subparagraph. 
‘‘(C) INCOME DETERMINATIONS.—For 
purposes of applying this section—
‘‘(i) income shall be deter-
mined 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 re-
vised 
annually 
in 
accordance 
with section 673(2) of the Omni-
bus Budget Reconciliation Act of 
1981) applicable to a family of the 
size involved. 
‘‘(D) RESOURCE STANDARD APPLIED 
TO
BE
BASED
ON
TWICE
SSI
RESOURCE
698
STANDARD.—The resource requirement 
of this subparagraph is that an indi-
vidual’s 
resources 
(as 
determined 
under section 1613 for purposes of 
the supplemental 
security 
income 
program) do not exceed—
‘‘(i) for 2006 twice the max-
imum amount of resources that 
an individual may have and ob-
tain benefits under that program; 
and 
‘‘(ii) for a subsequent year the 
resource 
limitation 
established 
under this clause for the previous 
year increased by the annual per-
centage increase in the consumer 
price index (all items; U.S. city av-
erage) as of September of such 
previous year. 
Any resource limitation established 
under clause (ii) that is not a multiple 
of $10 shall be rounded to the nearest 
multiple of $10. 
‘‘(E) TREATMENT
OF
TERRITORIAL 
RESIDENTS.—In the case of an indi-
699
vidual who is not a resident of the 50 
States or the District of Columbia, the 
individual is not eligible to be a sub-
sidy eligible individual but may be el-
igible for financial assistance with 
prescription drug expenses under 
section 1935(e). 
‘‘(F) TREATMENT
OF
CONFORMING 
MEDIGAP
POLICIES.—For purposes of 
this section, the term ‘qualified pre-
scription drug coverage’ includes a 
medicare 
supplemental 
policy 
de-
scribed in section 1860D–8(b)(4). 
‘‘(5) INDEXING DOLLAR AMOUNTS.—
‘‘(A) 
FOR
2007.—The 
dollar 
amounts applied under paragraphs 
(1)(B) for 2007 shall be the dollar 
amounts specified in such paragraph 
increased by the annual percentage 
increase described in section 1860D–
2(b)(5) for 2007. 
‘‘(B) FOR SUBSEQUENT YEARS.—The 
dollar amounts applied under para-
graph (1)(B) for a year after 2007 
shall be the amounts (under this
700
paragraph) applied under paragraph 
(1)(B) for the preceding year in-
creased by the annual percentage in-
crease described in section 1860D–
2(b)(5) (relating to growth in medi-
care prescription drug costs per ben-
eficiary) for the year involved. 
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) IN GENERAL.—The premium sub-
sidy amount described in this subsection 
for an individual residing in an area is 
the benchmark premium amount (as de-
fined in paragraph (2)) for qualified pre-
scription drug coverage offered by the 
prescription drug plan or the MA-EFFS 
Rx plan in which the individual is en-
rolled. 
‘‘(2) BENCHMARK PREMIUM AMOUNT DE-
FINED.—For purposes of this subsection, 
the term ‘benchmark premium amount’ 
means, with respect to qualified prescrip-
tion drug coverage offered under—
‘‘(A) a prescription drug plan 
that—
1276
evaluation and management guide-
lines; and 
(C) be conducted, in development 
and throughout the planning and 
operational stages of the project, in 
consultation with practicing physi-
cians (including both generalists and 
specialists). 
(3) RANGE OF PILOT PROJECTS.—Of the 
pilot projects conducted under this sub-
section—
(A) at least one shall focus on a 
peer review method by physicians 
(not employed by a medicare con-
tractor) 
which 
evaluates 
medical 
record information for claims sub-
mitted by physicians identified as sta-
tistical outliers relative to definitions 
published in the Current Procedures 
Terminology (CPT) code book of the 
American Medical Association; 
(B) at least one shall focus on an 
alternative method to detailed guide-
lines based on physician documenta-
1312
conducted under paragraph (1) by not 
later than 18 months after the date of the 
enactment of this Act. 
(d) CONSTRUCTION.—Nothing in this sec-
tion shall be construed as preventing home 
health agencies from collecting non-medicare/
medicaid OASIS information for their own 
use.