‘‘Sec. 1860D. Definitions; treatment of references to provisions in 
MedicareAdvantage program. 
‘‘Subpart 1—Establishment of Voluntary Prescription Drug Delivery Program 
‘‘Sec. 1860D–1. Establishment of voluntary prescription drug delivery pro-
gram. 
‘‘Sec. 1860D–2. Enrollment under program. 
‘‘Sec. 1860D–3. Election of a Medicare Prescription Drug plan. 
‘‘Sec. 1860D–4. Providing information to beneficiaries. 
‘‘Sec. 1860D–5. Beneficiary protections. 
‘‘Sec. 1860D–6. Prescription drug benefits. 
‘‘Sec. 1860D–7. Requirements for entities offering Medicare Prescription 
Drug plans; establishment of standards. 
‘‘Subpart 2—Prescription Drug Delivery System 
‘‘Sec. 1860D–10. Establishment of service areas. 
‘‘Sec. 1860D–11. Publication of risk adjusters. 
‘‘Sec. 1860D–12. Submission of bids for proposed Medicare Prescription 
Drug plans. 
‘‘Sec. 1860D–13. Approval of proposed Medicare Prescription Drug plans. 
‘‘Sec. 1860D–14. Computation of monthly standard prescription drug cov-
erage premiums. 
‘‘Sec. 1860D–15. Computation of monthly national average premium. 
‘‘Sec. 1860D–16. Payments to eligible entities. 
‘‘Sec. 1860D–17. Computation of monthly beneficiary obligation. 
‘‘Sec. 1860D–18. Collection of monthly beneficiary obligation. 
‘‘Sec. 1860D–19. Premium and cost-sharing subsidies for low-income indi-
viduals. 
‘‘Sec. 1860D–20. Reinsurance payments for expenses incurred in providing 
prescription drug coverage above the annual out-of-pocket 
threshold. 
‘‘Sec. 1860D–21. Direct subsidy for sponsor of a qualified retiree prescrip-
tion drug plan for plan enrollees eligible for, but not en-
rolled in, this part. 
‘‘Subpart 3—Miscellaneous Provisions 
‘‘Sec. 1860D–25. Prescription Drug Account in the Federal Supple-
mentary Medical Insurance Trust Fund. 
‘‘Sec. 1860D–26. Other related provisions. 
Sec. 102. Study and report on permitting part B only individuals to enroll in 
medicare voluntary prescription drug delivery program. 
Sec. 103. Rules relating to medigap policies that provide prescription drug cov-
erage. 
Sec. 104. Medicaid and other amendments related to low-income beneficiaries. 
Sec. 105. Expansion of membership and duties of Medicare Payment Advisory 
Commission (MedPAC). 
Sec. 106. Study regarding variations in spending and drug utilization. 
Subtitle B—Medicare Prescription Drug Discount Card and Transitional 
Assistance for Low-Income Beneficiaries 
Sec. 111. Medicare prescription drug discount card and transitional assistance 
for low-income beneficiaries.
Subtitle C—Standards for Electronic Prescribing 
Sec. 121. Standards for electronic prescribing. 
Subtitle D—Other Provisions 
Sec. 131. Additional requirements for annual financial report and oversight on 
medicare program. 
Sec. 132. Trustees’ report on medicare’s unfunded obligations. 
TITLE II—MEDICAREADVANTAGE 
Subtitle A—MedicareAdvantage Competition 
Sec. 201. Eligibility, election, and enrollment. 
Sec. 202. Benefits and beneficiary protections. 
Sec. 203. Payments to MedicareAdvantage organizations. 
Sec. 204. Submission of bids; premiums. 
Sec. 205. Special rules for prescription drug benefits. 
Sec. 206. Facilitating employer participation. 
Sec. 207. Administration by the Center for Medicare Choices. 
Sec. 208. Conforming amendments. 
Sec. 209. Effective date.
Subtitle B—Preferred Provider Organizations 
Sec. 211. Establishment of MedicareAdvantage preferred provider program op-
tion. 
Subtitle C—Other Managed Care Reforms 
Sec. 221. Extension of reasonable cost contracts. 
Sec. 222. Specialized Medicare+Choice plans for special needs beneficiaries. 
Sec. 223. Payment by PACE providers for medicare and medicaid services fur-
nished by noncontract providers. 
Sec. 224. Institute of Medicine evaluation and report on health care perform-
ance measures.
Sec. 225. Expanding the work of medicare quality improvement organizations 
to include parts C and D. 
TITLE III—CENTER FOR MEDICARE CHOICES 
Sec. 301. Establishment of the Center for Medicare Choices. 
Sec. 302. Miscellaneous administrative provisions. 
TITLE IV—MEDICARE FEE-FOR-SERVICE IMPROVEMENTS 
Subtitle A—Provisions Relating to Part A 
Sec. 401. Equalizing urban and rural standardized payment amounts under the 
medicare inpatient hospital prospective payment system. 
Sec. 402. Adjustment to the medicare inpatient hospital PPS wage index to re-
vise the labor-related share of such index. 
Sec. 403. Medicare inpatient hospital payment adjustment for low-volume hos-
pitals. 
Sec. 404. Fairness in the medicare disproportionate share hospital (DSH) ad-
justment for rural hospitals. 
Sec. 405. Critical access hospital (CAH) improvements.
Sec. 406. Authorizing use of arrangements to provide core hospice services in 
certain circumstances. 
Sec. 407. Services provided to hospice patients by nurse practitioners, clinical 
nurse specialists, and physician assistants. 
Sec. 408. Authority to include costs of training of psychologists in payments to 
hospitals under medicare. 
Sec. 409. Revision of Federal rate for hospitals in Puerto Rico. 
Sec. 410. Authority regarding geriatric fellowships. 
Sec. 411. Clarification of congressional intent regarding the counting of resi-
dents in a nonprovider setting and a technical amendment re-
garding the 3-year rolling average and the IME ratio. 
Sec. 412. Limitation on charges for inpatient hospital contract health services 
provided to Indians by medicare participating hospitals. 
Sec. 413. GAO study and report on appropriateness of payments under the pro-
spective payment system for inpatient hospital services. 
Subtitle B—Provisions Relating to Part B 
Sec. 421. Establishment of floor on geographic adjustments of payments for 
physicians’ services. 
Sec. 422. Medicare incentive payment program improvements. 
Sec. 423. Increase in renal dialysis composite rate. 
Sec. 424. Extension of hold harmless provisions for small rural hospitals and 
treatment of certain sole community hospitals to limit decline 
in payment under the OPD PPS. 
Sec. 425. Increase in payments for certain services furnished by small rural and 
sole community hospitals under medicare prospective payment 
system for hospital outpatient department services. 
Sec. 426. Increase for ground ambulance services furnished in a rural area. 
Sec. 427. Ensuring appropriate coverage of air ambulance services under ambu-
lance fee schedule. 
Sec. 428. Treatment of certain clinical diagnostic laboratory tests furnished by 
a sole community hospital. 
Sec. 429. Improvement in rural health clinic reimbursement. 
Sec. 430. Elimination of consolidated billing for certain services under the 
medicare PPS for skilled nursing facility services. 
Sec. 431. Freeze in payments for certain items of durable medical equipment 
and certain orthotics; establishment of quality standards and 
accreditation requirements for DME providers. 
Sec. 432. Application of coinsurance and deductible for clinical diagnostic lab-
oratory tests. 
Sec. 433. Basing medicare payments for covered outpatient drugs on market 
prices. 
Sec. 434. Indexing part B deductible to inflation. 
Sec. 435. Revisions to reassignment provisions. 
Sec. 436. Extension of treatment of certain physician pathology services under 
medicare. 
Sec. 437. Adequate reimbursement for outpatient pharmacy therapy under the 
hospital outpatient PPS. 
Sec. 438. Limitation of application of functional equivalence standard. 
Sec. 439. Medicare coverage of routine costs associated with certain clinical 
trials. 
Sec. 440. Waiver of part B late enrollment penalty for certain military retirees; 
special enrollment period. 
Sec. 441. Demonstration of coverage of chiropractic services under medicare.
Sec. 442. Medicare health care quality demonstration programs. 
Sec. 443. Medicare complex clinical care management payment demonstration. 
Sec. 444. Medicare fee-for-service care coordination demonstration program. 
Sec. 445. GAO study of geographic differences in payments for physicians’ 
services. 
Subtitle C—Provisions Relating to Parts A and B 
Sec. 451. Increase for home health services furnished in a rural area. 
Sec. 452. Limitation on reduction in area wage adjustment factors under the 
prospective payment system for home health services. 
Sec. 453. Clarifications to certain exceptions to medicare limits on physician re-
ferrals. 
Sec. 454. Demonstration program for substitute adult day services. 
Sec. 455. Medicare secondary payor (MSP) provisions. 
TITLE V—MEDICARE APPEALS, REGULATORY, AND CONTRACTING 
IMPROVEMENTS 
Subtitle A—Regulatory Reform 
Sec. 501. Rules for the publication of a final regulation based on the previous 
publication of an interim final regulation. 
Sec. 502. Compliance with changes in regulations and policies. 
Sec. 503. Report on legal and regulatory inconsistencies.
Subtitle B—Appeals Process Reform 
Sec. 511. Submission of plan for transfer of responsibility for medicare appeals. 
Sec. 512. Expedited access to judicial review. 
Sec. 513. Expedited review of certain provider agreement determinations. 
Sec. 514. Revisions to medicare appeals process. 
Sec. 515. Hearing rights related to decisions by the Secretary to deny or not 
renew a medicare enrollment agreement; consultation before 
changing provider enrollment forms. 
Sec. 516. Appeals by providers when there is no other party available. 
Sec. 517. Provider access to review of local coverage determinations. 
Subtitle C—Contracting Reform 
Sec. 521. Increased flexibility in medicare administration. 
Subtitle D—Education and Outreach Improvements 
Sec. 531. Provider education and technical assistance. 
Sec. 532. Access to and prompt responses from medicare contractors. 
Sec. 533. Reliance on guidance. 
Sec. 534. Medicare provider ombudsman. 
Sec. 535. Beneficiary outreach demonstration programs. 
Subtitle E—Review, Recovery, and Enforcement Reform 
Sec. 541. Prepayment review. 
Sec. 542. Recovery of overpayments. 
Sec. 543. Process for correction of minor errors and omissions on claims with-
out pursuing appeals process. 
Sec. 544. Authority to waive a program exclusion.
TITLE VI—OTHER PROVISIONS 
Sec. 601. Increase in medicaid DSH allotments for fiscal years 2004 and 2005. 
Sec. 602. Increase in floor for treatment as an extremely low DSH State under 
the medicaid program for fiscal years 2004 and 2005. 
Sec. 603. Increased reporting requirements to ensure the appropriateness of 
payment adjustments to disproportionate share hospitals under 
the medicaid program. 
Sec. 604. Clarification of inclusion of inpatient drug prices charged to certain 
public hospitals in the best price exemptions for the medicaid 
drug rebate program. 
Sec. 605. Assistance with coverage of legal immigrants under the medicaid pro-
gram and SCHIP. 
Sec. 606. Establishment of consumer ombudsman account. 
Sec. 607. GAO study regarding impact of assets test for low-income bene-
ficiaries. 
Sec. 608. Health care infrastructure improvement. 
Sec. 609. Capital infrastructure revolving loan program. 
Sec. 610. Federal reimbursement of emergency health services furnished to un-
documented aliens. 
Sec. 611. Increase in appropriation to the health care fraud and abuse control 
account. 
Sec. 612. Increase in civil penalties under the False Claims Act. 
Sec. 613. Increase in civil monetary penalties under the Social Security Act. 
Sec. 614. Extension of customs user fees. 
TITLE VII—ACCESS TO AFFORDABLE PHARMACEUTICALS 
Sec. 701. Short title. 
Sec. 702. 30-month stay-of-effectiveness period. 
Sec. 703. Forfeiture of 180-day exclusivity period. 
Sec. 704. Bioavailability and bioequivalence. 
Sec. 705. Remedies for infringement. 
Sec. 706. Conforming amendments. 
TITLE VIII—IMPORTATION OF PRESCRIPTION DRUGS 
Sec. 801. Importation of prescription drugs.
TITLE I—MEDICARE 
PRESCRIPTION DRUG BENEFIT 
Subtitle 
A—Medicare 
Voluntary 
Prescription Drug Delivery Pro-
gram 
SEC. 101. MEDICARE VOLUNTARY PRESCRIPTION DRUG DE-
LIVERY PROGRAM. 
(a) ESTABLISHMENT.—Title XVIII (42 U.S.C. 1395 
et seq.) is amended by redesignating part D as part E 
and by inserting after part C the following new part: 
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG DELIVERY 
PROGRAM 
‘‘DEFINITIONS; TREATMENT OF REFERENCES TO 
PROVISIONS IN MEDICAREADVANTAGE PROGRAM 
‘‘SEC. 1860D. (a) DEFINITIONS.—In this part: 
‘‘(1) ADMINISTRATOR.—The term ‘Adminis-
trator’ means the Administrator of the Center for 
Medicare Choices as established under section 1808. 
‘‘(2) COVERED DRUG.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraphs (B), (C), and (D), the term ‘cov-
ered drug’ means—
‘‘(i) a drug that may be dispensed 
only upon a prescription and that is de-
scribed in clause (i) or (ii) of subparagraph 
(A) of section 1927(k)(2); or 
‘‘(ii) a biological product described in 
clauses (i) through (iii) of subparagraph 
(B) of such section; or 
‘‘(iii) insulin described in subpara-
graph (C) of such section; and such term 
includes a vaccine licensed under section 
351 of the Public Health Service Act and 
any use of a covered drug for a medically 
accepted indication (as defined in section 
1927(k)(6)). 
‘‘(B) EXCLUSIONS.—
‘‘(i) IN GENERAL.—The term ‘covered 
drug’ does not include drugs or classes of 
drugs, or their medical uses, which may be 
excluded from coverage or otherwise re-
stricted under section 1927(d)(2), other 
than subparagraph (E) thereof (relating to 
smoking cessation agents), or under sec-
tion 1927(d)(3). 
‘‘(ii) AVOIDANCE OF DUPLICATE COV-
ERAGE.—A drug prescribed for an indi-
vidual that would otherwise be a covered 
drug under this part shall not be so con-
sidered if payment for such drug is avail-
able under part A or B, but shall be so 
considered if such payment is not available 
under part A or B or because benefits 
under such parts have been exhausted. 
‘‘(C) APPLICATION
OF
FORMULARY
RE-
STRICTIONS.—A drug prescribed for an indi-
vidual that would otherwise be a covered drug 
under this part shall not be so considered under 
a plan if the plan excludes the drug under a 
formulary and such exclusion is not successfully 
resolved under subsection (d) or (e)(2) of sec-
tion 1860D–5. 
‘‘(D) APPLICATION OF GENERAL EXCLU-
SION
PROVISIONS.—A Medicare Prescription 
Drug plan or a MedicareAdvantage plan may 
exclude from qualified prescription drug cov-
erage any covered drug—
‘‘(i) for which payment would not be 
made if section 1862(a) applied to part D; 
or 
‘‘(ii) which are not prescribed in ac-
cordance with the plan or this part.
Such exclusions are determinations subject to 
reconsideration and appeal pursuant to section 
1860D–5(e).
‘‘(3) ELIGIBLE BENEFICIARY.—The term ‘eligi-
ble beneficiary’ means an individual who is entitled 
to, or enrolled for, benefits under part A and en-
rolled under part B. 
‘‘(4) ELIGIBLE ENTITY.—The term ‘eligible en-
tity’ means any risk-bearing entity that the Adminis-
trator determines to be appropriate to provide eligi-
ble beneficiaries with the benefits under a Medicare 
Prescription Drug plan, including—
‘‘(A) a pharmaceutical benefit management 
company; 
‘‘(B) a wholesale or retail pharmacist deliv-
ery system; 
‘‘(C) an insurer (including an insurer that 
offers medicare supplemental policies under sec-
tion 1882); 
‘‘(D) any other risk-bearing entity; or 
‘‘(E) any combination of the entities de-
scribed in subparagraphs (A) through (D). 
‘‘(5) INITIAL COVERAGE LIMIT.—The term ‘ini-
tial coverage limit’ means the limit as established 
under section 1860D–6(c)(3), or, in the case of cov-
erage that is not standard prescription drug cov-
erage, the comparable limit (if any) established 
under the coverage. 
‘‘(6) 
MEDICAREADVANTAGE
ORGANIZATION; 
MEDICAREADVANTAGE
PLAN.—The 
terms 
‘MedicareAdvantage 
organization’ 
and 
‘MedicareAdvantage plan’ have the meanings given 
such terms in subsections (a)(1) and (b)(1), respec-
tively, of section 1859 (relating to definitions relat-
ing to MedicareAdvantage organizations). 
‘‘(7) MEDICARE PRESCRIPTION DRUG PLAN.—
The term ‘Medicare Prescription Drug plan’ means 
prescription drug coverage that is offered under a 
policy, contract, or plan—
‘‘(A) that has been approved under section 
1860D–13; and 
‘‘(B) by an eligible entity pursuant to, and 
in accordance with, a contract between the Ad-
ministrator and the entity under section 
1860D–7(b).
‘‘(8) PRESCRIPTION
DRUG
ACCOUNT.—The 
term ‘Prescription Drug Account’ means the Pre-
scription Drug Account (as established under section 
1860D–25) in the Federal Supplementary Medical 
Insurance Trust Fund under section 1841.
‘‘(9) QUALIFIED
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘qualified prescription drug cov-
erage’ means the coverage described in section 
1860D–6(a)(1). 
‘‘(10) STANDARD
PRESCRIPTION
DRUG
COV-
ERAGE.—The term ‘standard prescription drug cov-
erage’ means the coverage described in section 
1860D–6(c). 
‘‘(b) APPLICATION OF MEDICAREADVANTAGE PROVI-
SIONS UNDER THIS PART.—For purposes of applying pro-
visions of part C under this part with respect to a Medi-
care Prescription Drug plan and an eligible entity, unless 
otherwise provided in this part such provisions shall be 
applied as if—
‘‘(1) any reference to a MedicareAdvantage 
plan included a reference to a Medicare Prescription 
Drug plan; 
‘‘(2) any reference to a provider-sponsored or-
ganization included a reference to an eligible entity; 
‘‘(3) any reference to a contract under section 
1857 included a reference to a contract under sec-
tion 1860D–7(b); and 
‘‘(4) any reference to part C included a ref-
erence to this part.
‘‘Subpart 1—Establishment of Voluntary Prescription 
Drug Delivery Program 
‘‘ESTABLISHMENT OF VOLUNTARY PRESCRIPTION DRUG 
DELIVERY PROGRAM 
‘‘SEC. 1860D–1. (a) PROVISION OF BENEFIT.—
‘‘(1) IN
GENERAL.—The Administrator shall 
provide for and administer a voluntary prescription 
drug delivery program under which each eligible ben-
eficiary enrolled under this part shall be provided 
with access to qualified prescription drug coverage 
as follows: 
‘‘(A) MEDICAREADVANTAGE
ENROLLEES 
RECEIVE
COVERAGE
THROUGH 
MEDICAREADVANTAGE PLAN.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), an eligible beneficiary 
who is enrolled under this part and en-
rolled in a MedicareAdvantage plan offered 
by a MedicareAdvantage organization shall 
receive coverage of benefits under this part 
through such plan. 
‘‘(ii) EXCEPTION FOR ENROLLEES IN 
MEDICAREADVANTAGE MSA PLANS.—An el-
igible beneficiary who is enrolled under this 
part and enrolled in an MSA plan under
part C shall receive coverage of benefits 
under this part through enrollment in a 
Medicare Prescription Drug plan that is 
offered in the geographic area in which the 
beneficiary resides. For purposes of this 
part, the term ‘MSA plan’ has the meaning 
given such term in section 1859(b)(3). 
‘‘(iii) EXCEPTION FOR ENROLLEES IN 
MEDICAREADVANTAGE
PRIVATE
FEE-FOR-
SERVICE
PLANS.—An eligible beneficiary 
who is enrolled under this part and en-
rolled in a private fee-for-service plan 
under part C shall—
‘‘(I) receive benefits under this 
part through such plan if the plan 
provides qualified prescription drug 
coverage; and 
‘‘(II) if the plan does not provide 
qualified prescription drug coverage, 
receive coverage of benefits under this 
part through enrollment in a Medicare 
Prescription Drug plan that is offered 
in the geographic area in which the 
beneficiary resides. For purposes of 
this part, the term ‘private fee-for-
service plan’ has the meaning given 
such term in section 1859(b)(2). 
‘‘(B) FEE-FOR-SERVICE
ENROLLEES
RE-
CEIVE COVERAGE THROUGH A MEDICARE PRE-
SCRIPTION DRUG PLAN.—An eligible beneficiary 
who is enrolled under this part but is not en-
rolled in a MedicareAdvantage plan (except for 
an MSA plan or a private fee-for-service plan 
that does not provide qualified prescription 
drug coverage) shall receive coverage of benefits 
under this part through enrollment in a Medi-
care Prescription Drug plan that is offered in 
the geographic area in which the beneficiary re-
sides. 
‘‘(2) VOLUNTARY
NATURE
OF
PROGRAM.—
Nothing in this part shall be construed as requiring 
an eligible beneficiary to enroll in the program under 
this part. 
‘‘(3) SCOPE OF BENEFITS.—Pursuant to sec-
tion 1860D–6(b)(3)(C), the program established 
under this part shall provide for coverage of all 
therapeutic categories and classes of covered drugs 
(although not necessarily for all drugs within such 
categories and classes).
‘‘(4) PROGRAM TO BEGIN IN 2006.—The Admin-
istrator shall establish the program under this part 
in a manner so that benefits are first provided be-
ginning on January 1, 2006. 
‘‘(b) ACCESS TO ALTERNATIVE PRESCRIPTION DRUG 
COVERAGE.—In the case of an eligible beneficiary who has 
creditable prescription drug coverage (as defined in section 
1860D–2(b)(1)(F)), such beneficiary—
‘‘(1) may continue to receive such coverage and 
not enroll under this part; and 
‘‘(2) pursuant to section 1860D–2(b)(1)(C), is 
permitted to subsequently enroll under this part 
without any penalty and obtain access to qualified 
prescription drug coverage in the manner described 
in subsection (a) if the beneficiary involuntarily loses 
such coverage. 
‘‘(c) FINANCING.—The costs of providing benefits 
under this part shall be payable from the Prescription 
Drug Account. 
‘‘ENROLLMENT UNDER PROGRAM 
‘‘SEC. 1860D–2. (a) ESTABLISHMENT OF ENROLL-
MENT PROCESS.—
‘‘(1) PROCESS
SIMILAR
TO
PART
B
ENROLL-
MENT.—The Administrator shall establish a process 
through which an eligible beneficiary (including an 
eligible beneficiary enrolled in a MedicareAdvantage
plan offered by a MedicareAdvantage organization) 
may make an election to enroll under this part. Such 
process shall be similar to the process for enrollment 
in part B under section 1837, including the deeming 
provisions of such section. 
‘‘(2) CONDITION OF ENROLLMENT.—An eligible 
beneficiary must be enrolled under this part in order 
to be eligible to receive access to qualified prescrip-
tion drug coverage. 
‘‘(b) SPECIAL ENROLLMENT PROCEDURES.—
‘‘(1) LATE ENROLLMENT PENALTY.—
‘‘(A) INCREASE IN MONTHLY BENEFICIARY 
OBLIGATION.—Subject to the succeeding provi-
sions of this paragraph, in the case of an eligi-
ble beneficiary whose coverage period under this 
part began pursuant to an enrollment after the 
beneficiary’s initial enrollment period under 
part 
B 
(determined 
pursuant 
to 
section 
1837(d)) and not pursuant to the open enroll-
ment period described in paragraph (2), the Ad-
ministrator shall establish procedures for in-
creasing the amount of the monthly beneficiary 
obligation under section 1860D–17 applicable 
to such beneficiary by an amount that the Ad-
ministrator determines is actuarially sound for
each full 12-month period (in the same contin-
uous period of eligibility) in which the eligible 
beneficiary could have been enrolled under this 
part but was not so enrolled. 
‘‘(B) PERIODS
TAKEN
INTO
ACCOUNT.—
For purposes of calculating any 12-month pe-
riod under subparagraph (A), there shall be 
taken into account—
‘‘(i) the months which elapsed be-
tween the close of the eligible beneficiary’s 
initial enrollment period and the close of 
the enrollment period in which the bene-
ficiary enrolled; and 
‘‘(ii) in the case of an eligible bene-
ficiary who reenrolls under this part, the 
months which elapsed between the date of 
termination of a previous coverage period 
and the close of the enrollment period in 
which the beneficiary reenrolled.
‘‘(C) PERIODS
NOT
TAKEN
INTO
AC-
COUNT.—
‘‘(i) IN
GENERAL.—For purposes of 
calculating any 12-month period under 
subparagraph (A), subject to clause (ii), 
there shall not be taken into account
months for which the eligible beneficiary 
can demonstrate that the beneficiary had 
creditable prescription drug coverage (as 
defined in subparagraph (F)). 
‘‘(ii) BENEFICIARY
MUST
INVOLUN-
TARILY LOSE COVERAGE.—Clause (i) shall 
only apply with respect to coverage—
‘‘(I) in the case of coverage de-
scribed in clause (ii) of subparagraph 
(F), if the plan terminates, ceases to 
provide, or reduces the value of the 
prescription drug coverage under such 
plan to below the actuarial value of 
standard prescription drug coverage 
(as determined under section 1860D–
6(f)); 
‘‘(II) in the case of coverage de-
scribed in clause (i), (iii), or (iv) of 
subparagraph (F), if the beneficiary is 
involuntarily disenrolled or becomes 
ineligible for such coverage; or 
‘‘(III) in the case of a beneficiary 
with coverage described in clause (v) 
of subparagraph (F), if the issuer of
the policy terminates coverage under 
the policy. 
‘‘(D) PERIODS
TREATED
SEPARATELY.—
Any increase in an eligible beneficiary’s monthly 
beneficiary obligation under subparagraph (A) 
with respect to a particular continuous period 
of eligibility shall not be applicable with respect 
to any other continuous period of eligibility 
which the beneficiary may have. 
‘‘(E) CONTINUOUS
PERIOD
OF
ELIGI-
BILITY.—
‘‘(i) IN GENERAL.—Subject to clause 
(ii), for purposes of this paragraph, an eli-
gible beneficiary’s ‘continuous period of eli-
gibility’ is the period that begins with the 
first day on which the beneficiary is eligi-
ble to enroll under section 1836 and ends 
with the beneficiary’s death. 
‘‘(ii) SEPARATE PERIOD.—Any period 
during all of which an eligible beneficiary 
satisfied paragraph (1) of section 1836 
and which terminated in or before the 
month preceding the month in which the 
beneficiary attained age 65 shall be a sepa-
rate ‘continuous period of eligibility’ with
respect to the beneficiary (and each such 
period which terminates shall be deemed 
not to have existed for purposes of subse-
quently applying this paragraph). 
‘‘(F) CREDITABLE
PRESCRIPTION
DRUG 
COVERAGE DEFINED.—Subject to subparagraph 
(G), for purposes of this part, the term ‘cred-
itable prescription drug coverage’ means any of 
the following: 
‘‘(i) DRUG-ONLY
COVERAGE
UNDER 
MEDICAID.—Coverage 
of 
covered 
out-
patient drugs (as defined in section 1927) 
under title XIX through a waiver under 
1115 where covered outpatient drugs are 
the sole medical assistance benefit. 
‘‘(ii) PRESCRIPTION DRUG COVERAGE 
UNDER A GROUP HEALTH PLAN.—Any out-
patient prescription drug coverage under a 
group health plan, including a health bene-
fits plan under chapter 89 of title 5, 
United States Code (commonly known as 
the Federal employees health benefits pro-
gram), and a qualified retiree prescription 
drug plan (as defined in section 1860D–
20(e)(4)).
‘‘(iii) STATE
PHARMACEUTICAL
AS-
SISTANCE
PROGRAM.—Coverage of pre-
scription drugs under a State pharma-
ceutical assistance program. 
‘‘(iv) VETERANS’ COVERAGE OF PRE-
SCRIPTION DRUGS.—Coverage of prescrip-
tion drugs for veterans, and survivors and 
dependents of veterans, under chapter 17 
of title 38, United States Code. 
‘‘(v) PRESCRIPTION DRUG COVERAGE 
UNDER
MEDIGAP
POLICIES.—Coverage 
under a medicare supplemental policy 
under section 1882 that provides benefits 
for prescription drugs (whether or not such 
coverage conforms to the standards for 
packages 
of 
benefits 
under 
section 
1882(p)(1)). 
‘‘(G) REQUIREMENT
FOR
CREDITABLE 
COVERAGE.—Coverage described in clauses (i) 
through (v) of subparagraph (F) shall not be 
considered to be creditable coverage under this 
part unless the coverage provides coverage of 
the cost of prescription drugs the actuarial 
value of which (as defined by the Adminis-
trator) to the beneficiary equals or exceeds the
actuarial value of standard prescription drug 
coverage (as determined under section 1860D–
6(f)). 
‘‘(H) DISCLOSURE.—
‘‘(i) IN GENERAL.—Each entity that 
offers coverage of the type described in 
clause (ii) (iii), (iv), or (v) of subparagraph 
(F) shall provide for disclosure, consistent 
with standards established by the Adminis-
trator, of whether the coverage provides 
coverage of the cost of prescription drugs 
the actuarial value of which (as defined by 
the Administrator) to the beneficiary 
equals or exceeds the actuarial value of 
standard prescription drug coverage (as 
determined under section 1860D–6(f)). 
‘‘(ii) WAIVER
OF
LIMITATIONS.—An 
individual may apply to the Administrator 
to waive the application of subparagraph 
(G) if the individual establishes that the 
individual was not adequately informed 
that the coverage the beneficiary was en-
rolled in did not provide the level of bene-
fits required in order for the coverage to be
considered creditable coverage under sub-
paragraph (F). 
‘‘(2) INITIAL ELECTION PERIODS.—
‘‘(A) OPEN
ENROLLMENT
PERIOD
FOR 
CURRENT BENEFICIARIES IN WHICH LATE EN-
ROLLMENT PROCEDURES DO NOT APPLY.—In 
the case of an individual who is an eligible ben-
eficiary as of November 1, 2005, there shall be 
an open enrollment period of 6 months begin-
ning on that date under which such beneficiary 
may enroll under this part without the applica-
tion of the late enrollment procedures estab-
lished under paragraph (1)(A). 
‘‘(B) INDIVIDUAL COVERED IN FUTURE.—
In the case of an individual who becomes an eli-
gible beneficiary after such date, there shall be 
an initial election period which is the same as 
the initial enrollment period under section 
1837(d). 
‘‘(3) SPECIAL ENROLLMENT PERIOD FOR BENE-
FICIARIES WHO INVOLUNTARILY LOSE CREDITABLE 
PRESCRIPTION DRUG COVERAGE.—
‘‘(A) 
ESTABLISHMENT.—The 
Adminis-
trator shall establish a special open enrollment 
period (as described in subparagraph (B)) for
an eligible beneficiary that loses creditable pre-
scription drug coverage. 
‘‘(B) SPECIAL
OPEN
ENROLLMENT
PE-
RIOD.—The special open enrollment period de-
scribed in this subparagraph is the 63-day pe-
riod that begins on—
‘‘(i) in the case of a beneficiary with 
coverage described in clause (ii) of para-
graph (1)(F), the later of the date on 
which the plan terminates, ceases to pro-
vide, or substantially reduces (as defined 
by the Administrator) the value of the pre-
scription drug coverage under such plan or 
the date the beneficiary is provided with 
notice of such termination or reduction; 
‘‘(ii) in the case of a beneficiary with 
coverage described in clause (i), (iii), or 
(iv) of paragraph (1)(F), the later of the 
date on which the beneficiary is involun-
tarily disenrolled or becomes ineligible for 
such coverage or the date the beneficiary is 
provided with notice of such loss of eligi-
bility; or 
‘‘(iii) in the case of a beneficiary with 
coverage described in clause (v) of para-
graph (1)(F), the latter of the date on 
which the issuer of the policy terminates 
coverage under the policy or the date the 
beneficiary is provided with notice of such 
termination. 
‘‘(c) PERIOD OF COVERAGE.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2) and subject to paragraph (3), an eligible 
beneficiary’s coverage under the program under this 
part shall be effective for the period provided in sec-
tion 1838, as if that section applied to the program 
under this part. 
‘‘(2) OPEN AND SPECIAL ENROLLMENT.—
‘‘(A) OPEN
ENROLLMENT.—An eligible 
beneficiary who enrolls under the program 
under this part pursuant to subsection (b)(2) 
shall be entitled to the benefits under this part 
beginning on January 1, 2006. 
‘‘(B) SPECIAL ENROLLMENT.—Subject to 
paragraph (3), an eligible beneficiary who en-
rolls under the program under this part pursu-
ant to subsection (b)(3) shall be entitled to the 
benefits under this part beginning on the first 
day of the month following the month in which 
such enrollment occurs.
‘‘(3) LIMITATION.—Coverage under this part 
shall not begin prior to January 1, 2006. 
‘‘(d) TERMINATION.—
‘‘(1) IN GENERAL.—The causes of termination 
specified in section 1838 shall apply to this part in 
the same manner as such causes apply to part B. 
‘‘(2) COVERAGE TERMINATED BY TERMINATION 
OF COVERAGE UNDER PART A OR B.—
‘‘(A) IN
GENERAL.—In addition to the 
causes of termination specified in paragraph 
(1), the Administrator shall terminate an indi-
vidual’s coverage under this part if the indi-
vidual is no longer enrolled in both parts A and 
B. 
‘‘(B) EFFECTIVE DATE.—The termination 
described in subparagraph (A) shall be effective 
on the effective date of termination of coverage 
under part A or (if earlier) under part B.
‘‘(3) PROCEDURES
REGARDING
TERMINATION 
OF A BENEFICIARY UNDER A PLAN.—The Adminis-
trator shall establish procedures for determining the 
status of an eligible beneficiary’s enrollment under 
this part if the beneficiary’s enrollment in a Medi-
care Prescription Drug plan offered by an eligible 
entity under this part is terminated by the entity for
cause (pursuant to procedures established by the 
Administrator under section 1860D–3(a)(1)). 
‘‘ELECTION OF A MEDICARE PRESCRIPTION DRUG PLAN 
‘‘SEC. 1860D–3. (a) IN GENERAL.—
‘‘(1) PROCESS.—
‘‘(A) ELECTION.—
‘‘(i) IN GENERAL.—The Administrator 
shall establish a process through which an 
eligible beneficiary who is enrolled under 
this 
part 
but 
not 
enrolled 
in 
a 
MedicareAdvantage plan (except for an 
MSA plan or a private fee-for-service plan 
that does not provide qualified prescription 
drug 
coverage) 
offered 
by 
a 
MedicareAdvantage organization—
‘‘(I) shall make an election to en-
roll in any Medicare Prescription 
Drug plan that is offered by an eligi-
ble entity and that serves the geo-
graphic area in which the beneficiary 
resides; and 
‘‘(II) may make an annual elec-
tion to change the election under this 
clause. 
‘‘(ii) CLARIFICATION REGARDING EN-
ROLLMENT.—The 
process 
established
under clause (i) shall include, in the case 
of an eligible beneficiary who is enrolled 
under this part but who has failed to make 
an election of a Medicare Prescription 
Drug plan in an area, for the enrollment 
in any Medicare Prescription Drug plan 
that has been designated by the Adminis-
trator in the area. The Administrator shall 
establish a process for designating a plan 
or plans in order to carry out the pre-
ceding sentence. 
‘‘(B) REQUIREMENTS
FOR
PROCESS.—In 
establishing the process under subparagraph 
(A), the Administrator shall—
‘‘(i) use rules similar to the rules for 
enrollment, disenrollment, and termination 
of enrollment with a MedicareAdvantage 
plan under section 1851, including—
‘‘(I) the establishment of special 
election 
periods 
under 
subsection 
(e)(4) of such section; and 
‘‘(II) the application of the guar-
anteed issue and renewal provisions of 
section 1851(g) (other than clause (i) 
and the second sentence of clause (ii)
of paragraph (3)(C), relating to de-
fault enrollment); and 
‘‘(ii) 
coordinate 
enrollments, 
disenrollments, and terminations of enroll-
ment under part C with enrollments, 
disenrollments, and terminations of enroll-
ment under this part. 
‘‘(2) FIRST
ENROLLMENT
PERIOD
FOR
PLAN 
ENROLLMENT.—The process developed under para-
graph (1) shall ensure that eligible beneficiaries who 
enroll under this part during the open enrollment 
period under section 1860D–2(b)(2) are permitted 
to elect an eligible entity prior to January 1, 2006, 
in order to ensure that coverage under this part is 
effective as of such date. 
‘‘(b) ENROLLMENT
IN
A
MEDICAREADVANTAGE 
PLAN.—
‘‘(1) IN GENERAL.—An eligible beneficiary who 
is enrolled under this part and enrolled in a 
MedicareAdvantage plan (except for an MSA plan or 
a private fee-for-service plan that does not provide 
qualified prescription drug coverage) offered by a 
MedicareAdvantage organization shall receive access 
to such coverage under this part through such plan.
‘‘(2) 
RULES.—Enrollment 
in 
a 
MedicareAdvantage plan is subject to the rules for 
enrollment in such plan under section 1851. 
‘‘(c) INFORMATION TO ENTITIES TO FACILITATE 
ENROLLMENT.—Notwithstanding any other provision of 
law, the Administrator may provide to each eligible entity 
with a contract under this part such information about 
eligible beneficiaries as the Administrator determines to 
be necessary to facilitate efficient enrollment by such 
beneficiaries with such entities. The Administrator may 
provide such information only so long as and to the extent 
necessary to carry out such objective. 
‘‘PROVIDING INFORMATION TO BENEFICIARIES 
‘‘SEC. 1860D–4. (a) ACTIVITIES.—
‘‘(1) IN
GENERAL.—The Administrator shall 
conduct activities that are designed to broadly dis-
seminate information to eligible beneficiaries (and 
prospective eligible beneficiaries) regarding the cov-
erage provided under this part. 
‘‘(2) SPECIAL RULE FOR FIRST ENROLLMENT 
UNDER THE PROGRAM.—The activities described in 
paragraph (1) shall ensure that eligible beneficiaries 
are provided with such information at least 30 days 
prior to the first enrollment period described in sec-
tion 1860D–3(a)(2). 
‘‘(b) REQUIREMENTS.—
‘‘(1) IN GENERAL.—The activities described in 
subsection (a) shall—
‘‘(A) be similar to the activities performed 
by the Administrator under section 1851(d); 
‘‘(B) be coordinated with the activities per-
formed by—
‘‘(i) the Administrator under such sec-
tion; and 
‘‘(ii) the Secretary under section 
1804; and 
‘‘(C) provide for the dissemination of infor-
mation comparing the plans offered by eligible 
entities under this part that are available to eli-
gible beneficiaries residing in an area. 
‘‘(2) COMPARATIVE INFORMATION.—The com-
parative information described in paragraph (1)(C) 
shall include a comparison of the following: 
‘‘(A) BENEFITS.—The benefits provided 
under the plan and the formularies and griev-
ance and appeals processes under the plan. 
‘‘(B) MONTHLY
BENEFICIARY
OBLIGA-
TION.—The 
monthly 
beneficiary 
obligation 
under the plan.
‘‘(C) QUALITY AND PERFORMANCE.—The 
quality and performance of the eligible entity 
offering the plan. 
‘‘(D) BENEFICIARY
COST-SHARING.—The 
cost-sharing required of eligible beneficiaries 
under the plan. 
‘‘(E) 
CONSUMER
SATISFACTION
SUR-
VEYS.—The results of consumer satisfaction 
surveys regarding the plan and the eligible enti-
ty offering such plan (conducted pursuant to 
section 1860D–5(h). 
‘‘(F) ADDITIONAL
INFORMATION.—Such 
additional information as the Administrator 
may prescribe. 
‘‘BENEFICIARY PROTECTIONS 
‘‘SEC. 1860D–5. (a) DISSEMINATION OF INFORMA-
TION.—
‘‘(1) GENERAL INFORMATION.—An eligible enti-
ty offering a Medicare Prescription Drug plan shall 
disclose, in a clear, accurate, and standardized form 
to each enrollee at the time of enrollment, and at 
least annually thereafter, the information described 
in section 1852(c)(1) relating to such plan. Such in-
formation includes the following: 
‘‘(A) Access to covered drugs, including ac-
cess through pharmacy networks.
‘‘(B) How any formulary used by the enti-
ty functions. 
‘‘(C) Copayments, coinsurance, and de-
ductible requirements. 
‘‘(D) Grievance and appeals processes. 
The information described in the preceding sentence 
shall also be made available on request to prospec-
tive enrollees during open enrollment periods.
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL 
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an individual eligible to en-
roll in a Medicare Prescription Drug plan, the eligi-
ble entity offering such plan shall provide informa-
tion similar (as determined by the Administrator) to 
the information described in subparagraphs (A), 
(B), and (C) of section 1852(c)(2) to such indi-
vidual.
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
An eligible entity offering a Medicare Prescription 
Drug plan shall have a mechanism for providing on 
a timely basis specific information to enrollees upon 
request, including information on the coverage of 
specific drugs and changes in its formulary. 
‘‘(4) CLAIMS INFORMATION.—An eligible entity 
offering a Medicare Prescription Drug plan must
furnish to enrolled individuals in a form easily un-
derstandable to such individuals—
‘‘(A) an explanation of benefits (in accord-
ance with section 1806(a) or in a comparable 
manner); and 
‘‘(B) when prescription drug benefits are 
provided under this part, a notice of the bene-
fits in relation to the initial coverage limit and 
annual out-of-pocket limit for the current year 
(except that such notice need not be provided 
more often than monthly). 
‘‘(5) APPROVAL OF MARKETING MATERIAL AND 
APPLICATION
FORMS.—The provisions of section 
1851(h) shall apply to marketing material and appli-
cation forms under this part in the same manner as 
such provisions apply to marketing material and ap-
plication forms under part C. 
‘‘(b) ACCESS TO COVERED DRUGS.—
‘‘(1) ACCESS TO NEGOTIATED PRICES FOR PRE-
SCRIPTION
DRUGS.—An eligible entity offering a 
Medicare Prescription Drug plan shall have in place 
procedures to ensure that beneficiaries are not 
charged more than the negotiated price of a covered 
drug. Such procedures shall include the issuance of 
a card (or other technology) that may be used by an
enrolled beneficiary for the purchase of prescription 
drugs for which coverage is not otherwise provided 
under the Medicare Prescription Drug plan. 
‘‘(2) ASSURING PHARMACY ACCESS.—
‘‘(A) IN GENERAL.—An eligible entity of-
fering a Medicare Prescription Drug plan shall 
secure the participation in its network of a suf-
ficient number of pharmacies that dispense 
(other than by mail order) drugs directly to pa-
tients to ensure convenient access (as deter-
mined by the Administrator and including ade-
quate emergency access) for enrolled bene-
ficiaries, in accordance with standards estab-
lished by the Administrator under section 
1860D–7(g) that ensure such convenient ac-
cess. Such standards shall take into account 
reasonable distances to pharmacy services in 
both urban and rural areas. 
‘‘(B) USE
OF
POINT-OF-SERVICE
SYS-
TEM.—An eligible entity offering a Medicare 
Prescription Drug plan shall establish an op-
tional point-of-service method of operation 
under which—
‘‘(i) the plan provides access to any or 
all pharmacies that are not participating 
pharmacies in its network; and 
‘‘(ii) the plan may charge beneficiaries 
through adjustments in copayments any 
additional costs associated with the point-
of-service option. 
The additional copayments so charged shall not 
count toward the application of section 1860D–
6(c). 
‘‘(3) REQUIREMENTS
ON
DEVELOPMENT
AND 
APPLICATION OF FORMULARIES.—If an eligible enti-
ty offering a Medicare Prescription Drug plan uses 
a formulary, the following requirements must be 
met: 
‘‘(A) PHARMACY AND THERAPEUTIC (P&T) 
COMMITTEE.—
‘‘(i) IN GENERAL.—The eligible entity 
must establish a pharmacy and therapeutic 
committee that develops and reviews the 
formulary.
‘‘(ii) COMPOSITION.—A pharmacy and 
therapeutic committee shall include at least 
1 academic expert, at least 1 practicing 
physician, and at least 1 practicing phar-
macist, all of whom have expertise in the 
care of elderly or disabled persons, and a 
majority of the members of such committee 
shall consist of individuals who are a prac-
ticing physician or a practicing pharmacist 
(or both). 
‘‘(B) FORMULARY DEVELOPMENT.—In de-
veloping and reviewing the formulary, the com-
mittee shall base clinical decisions on the 
strength of scientific evidence and standards of 
practice, including assessing peer-reviewed med-
ical literature, such as randomized clinical 
trials, pharmacoeconomic studies, outcomes re-
search data, and on such other information as 
the committee determines to be appropriate. 
‘‘(C) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES AND CLASSES.—
‘‘(i) IN
GENERAL.—The formulary 
must include drugs within each therapeutic 
category and class of covered drugs (as de-
fined by the Administrator), although not 
necessarily for all drugs within such cat-
egories and classes. 
‘‘(ii) 
REQUIREMENT.—In 
defining 
therapeutic categories and classes of cov-
ered drugs pursuant to clause (i), the Ad-
ministrator shall use—
‘‘(I) the compendia referred to 
section 1927(g)(1)(B)(i); and 
‘‘(II) other recognized sources of 
drug classifications and categoriza-
tions determined appropriate by the 
Administrator. 
‘‘(D) PROVIDER
EDUCATION.—The com-
mittee shall establish policies and procedures to 
educate and inform health care providers con-
cerning the formulary. 
‘‘(E) NOTICE BEFORE REMOVING DRUGS 
FROM
FORMULARY.—Any removal of a drug 
from a formulary shall take effect only after ap-
propriate notice is made available to bene-
ficiaries, physicians, and pharmacists. 
‘‘(F) APPEALS AND EXCEPTIONS TO APPLI-
CATION.—The eligible entity must have, as part 
of the appeals process under subsection (e), a 
process for timely appeals for denials of cov-
erage based on such application of the for-
mulary.
‘‘(c) COST AND UTILIZATION MANAGEMENT; QUAL-
ITY ASSURANCE; MEDICATION THERAPY MANAGEMENT 
PROGRAM.—
‘‘(1) IN GENERAL.—An eligible entity shall have 
in place the following with respect to covered drugs: 
‘‘(A) A cost-effective drug utilization man-
agement program, including incentives to re-
duce costs when appropriate. 
‘‘(B) Quality assurance measures to reduce 
medical errors and adverse drug interactions 
and to improve medication use, which—
‘‘(i) shall include a medication therapy 
management program described in para-
graph (2); and 
‘‘(ii) may include beneficiary edu-
cation programs, counseling, medication 
refill reminders, and special packaging. 
‘‘(C) A program to control fraud, abuse, 
and waste. 
Nothing in this section shall be construed as impair-
ing an eligible entity from applying cost manage-
ment tools (including differential payments) under 
all methods of operation.
‘‘(2) MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(A) IN GENERAL.—A medication therapy 
management program described in this para-
graph is a program of drug therapy manage-
ment and medication administration that is de-
signed to assure, with respect to beneficiaries 
with chronic diseases (such as diabetes, asthma, 
hypertension, hyperlipidemia, and congestive 
heart failure) or multiple prescriptions, that 
covered drugs under the Medicare Prescription 
Drug plan are appropriately used to optimize 
therapeutic outcomes through improved medica-
tion use and to achieve therapeutic goals and 
reduce the risk of adverse events, including ad-
verse drug interactions. 
‘‘(B) ELEMENTS.—Such program may in-
clude—
‘‘(i) 
enhanced 
beneficiary 
under-
standing of such appropriate use through 
beneficiary 
education, 
counseling, 
and 
other appropriate means; 
‘‘(ii) increased beneficiary adherence 
with 
prescription 
medication 
regimens 
through medication refill reminders, special 
packaging, and other appropriate means; 
and
‘‘(iii) detection of patterns of overuse 
and underuse of prescription drugs. 
‘‘(C) DEVELOPMENT OF PROGRAM IN CO-
OPERATION
WITH
LICENSED
PHARMACISTS.—
The program shall be developed in cooperation 
with licensed and practicing pharmacists and 
physicians. 
‘‘(D) 
CONSIDERATIONS
IN
PHARMACY 
FEES.—The eligible entity offering a Medicare 
Prescription Drug plan shall take into account, 
in establishing fees for pharmacists and others 
providing services under the medication therapy 
management program, the resources and time 
used in implementing the program. 
‘‘(3) PUBLIC DISCLOSURE OF PHARMACEUTICAL 
PRICES FOR EQUIVALENT DRUGS.—The eligible enti-
ty offering a Medicare Prescription Drug plan shall 
provide that each pharmacy or other dispenser that 
arranges for the dispensing of a covered drug shall 
inform the beneficiary at the time of purchase of the 
drug of any differential between the price of the pre-
scribed drug to the enrollee and the price of the low-
est cost generic drug covered under the plan that is 
therapeutically equivalent and bioequivalent.
‘‘(d) GRIEVANCE MECHANISM, COVERAGE DETER-
MINATIONS, AND RECONSIDERATIONS.—
‘‘(1) IN GENERAL.—An eligible entity shall pro-
vide meaningful procedures for hearing and resolving 
grievances between the eligible entity (including any 
entity or individual through which the eligible entity 
provides covered benefits) and enrollees with Medi-
care Prescription Drug plans of the eligible entity 
under this part in accordance with section 1852(f). 
‘‘(2) APPLICATION OF COVERAGE DETERMINA-
TION AND RECONSIDERATION PROVISIONS.—The re-
quirements of paragraphs (1) through (3) of section 
1852(g) shall apply to an eligible entity with respect 
to covered benefits under the Medicare Prescription 
Drug plan it offers under this part in the same man-
ner 
as 
such 
requirements 
apply 
to 
a 
MedicareAdvantage organization with respect to ben-
efits it offers under a MedicareAdvantage plan 
under part C. 
‘‘(3) REQUEST FOR REVIEW OF TIERED FOR-
MULARY DETERMINATIONS.—In the case of a Medi-
care Prescription Drug plan offered by an eligible 
entity that provides for tiered cost-sharing for drugs 
included within a formulary and provides lower cost-
sharing for preferred drugs included within the for-
mulary, an individual who is enrolled in the plan 
may request coverage of a nonpreferred drug under 
the terms applicable for preferred drugs if the pre-
scribing physician determines that the preferred 
drug for treatment of the same condition is not as 
effective for the individual or has adverse effects for 
the individual. 
‘‘(e) APPEALS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
the requirements of paragraphs (4) and (5) of sec-
tion 1852(g) shall apply to an eligible entity with re-
spect to drugs not included on any formulary in a 
manner that is similar (as determined by the Admin-
istrator) to the manner that such requirements 
apply to a MedicareAdvantage organization with re-
spect 
to 
benefits 
it 
offers 
under 
a 
MedicareAdvantage plan under part C. 
‘‘(2) FORMULARY DETERMINATIONS.—An indi-
vidual who is enrolled in a Medicare Prescription 
Drug plan offered by an eligible entity may appeal 
to obtain coverage for a covered drug that is not on 
a formulary of the entity under the terms applicable 
for a formulary drug if the prescribing physician de-
termines that the formulary drug for treatment of
the same condition is not as effective for the indi-
vidual or has adverse effects for the individual. 
‘‘(f) PRIVACY, CONFIDENTIALITY, AND ACCURACY OF 
ENROLLEE RECORDS.—Insofar as an eligible entity main-
tains individually identifiable medical records or other 
health information regarding eligible beneficiaries enrolled 
in the Medicare Prescription Drug plan offered by the en-
tity, the entity shall have in place procedures to—
‘‘(1) safeguard the privacy of any individually 
identifiable beneficiary information in a manner con-
sistent with the Federal regulations (concerning the 
privacy of individually identifiable health informa-
tion) promulgated under section 264(c) of the 
Health Insurance Portability and Accountability Act 
of 1996; 
‘‘(2) maintain such records and information in 
a manner that is accurate and timely; 
‘‘(3) ensure timely access by such beneficiaries 
to such records and information; and 
‘‘(4) otherwise comply with applicable laws re-
lating to patient privacy and confidentiality. 
‘‘(g) UNIFORM MONTHLY PLAN PREMIUM.—An eligi-
ble entity shall ensure that the monthly plan premium for 
a Medicare Prescription Drug plan charged under this
part is the same for all eligible beneficiaries enrolled in 
the plan.
‘‘(h) CONSUMER SATISFACTION SURVEYS.—An eligi-
ble entity shall conduct consumer satisfaction surveys with 
respect to the plan and the entity. The Administrator shall 
establish uniform requirements for such surveys. 
‘‘PRESCRIPTION DRUG BENEFITS 
‘‘SEC. 1860D–6. (a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part 
and part C, the term ‘qualified prescription drug 
coverage’ means either of the following: 
‘‘(A) STANDARD PRESCRIPTION DRUG COV-
ERAGE
WITH
ACCESS
TO
NEGOTIATED 
PRICES.—Standard prescription drug coverage 
(as defined in subsection (c)) and access to ne-
gotiated prices under subsection (e). 
‘‘(B) ACTUARIALLY
EQUIVALENT
PRE-
SCRIPTION DRUG COVERAGE WITH ACCESS TO 
NEGOTIATED
PRICES.—Coverage of covered 
drugs which meets the alternative coverage re-
quirements of subsection (d) and access to ne-
gotiated prices under subsection (e), but only if 
it is approved by the Administrator as provided 
under subsection (d). 
‘‘(2) PERMITTING
ADDITIONAL
PRESCRIPTION 
DRUG COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B) and section 1860D–13(c)(2), nothing 
in this part shall be construed as preventing 
qualified prescription drug coverage from in-
cluding coverage of covered drugs that exceeds 
the coverage required under paragraph (1). 
‘‘(B) REQUIREMENT.—An eligible entity 
may not offer a Medicare Prescription Drug 
plan that provides additional benefits pursuant 
to subparagraph (A) in an area unless the eligi-
ble entity offering such plan also offers a Medi-
care Prescription Drug plan in the area that 
only provides the coverage of prescription drugs 
that is required under paragraph (1). 
‘‘(3) COST
CONTROL
MECHANISMS.—In pro-
viding qualified prescription drug coverage, the enti-
ty offering the Medicare Prescription Drug plan or 
the MedicareAdvantage plan may use a variety of 
cost control mechanisms, including the use of 
formularies, tiered copayments, selective contracting 
with providers of prescription drugs, and mail order 
pharmacies. 
‘‘(b) APPLICATION OF SECONDARY PAYOR PROVI-
SIONS.—The provisions of section 1852(a)(4) shall apply
under this part in the same manner as they apply under 
part C. 
‘‘(c) STANDARD PRESCRIPTION DRUG COVERAGE.—
For purposes of this part and part C, the term ‘standard 
prescription drug coverage’ means coverage of covered 
drugs that meets the following requirements:
‘‘(1) DEDUCTIBLE.—
‘‘(A) IN GENERAL.—The coverage has an 
annual deductible—
‘‘(i) for 2006, that is equal to $275; 
or 
‘‘(ii) for a subsequent year, that is 
equal to the amount specified under this 
paragraph for the previous year increased 
by the percentage specified in paragraph 
(5) for the year involved. 
‘‘(B) ROUNDING.—Any amount determined 
under subparagraph (A)(ii) that is not a mul-
tiple of $1 shall be rounded to the nearest mul-
tiple of $1. 
‘‘(2) LIMITS ON COST-SHARING.—The coverage 
has cost-sharing (for costs above the annual deduct-
ible specified in paragraph (1) and up to the initial 
coverage limit under paragraph (3)) that is equal to 
50 percent or that is actuarially consistent (using
processes established under subsection (f)) with an 
average expected payment of 50 percent of such 
costs. 
‘‘(3) INITIAL COVERAGE LIMIT.—
‘‘(A) IN GENERAL.—Subject to paragraph 
(4), the coverage has an initial coverage limit 
on the maximum costs that may be recognized 
for payment purposes (including the annual de-
ductible)—
‘‘(i) for 2006, that is equal to $4,500; 
or 
‘‘(ii) for a subsequent year, that is 
equal to the amount specified in this para-
graph for the previous year, increased by 
the annual percentage increase described 
in paragraph (5) for the year involved. 
‘‘(B) ROUNDING.—Any amount determined 
under subparagraph (A)(ii) that is not a mul-
tiple of $1 shall be rounded to the nearest mul-
tiple of $1. 
‘‘(4) LIMITATION ON OUT-OF-POCKET EXPENDI-
TURES BY BENEFICIARY.—
‘‘(A) IN GENERAL.—The coverage provides 
benefits with cost-sharing that is equal to 15 
percent after the individual has incurred costs
(as described in subparagraph (C)) for covered 
drugs in a year equal to the annual out-of-pock-
et limit specified in subparagraph (B). 
‘‘(B) ANNUAL OUT-OF-POCKET LIMIT.—
‘‘(i) IN
GENERAL.—For purposes of 
this part, the ‘annual out-of-pocket limit’ 
specified in this subparagraph—
‘‘(I) for 2006, is equal to $3,700; 
or 
‘‘(II) for a subsequent year, is 
equal to the amount specified in this 
subparagraph for the previous year, 
increased by the annual percentage in-
crease described in paragraph (5) for 
the year involved. 
‘‘(ii) ROUNDING.—Any amount deter-
mined under clause (i)(II) that is not a 
multiple of $1 shall be rounded to the 
nearest multiple of $1. 
‘‘(C) APPLICATION.—In applying subpara-
graph (A)—
‘‘(i) incurred costs shall only include 
costs incurred, with respect to covered 
drugs, for the annual deductible (described 
in paragraph (1)), cost-sharing (described
in paragraph (2)), and amounts for which 
benefits are not provided because of the 
application of the initial coverage limit de-
scribed in paragraph (3) (including costs 
incurred for covered drugs described in 
section 1860D(a)(2)(C)); and 
‘‘(ii) such costs shall be treated as in-
curred without regard to whether the indi-
vidual or another person, including a State 
program or other third-party coverage, has 
paid for such costs, except that only the 
applicable percent (specified in subpara-
graph (D)) of the amount of portion of 
such costs that are paid or reimbursed 
through insurance, a group health plan, or 
other third-party payment arrangement for 
such costs shall not be counted. 
‘‘(D) APPLICABLE PERCENT DEFINED.—
‘‘(i) IN
GENERAL.—For purposes of 
subparagraph (C)(ii), but subject to clause 
(ii), the applicable percent specified in this 
subparagraph is—
‘‘(I) for years before 2010, 25 
percent;
‘‘(II) for 2011, 2012, 2013, 
2014, and 2015, 50 percent; and 
‘‘(III) for any year thereafter, 
100 percent. 
‘‘(ii) SECRETARIAL
LIMITATION
ON 
TOTAL EXPENDITURES.—The Secretary, in 
consultation with the Office of Manage-
ment and Budget, shall estimate at the 
time of enactment of this part, the aggre-
gate budget outlays that will result during 
the 10-fiscal-year period beginning with 
fiscal year 2004 from the enactment of the 
Prescription Drug and Medicare Improve-
ment Act of 2003. If such estimate exceeds 
$400,000,000,000, the Secretary shall pro-
vide for such proportional reductions in the 
percentages specified in clause (i) as the 
Secretary determines to be necessary to as-
sure that such aggregate budget outlays 
during such period do not exceed such 
amount. 
‘‘(E) INFORMATION
REGARDING
THIRD-
PARTY REIMBURSEMENT.—In order to ensure 
compliance with the requirements of subpara-
graph (C)(ii), the Administrator is authorized
to establish procedures, in coordination with the 
Secretary of Treasury and the Secretary of 
Labor, for determining whether costs for indi-
viduals are being reimbursed through insurance 
or otherwise, a group health plan, or other 
third-party payment arrangement, and for 
alerting the entities in which such individuals 
are enrolled about such reimbursement arrange-
ments. An entity with a contract under this 
part may also periodically ask individuals en-
rolled in a plan offered by the entity whether 
the individuals have or expect to receive such 
third-party reimbursement. A material mis-
representation of the information described in 
the preceding sentence by an individual (as de-
fined in standards set by the Administrator and 
determined through a process established by the 
Administrator) shall constitute grounds for ter-
mination of enrollment under section 1860D–
2(d). 
‘‘(5) ANNUAL
PERCENTAGE
INCREASE.—For 
purposes of this part, the annual percentage increase 
specified in this paragraph for a year is equal to the 
annual percentage increase in average per capita ag-
gregate expenditures for covered drugs in the United
States for beneficiaries under this title, as deter-
mined by the Administrator for the 12-month period 
ending in July of the previous year. 
‘‘(d) ALTERNATIVE COVERAGE REQUIREMENTS.—A 
Medicare Prescription Drug plan or MedicareAdvantage 
plan may provide a different prescription drug benefit de-
sign from the standard prescription drug coverage de-
scribed in subsection (c) so long as the Administrator de-
termines (based on an actuarial analysis by the Adminis-
trator) that the following requirements are met and the 
plan applies for, and receives, the approval of the Adminis-
trator for such benefit design: 
‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIV-
ALENT PRESCRIPTION DRUG COVERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE
OF 
TOTAL COVERAGE.—The actuarial value of the 
total coverage (as determined under subsection 
(f)) is at least equal to the actuarial value (as 
so determined) of standard prescription drug 
coverage. 
‘‘(B) 
ASSURING
EQUIVALENT
UNSUB-
SIDIZED
VALUE
OF
COVERAGE.—The unsub-
sidized value of the coverage is at least equal to 
the unsubsidized value of standard prescription 
drug coverage. For purposes of this subpara-
graph, the unsubsidized value of coverage is the 
amount by which the actuarial value of the cov-
erage (as determined under subsection (f)) ex-
ceeds the actuarial value of the amounts associ-
ated with the application of section 1860D–
17(c) and reinsurance payments under section 
1860D–20 with respect to such coverage.
‘‘(C) ASSURING STANDARD PAYMENT FOR 
COSTS AT INITIAL COVERAGE LIMIT.—The cov-
erage is designed, based upon an actuarially 
representative pattern of utilization (as deter-
mined under subsection (f)), to provide for the 
payment, with respect to costs incurred that are 
equal to the initial coverage limit under sub-
section (c)(3), of an amount equal to at least 
the product of—
‘‘(i) such initial coverage limit minus 
the deductible under subsection (c)(1); and 
‘‘(ii) the percentage specified in sub-
section (c)(2). 
Benefits other than qualified prescription drug cov-
erage shall not be taken into account for purposes 
of this paragraph. 
‘‘(2) DEDUCTIBLE AND LIMITATION ON OUT-
OF-POCKET EXPENDITURES BY BENEFICIARIES MAY
NOT VARY.—The coverage may not vary the deduct-
ible under subsection (c)(1) for the year or the limi-
tation on out-of-pocket expenditures by beneficiaries 
described in subsection (c)(4) for the year. 
‘‘(e) ACCESS TO NEGOTIATED PRICES.—
‘‘(1) ACCESS.—
‘‘(A) IN GENERAL.—Under qualified pre-
scription drug coverage offered by an eligible 
entity or a MedicareAdvantage organization, 
the entity or organization shall provide bene-
ficiaries with access to negotiated prices used 
for payment for covered drugs, regardless of the 
fact that no benefits may be payable under the 
coverage with respect to such drugs because of 
the application of the deductible, any cost-shar-
ing, or an initial coverage limit (described in 
subsection (c)(3)). For purposes of this part, 
the term ‘negotiated prices’ includes all dis-
counts, direct or indirect subsidies, rebates, or 
other price concessions or direct or indirect re-
munerations and shall reflect prices that are no 
higher than the prices negotiated by the Sec-
retary under subparagraph (B). 
‘‘(B) SECRETARIAL NEGOTIATED PRICE.—
Notwithstanding any otherprovision of this
part, the Secretary shall, consistent with the re-
quirements of this part and the goals of pro-
viding quality care and containing costs under 
this part, negotiate contracts with manufactur-
ers of covered outpatient prescription drugs 
that provide for the maximum prices that may 
be charged to individuals enrolled under this 
part by participating pharmacies for dispensing 
such drugs to such individuals. 
‘‘(C) MEDICAID
RELATED
PROVISIONS.—
Insofar as a State elects to provide medical as-
sistance under title XIX for a drug based on 
the prices negotiated under a Medicare Pre-
scription Drug plan under this part, the re-
quirements of section 1927 shall not apply to 
such drugs. The prices negotiated under a 
Medicare Prescription Drug plan with respect 
to covered drugs, under a MedicareAdvantage 
plan with respect to such drugs, or under a 
qualified retiree prescription drug plan (as de-
fined in section 1860D–20(e)(4)) with respect 
to such drugs, on behalf of eligible beneficiaries, 
shall (notwithstanding any other provision of 
law) not be taken into account for the purposes
of establishing the best price under section 
1927(c)(1)(C). 
‘‘(2) CARDS OR OTHER TECHNOLOGY.—
‘‘(A) IN GENERAL.—In providing the ac-
cess under paragraph (1), the eligible entity or 
MedicareAdvantage organization shall issue a 
card or use other technology pursuant to sec-
tion 1860D–5(b)(1). 
‘‘(B) NATIONAL STANDARDS.—
‘‘(i) DEVELOPMENT.—The Adminis-
trator shall provide for the development of 
national standards relating to a standard-
ized format for the card or other tech-
nology required under subparagraph (A). 
Such standards shall be compatible with 
parts C and D of title XI and may be 
based on standards developed by an appro-
priate standard setting organization. 
‘‘(ii) CONSULTATION.—In developing 
the standards under clause (i), the Admin-
istrator shall consult with the National 
Council for Prescription Drug Programs 
and other standard-setting organizations 
determined appropriate by the Adminis-
trator.
‘‘(iii) 
IMPLEMENTATION.—The 
Ad-
ministrator shall implement the standards 
developed under clause (i) by January 1, 
2008. 
‘‘(3) DISCLOSURE.—The eligible entity offering 
a Medicare Prescription Drug plan and the 
MedicareAdvantage 
organization 
offering 
a 
MedicareAdvantage plan shall disclose to the Admin-
istrator (in a manner specified by the Administrator) 
the extent to which discounts, direct or indirect sub-
sidies, rebates, or other price concessions or direct or 
indirect remunerations made available to the entity 
or organization 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 Administrator under this paragraph in the 
same manner as such provisions apply to informa-
tion disclosed under such section. 
‘‘(4) 
AUDITS
AND
REPORTS.—To 
protect 
against fraud and abuse and to ensure proper disclo-
sures and accounting under this part, in addition to 
any protections against fraud and abuse provided 
under section 1860D–7(f)(1), the Administrator may 
periodically audit the financial statements and
records of an eligible entity offering a Medicare Pre-
scription Drug plan and a MedicareAdvantage orga-
nization offering a MedicareAdvantage plan. 
‘‘(f) 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 valu-
ation of prescription drug coverage, including—
‘‘(i) an actuarial valuation of standard 
prescription drug coverage and of the rein-
surance payments under section 1860D–
20; 
‘‘(ii) the use of generally accepted ac-
tuarial principles and methodologies; and 
‘‘(iii) applying the same methodology 
for determinations of alternative coverage 
under subsection (d) as is used with re-
spect to determinations of standard pre-
scription drug coverage under subsection 
(c); and 
‘‘(B) for determining annual percentage in-
creases described in subsection (c)(5).
Such processes shall take into account any effect 
that providing actuarially equivalent prescription 
drug coverage rather than standard prescription 
drug coverage has on drug utilization. 
‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the 
processes under paragraph (1)(A), eligible entities 
and MedicareAdvantage organizations may use actu-
arial opinions certified by independent, qualified ac-
tuaries to establish actuarial values, but the Admin-
istrator shall determine whether such actuarial val-
ues meet the requirements under subsection (c)(1). 
‘‘REQUIREMENTS
FOR
ENTITIES
OFFERING
MEDICARE 
PRESCRIPTION
DRUG
PLANS; ESTABLISHMENT
OF 
STANDARDS 
‘‘SEC. 1860D–7. (a) GENERAL REQUIREMENTS.—An 
eligible entity offering a Medicare Prescription Drug plan 
shall meet the following requirements: 
‘‘(1) LICENSURE.—Subject to subsection (c), 
the entity is organized and licensed under State law 
as a risk-bearing entity eligible to offer health insur-
ance or health benefits coverage in each State in 
which it offers a Medicare Prescription Drug plan. 
‘‘(2) ASSUMPTION OF FINANCIAL RISK.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B) and subsections (d)(2) and (e) of 
section 1860D–13, to the extent that the entity
is at risk pursuant to such section 1860D–16, 
the entity assumes financial risk on a prospec-
tive basis for the benefits that it offers under 
a Medicare Prescription Drug plan and that is 
not covered under section 1860D–20. 
‘‘(B) REINSURANCE PERMITTED.—To the 
extent that the entity is at risk pursuant to sec-
tion 1860D–16, the entity may obtain insur-
ance or make other arrangements for the cost 
of coverage provided to any enrolled member 
under this part. 
‘‘(3) SOLVENCY FOR UNLICENSED ENTITIES.—
In the case of an eligible entity that is not described 
in paragraph (1) and for which a waiver has been 
approved under subsection (c), such entity shall 
meet solvency standards established by the Adminis-
trator under subsection (d). 
‘‘(b) CONTRACT
REQUIREMENTS.—The Adminis-
trator shall not permit an eligible beneficiary to elect a 
Medicare Prescription Drug plan offered by an eligible en-
tity under this part, and the entity shall not be eligible 
for payments under section 1860D–16 or 1860D–20, un-
less the Administrator has entered into a contract under 
this subsection with the entity with respect to the offering 
of such plan. Such a contract with an entity may cover
more than 1 Medicare Prescription Drug plan. Such con-
tract shall provide that the entity 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.
‘‘(c) WAIVER OF CERTAIN REQUIREMENTS IN ORDER 
TO ENSURE BENEFICIARY CHOICE.—
‘‘(1) IN GENERAL.—In the case of an eligible 
entity that seeks to offer a Medicare 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 deter-
mines, based on the application and other evidence 
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 paragraph are the grounds 
for approval described in subparagraphs (B), (C), 
and (D) of section 1855(a)(2), and also include the 
application by a State of any grounds other than 
those required under Federal law. 
‘‘(3) APPLICATION OF WAIVER PROCEDURES.—
With respect to an application for a waiver (or a 
waiver granted) under this subsection, the provisions
of subparagraphs (E), (F), and (G) of section 
1855(a)(2) shall apply. 
‘‘(4) REFERENCES TO CERTAIN PROVISIONS.—
For purposes of this subsection, in applying the pro-
visions of section 1855(a)(2) under this subsection 
to Medicare Prescription Drug plans and eligible en-
tities—
‘‘(A) any reference to a waiver application 
under section 1855 shall be treated as a ref-
erence to a waiver application under paragraph 
(1); and 
‘‘(B) any reference to solvency standards 
were treated as a reference to solvency stand-
ards established under subsection (d). 
‘‘(d) SOLVENCY STANDARDS
FOR NON-LICENSED 
ENTITIES.—
‘‘(1) ESTABLISHMENT AND PUBLICATION.—The 
Administrator, in consultation with the National As-
sociation of Insurance Commissioners, shall establish 
and publish, by not later than January 1, 2005, fi-
nancial solvency and capital adequacy standards for 
entities described in paragraph (2). 
‘‘(2) COMPLIANCE WITH STANDARDS.—An eligi-
ble entity that is not licensed by a State under sub-
section (a)(1) and for which a waiver application has
been approved under subsection (c) shall meet sol-
vency and capital adequacy standards established 
under paragraph (1). The Administrator shall estab-
lish certification procedures for such eligible entities 
with respect to such solvency standards in the man-
ner described in section 1855(c)(2). 
‘‘(e) LICENSURE DOES NOT SUBSTITUTE FOR OR 
CONSTITUTE CERTIFICATION.—The fact that an entity is 
licensed in accordance with subsection (a)(1) or has a 
waiver application approved under subsection (c) does not 
deem the eligible entity to meet other requirements im-
posed under this part for an eligible entity. 
‘‘(f) 
INCORPORATION
OF
CERTAIN 
MEDICAREADVANTAGE CONTRACT REQUIREMENTS.—The 
following provisions of section 1857 shall apply, subject 
to subsection (c)(4), to contracts under this section in the 
same manner as they apply to contracts under section 
1857(a): 
‘‘(1) PROTECTIONS AGAINST FRAUD AND BENE-
FICIARY PROTECTIONS.—Section 1857(d). 
‘‘(2) 
INTERMEDIATE
SANCTIONS.—Section 
1857(g), except that in applying such section—
‘‘(A) 
the 
reference 
in 
section 
1857(g)(1)(B) to section 1854 is deemed a ref-
erence to this part; and
‘‘(B) 
the 
reference 
in 
section 
1857(g)(1)(F) to section 1852(k)(2)(A)(ii) shall 
not be applied. 
‘‘(3) PROCEDURES FOR TERMINATION.—Section 
1857(h). 
‘‘(g) OTHER STANDARDS.—The Administrator shall 
establish by regulation other standards (not described in 
subsection (d)) for eligible entities and Medicare Prescrip-
tion Drug plans consistent with, and to carry out, this 
part. The Administrator shall publish such regulations by 
January 1, 2005. 
‘‘(h) PERIODIC REVIEW AND REVISION OF STAND-
ARDS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
the Administrator shall periodically review the 
standards established under this section and, based 
on such review, may revise such standards if the Ad-
ministrator determines such revision to be appro-
priate. 
‘‘(2) PROHIBITION OF MIDYEAR IMPLEMENTA-
TION OF SIGNIFICANT NEW REGULATORY REQUIRE-
MENTS.—The Administrator may not implement, 
other than at the beginning of a calendar year, regu-
lations under this section that impose new, signifi-
cant regulatory requirements on an eligible entity or 
a Medicare Prescription Drug plan. 
‘‘(i) RELATION TO STATE LAWS.—
‘‘(1) IN GENERAL.—The standards established 
under this part shall supersede any State law or reg-
ulation (including standards described in paragraph 
(2)) with respect to Medicare Prescription Drug 
plans which are offered by eligible entities under this 
part—
‘‘(A) to the extent such law or regulation 
is inconsistent with such standards; and 
‘‘(B) in the same manner as such laws and 
regulations 
are 
superseded 
under 
section 
1856(b)(3). 
‘‘(2) 
STANDARDS
SPECIFICALLY
SUPER-
SEDED.—State standards relating to the following 
are superseded under this section: 
‘‘(A) Benefit requirements, including re-
quirements relating to cost-sharing and the 
structure of formularies. 
‘‘(B) Premiums. 
‘‘(C) Requirements relating to inclusion or 
treatment of providers. 
‘‘(D) Coverage determinations (including 
related appeals and grievance processes).
‘‘(E) Requirements relating to marketing 
materials and summaries and schedules of ben-
efits regarding a Medicare Prescription Drug 
plan. 
‘‘(3) PROHIBITION OF STATE IMPOSITION OF 
PREMIUM TAXES.—No State may impose a premium 
tax or similar tax with respect to—
‘‘(A) monthly beneficiary obligations paid 
to the Administrator for Medicare Prescription 
Drug plans under this part; or 
‘‘(B) any payments made by the Adminis-
trator under this part to an eligible entity offer-
ing such a plan.
‘‘Subpart 2—Prescription Drug Delivery System 
‘‘ESTABLISHMENT OF SERVICE AREAS 
‘‘SEC. 1860D–10. (a) ESTABLISHMENT.—
‘‘(1) INITIAL ESTABLISHMENT.—Not later than 
April 15, 2005, the Administrator shall establish 
and publish the service areas in which Medicare Pre-
scription Drug plans may offer benefits under this 
part. 
‘‘(2) PERIODIC
REVIEW
AND
REVISION
OF 
SERVICE AREAS.—The Administrator shall periodi-
cally review the service areas applicable under this 
section and, based on such review, may revise such
service areas if the Administrator determines such 
revision to be appropriate. 
‘‘(b) REQUIREMENTS
FOR
ESTABLISHMENT
OF 
SERVICE AREAS.—
‘‘(1) IN GENERAL.—The Administrator shall es-
tablish the service areas under subsection (a) in a 
manner that—
‘‘(A) maximizes the availability of Medi-
care Prescription Drug plans to eligible bene-
ficiaries; and 
‘‘(B) minimizes the ability of eligible enti-
ties offering such plans to favorably select eligi-
ble beneficiaries. 
‘‘(2) ADDITIONAL
REQUIREMENTS.—The Ad-
ministrator shall establish the service areas under 
subsection (a) consistent with the following require-
ments: 
‘‘(A) There shall be at least 10 service 
areas. 
‘‘(B) Each service area must include at 
least 1 State. 
‘‘(C) The Administrator may not divide 
States so that portions of the State are in dif-
ferent service areas.
‘‘(D) To the extent possible, the Adminis-
trator shall include multistate metropolitan sta-
tistical areas in a single service area. The Ad-
ministrator may divide metropolitan statistical 
areas where it is necessary to establish service 
areas of such size and geography as to maxi-
mize the participation of Medicare Prescription 
Drug plans. 
‘‘(3) MAY CONFORM TO MEDICAREADVANTAGE 
PREFERRED
PROVIDER
REGIONS.—The Adminis-
trator may conform the service areas established 
under this section to the preferred provider regions 
established under section 1858(a)(3). 
‘‘PUBLICATION OF RISK ADJUSTERS 
‘‘SEC. 1860D–11. (a) PUBLICATION.—Not later than 
April 15 of each year (beginning in 2005), the Adminis-
trator shall publish the risk adjusters established under 
subsection (b) to be used in computing—
‘‘(1) the amount of payment to Medicare Pre-
scription Drug plans in the subsequent year under 
section 1860D–16(a), insofar as it is attributable to 
standard prescription drug coverage (or actuarially 
equivalent prescription drug coverage); and 
‘‘(2) 
the 
amount 
of 
payment 
to 
MedicareAdvantage plans in the subsequent year 
under section 1858A(c), insofar as it is attributable
to standard prescription drug coverage (or actuari-
ally equivalent prescription drug coverage). 
‘‘(b) ESTABLISHMENT OF RISK ADJUSTERS.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
the Administrator shall establish an appropriate 
methodology for adjusting the amount of payment to 
plans referred to in subsection (a) to take into ac-
count variation in costs based on the differences in 
actuarial risk of different enrollees being served. Any 
such risk adjustment shall be designed in a manner 
as to not result in a change in the aggregate pay-
ments described in paragraphs (1) and (2) of sub-
section (a). 
‘‘(2) CONSIDERATIONS.—In establishing the 
methodology under paragraph (1), the Administrator 
may take into account the similar methodologies 
used under section 1853(a)(3) to adjust payments to 
MedicareAdvantage organizations. 
‘‘(3) DATA COLLECTION.—In order to carry out 
this subsection, the Administrator shall require—
‘‘(A) eligible entities to submit data re-
garding drug claims that can be linked at the 
beneficiary level to part A and part B data and 
such other information as the Administrator de-
termines necessary; and
‘‘(B) 
MedicareAdvantage 
organizations 
(except MSA plans or a private fee-for-service 
plan that does not provide qualified prescription 
drug coverage) to submit data regarding drug 
claims that can be linked to other data that 
such organizations are required to submit to 
the Administrator and such other information 
as the Administrator determines necessary. 
‘‘SUBMISSION OF BIDS FOR PROPOSED MEDICARE 
PRESCRIPTION DRUG PLANS 
‘‘SEC. 1860D–12. (a) SUBMISSION.—
‘‘(1) IN GENERAL.—Each eligible entity that in-
tends to offer a Medicare Prescription Drug plan in 
an area in a year (beginning with 2006) shall submit 
to the Administrator, at such time in the previous 
year and in such manner as the Administrator may 
specify, such information as the Administrator may 
require, including the information described in sub-
section (b). 
‘‘(2) ANNUAL SUBMISSION.—An eligible entity 
shall submit the information required under para-
graph (1) with respect to a Medicare Prescription 
Drug plan that the entity intends to offer on an an-
nual basis.
‘‘(b) INFORMATION DESCRIBED.—The information 
described in this subsection includes information on each 
of the following: 
‘‘(1) The benefits under the plan (as required 
under section 1860D–6). 
‘‘(2) The actuarial value of the qualified pre-
scription drug coverage. 
‘‘(3) The amount of the monthly plan premium 
under the plan, including an actuarial certification 
of—
‘‘(A) the actuarial basis for such monthly 
plan premium; 
‘‘(B) the portion of such monthly plan pre-
mium attributable to standard prescription 
drug coverage or actuarially equivalent prescrip-
tion drug coverage and, if applicable, to benefits 
that are in addition to such coverage; and 
‘‘(C) the reduction in such monthly plan 
premium resulting from the payments provided 
under section 1860D–20. 
‘‘(4) The service area for the plan. 
‘‘(5) Whether the entity plans to use any funds 
in the plan stabilization reserve fund in the Prescrip-
tion Drug Account that are available to the entity to 
stabilize or reduce the monthly plan premium sub-
mitted under paragraph (3), and if so, the amount 
in such reserve fund that is to be used. 
‘‘(6) Such other information as the Adminis-
trator may require to carry out this part. 
‘‘(c) OPTIONS REGARDING SERVICE AREAS.—
‘‘(1) IN GENERAL.—The service area of a Medi-
care Prescription Drug plan shall be either—
‘‘(A) the entire area of 1 of the service 
areas established by the Administrator under 
section 1860D–10; or 
‘‘(B) the entire area covered by the medi-
care program.
‘‘(2) RULE
OF
CONSTRUCTION.—Nothing in 
this part shall be construed as prohibiting an eligible 
entity from submitting separate bids in multiple 
service areas as long as each bid is for a single serv-
ice area. 
‘‘APPROVAL OF PROPOSED MEDICARE PRESCRIPTION 
DRUG PLANS 
‘‘SEC. 1860D–13. (a) APPROVAL.—
‘‘(1) IN GENERAL.—The Administrator shall re-
view the information filed under section 1860D–12 
and shall approve or disapprove the Medicare Pre-
scription Drug plan. 
‘‘(2) REQUIREMENTS FOR APPROVAL.—The Ad-
ministrator may not approve a Medicare Prescrip-
tion Drug plan unless the following requirements are 
met:
‘‘(A) 
COMPLIANCE
WITH
REQUIRE-
MENTS.—The plan and the entity offering the 
plan comply with the requirements under this 
part. 
‘‘(B) APPLICATION
OF
FEHBP
STAND-
ARD.—(i) The portion of the monthly plan pre-
mium submitted under section 1860D–12(b) 
that is attributable to standard prescription 
drug coverage reasonably and equitably reflects 
the actuarial value of the standard prescription 
drug coverage less the actuarial value of the re-
insurance payments under section 1860D–20 
and the amount of any funds in the plan sta-
bilization reserve fund in the Prescription Drug 
Account used to stabilize or reduce the monthly 
plan premium. 
‘‘(ii) If the plan provides additional pre-
scription drug coverage pursuant to section 
1860D–6(a)(2), the monthly plan premium rea-
sonably and equitably reflects the actuarial 
value of the coverage provided less the actuarial 
value of the reinsurance payments under section 
1860D–20 and the amount of any funds in the
plan stabilization reserve fund in the Prescrip-
tion Drug Account used to stabilize or reduce 
the monthly plan premium. 
‘‘(b) NEGOTIATION.—In exercising the authority 
under subsection (a), the Administrator shall have the au-
thority to—
‘‘(1) negotiate the terms and conditions of the 
proposed monthly plan premiums submitted and 
other terms and conditions of a proposed plan; and 
‘‘(2) disapprove, or limit enrollment in, a pro-
posed plan based on—
‘‘(A) the costs to beneficiaries under the 
plan; 
‘‘(B) the quality of the coverage and bene-
fits under the plan; 
‘‘(C) the adequacy of the network under 
the plan; or 
‘‘(D) other factors determined appropriate 
by the Administrator. 
‘‘(c) SPECIAL RULES FOR APPROVAL.—The Adminis-
trator may approve a Medicare Prescription Drug plan 
submitted under section 1860D–12 only if the benefits 
under such plan—
‘‘(1) include the required benefits under section 
1860D–6(a)(1); and
‘‘(2) are not designed in such a manner that 
the Administrator finds is likely to result in favor-
able selection of eligible beneficiaries. 
‘‘(d) ACCESS TO COMPETITIVE COVERAGE.—
‘‘(1) NUMBER OF CONTRACTS.—The Adminis-
trator, consistent with the requirements of this part 
and the goal of containing costs under this title, 
shall, with respect to a year, approve at least 2 con-
tracts to offer a Medicare Prescription Drug plan in 
each service area (established under section 1860D–
10) for the year. 
‘‘(2) AUTHORITY TO REDUCE RISK TO ENSURE 
ACCESS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), if the Administrator determines, 
with respect to an area, that the access re-
quired under paragraph (1) is not going to be 
provided in the area during the subsequent 
year, the Administrator shall— 
‘‘(i) adjust the percents specified in 
paragraphs (2) and (4) of section 1860D–
16(b) in an area in a year; or 
‘‘(ii) increase the percent specified in 
section 1860D–20(c)(1) in an area in a 
year.
The administrator shall exercise the authority 
under the preceding sentence only so long as 
(and to the extent) necessary to assure the ac-
cess guaranteed under paragraph (1). 
‘‘(B) REQUIREMENTS
FOR
USE
OF
AU-
THORITY.—In exercising authority under sub-
paragraph (A), the Administrator—
‘‘(i) shall not provide for the full un-
derwriting of financial risk for any eligible 
entity;
‘‘(ii) shall not provide for any under-
writing of financial risk for a public eligi-
ble entity with respect to the offering of a 
nationwide Medicare Prescription Drug 
plan; and 
‘‘(iii) shall seek to maximize the as-
sumption of financial risk by eligible enti-
ties to ensure fair competition among 
Medicare Prescription Drug plans. 
‘‘(C) REQUIREMENT TO ACCEPT 2 FULL-
RISK QUALIFIED BIDS BEFORE EXERCISING AU-
THORITY.—The Administrator may not exercise 
the authority under subparagraph (A) with re-
spect to an area and year if 2 or more qualified 
bids are submitted by eligible entities to offer a
Medicare Prescription Drug plan in the area for 
the year under paragraph (1) before the appli-
cation of subparagraph (A). 
‘‘(D) REPORTS.—The Administrator, in 
each annual report to Congress under section 
1808(c)(1)(D), shall include information on the 
exercise of authority under subparagraph (A). 
The Administrator also shall include such rec-
ommendations as may be appropriate to limit 
the exercise of such authority. 
‘‘(e) GUARANTEED ACCESS.—
‘‘(1) ACCESS.—In order to assure access to 
qualified prescription drug coverage in an area, the 
Administrator shall take the following steps:
‘‘(A) DETERMINATION.—Not later than 
September 1 of each year (beginning in 2005) 
and for each area (established under section 
1860D–10), the Administrator shall make a de-
termination as to whether the access required 
under subsection (d)(1) is going to be provided 
in the area during the subsequent year. Such 
determination shall be made after the Adminis-
trator has exercised the authority under sub-
section (d)(2).
‘‘(B) CONTRACT WITH AN ENTITY TO PRO-
VIDE COVERAGE IN AN AREA.—Subject to para-
graph (3), if the Administrator makes a deter-
mination under subparagraph (A) that the ac-
cess required under subsection (d)(1) is not 
going to be provided in an area during the sub-
sequent year, the Administrator shall enter into 
a contract with an entity to provide eligible 
beneficiaries enrolled under this part (and not, 
except for an MSA plan or a private fee-for-
service plan that does not provide qualified pre-
scription 
drug 
coverage 
enrolled 
in 
a 
MedicareAdvantage plan) and residing in the 
area with standard prescription drug coverage 
(including access to negotiated prices for such 
beneficiaries pursuant to section 1860D–6(e)) 
during the subsequent year. An entity may be 
awarded a contract for more than 1 of the 
areas for which the Administrator is required to 
enter into a contract under this paragraph but 
the Administrator may enter into only 1 such 
contract in each such area. An entity with a 
contract under this part shall meet the require-
ments described in section 1860D–5 and such
other requirements determined appropriate by 
the Administrator. 
‘‘(C) REQUIREMENT
TO
ACCEPT
RE-
DUCED-RISK QUALIFIED BIDS BEFORE ENTER-
ING INTO CONTRACT.—The Administrator may 
not enter into a contract under subparagraph 
(B) with respect to an area and year if 2 or 
more qualified bids are submitted by eligible en-
tities to offer a Medicare Prescription Drug 
plan in the area for the year after the Adminis-
trator has exercised the authority under sub-
section (d)(2) in the area for the year. 
‘‘(D) ENTITY REQUIRED TO MEET BENE-
FICIARY
PROTECTION
AND
OTHER
REQUIRE-
MENTS.—An entity with a contract under sub-
paragraph (B) shall meet the requirements de-
scribed in section 1860D–5 and such other re-
quirements determined appropriate by the Ad-
ministrator. 
‘‘(E) COMPETITIVE
PROCEDURES.—Com-
petitive procedures (as defined in section 4(5) 
of the Office of Federal Procurement Policy Act 
(41 U.S.C. 403(5))) shall be used to enter into 
a contract under subparagraph (B).
‘‘(2) MONTHLY BENEFICIARY OBLIGATION FOR 
ENROLLMENT.—
‘‘(A) IN GENERAL.—In the case of an eligi-
ble beneficiary receiving access to qualified pre-
scription drug coverage through enrollment with 
an entity with a contract under paragraph 
(1)(B), the monthly beneficiary obligation of 
such beneficiary for such enrollment shall be an 
amount equal to the applicable percent (as de-
termined under section 1860D–17(c)) of the 
monthly national average premium (as com-
puted under section 1860D–15) for the area for 
the year, as adjusted using the geographic ad-
juster under subparagraph (B). 
‘‘(B) ESTABLISHMENT
OF
GEOGRAPHIC 
ADJUSTER.—The Administrator shall establish 
an appropriate methodology for adjusting the 
monthly beneficiary obligation (as computed 
under subparagraph (A)) for the year in an 
area to take into account differences in drug 
prices among areas. In establishing such meth-
odology, the Administrator may take into ac-
count differences in drug utilization between eli-
gible beneficiaries in an area and eligible bene-
ficiaries in other areas and the results of the
ongoing study required under section 106 of the 
Prescription Drug and Medicare Improvement 
Act of 2003. Any such adjustment shall be ap-
plied in a manner so as to not result in a 
change in the aggregate payments made under 
this part that would have been made if the Ad-
ministrator had not applied such adjustment. 
‘‘(3) PAYMENTS UNDER THE CONTRACT.—
‘‘(A) IN
GENERAL.—A contract entered 
into under paragraph (1)(B) shall provide for—
‘‘(i) payment for the negotiated costs 
of covered drugs provided to eligible bene-
ficiaries enrolled with the entity; and 
‘‘(ii) payment of prescription manage-
ment fees that are tied to performance re-
quirements established by the Adminis-
trator for the management, administration, 
and delivery of the benefits under the con-
tract.
‘‘(B) PERFORMANCE
REQUIREMENTS.—
The performance requirements established by 
the Administrator pursuant to subparagraph 
(A)(ii) shall include the following: 
‘‘(i) The entity contains costs to the 
Prescription Drug Account and to eligible
beneficiaries enrolled under this part and 
with the entity. 
‘‘(ii) The entity provides such bene-
ficiaries with quality clinical care. 
‘‘(iii) The entity provides such bene-
ficiaries with quality services. 
‘‘(C) ENTITY ONLY AT RISK TO THE EX-
TENT OF THE FEES TIED TO PERFORMANCE 
REQUIREMENTS.—An entity with a contract 
under paragraph (1)(B) shall only be at risk for 
the provision of benefits under the contract to 
the extent that the management fees paid to 
the entity are tied to performance requirements 
under subparagraph (A)(ii). 
‘‘(4) ELIGIBLE ENTITY THAT SUBMITTED A BID 
FOR THE AREA NOT ELIGIBLE TO BE AWARDED THE 
CONTRACT.—An eligible entity that submitted a bid 
to offer a Medicare Prescription Drug plan for an 
area for a year under section 1860D–12, including 
a bid submitted after the Administrator has exer-
cised the authority under subsection (d)(2), may not 
be awarded a contract under paragraph (1)(B) for 
that area and year. The previous sentence shall 
apply to an entity that was awarded a contract 
under paragraph (1)(B) for the area in the previous
year and submitted such a bid under section 
1860D–12 for the year. 
‘‘(5) CONTRACT
TO
BE
AVAILABLE
IN
DES-
IGNATED
AREA
FOR
YEARS.—Notwithstanding 
paragraph (1), if the Administrator enters into a 
contract with an entity with respect to an area des-
ignated under subparagraph (B) of such paragraph 
for a year, the following rules shall apply: 
‘‘(A) The contract shall be for a 2-year pe-
riod. 
‘‘(B) The Secretary is not required to 
make the determination under paragraph 
(1)(A) with respect to the second year of the 
contract for the area. 
‘‘(C) During the second year of the con-
tract, an eligible beneficiary residing in the area 
may continue to receive standard prescription 
drug coverage (including access to negotiated 
prices for such beneficiaries pursuant to section 
1860D-6(e)) under such contract or through 
any Medicare Prescription Drug plan that is 
available in the area. 
‘‘(6) ENTITY NOT PERMITTED TO MARKET OR 
BRAND THE CONTRACT.—An entity with a contract
under paragraph (1)(B) may not engage in any mar-
keting or branding of such contract. 
‘‘(7) RULES FOR AREAS WHERE ONLY 1 COM-
PETITIVELY BID PLAN WAS APPROVED.—In the case 
of an area where (before the application of this sub-
section) only 1 Medicare Prescription Drug plan was 
approved for a year—
‘‘(A) the plan may (at the option of the 
plan) be offered in the area for the year (under 
rules applicable to such plans under this part 
and not under this subsection); 
‘‘(B) eligible beneficiaries described in 
paragraph (1)(B) may receive access to quali-
fied prescription drug coverage through enroll-
ment in the plan or with an entity with a con-
tract under paragraph (1)(B); and 
‘‘(C) for purposes of applying section 
1860D–3(a)(1)(A)(ii), such plan shall be the 
plan designated in the area under such section. 
‘‘(f) TWO-YEAR CONTRACTS.—Except for a contract 
entered into under subsection (e)(1)(B), a contract ap-
proved under this part (including a contract under) shall 
be for a 2-year period.
‘‘COMPUTATION OF MONTHLY STANDARD PRESCRIPTION 
DRUG COVERAGE PREMIUMS 
‘‘SEC. 1860D–14. (a) IN GENERAL.—For each year 
(beginning with 2006), the Administrator shall compute 
a monthly standard prescription drug coverage premium 
for each Medicare Prescription Drug plan approved under 
section 1860D–13 and for each MedicareAdvantage plan. 
‘‘(b) REQUIREMENTS.—The monthly standard pre-
scription drug coverage premium for a plan for a year 
shall be equal to—
‘‘(1) in the case of a plan offered by an eligible 
entity or MedicareAdvantage organization that pro-
vides standard prescription drug coverage or an ac-
tuarially equivalent prescription drug coverage and 
does not provide additional prescription drug cov-
erage pursuant to section 1860D–6(a)(2), the 
monthly plan premium approved for the plan under 
section 1860D–13 for the year; and 
‘‘(2) in the case of a plan offered by an eligible 
entity or MedicareAdvantage organization that pro-
vides additional prescription drug coverage pursuant 
to section 1860D–6(a)(2)—
‘‘(A) an amount that reflects only the actu-
arial value of the standard prescription drug 
coverage offered under the plan; or
‘‘(2) WEIGHTED AVERAGE.—The monthly na-
tional average premium computed under paragraph 
(1) shall be a weighted average, with the weight for 
each plan being equal to the average number of 
beneficiaries enrolled under such plan in the pre-
vious year.
‘‘(b) GEOGRAPHIC
ADJUSTMENT.—The Adminis-
trator shall establish an appropriate methodology for ad-
justing the monthly national average premium (as com-
puted under subsection (a)) for the year in an area to take 
into account differences in prices for covered drugs among 
different areas. In establishing such methodology, the Ad-
ministrator may take into account differences in drug uti-
lization between eligible beneficiaries in that area and 
other eligible beneficiaries and the results of the ongoing 
study required under section 106 of the Prescription Drug 
and Medicare Improvement Act of 2003. Any such adjust-
ment shall be applied in a manner as to not result in a 
change in aggregate payments made under this part than 
would have been made if the Administrator had not ap-
plied such adjustment. 
‘‘(c) SPECIAL RULE FOR 2006.—For purposes of ap-
plying this section for 2006, the Administrator shall estab-
lish procedures for determining the weighted average 
under subsection (a)(2) for 2005.
‘‘PAYMENTS TO ELIGIBLE ENTITIES 
‘‘SEC. 1860D–16. (a) PAYMENT OF MONTHLY PLAN 
PREMIUMS.—For each year (beginning with 2006), the 
Administrator shall pay to each entity offering a Medicare 
Prescription Drug plan in which an eligible beneficiary is 
enrolled an amount equal to the full amount of the month-
ly plan premium approved for the plan under section 
1860D–13 on behalf of each eligible beneficiary enrolled 
in such plan for the year, as adjusted using the risk ad-
justers that apply to the standard prescription drug cov-
erage published under section 1860D–11. 
‘‘(b) PORTION OF TOTAL PAYMENTS OF MONTHLY 
PLAN PREMIUMS SUBJECT TO RISK.—
‘‘(1) NOTIFICATION OF SPENDING UNDER THE 
PLAN.—
‘‘(A) IN GENERAL.—For each year (begin-
ning in 2007), the eligible entity offering a 
Medicare Prescription Drug plan shall notify 
the Administrator of the following: 
‘‘(i) TOTAL
ACTUAL
COSTS.—The 
total amount of costs that the entity in-
curred in providing standard prescription 
drug coverage (or prescription drug cov-
erage that is actuarially equivalent pursu-
ant to section 1860D–6(a)(1)(B)) for all
enrollees under the plan in the previous 
year. 
‘‘(ii) ACTUAL
COSTS
FOR
SPECIFIC 
DRUGS.—With respect to the total amount 
under clause (i) for the year, a breakdown 
of— 
‘‘(I) each covered drug that con-
stitutes a portion of such amount; 
‘‘(II) the negotiated price for the 
eligible entity for each such drug; 
‘‘(III) the number of prescrip-
tions; and 
‘‘(IV) the average beneficiary co-
insurance rate for a each covered drug 
that constitutes a portion of such 
amount. 
‘‘(B) 
CERTAIN
EXPENSES
NOT
IN-
CLUDED.—The amounts under clauses (i) and 
(ii)(II) of subparagraph (A) may not include—
‘‘(i) administrative expenses incurred 
in providing the coverage described in sub-
paragraph (A)(i); 
‘‘(ii) amounts expended on providing 
additional prescription drug coverage pur-
suant to section 1860D–6(a)(2); or
‘‘(iii) amounts expended for which the 
entity is subsequently provided with rein-
surance payments under section 1860D–
20. 
‘‘(2) ADJUSTMENT OF PAYMENT.—
‘‘(A) NO
ADJUSTMENT
IF
ALLOWABLE 
COSTS WITHIN RISK CORRIDOR.—If the allow-
able costs (specified in paragraph (3)) for the 
plan for the year are not more than the first 
threshold upper limit of the risk corridor (speci-
fied in paragraph (4)(A)(iii)) and are not less 
than the first threshold lower limit of the risk 
corridor (specified in paragraph (4)(A)(i)) for 
the plan for the year, then no additional pay-
ments shall be made by the Administrator and 
no payments shall be made by (or collected 
from) the eligible entity offering the plan. 
‘‘(B) INCREASE IN PAYMENT IF ALLOW-
ABLE COSTS ABOVE UPPER LIMIT OF RISK COR-
RIDOR.—
‘‘(i) IN
GENERAL.—If the allowable 
costs for the plan for the year are more 
than the first threshold upper limit of the 
risk corridor for the plan for the year, then 
the Administrator shall increase the total
of the monthly payments made to the enti-
ty offering the plan for the year under sub-
section (a) by an amount equal to the sum 
of—
‘‘(I) the applicable percent (as 
defined in subparagraph (D)) of such 
allowable costs which are more than 
such first threshold upper limit of the 
risk corridor and not more than the 
second threshold upper limit of the 
risk corridor for the plan for the year 
(as 
specified 
under 
paragraph 
(4)(A)(iv)); and
‘‘(II) 90 percent of such allow-
able costs which are more than such 
second threshold upper limit of the 
risk corridor. 
‘‘(ii) SPECIAL
TRANSITIONAL
COR-
RIDOR FOR 2006 AND 2007.—If the Admin-
istrator determines with respect to 2006 or 
2007 that at least 60 percent of Medicare 
Prescription 
Drug 
plans 
and 
MedicareAdvantage Plans (excluding MSA 
plans or private fee-for-service plans that 
do not provide qualified prescription drug
coverage) have allowable costs for the plan 
for the year that are more than the first 
threshold upper limit of the risk corridor 
for the plan for the year and that such 
plans represent at least 60 percent of eligi-
ble beneficiaries enrolled under this part, 
clause (i)(I) shall be applied by sub-
stituting ‘90 percent’ for ‘applicable per-
cent’. 
‘‘(C) PLAN
PAYMENT
IF
ALLOWABLE 
COSTS
BELOW
LOWER
LIMIT
OF
RISK
COR-
RIDOR.—If the allowable costs for the plan for 
the year are less than the first threshold lower 
limit of the risk corridor for the plan for the 
year, then the entity offering the plan shall 
make a payment to the Administrator of an 
amount (or the Administrator shall otherwise 
recover from the plan an amount) equal to—
‘‘(i) the applicable percent (as so de-
fined) of such allowable costs which are 
less than such first threshold lower limit of 
the risk corridor and not less than the sec-
ond threshold lower limit of the risk cor-
ridor for the plan for the year (as specified 
under paragraph (4)(A)(ii)); and
‘‘(ii) 90 percent of such allowable 
costs which are less than such second 
threshold lower limit of the risk corridor. 
‘‘(D) APPLICABLE
PERCENT
DEFINED.—
For purposes of this paragraph, the term ‘ap-
plicable percent’ means—
‘‘(i) for 2006 and 2007, 75 percent; 
and 
‘‘(ii) for 2008 and subsequent years, 
50 percent. 
‘‘(3) 
ESTABLISHMENT
OF
ALLOWABLE 
COSTS.—
‘‘(A) IN
GENERAL.—For each year, the 
Administrator shall establish the allowable costs 
for each Medicare Prescription Drug plan for 
the year. The allowable costs for a plan for a 
year shall be equal to the amount described in 
paragraph (1)(A)(i) for the plan for the year, 
adjusted under subparagraph (B)(ii). 
‘‘(B) REPRICING OF COSTS.—
‘‘(i) CALCULATION OF AVERAGE PLAN 
COST.—Utilizing the information obtained 
under paragraph (1)(A)(ii) and section 
1860D–20(b)(1)(B), for each year (begin-
ning with 2006), the Administrator shall
establish an average negotiated price with 
respect to all Medicare Prescription Drug 
plans for each covered drug. 
‘‘(ii) ADJUSTMENT IF ACTUAL COSTS 
EXCEED AVERAGE COSTS.—With respect to 
a Medicare Prescription Drug plan for a 
year, the Administrator shall reduce the 
amount described in paragraph (1)(A)(i) 
for the plan for the year to the extent such 
amount is based on costs of specific cov-
ered drugs furnished under the plan in the 
year 
(as 
specified 
under 
paragraph 
(1)(A)(ii)) for which the negotiated prices 
are greater than the average negotiated 
price for the covered drug for the year (as 
determined under clause (i)). 
‘‘(4) ESTABLISHMENT OF RISK CORRIDORS.—
‘‘(A) IN GENERAL.—For each year (begin-
ning with 2006), the Administrator shall estab-
lish a risk corridor for each Medicare Prescrip-
tion Drug plan. The risk corridor for a plan for 
a year shall be equal to a range as follows: 
‘‘(i) 
FIRST
THRESHOLD
LOWER 
LIMIT.—The first threshold lower limit of 
such corridor shall be equal to—
‘‘(I) the target amount described 
in subparagraph (B) for the plan; 
minus 
‘‘(II) an amount equal to the 
first threshold risk percentage for the 
plan (as determined under subpara-
graph (C)(i)) of such target amount. 
‘‘(ii) SECOND
THRESHOLD
LOWER 
LIMIT.—The second threshold lower limit 
of such corridor shall be equal to—
‘‘(I) the target amount described 
in subparagraph (B) for the plan; 
minus 
‘‘(II) an amount equal to the sec-
ond threshold risk percentage for the 
plan (as determined under subpara-
graph (C)(ii)) of such target amount. 
‘‘(iii) 
FIRST
THRESHOLD
UPPER 
LIMIT.—The first threshold upper limit of 
such corridor shall be equal to the sum 
of—
‘‘(I) such target amount; and 
‘‘(II) the amount described in 
clause (i)(II).
‘‘(iv) SECOND
THRESHOLD
UPPER 
LIMIT.—The second threshold upper limit 
of such corridor shall be equal to the sum 
of—
‘‘(I) such target amount; and 
‘‘(II) the amount described in 
clause (ii)(II). 
‘‘(B) TARGET AMOUNT DESCRIBED.—The 
target amount described in this paragraph is, 
with respect to a Medicare Prescription Drug 
plan offered by an eligible entity in a year—
‘‘(i) in the case of a plan offered by 
an eligible entity that provides standard 
prescription drug coverage or actuarially 
equivalent prescription drug coverage and 
does not provide additional prescription 
drug coverage pursuant to section 1860D–
6(a)(2), an amount equal to the total of 
the monthly plan premiums paid to such 
entity for such plan for the year pursuant 
to subsection (a), reduced by the percent-
age specified in subparagraph (D); and 
‘‘(ii) in the case of a plan offered by 
an eligible entity that provides additional 
prescription drug coverage pursuant to sec-
100
tion 1860D–6(a)(2), an amount equal to 
the total of the monthly plan premiums 
paid to such entity for such plan for the 
year pursuant to subsection (a) that are 
related to standard prescription drug cov-
erage (determined using the rules under 
section 1860D–14(b)), reduced by the per-
centage specified in subparagraph (D). 
‘‘(C) FIRST
AND
SECOND
THRESHOLD 
RISK PERCENTAGE DEFINED.—
‘‘(i) FIRST
THRESHOLD
RISK
PER-
CENTAGE.—Subject to clause (iii), for pur-
poses of this section, the first threshold 
risk percentage is—
‘‘(I) for 2006 and 2007, 2.5 per-
cent;
‘‘(II) for 2008 through 2011, 5 
percent; and 
‘‘(III) for 2012 and subsequent 
years, a percentage established by the 
Administrator, but in no case less 
than 5 percent. 
‘‘(ii) SECOND THRESHOLD RISK PER-
CENTAGE.—Subject to clause (iii), for pur-
101
poses of this section, the second threshold 
risk percentage is—
‘‘(I) for 2006 and 2007, 5.0 per-
cent; 
‘‘(II) for 2008 through 2011, 10 
percent 
‘‘(III) for 2012 and subsequent 
years, a percentage established by the 
Administrator that is greater than the 
percent established for the year under 
clause (i)(III), but in no case less 
than 10 percent. 
‘‘(iii) REDUCTION OF RISK PERCENT-
AGE TO ENSURE 2 PLANS IN AN AREA.—
Pursuant to paragraph (2) of section 
1860D–13(d), the Administrator may re-
duce the applicable first or second thresh-
old risk percentage in an area in a year in 
order to ensure the access to plans re-
quired under paragraph (1) of such sec-
tion. 
‘‘(D) TARGET AMOUNT NOT TO INCLUDE 
ADMINISTRATIVE
EXPENSES
NEGOTIATED
BE-
TWEEN THE ADMINISTRATOR AND THE ENTITY 
OFFERING THE PLAN.—For each year (begin-
102
ning in 2006), the Administrator and the entity 
offering a Medicare Prescription Drug plan 
shall negotiate, as part of the negotiation proc-
ess described in section 1860D–13(b) during 
the previous year, the percentage of the pay-
ments to the entity under subsection (a) with 
respect to the plan that are attributable and 
reasonably incurred for administrative expenses 
for providing standard prescription drug cov-
erage or actuarially equivalent prescription drug 
coverage in the year. 
‘‘(5) PLANS AT RISK FOR ENTIRE AMOUNT OF 
ADDITIONAL
PRESCRIPTION
DRUG
COVERAGE.—An 
eligible entity that offers a Medicare Prescription 
Drug plan that provides additional prescription drug 
coverage pursuant to section 1860D–6(a)(2) shall be 
at full financial risk for the provision of such addi-
tional coverage. 
‘‘(6) 
NO
EFFECT
ON
ELIGIBLE
BENE-
FICIARIES.—No change in payments made by reason 
of this subsection shall affect the beneficiary obliga-
tion under section 1860D–17 for the year in which 
such change in payments is made. 
‘‘(7) DISCLOSURE OF INFORMATION.—
103
‘‘(A) IN GENERAL.—Each contract under 
this part shall provide that—
‘‘(i) the entity offering a Medicare 
Prescription Drug plan shall provide the 
Administrator with such information as the 
Administrator determines is necessary to 
carry out this section; and
‘‘(ii) the Administrator shall have the 
right to inspect and audit any books and 
records of the eligible entity that pertain to 
the information regarding costs provided to 
the Administrator under paragraph (1). 
‘‘(B) RESTRICTION ON USE OF INFORMA-
TION.—Information disclosed or obtained pur-
suant to the provisions of this section may be 
used by officers and employees of the Depart-
ment of Health and Human Services only for 
the purposes of, and to the extent necessary in, 
carrying out this section. 
‘‘(c) STABILIZATION RESERVE FUND.—
‘‘(1) ESTABLISHMENT.—
‘‘(A) IN GENERAL.—There is established, 
within the Prescription Drug Account, a sta-
bilization reserve fund in which the Adminis-
trator shall deposit amounts on behalf of eligi-
104
ble entities in accordance with paragraph (2) 
and such amounts shall be made available by 
the Secretary for the use of eligible entities in 
contract year 2008 and subsequent contract 
years in accordance with paragraph (3). 
‘‘(B) REVERSION OF UNUSED AMOUNTS.—
Any amount in the stabilization reserve fund es-
tablished under subparagraph (A) that is not 
expended by an eligible entity in accordance 
with paragraph (3) or that was deposited for 
the use of an eligible entity that no longer has 
a contract under this part shall revert for the 
use of the Prescription Drug Account. 
‘‘(2) DEPOSIT OF AMOUNTS FOR 5 YEARS.—
‘‘(A) IN GENERAL.—If the target amount 
for a Medicare Prescription Drug plan for 
2006, 2007, 2008, 2009, or 2010 (as deter-
mined under subsection (b)(4)(B)) exceeds the 
applicable costs for the plan for the year by 
more than 3 percent, then—
‘‘(i) the entity offering the plan shall 
make a payment to the Administrator of 
an amount (or the Administrator shall oth-
erwise recover from the plan an amount) 
equal to the portion of such excess that is
105
in excess of 3 percent of the target 
amount; and 
‘‘(ii) the Administrator shall deposit 
an amount equal to the amount collected 
or otherwise recovered under clause (i) in 
the stabilization reserve fund on behalf of 
the eligible entity offering such plan. 
‘‘(B) APPLICABLE
COSTS.—For purposes 
of subparagraph (A), the term ‘applicable costs’ 
means, with respect to a Medicare Prescription 
Drug plan and year, an amount equal the sum 
of—
‘‘(i) the allowable costs for the plan 
and year (as determined under subsection 
(b)(3)(A); and 
‘‘(ii) the total amount by which 
monthly payments to the plan were re-
duced (or otherwise recovered from the 
plan) for the year under subsection 
(b)(2)(C). 
‘‘(3) USE OF RESERVE FUND TO STABILIZE OR 
REDUCE MONTHLY PLAN PREMIUMS.—
‘‘(A) IN GENERAL.—For any contract year 
beginning after 2007, an eligible entity offering 
a Medicare Prescription Drug plan may use
106
funds in the stabilization reserve fund in the 
Prescription Drug Account that were deposited 
in such fund on behalf of the entity to stabilize 
or reduce monthly plan premiums submitted 
under section 1860D–12(b)(3). 
‘‘(B) PROCEDURES.—The Administrator 
shall establish procedures for— 
‘‘(i) reducing monthly plan premiums 
submitted under section 1860D–12(b)(3) 
pursuant to subparagraph (A); and 
‘‘(ii) making payments from the plan 
stabilization reserve fund in the Prescrip-
tion Drug Account to eligible entities that 
inform 
the 
Secretary 
under 
section 
1860D–12(b)(5) of the entity’s intent to 
use funds in such reserve fund to reduce 
such premiums.
‘‘(d) PORTION OF PAYMENTS OF MONTHLY PLAN 
PREMIUMS
ATTRIBUTABLE
TO
ADMINISTRATIVE
EX-
PENSES TIED TO PERFORMANCE REQUIREMENTS.—
‘‘(1) IN GENERAL.—The Administrator shall es-
tablish procedures to adjust the portion of the pay-
ments made to an entity under subsection (a) that 
are attributable to administrative expenses (as deter-
mined pursuant to subsection (b)(4)(D)) to ensure
107
that the entity meets the performance requirements 
described in clauses (ii) and (iii) of section 1860D–
13(e)(4)(B). 
‘‘(2) 
NO
EFFECT
ON
ELIGIBLE
BENE-
FICIARIES.—No change in payments made by reason 
of this subsection shall affect the beneficiary obliga-
tion under section 1860D–17 for the year in which 
such change in payments is made. 
‘‘(e) PAYMENT TERMS.—
‘‘(1) ADMINISTRATOR
PAYMENTS.—Payments 
to an entity offering a Medicare Prescription Drug 
plan under this section shall be made in a manner 
determined by the Administrator and based upon the 
manner in which payments are made under section 
1853(a) (relating to payments to MedicareAdvantage 
organizations). 
‘‘(2) PLAN
PAYMENTS.—The Administrator 
shall establish a process for collecting (or otherwise 
recovering) amounts that an entity offering a Medi-
care Prescription Drug plan is required to make to 
the Administrator under this section. 
‘‘(f) PAYMENTS TO MEDICAREADVANTAGE PLANS.—
For provisions related to payments to MedicareAdvantage 
organizations offering MedicareAdvantage plans for quali-
109
amount of the monthly plan premium approved by 
the Administrator under section 1860D–13 for the 
Medicare Prescription Drug plan for the year is less 
than the monthly national average premium (as 
computed under section 1860D–15) for the area for 
the year, the monthly beneficiary obligation of the 
eligible beneficiary in that year shall be an amount 
equal to—
‘‘(A) the applicable percent of the amount 
of such monthly national average premium; 
minus 
‘‘(B) the amount by which such monthly 
national average premium exceeds the amount 
of the monthly plan premium approved by the 
Administrator for the plan. 
‘‘(3) MONTHLY
PLAN
PREMIUM
EXCEEDS 
MONTHLY
NATIONAL
AVERAGE
PREMIUM.—If the 
amount of the monthly plan premium approved by 
the Administrator under section 1860D–13 for a 
Medicare Prescription Drug plan for the year ex-
ceeds the monthly national average premium (as 
computed under section 1860D–15) for the area for 
the year, the monthly beneficiary obligation of the 
eligible beneficiary in that year shall be an amount 
equal to the sum of—
110
‘‘(A) the applicable percent of the amount 
of such monthly national average premium; plus 
‘‘(B) the amount by which the monthly 
plan premium approved by the Administrator 
for the plan exceeds the amount of such month-
ly national average premium. 
‘‘(b) 
BENEFICIARIES
ENROLLED
IN
A 
MEDICAREADVANTAGE PLAN.—In the case of an eligible 
beneficiary that is enrolled in a MedicareAdvantage plan 
(except for an MSA plan or a private fee-for-service plan 
that does not provide qualified prescription drug cov-
erage), the Medicare monthly beneficiary obligation for 
qualified prescription drug coverage shall be determined 
pursuant to section 1858A(d). 
‘‘(c) APPLICABLE PERCENT.—For purposes of this 
section, except as provided in section 1860D–19 (relating 
to premium subsidies for low-income individuals), the ap-
plicable percent for any year is the percentage equal to 
a fraction—
‘‘(1) the numerator of which is 27.5 percent; 
and 
‘‘(2) the denominator of which is 100 percent 
minus a percentage equal to—
‘‘(A) the total reinsurance payments which 
the Administrator estimates will be made under
111
section 1860D–20 to qualifying entities de-
scribed in subsection (e)(3) of such section dur-
ing the year; divided by 
‘‘(B) the sum of—
‘‘(i) the amount estimated under sub-
paragraph (A) for the year; and 
‘‘(ii) the total payments which the Ad-
ministrator estimates will be made under 
sections 1860D–16 and 1858A(c) during 
the year that relate to standard prescrip-
tion drug coverage (or actuarially equiva-
lent prescription drug coverage). 
‘‘COLLECTION OF MONTHLY BENEFICIARY OBLIGATION 
‘‘SEC. 1860D–18. (a) COLLECTION OF AMOUNT IN 
SAME MANNER AS PART B PREMIUM.—
‘‘(1) IN GENERAL.—Subject to paragraph (2), 
the amount of the monthly beneficiary obligation 
(determined under section 1860D–17) applicable to 
an eligible beneficiary under this part (after applica-
tion 
of 
any 
increase 
under 
section 
1860D–
2(b)(1)(A)) shall be collected and credited to the 
Prescription Drug Account in the same manner as 
the monthly premium determined under section 
1839 is collected and credited to the Federal Supple-
mentary Medical Insurance Trust Fund under sec-
tion 1840.
112
‘‘(2) PROCEDURES FOR SPONSOR TO PAY OBLI-
GATION
ON
BEHALF
OF
RETIREE.—The Adminis-
trator shall establish procedures under which an eli-
gible beneficiary enrolled in a Medicare Prescription 
Drug plan may elect to have the sponsor (as defined 
in paragraph (5) of section 1860D–20(e)) of employ-
ment-based retiree health coverage (as defined in 
paragraph (4)(B) of such section) in which the bene-
ficiary is enrolled pay the amount of the monthly 
beneficiary obligation applicable to the beneficiary 
under this part directly to the Administrator. 
‘‘(b) INFORMATION NECESSARY FOR COLLECTION.—
In order to carry out subsection (a), the Administrator 
shall transmit to the Commissioner of Social Security—
‘‘(1) by the beginning of each year, the name, 
social security account number, monthly beneficiary 
obligation owed by each individual enrolled in a 
Medicare Prescription Drug plan for each month 
during the year, and other information determined 
appropriate by the Administrator; and 
‘‘(2) periodically throughout the year, informa-
tion to update the information previously trans-
mitted under this paragraph for the year. 
‘‘(c) COLLECTION FOR BENEFICIARIES ENROLLED IN 
A MEDICAREADVANTAGE PLAN.—For provisions related
113
to the collection of the monthly beneficiary obligation for 
qualified 
prescription 
drug 
coverage 
under 
a 
MedicareAdvantage plan, see section 1858A(e). 
‘‘PREMIUM AND COST-SHARING SUBSIDIES FOR LOW-
INCOME INDIVIDUALS 
‘‘SEC. 1860D–19. (a) AMOUNT OF SUBSIDIES.—
‘‘(1) FULL PREMIUM SUBSIDY AND REDUCTION 
OF COST-SHARING FOR QUALIFIED MEDICARE BENE-
FICIARIES.—In the case of a qualified medicare ben-
eficiary (as defined in paragraph (4)(A))—
‘‘(A) section 1860D–17 shall be applied—
‘‘(i) in subsection (c), by substituting 
‘0 percent’ for the applicable percent that 
would otherwise apply under such sub-
section; and 
‘‘(ii) in subsection (a)(3)(B), by sub-
stituting ‘the amount of the monthly plan 
premium for the Medicare Prescription 
Drug plan with the lowest monthly plan 
premium in the area that the beneficiary 
resides’ for ‘the amount of such monthly 
national average premium’, but only if 
there is no Medicare Prescription Drug 
plan offered in the area in which the indi-
vidual resides that has a monthly plan pre-
mium for the year that is equal to or less
114
than the monthly national average pre-
mium (as computed under section 1860D–
15) for the area for the year; 
‘‘(B) the annual deductible applicable 
under section 1860D–6(c)(1) in a year shall be 
reduced to $0; 
‘‘(C) section 1860D–6(c)(2) shall be ap-
plied by substituting ‘2.5 percent’ for ‘50 per-
cent’ each place it appears; 
‘‘(D) such individual shall be responsible 
for cost-sharing for the cost of any covered 
drug provided in the year (after the individual 
has reached the initial coverage limit described 
in section 1860D–6(c)(3) and before the indi-
vidual has reached the annual out-of-pocket 
limit under section 1860D–6(c)(4)(A)), that is 
equal to 5.0 percent; and 
‘‘(E) section 1860D–6(c)(4)(A) shall be 
applied by substituting ‘2.5 percent’ for ‘10 
percent’. 
In no case may the application of subparagraph (A) 
result in a monthly beneficiary obligation that is 
below 0. 
‘‘(2) FULL PREMIUM SUBSIDY AND REDUCTION 
OF
COST-SHARING
FOR
SPECIFIED
LOW
INCOME
115
MEDICARE
BENEFICIARIES
AND
QUALIFYING
INDI-
VIDUALS.—In the case of a specified low income 
medicare beneficiary (as defined in paragraph 
(4)(B)) or a qualifying individual (as defined in 
paragraph (4)(C))—
‘‘(A) section 1860D–17 shall be applied—
‘‘(i) in subsection (c), by substituting 
‘0 percent’ for the applicable percent that 
would otherwise apply under such sub-
section; and 
‘‘(ii) in subsection (a)(3)(B), by sub-
stituting ‘the amount of the monthly plan 
premium for the Medicare Prescription 
Drug plan with the lowest monthly plan 
premium in the area that the beneficiary 
resides’ for ‘the amount of such monthly 
national average premium’, but only if 
there is no Medicare Prescription Drug 
plan offered in the area in which the indi-
vidual resides that has a monthly plan pre-
mium for the year that is equal to or less 
than the monthly national average pre-
mium (as computed under section 1860D–
15) for the area for the year;
116
‘‘(B) the annual deductible applicable 
under section 1860D–6(c)(1) in a year shall be 
reduced to $0; 
‘‘(C) section 1860D–6(c)(2) shall be ap-
plied by substituting ‘5.0 percent’ for ‘50 per-
cent’ each place it appears; 
‘‘(D) such individual shall be responsible 
for cost-sharing for the cost of any covered 
drug provided in the year (after the individual 
has reached the initial coverage limit described 
in section 1860D–6(c)(3) and before the indi-
vidual has reached the annual out-of-pocket 
limit under section 1860D–6(c)(4)(A)), that is 
equal to 10.0 percent; and
‘‘(E) section 1860D–6(c)(4)(A) shall be 
applied by substituting ‘2.5 percent’ for ‘10 
percent’. 
In no case may the application of subparagraph (A) 
result in a monthly beneficiary obligation that is 
below 0. 
‘‘(3) SLIDING SCALE PREMIUM SUBSIDY AND 
REDUCTION OF COST-SHARING FOR SUBSIDY-ELIGI-
BLE INDIVIDUALS.—
117
‘‘(A) IN GENERAL.—In the case of a sub-
sidy-eligible individual (as defined in paragraph 
(4)(D))—
‘‘(i) section 1860D–17 shall be ap-
plied—
‘‘(I) in subsection (c), by sub-
stituting ‘subsidy percent’ for the ap-
plicable percentage that would other-
wise apply under such subsection; and 
‘‘(II) in subparagraphs (A) and 
(B) of subsection (a)(3), by sub-
stituting ‘the amount of the monthly 
plan premium for the Medicare Pre-
scription Drug plan with the lowest 
monthly plan premium in the area 
that the beneficiary resides’ for ‘the 
amount of such monthly national av-
erage premium’, but only if there is 
no Medicare Prescription Drug plan 
offered in the area in which the indi-
vidual resides that has a monthly plan 
premium for the year that is equal to 
or less than the monthly national av-
erage premium (as computed under
118
section 1860D–15) for the area for 
the year; 
‘‘(ii) the annual deductible applicable 
under section 1860D–6(c)(1)—
‘‘(I) for 2006, shall be reduced to 
$50; and 
‘‘(II) for a subsequent year, shall 
be reduced to the amount specified 
under this clause for the previous year 
increased by the percentage specified 
in section 1860D–6(c)(5) for the year 
involved; 
‘‘(iii) section 1860D–6(c)(2) shall be 
applied by substituting ‘10.0 percent’ for 
‘50 percent’ each place it appears; 
‘‘(iv) such individual shall be respon-
sible for cost-sharing for the cost of any 
covered drug provided in the year (after 
the individual has reached the initial cov-
erage limit described in section 1860D–
6(c)(3) and before the individual has 
reached the annual out-of-pocket limit 
under section 1860D–6(c)(4)(A)), that is 
equal to 20.0 percent; and
119
‘‘(v) such individual shall be respon-
sible for the cost-sharing described in sec-
tion 1860D–6(c)(4)(A). 
In no case may the application of clause (i) re-
sult in a monthly beneficiary obligation that is 
below 0. 
‘‘(B) SUBSIDY
PERCENT
DEFINED.—For 
purposes of subparagraph (A)(i), the term ‘sub-
sidy percent’ means, with respect to a State, a 
percent determined on a linear sliding scale 
ranging from—
‘‘(i) 0 percent with respect to a sub-
sidy-eligible individual residing in the State 
whose income does not exceed 135 percent 
of the poverty line; to 
‘‘(ii) the highest percentage that 
would 
otherwise 
apply 
under 
section 
1860D–17 in the service area in which the 
subsidy-eligible individual resides, in the 
case of a subsidy-eligible individual resid-
ing in the State whose income equals 160 
percent of the poverty line. 
‘‘(4) DEFINITIONS.—In this part: 
‘‘(A) 
QUALIFIED
MEDICARE
BENE-
FICIARY.—Subject to subparagraph (H), the
120
term ‘qualified medicare beneficiary’ means an 
individual who—
‘‘(i) is enrolled under this part, in-
cluding an individual who is enrolled under 
a MedicareAdvantage plan; and 
‘‘(ii) 
is 
described 
in 
section 
1905(p)(1).
‘‘(B) SPECIFIED LOW INCOME MEDICARE 
BENEFICIARY.—Subject to subparagraph (H), 
the term ‘specified low income medicare bene-
ficiary’ means an individual who—
‘‘(i) is enrolled under this part, in-
cluding an individual who is enrolled under 
a MedicareAdvantage plan; and 
‘‘(ii) 
is 
described 
in 
section 
1902(a)(10)(E)(iii). 
‘‘(C) QUALIFYING
INDIVIDUAL.—Subject 
to subparagraph (H), the term ‘qualifying indi-
vidual’ means an individual who—
‘‘(i) is enrolled under this part, in-
cluding an individual who is enrolled under 
a MedicareAdvantage plan; and 
‘‘(ii) 
is 
described 
in 
section 
1902(a)(10)(E)(iv) (without regard to any
121
termination of the application of such sec-
tion under title XIX). 
‘‘(D) SUBSIDY-ELIGIBLE
INDIVIDUAL.—
Subject to subparagraph (H), the term ‘sub-
sidy-eligible individual’ means an individual—
‘‘(i) who is enrolled under this part, 
including an individual who is enrolled 
under a MedicareAdvantage plan 
‘‘(ii) whose income is less than 160 
percent of the poverty line; and 
‘‘(iii) who is not—
‘‘(I) a qualified medicare bene-
ficiary; 
‘‘(II) 
a 
specified 
low-income 
medicare beneficiary; or 
‘‘(III) a qualifying individual.
‘‘(E) POVERTY LINE.—The term ‘poverty 
line’ has the meaning given such term in sec-
tion 673(2) of the Community Services Block 
Grant Act (42 U.S.C. 9902(2)), including any 
revision required by such section. 
‘‘(F) ELIGIBILITY DETERMINATIONS.—Be-
ginning on November 1, 2005, the determina-
tion of whether an individual residing in a State 
is an individual described in subparagraph (A),
122
(B), (C), or (D) and, for purposes of paragraph 
(3), the amount of an individual’s income, shall 
be determined under the State medicaid plan 
for the State under section 1935(a). In the case 
of a State that does not operate such a med-
icaid plan (either under title XIX or under a 
statewide waiver granted under section 1115), 
such determination shall be made under ar-
rangements made by the Administrator. 
‘‘(G) NONAPPLICATION TO DUAL ELIGIBLE 
INDIVIDUALS AND TERRITORIAL RESIDENTS.—
In the case of an individual who is not a resi-
dent of the 50 States or the District of Colum-
bia—
‘‘(i) the subsidies provided under this 
section shall not apply; and 
‘‘(ii) such individuals may be provided 
with medical assistance for covered out-
patient drugs (as such term is defined for 
purposes of section 1927) in accordance 
with section 1935 under the State med-
icaid program under title XIX. 
‘‘(b) RULES
IN
APPLYING
COST-SHARING
SUB-
SIDIES.—Nothing in this section shall be construed as pre-
venting an eligible entity offering a Medicare Prescription
123
Drug plan or a MedicareAdvantage organization offering 
a MedicareAdvantage plan from waiving or reducing the 
amount of the deductible or other cost-sharing otherwise 
applicable pursuant to section 1860D–6(a)(2). 
‘‘(c) ADMINISTRATION OF SUBSIDY PROGRAM.—The 
Administrator shall establish a process whereby, in the 
case of an individual eligible for a cost-sharing subsidy 
under subsection (a) who is enrolled in a Medicare Pre-
scription Drug plan or a MedicareAdvantage plan—
‘‘(1) the Administrator provides for a notifica-
tion of the eligible entity or MedicareAdvantage or-
ganization involved that the individual is eligible for 
a cost-sharing subsidy and the amount of the sub-
sidy under such subsection; 
‘‘(2) the entity or organization involved reduces 
the cost-sharing otherwise imposed by the amount of 
the applicable subsidy and submits to the Adminis-
trator information on the amount of such reduction; 
and 
‘‘(3) the Administrator periodically and on a 
timely basis reimburses the entity or organization 
for the amount of such reductions. 
The reimbursement under paragraph (3) may be com-
puted on a capitated basis, taking into account the actu-
124
arial value of the subsidies and with appropriate adjust-
ments to reflect differences in the risks actually involved. 
‘‘(d) RELATION TO MEDICAID PROGRAM.—For provi-
sions providing for eligibility determinations and addi-
tional Federal payments for expenditures related to pro-
viding prescription drug coverage for territorial residents 
under the medicaid program, see section 1935. 
‘‘REINSURANCE PAYMENTS FOR EXPENSES INCURRED IN 
PROVIDING PRESCRIPTION DRUG COVERAGE ABOVE 
THE ANNUAL OUT-OF-POCKET THRESHOLD 
‘‘SEC. 1860D–20. (a) REINSURANCE PAYMENTS.—
‘‘(1) IN GENERAL.—Subject to section 1860D–
21(b), the Administrator shall provide in accordance 
with this section for payment to a qualifying entity 
of the reinsurance payment amount (as specified in 
subsection (c)(1)) for costs incurred by the entity in 
providing prescription drug coverage for a qualifying 
covered individual after the individual has reached 
the annual out-of-pocket threshold specified in sec-
tion 1860D–6(c)(4)(B) for the year. 
‘‘(2) BUDGET AUTHORITY.—This section con-
stitutes budget authority in advance of appropria-
tions Acts and represents the obligation of the Ad-
ministrator to provide for the payment of amounts 
provided under this section.
125
‘‘(b) NOTIFICATION OF SPENDING UNDER THE PLAN 
FOR COSTS INCURRED
IN PROVIDING PRESCRIPTION 
DRUG COVERAGE ABOVE THE ANNUAL OUT-OF-POCKET 
THRESHOLD.—
‘‘(1) IN GENERAL.—Each qualifying entity shall 
notify the Administrator of the following with re-
spect to a qualifying covered individual for a cov-
erage year: 
‘‘(A) TOTAL
ACTUAL
COSTS.—The total 
amount (if any) of costs that the qualifying en-
tity incurred in providing prescription drug cov-
erage for the individual in the year after the in-
dividual had reached the annual out-of-pocket 
threshold specified in section 1860D–6(c)(4)(B) 
for the year. 
‘‘(B) 
ACTUAL
COSTS
FOR
SPECIFIC 
DRUGS.—With respect to the total amount 
under subparagraph (A) for the year, a break-
down of— 
‘‘(i) each covered drug that con-
stitutes a portion of such amount; 
‘‘(ii) the negotiated price for the 
qualifying entity for each such drug; 
‘‘(iii) the number of prescriptions; and
126
‘‘(iv) the average beneficiary coinsur-
ance rate for a each covered drug that con-
stitutes a portion of such amount. 
‘‘(2) CERTAIN EXPENSES NOT INCLUDED.—The 
amounts under subparagraphs (A) and (B)(ii) of 
paragraph (1) may not include—
‘‘(A) administrative expenses incurred in 
providing the coverage described in paragraph 
(1)(A); or 
‘‘(B) amounts expended on providing addi-
tional prescription drug coverage pursuant to 
section 1860D–6(a)(2). 
‘‘(3) RESTRICTION ON USE OF INFORMATION.—
The 
restriction 
specified 
in 
section 
1860D–
16(b)(7)(B) shall apply to information disclosed or 
obtained pursuant to the provisions of this section. 
‘‘(c) REINSURANCE PAYMENT AMOUNT.—
‘‘(1) IN GENERAL.—The reinsurance payment 
amount under this subsection for a qualifying cov-
ered individual for a coverage year is an amount 
equal to 80 percent of the allowable costs (as speci-
fied in paragraph (2)) incurred by the qualifying en-
tity with respect to the individual and year. 
‘‘(2) ALLOWABLE COSTS.—
127
‘‘(A) IN GENERAL.—In the case of a quali-
fying entity that has incurred costs described in 
subsection (b)(1)(A) with respect to a quali-
fying covered individual for a coverage year, the 
Administrator shall establish the allowable costs 
for the individual and year. Such allowable 
costs shall be equal to the amount described in 
such subsection for the individual and year, ad-
justed under subparagraph (B). 
‘‘(B) REPRICING
OF
COSTS
IF
ACTUAL 
COSTS EXCEED AVERAGE COSTS.—The Admin-
istrator shall reduce the amount described in 
subsection (b)(1)(A) with respect to a quali-
fying covered individual for a coverage year to 
the extent such amount is based on costs of 
specific covered drugs furnished under the plan 
in the year (as specified under subsection 
(b)(1)(B)) that are greater than the average 
cost for the covered drug for the year (as deter-
mined under section 1860D–16(b)(3)(A)). 
‘‘(d) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this sec-
tion shall be based on such a method as the Admin-
istrator determines. The Administrator may estab-
lish a payment method by which interim payments
128
of amounts under this section are made during a 
year based on the Administrator’s best estimate of 
amounts that will be payable after obtaining all of 
the information. 
‘‘(2) SOURCE OF PAYMENTS.—Payments under 
this section shall be made from the Prescription 
Drug Account. 
‘‘(e) DEFINITIONS.—In this section: 
‘‘(1) COVERAGE
YEAR.—The term ‘coverage 
year’ means a calendar year in which covered drugs 
are dispensed if a claim for payment is made under 
the plan for such drugs, regardless of when the 
claim is paid.
‘‘(2) QUALIFYING COVERED INDIVIDUAL.—The 
term ‘qualifying covered individual’ means an indi-
vidual who—
‘‘(A) is enrolled in this part and in a Medi-
care Prescription Drug plan; 
‘‘(B) is enrolled in this part and in a 
MedicareAdvantage plan (except for an MSA 
plan or a private fee-for-service plan that does 
not provide qualified prescription drug cov-
erage); or
129
‘‘(C) is eligible for, but not enrolled in, the 
program under this part, and is covered under 
a qualified retiree prescription drug plan. 
‘‘(3) QUALIFYING
ENTITY.—The term ‘quali-
fying entity’ means any of the following that has en-
tered into an agreement with the Administrator to 
provide the Administrator with such information as 
may be required to carry out this section: 
‘‘(A) An eligible entity offering a Medicare 
Prescription Drug plan under this part. 
‘‘(B) A MedicareAdvantage organization 
offering a MedicareAdvantage plan under part 
C (except for an MSA plan or a private fee-for-
service plan that does not provide qualified pre-
scription drug coverage). 
‘‘(C) The sponsor of a qualified retiree pre-
scription drug plan. 
‘‘(4) QUALIFIED RETIREE PRESCRIPTION DRUG 
PLAN.—
‘‘(A) IN
GENERAL.—The term ‘qualified 
retiree prescription drug plan’ means employ-
ment-based retiree health coverage if, with re-
spect to a qualifying covered individual who is 
covered under the plan, the following require-
ments are met:
130
‘‘(i) ASSURANCE.—The sponsor of the 
plan shall annually attest, and provide 
such assurances as the Administrator may 
require, that the coverage meets or exceeds 
the requirements for qualified prescription 
drug coverage. 
‘‘(ii) 
DISCLOSURE
OF
INFORMA-
TION.—The sponsor complies with the re-
quirements described in clauses (i) and (ii) 
of section 1860D–16(b)(7)(A). 
‘‘(B) 
EMPLOYMENT-BASED
RETIREE 
HEALTH
COVERAGE.—The term ‘employment-
based retiree health coverage’ means health in-
surance or other coverage, whether provided by 
voluntary insurance coverage or pursuant to 
statutory or contractual obligation, of health 
care costs for retired individuals (or for such in-
dividuals and their spouses and dependents) 
based on their status as former employees or 
labor union members. 
‘‘(5) SPONSOR.—The term ‘sponsor’ means a 
plan sponsor, as defined in section 3(16)(B) of the 
Employee Retirement Income Security Act of 1974.
131
‘‘DIRECT SUBSIDY FOR SPONSOR OF A QUALIFIED RE-
TIREE
PRESCRIPTION
DRUG
PLAN
FOR
PLAN
EN-
ROLLEES ELIGIBLE FOR, BUT NOT ENROLLED IN, 
THIS PART 
‘‘SEC. 1860D–21. (a) DIRECT SUBSIDY.—
‘‘(1) IN
GENERAL.—The Administrator shall 
provide for the payment to a sponsor of a qualified 
retiree prescription drug plan (as defined in section 
1860D–20(e)(4)) for each qualifying covered indi-
vidual (described in subparagraph (C) of section 
1860D–20(e)(2)) enrolled in the plan for each 
month for which such individual is so enrolled. 
‘‘(2) AMOUNT OF PAYMENT.—
‘‘(A) IN
GENERAL.—The amount of the 
payment under paragraph (1) shall be an 
amount equal to the direct subsidy percent de-
termined for the year of the monthly national 
average premium for the area for the year (de-
termined under section 1860D–15), as adjusted 
using the risk adjusters that apply to the stand-
ard prescription drug coverage published under 
section 1860D–11.
‘‘(B) DIRECT
SUBSIDY
PERCENT.—For 
purposes of subparagraph (A), the term ‘direct
132
subsidy percent’ means the percentage equal 
to—
‘‘(i) 100 percent; minus 
‘‘(ii) the applicable percent for the 
year (as determined under section 1860D–
17(c). 
‘‘(b) PAYMENT METHODS.—
‘‘(1) IN GENERAL.—Payments under this sec-
tion shall be based on such a method as the Admin-
istrator determines. The Administrator may estab-
lish a payment method by which interim payments 
of amounts under this section are made during a 
year based on the Administrator’s best estimate of 
amounts that will be payable after obtaining all of 
the information. 
‘‘(2) SOURCE OF PAYMENTS.—Payments under 
this section shall be made from the Prescription 
Drug Account. 
‘‘Subpart 3—Miscellaneous Provisions 
‘‘PRESCRIPTION DRUG ACCOUNT IN THE FEDERAL 
SUPPLEMENTARY MEDICAL INSURANCE TRUST FUND 
‘‘SEC. 1860D–25. (a) ESTABLISHMENT.—
‘‘(1) IN GENERAL.—There is created within the 
Federal Supplementary Medical Insurance Trust 
Fund established by section 1841 an account to be
133
known as the ‘Prescription Drug Account’ (in this 
section referred to as the ‘Account’). 
‘‘(2) FUNDS.—The Account shall consist of 
such gifts and bequests as may be made as provided 
in section 201(i)(1), and such amounts as may be 
deposited in, or appropriated to, the Account as pro-
vided in this part. 
‘‘(3) SEPARATE FROM REST OF TRUST FUND.—
Funds provided under this part to the Account shall 
be kept separate from all other funds within the 
Federal Supplementary Medical Insurance Trust 
Fund. 
‘‘(b) PAYMENTS FROM ACCOUNT.—
‘‘(1) IN
GENERAL.—The Managing Trustee 
shall pay from time to time from the Account such 
amounts as the Secretary certifies are necessary to 
make payments to operate the program under this 
part, including—
‘‘(A) payments to eligible entities under 
section 1860D–16; 
‘‘(B) payments under 1860D–19 for low-
income subsidy payments for cost-sharing; 
‘‘(C) reinsurance payments under section 
1860D–20;
134
‘‘(D) payments to sponsors of qualified re-
tiree prescription drug plans under section 
1860D–21; 
‘‘(E) payments to MedicareAdvantage or-
ganizations for the provision of qualified pre-
scription drug coverage under section 1858A(c); 
and 
‘‘(F) payments with respect to administra-
tive expenses under this part in accordance with 
section 201(g). 
‘‘(2) TREATMENT IN RELATION TO PART B PRE-
MIUM.—Amounts payable from the Account shall not 
be taken into account in computing actuarial rates 
or premium amounts under section 1839. 
‘‘(c) APPROPRIATIONS TO COVER BENEFITS
AND 
ADMINISTRATIVE COSTS.—There are appropriated to the 
Account in a fiscal year, out of any moneys in the Treas-
ury not otherwise appropriated, an amount equal to the 
payments and transfers made from the Account in the 
year. 
‘‘OTHER RELATED PROVISIONS 
‘‘SEC. 1860D–26. (a) RESTRICTION
ON ENROLL-
MENT IN A MEDICARE PRESCRIPTION DRUG PLAN OF-
FERED BY A SPONSOR OF EMPLOYMENT-BASED RETIREE 
HEALTH COVERAGE.—
135
‘‘(1) IN GENERAL.—In the case of a Medicare 
Prescription Drug plan offered by an eligible entity 
that is a sponsor (as defined in paragraph (5) of 
section 1860D–20(e)) of employment-based retiree 
health coverage (as defined in paragraph (4)(B) of 
such section), notwithstanding any other provision of 
this part and in accordance with regulations of the 
Administrator, the entity offering the plan may re-
strict the enrollment of eligible beneficiaries enrolled 
under this part to eligible beneficiaries who are en-
rolled in such coverage. 
‘‘(2) LIMITATION.—The sponsor of the employ-
ment-based retiree health coverage described in 
paragraph (1) may not offer enrollment in the Medi-
care Prescription Drug plan described in such para-
graph based on the health status of eligible bene-
ficiaries enrolled for such coverage. 
‘‘(b) COORDINATION WITH STATE PHARMACEUTICAL 
ASSISTANCE PROGRAMS.—
‘‘(1) IN GENERAL.—An eligible entity offering a 
Medicare 
Prescription 
Drug 
plan, 
or 
a 
MedicareAdvantage 
organization 
offering 
a 
MedicareAdvantage plan (other than an MSA plan 
or a private fee-for-service plan that does not pro-
vide qualified prescription drug coverage), may enter
136
into an agreement with a State pharmaceutical as-
sistance program described in paragraph (2) to co-
ordinate the coverage provided under the plan with 
the assistance provided under the State pharma-
ceutical assistance program. 
‘‘(2) STATE
PHARMACEUTICAL
ASSISTANCE 
PROGRAM DESCRIBED.—For purposes of paragraph 
(1), a State pharmaceutical assistance program de-
scribed in this paragraph is a program that has been 
established pursuant to a waiver under section 1115 
or otherwise. 
‘‘(c) REGULATIONS TO CARRY OUT THIS PART.—
‘‘(1) AUTHORITY FOR INTERIM FINAL REGULA-
TIONS.—The Secretary may promulgate initial regu-
lations implementing this part in interim final form 
without prior opportunity for public comment. 
‘‘(2) FINAL REGULATIONS.—A final regulation 
reflecting public comments must be published within 
1 year of the interim final regulation promulgated 
under paragraph (1).’’. 
(b) CONFORMING AMENDMENTS TO FEDERAL SUP-
PLEMENTARY MEDICAL INSURANCE TRUST FUND.—Sec-
tion 1841 (42 U.S.C. 1395t) is amended—
(1) in the last sentence of subsection (a)—
137
(A) by striking ‘‘and’’ before ‘‘such 
amounts’’; and 
(B) by inserting before the period the fol-
lowing: ‘‘, and such amounts as may be depos-
ited in, or appropriated to, the Prescription 
Drug Account established by section 1860D–
25’’; 
(2) in subsection (g), by inserting after ‘‘by this 
part,’’ the following: ‘‘the payments provided for 
under part D (in which case the payments shall be 
made from the Prescription Drug Account in the 
Trust Fund),’’; 
(3) in subsection (h), by inserting after 
‘‘1840(d)’’ the following: ‘‘and sections 1860D–18 
and 1858A(e) (in which case the payments shall be 
made from the Prescription Drug Account in the 
Trust Fund)’’; and 
(4) in subsection (i), by inserting after ‘‘section 
1840(b)(1)’’ the following: ‘‘, sections 1860D–18 
and 1858A(e) (in which case the payments shall be 
made from the Prescription Drug Account in the 
Trust Fund),’’. 
(c) CONFORMING REFERENCES TO PREVIOUS PART 
D.—Any reference in law (in effect before the date of en-
actment of this Act) to part D of title XVIII of the Social
138
Security Act is deemed a reference to part F of such title 
(as in effect after such date). 
(d) SUBMISSION OF LEGISLATIVE PROPOSAL.—Not 
later than 6 months after the date of the enactment of 
this Act, the Secretary shall submit to the appropriate 
committees of Congress a legislative proposal providing for 
such technical and conforming amendments in the law as 
are required by the provisions of this Act. 
SEC. 102. STUDY AND REPORT ON PERMITTING PART B 
ONLY INDIVIDUALS TO ENROLL IN MEDICARE 
VOLUNTARY PRESCRIPTION DRUG DELIVERY 
PROGRAM. 
(a) STUDY.—The Administrator of the Center for 
Medicare Choices (as established under section 1808 of 
the Social Security Act, as added by section 301(a)) shall 
conduct a study on the need for rules relating to permit-
ting individuals who are enrolled under part B of title 
XVIII of the Social Security Act but are not entitled to 
benefits under part A of such title to buy into the medicare 
voluntary prescription drug delivery program under part 
D of such title (as so added). 
(b) REPORT.—Not later than January 1, 2005, the 
Administrator of the Center for Medicare Choices shall 
submit a report to Congress on the study conducted under 
subsection (a), together with any recommendations for leg-
139
islation that the Administrator determines to be appro-
priate as a result of such study. 
SEC. 103. RULES RELATING TO MEDIGAP POLICIES THAT 
PROVIDE PRESCRIPTION DRUG COVERAGE. 
(a) RULES RELATING TO MEDIGAP POLICIES THAT 
PROVIDE
PRESCRIPTION
DRUG
COVERAGE.—Section 
1882 (42 U.S.C. 1395ss) is amended by adding at the end 
the following new subsection: 
‘‘(v) RULES RELATING TO MEDIGAP POLICIES THAT 
PROVIDE PRESCRIPTION DRUG COVERAGE.—
‘‘(1) PROHIBITION
ON
SALE, ISSUANCE, AND 
RENEWAL OF POLICIES THAT PROVIDE PRESCRIP-
TION DRUG COVERAGE TO PART D ENROLLEES.—
‘‘(A) IN GENERAL.—Notwithstanding any 
other provision of law, on or after January 1, 
2006, no medicare supplemental policy that 
provides coverage of expenses for prescription 
drugs may be sold, issued, or renewed under 
this section to an individual who is enrolled 
under part D. 
‘‘(B) PENALTIES.—The penalties described 
in subsection (d)(3)(A)(ii) shall apply with re-
spect to a violation of subparagraph (A).
140
‘‘(2) ISSUANCE
OF
SUBSTITUTE
POLICIES
IF 
THE POLICYHOLDER OBTAINS PRESCRIPTION DRUG 
COVERAGE UNDER PART D.—
‘‘(A) IN GENERAL.—The issuer of a medi-
care supplemental policy—
‘‘(i) may not deny or condition the 
issuance or effectiveness of a medicare 
supplemental policy that has a benefit 
package classified as ‘A’, ‘B’, ‘C’, ‘D’, ‘E’, 
‘F’ (including the benefit package classi-
fied as ‘F’ with a high deductible feature, 
as described in subsection (p)(11)), or ‘G’ 
(under the standards established under 
subsection (p)(2)) and that is offered and 
is available for issuance to new enrollees by 
such issuer; 
‘‘(ii) may not discriminate in the pric-
ing of such policy, because of health sta-
tus, claims experience, receipt of health 
care, or medical condition; and 
‘‘(iii) may not impose an exclusion of 
benefits based on a pre-existing condition 
under such policy, 
in the case of an individual described in sub-
paragraph (B) who seeks to enroll under the
141
policy during the open enrollment period estab-
lished under section 1860D–2(b)(2) and who 
submits evidence that they meet the require-
ments under subparagraph (B) along with the 
application for such medicare supplemental pol-
icy. 
‘‘(B) INDIVIDUAL
DESCRIBED.—An indi-
vidual described in this subparagraph is an in-
dividual who—
‘‘(i) enrolls in the medicare prescrip-
tion drug delivery program under part D; 
and 
‘‘(ii) at the time of such enrollment 
was enrolled and terminates enrollment in 
a medicare supplemental policy which has 
a benefit package classified as ‘H’, ‘I’, or 
‘J’ (including the benefit package classified 
as ‘J’ with a high deductible feature, as 
described in section 1882(p)(11)) under 
the standards referred to in subparagraph 
(A)(i) or terminates enrollment in a policy 
to which such standards do not apply but 
which provides benefits for prescription 
drugs.
142
‘‘(C) ENFORCEMENT.—The provisions of 
subparagraph (A) shall be enforced as though 
they were included in subsection (s).
‘‘(3) NOTICE REQUIRED TO BE PROVIDED TO 
CURRENT
POLICYHOLDERS
WITH
PRESCRIPTION 
DRUG COVERAGE.—No medicare supplemental policy 
of an issuer shall be deemed to meet the standards 
in subsection (c) unless the issuer provides written 
notice during the 60-day period immediately pre-
ceding the period established for the open enrollment 
period established under section 1860D–2(b)(2), to 
each individual who is a policyholder or certificate 
holder of a medicare supplemental policy issued by 
that issuer that provides some coverage of expenses 
for prescription drugs (at the most recent available 
address of that individual) of—
‘‘(A) the ability to enroll in a new medicare 
supplemental policy pursuant to paragraph (2); 
and
‘‘(B) the fact that, so long as such indi-
vidual retains coverage under such policy, the 
individual shall be ineligible for coverage of pre-
scription drugs under part D.’’. 
(b) RULE OF CONSTRUCTION.—
144
‘‘(66) provide for making eligibility determina-
tions under section 1935(a).’’. 
(b) NEW SECTION.—
(1) IN GENERAL.—Title XIX (42 U.S.C. 1396 
et seq.) is amended—
(A) by redesignating section 1935 as sec-
tion 1936; and 
(B) by inserting after section 1934 the fol-
lowing new section: 
‘‘SPECIAL PROVISIONS RELATING TO MEDICARE 
PRESCRIPTION DRUG BENEFIT 
‘‘SEC. 1935. (a) REQUIREMENT FOR MAKING ELIGI-
BILITY
DETERMINATIONS
FOR
LOW-INCOME
SUB-
SIDIES.—As a condition of its State plan under this title 
under section 1902(a)(66) and receipt of any Federal fi-
nancial assistance under section 1903(a), a State shall 
satisfy the following: 
‘‘(1) DETERMINATION
OF
ELIGIBILITY
FOR 
TRANSITIONAL
PRESCRIPTION
DRUG
ASSISTANCE 
CARD PROGRAM FOR ELIGIBLE LOW-INCOME BENE-
FICIARIES.—For purposes of section 1807A, submit 
to the Secretary an eligibility plan under which the 
State—
‘‘(A) establishes eligibility standards con-
sistent with the provisions of that section;
145
‘‘(B) establishes procedures for providing 
presumptive eligibility for eligible low-income 
beneficiaries (as defined in section 1807A(i)(2)) 
under that section in a manner that is similar 
to the manner in which presumptive eligibility 
is provided to children and pregnant women 
under this title; 
‘‘(C) makes determinations of eligibility 
and income for purposes of identifying eligible 
low-income beneficiaries (as so defined) under 
that section; and
‘‘(D) communicates to the Secretary deter-
minations of eligibility or discontinuation of eli-
gibility under that section for purposes of noti-
fying prescription drug card sponsors under 
that section of the identity of eligible medicare 
low-income beneficiaries. 
‘‘(2) DETERMINATION
OF
ELIGIBILITY
FOR 
PREMIUM
AND
COST-SHARING
SUBSIDIES
UNDER 
PART D OF TITLE XVIII FOR LOW-INCOME INDIVID-
UALS.—Beginning November 1, 2005, for purposes 
of section 1860D–19—
‘‘(A) make determinations of eligibility for 
premium and cost-sharing subsidies under and 
in accordance with such section;
146
‘‘(B) establish procedures for providing 
presumptive eligibility for individuals eligible for 
subsidies under that section in a manner that 
is similar to the manner in which presumptive 
eligibility is provided to children and pregnant 
women under this title; 
‘‘(C) inform the Administrator of the Cen-
ter for Medicare Choices of such determinations 
in cases in which such eligibility is established; 
and 
‘‘(D) otherwise provide such Administrator 
with such information as may be required to 
carry out part D of title XVIII (including sec-
tion 1860D–19). 
‘‘(3) AGREEMENT TO ESTABLISH INFORMATION 
AND
ENROLLMENT
SITES
AT
SOCIAL
SECURITY 
FIELD OFFICES.—Enter into an agreement with the 
Commissioner of Social Security to use all Social Se-
curity field offices located in the State as informa-
tion and enrollment sites for making the eligibility 
determinations required under paragraphs (1) and 
(2).
‘‘(b) 
FEDERAL
SUBSIDY
OF
ADMINISTRATIVE 
COSTS.—
147
‘‘(1) ENHANCED MATCH FOR ELIGIBILITY DE-
TERMINATIONS.—Subject to paragraphs (2) and (4), 
with respect to calendar quarters beginning on or 
after January 1, 2004, the amounts expended by a 
State in carrying out subsection (a) are expenditures 
reimbursable under section 1903(a)(7) except that, 
in applying such section with respect to such ex-
penditures incurred for—
‘‘(A) such calendar quarters occurring in 
fiscal year 2004 or 2005, ‘75 percent’ shall be 
substituted for ‘50 per centum’; 
‘‘(B) calendar quarters occurring in fiscal 
year 2006, ‘70 percent’ shall be substituted for 
‘50 per centum’; 
‘‘(C) calendar quarters occurring in fiscal 
year 2007, ‘65 percent’ shall be substituted for 
‘50 per centum’; and 
‘‘(D) calendar quarters occurring in fiscal 
year 2008 or any fiscal year thereafter, ‘60 per-
cent’ shall be substituted for ‘50 per centum’. 
‘‘(2) 100 PERCENT
MATCH
FOR
ELIGIBILITY 
DETERMINATIONS FOR SUBSIDY-ELIGIBLE INDIVID-
UALS.—In the case of amounts expended by a State 
on or after November 1, 2005, to determine whether 
an individual is a subsidy-eligible individual for pur-
148
poses of section 1860D–19, such expenditures shall 
be reimbursed under section 1903(a)(7) by sub-
stituting ‘100 percent’ for ‘50 per centum’. 
‘‘(3) ENHANCED MATCH FOR UPDATES OR IM-
PROVEMENTS TO ELIGIBILITY DETERMINATION SYS-
TEMS.—With respect to calendar quarters occurring 
in fiscal year 2004, 2005, or 2006, the Secretary, in 
addition to amounts otherwise paid under section 
1903(a), shall pay to each State which has a plan 
approved under this title, for each such quarter an 
amount equal to 90 percent of so much of the sums 
expended during such quarter as are attributable to 
the design, development, acquisition, or installation 
of improved eligibility determination systems (includ-
ing hardware and software for such systems) in 
order to carry out the requirements of subsection (a) 
and section 1807A(h)(1) and to the design, develop-
ment, acquisition or installation of improved data 
systems necessary to track prescription drug spend-
ing for purposes of implementing section 1935(c). 
No payment shall be made to a State under the pre-
ceding sentence unless the State’s improved eligi-
bility determination system—
‘‘(A) satisfies such standards for improve-
ment as the Secretary may establish; and
149
‘‘(B) complies, and is compatible, with the 
standards established under part C of title XI 
and any regulations promulgated under section 
264(c) of the Health Insurance Portability and 
Accountability Act of 1996 (42 U.S.C. 1320d–
2 note). 
‘‘(4) COORDINATION.—The State shall provide 
the Secretary with such information as may be nec-
essary to properly allocate expenditures described in 
paragraph (1), (2), or (3) that may otherwise be 
made for similar eligibility determinations or expend-
itures. 
‘‘(c) FEDERAL ASSUMPTION
OF MEDICAID PRE-
SCRIPTION DRUG COSTS FOR DUALLY ELIGIBLE BENE-
FICIARIES.—
‘‘(1) IN
GENERAL.—For purpose of section 
1903(a)(1) for a State for a calendar quarter in a 
year (beginning with 2006) the amount computed 
under this subsection is equal to the product of the 
following: 
‘‘(A) STANDARD PRESCRIPTION DRUG COV-
ERAGE UNDER MEDICARE.—With respect to in-
dividuals who are residents of the State, who 
are entitled to, or enrolled for, benefits under 
part A of title XVIII, or are enrolled under part
150
B of title XVIII and are receiving medical as-
sistance under subparagraph (A)(i), (A)(ii), or 
(C) of section 1902(a)(10) (or as the result of 
the application of section 1902(f)) that includes 
covered outpatient drugs (as defined for pur-
poses of section 1927) under the State plan 
under this title (including such a plan operated 
under a waiver under section 1115)—
‘‘(i) the total amounts attributable to 
such individuals in the quarter under sec-
tion 1860D–19 (relating to premium and 
cost-sharing subsidies for low-income medi-
care beneficiaries); and 
‘‘(ii) the actuarial value of standard 
prescription drug coverage (as determined 
under section 1860D–6(f)) provided to 
such individuals in the quarter. 
‘‘(B) STATE MATCHING RATE.—A propor-
tion computed by subtracting from 100 percent 
the Federal medical assistance percentage (as 
defined in section 1905(b)) applicable to the 
State and the quarter. 
‘‘(C) PHASE-OUT
PROPORTION.—Subject 
to subparagraph (D), the phase-out proportion 
for a quarter in—
152
further increased by the amount specified in 
paragraph (3). 
‘‘(2) PLAN.—The plan described in this para-
graph is a plan that—
‘‘(A) provides medical assistance with re-
spect to the provision of covered drugs (as de-
fined in section 1860D(a)(2)) to individuals de-
scribed in subparagraph (A), (B), (C), or (D) 
of section 1860D–19(a)(3); and 
‘‘(B) ensures that additional amounts re-
ceived by the State that are attributable to the 
operation of this subsection are used only for 
such assistance. 
‘‘(3) INCREASED AMOUNT.—
‘‘(A) IN GENERAL.—The amount specified 
in this paragraph for a State for a fiscal year 
is equal to the product of—
‘‘(i) the aggregate amount specified in 
subparagraph (B); and 
‘‘(ii) the amount specified in section 
1108(g)(1) for that State, divided by the 
sum of the amounts specified in such sec-
tion for all such States.
153
‘‘(B) AGGREGATE
AMOUNT.—The aggre-
gate amount specified in this subparagraph 
for—
‘‘(i) the last 3 quarters of fiscal year 
2006, is equal to $22,500,000; 
‘‘(ii) fiscal year 2007, is equal to 
$30,000,000; and 
‘‘(iii) any subsequent fiscal year, is 
equal to the aggregate amount specified in 
this subparagraph for the previous fiscal 
year increased by the annual percentage 
increase specified in section 1860D–6(c)(5) 
for the calendar year beginning in such fis-
cal year. 
‘‘(4) NONAPPLICATION.—Section 1927(d)(2)(E) 
shall not apply to a State described in paragraph (1) 
for purposes of providing medical assistance de-
scribed in paragraph (2)(A). 
‘‘(5) REPORT.—The Secretary shall submit to 
Congress a report on the application of this sub-
section and may include in the report such rec-
ommendations as the Secretary deems appropriate. 
‘‘(f) DEFINITION.—For purposes of this section, the 
term ‘subsidy-eligible individual’ has the meaning given
154
that term in subparagraph (D) of section 1860D–
19(a)(4).’’. 
(2) CONFORMING AMENDMENTS.—
(A) 
Section 
1903(a)(1) 
(42 
U.S.C. 
1396a(a)(1)) is amended by inserting before the 
semicolon the following: ‘‘, reduced by the 
amount computed under section 1935(c)(1) for 
the State and the quarter’’. 
(B) Section 1108(f) (42 U.S.C. 1308(f)) is 
amended 
by 
inserting 
‘‘and 
section 
1935(e)(1)(B)’’ after ‘‘Subject to subsection 
(g)’’. 
(3) AMENDMENT
TO
BEST
PRICE.—Section 
1927(c)(1)(C)(i) (42 U.S.C. 1396r–8(c)(1)(C)(i)), as 
amended by section 111(b), is amended—
(A) by striking ‘‘and’’ at the end of sub-
clause (IV); 
(B) by striking the period at the end of 
subclause (V) and inserting ‘‘; and’’; and 
(C) by adding at the end the following new 
subclause: 
‘‘(VI) any prices charged which 
are negotiated under a Medicare Pre-
scription Drug plan under part D of 
title XVIII with respect to covered
155
drugs, under a MedicareAdvantage 
plan under part C of such title with 
respect to such drugs, or under a 
qualified retiree prescription drug 
plan (as defined in section 1860D–
20(f)(1)) with respect to such drugs, 
on behalf of eligible beneficiaries (as 
defined in section 1860D(a)(3).’’. 
(c) EXTENSION OF MEDICARE COST-SHARING FOR 
PART
B PREMIUM
FOR
QUALIFYING
INDIVIDUALS 
THROUGH 2008.—
(1) IN GENERAL.—Section 1902(a)(10)(E)(iv) 
(42 U.S.C. 1396a(a)(10)(E)(iv)) is amended to read 
as follows: 
‘‘(iv) 
subject 
to 
sections 
1933 
and 
1905(p)(4), for making medical assistance 
available (but only for premiums payable with 
respect to months during the period beginning 
with January 1998, and ending with December 
2008) for medicare cost-sharing described in 
section 1905(p)(3)(A)(ii) for individuals who 
would be qualified medicare beneficiaries de-
scribed in section 1905(p)(1) but for the fact 
that their income exceeds the income level es-
tablished by the State under section 1905(p)(2)
156
and is at least 120 percent, but less than 135 
percent, of the official poverty line (referred to 
in such section) for a family of the size involved 
and who are not otherwise eligible for medical 
assistance under the State plan;’’. 
(2) TOTAL AMOUNT AVAILABLE FOR ALLOCA-
TION.—Section 1933(c) (42 U.S.C. 1396u–3(c)) is 
amended—
(A) in paragraph (1)—
(i) in subparagraph (D), by striking 
‘‘and’’ at the end; 
(ii) in subparagraph (E)—
(I) by striking ‘‘fiscal year 2002’’ 
and inserting ‘‘each of fiscal years 
2002 through 2008’’; and 
(II) by striking the period and 
inserting ‘‘; and’’; and 
(iii) by adding at the end the fol-
lowing new subparagraph: 
‘‘(F) the first quarter of fiscal year 2009, 
$100,000,000.’’; and 
(B) in paragraph (2)(A), by striking ‘‘the 
sum 
of’’ 
and 
all 
that 
follows 
through 
‘‘1902(a)(10)(E)(iv)(II) in the State; to’’ and 
inserting ‘‘twice the total number of individuals
157
described in section 1902(a)(10)(E)(iv) in the 
State; to’’. 
(d) OUTREACH BY THE COMMISSIONER OF SOCIAL 
SECURITY.—Section 1144 (42 U.S.C. 1320b–14) is 
amended—
(1) in the section heading, by inserting ‘‘AND 
SUBSIDIES
FOR
LOW-INCOME
INDIVIDUALS
UNDER 
TITLE XVIII’’ after ‘‘COST-SHARING’’; 
(2) in subsection (a)—
(A) in paragraph (1)—
(i) in subparagraph (A), by inserting 
‘‘for the transitional prescription drug as-
sistance 
card 
program 
under 
section 
1807A, or for premium and cost-sharing 
subsidies under section 1860D–19’’ before 
the semicolon; and 
(ii) in subparagraph (B), by inserting 
‘‘, program, and subsidies’’ after ‘‘medical 
assistance’’; and 
(B) in paragraph (2)—
(i) in the matter preceding subpara-
graph (A), by inserting ‘‘, the transitional 
prescription drug assistance card program 
under section 1807A, or premium and
158
cost-sharing 
subsidies 
under 
section 
1860D–19’’ after ‘‘assistance’’; and 
(ii) in subparagraph (A), by striking 
‘‘such eligibility’’ and inserting ‘‘eligibility 
for medicare cost-sharing under the med-
icaid program’’; and 
(3) in subsection (b)—
(A) in paragraph (1)(A), by inserting ‘‘, 
for the transitional prescription drug assistance 
card program under section 1807A, or for pre-
mium and cost-sharing subsidies for low-income 
individuals under section 1860D–19’’ after 
‘‘1933’’; and 
(B) in paragraph (2), by inserting ‘‘, pro-
gram, and subsidies’’ after ‘‘medical assist-
ance’’. 
SEC. 105. EXPANSION OF MEMBERSHIP AND DUTIES OF 
MEDICARE PAYMENT ADVISORY COMMISSION 
(MEDPAC). 
(a) EXPANSION OF MEMBERSHIP.—
(1) IN GENERAL.—Section 1805(c) (42 U.S.C. 
1395b–6(c)) is amended—
(A) in paragraph (1), by striking ‘‘17’’ and 
inserting ‘‘19’’; and
159
(B) in paragraph (2)(B), by inserting ‘‘ex-
perts in the area of pharmacology and prescrip-
tion drug benefit programs,’’ after ‘‘other 
health professionals,’’. 
(2) INITIAL
TERMS
OF
ADDITIONAL
MEM-
BERS.—
(A) IN GENERAL.—For purposes of stag-
gering the initial terms of members of the 
Medicare Payment Advisory Commission under 
section 1805(c)(3) of the Social Security Act 
(42 U.S.C. 1395b–6(c)(3)), the initial terms of 
the 2 additional members of the Commission 
provided for by the amendment under para-
graph (1)(A) are as follows: 
(i) One member shall be appointed for 
1 year. 
(ii) One member shall be appointed 
for 2 years. 
(B) COMMENCEMENT
OF
TERMS.—Such 
terms shall begin on January 1, 2005. 
(b) EXPANSION OF DUTIES.—Section 1805(b)(2) (42 
U.S.C. 1395b–6(b)(2)) is amended by adding at the end 
the following new subparagraph: 
‘‘(D) VOLUNTARY
PRESCRIPTION
DRUG 
DELIVERY
PROGRAM.—Specifically, the Com-
160
mission shall review, with respect to the vol-
untary prescription drug delivery program 
under part D, competition among eligible enti-
ties offering Medicare Prescription Drug plans 
and beneficiary access to such plans and cov-
ered drugs, particularly in rural areas.’’. 
SEC. 106. STUDY REGARDING VARIATIONS IN SPENDING 
AND DRUG UTILIZATION. 
(a) STUDY.—The Secretary shall study on an ongo-
ing basis variations in spending and drug utilization under 
part D of title XVIII of the Social Security Act for covered 
drugs to determine the impact of such variations on pre-
miums imposed by eligible entities offering Medicare Pre-
scription Drug plans under that part. In conducting such 
study, the Secretary shall examine the impact of geo-
graphic adjustments of the monthly national average pre-
mium under section 1860D–15 of such Act on—
(1) maximization of competition under part D 
of title XVIII of such Act; and
(2) the ability of eligible entities offering Medi-
care Prescription Drug plans to contain costs for 
covered drugs. 
(b) REPORT.—Beginning with 2007, the Secretary 
shall submit annual reports to Congress on the study re-
quired under subsection (a).
161
Subtitle B—Medicare Prescription 
Drug Discount Card and Transi-
tional Assistance for Low-In-
come Beneficiaries 
SEC. 111. MEDICARE PRESCRIPTION DRUG DISCOUNT 
CARD AND TRANSITIONAL ASSISTANCE FOR 
LOW-INCOME BENEFICIARIES. 
(a) IN GENERAL.—Title XVIII is amended by insert-
ing after section 1806 the following new sections: 
‘‘MEDICARE PRESCRIPTION DRUG DISCOUNT CARD 
ENDORSEMENT PROGRAM 
‘‘SEC. 1807. (a) ESTABLISHMENT.—There is estab-
lished a medicare prescription drug discount card endorse-
ment program under which the Secretary shall—
‘‘(1) endorse prescription drug discount card 
programs offered by prescription drug card sponsors 
that meet the requirements of this section; and 
‘‘(2) make available to eligible beneficiaries in-
formation regarding such endorsed programs. 
‘‘(b) ELIGIBILITY, ELECTION OF PROGRAM, AND EN-
ROLLMENT FEES.—
‘‘(1) ELIGIBILITY
AND
ELECTION
OF
PRO-
GRAM.—
162
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), the Secretary shall establish proce-
dures—
‘‘(i) for identifying eligible bene-
ficiaries; and 
‘‘(ii) under which such beneficiaries 
may make an election to enroll in any pre-
scription drug discount card program en-
dorsed under this section and disenroll 
from such a program. 
‘‘(B) LIMITATION.—An eligible beneficiary 
may not be enrolled in more than 1 prescription 
drug discount card program at any time. 
‘‘(2) ENROLLMENT FEES.—
‘‘(A) IN
GENERAL.—A prescription drug 
card sponsor may charge an annual enrollment 
fee to each eligible beneficiary enrolled in a pre-
scription drug discount card program offered by 
such sponsor. 
‘‘(B) 
AMOUNT.—No 
enrollment 
fee 
charged under subparagraph (A) may exceed 
$25. 
‘‘(C) UNIFORM
ENROLLMENT
FEE.—A 
prescription drug card sponsor shall ensure that 
the enrollment fee for a prescription drug dis-
163
count card program endorsed under this section 
is the same for all eligible medicare bene-
ficiaries enrolled in the program. 
‘‘(D) COLLECTION.—Any enrollment fee 
shall be collected by the prescription drug card 
sponsor. 
‘‘(c) PROVIDING INFORMATION TO ELIGIBLE BENE-
FICIARIES.—
‘‘(1) PROMOTION OF INFORMED CHOICE.—
‘‘(A) BY
THE
SECRETARY.—In order to 
promote informed choice among endorsed pre-
scription drug discount card programs, the Sec-
retary shall provide for the dissemination of in-
formation which compares the costs and bene-
fits of such programs. Such dissemination shall 
be coordinated with the dissemination of edu-
cational information on other medicare options. 
‘‘(B) BY PRESCRIPTION DRUG CARD SPON-
SORS.—Each prescription drug card sponsor 
shall make available to each eligible beneficiary 
(through the Internet and otherwise) informa-
tion—
‘‘(i) that the Secretary identifies as 
being necessary to promote informed 
choice among endorsed prescription drug
164
discount card programs by eligible bene-
ficiaries, including information on enroll-
ment fees, negotiated prices for prescrip-
tion drugs charged to beneficiaries, and 
services relating to prescription drugs of-
fered under the program; and 
‘‘(ii) on how any formulary used by 
such sponsor functions.
‘‘(2) USE OF MEDICARE TOLL-FREE NUMBER.—
The Secretary shall provide through the 1–800–
MEDICARE toll free telephone number for the re-
ceipt and response to inquiries and complaints con-
cerning the medicare prescription drug discount card 
endorsement program established under this section 
and prescription drug discount card programs en-
dorsed under such program. 
‘‘(d) BENEFICIARY PROTECTIONS.—
‘‘(1) IN GENERAL.—Each prescription drug dis-
count card program endorsed under this section 
shall meet such requirements as the Secretary iden-
tifies to protect and promote the interest of eligible 
beneficiaries, including requirements that—
‘‘(A) relate to appeals by eligible bene-
ficiaries and marketing practices; and
165
‘‘(B) ensure that beneficiaries are not 
charged more than the lower of the negotiated 
retail price or the usual and customary price.
‘‘(2) ENSURING PHARMACY ACCESS.—Each pre-
scription drug card sponsor offering a prescription 
drug discount card program endorsed under this sec-
tion shall secure the participation in its network of 
a sufficient number of pharmacies that dispense 
(other than by mail order) drugs directly to patients 
to ensure convenient access (as determined by the 
Secretary and including adequate emergency access) 
for enrolled beneficiaries. Such standards shall take 
into account reasonable distances to pharmacy serv-
ices in both urban and rural areas. 
‘‘(3) QUALITY ASSURANCE.—Each prescription 
drug card sponsor offering a prescription drug dis-
count card program endorsed under this section 
shall have in place adequate procedures for assuring 
that quality service is provided to eligible bene-
ficiaries enrolled in a prescription drug discount 
card program offered by such sponsor. 
‘‘(4) 
CONFIDENTIALITY
OF
ENROLLEE 
RECORDS.—Insofar as a prescription drug card 
sponsor maintains individually identifiable medical 
records or other health information regarding eligi-
166
ble beneficiaries enrolled in a prescription drug dis-
count card program endorsed under this section, the 
prescription drug card sponsor shall have in place 
procedures to safeguard the privacy of any individ-
ually identifiable beneficiary information in a man-
ner that the Secretary determines is consistent with 
the Federal regulations (concerning the privacy of 
individually identifiable health information) promul-
gated under section 264(c) of the Health Insurance 
Portability and Accountability Act of 1996. 
‘‘(5) NO
OTHER
FEES.—A prescription drug 
card sponsor may not charge any fee to an eligible 
beneficiary under a prescription drug discount card 
program endorsed under this section other than an 
enrollment fee charged under subsection (b)(2)(A). 
‘‘(6) PRICES.—
‘‘(A) 
AVOIDANCE
OF
HIGH
PRICED 
DRUGS.—A prescription drug card sponsor may 
not recommend switching an eligible beneficiary 
to a drug with a higher negotiated price absent 
a recommendation by a licensed health profes-
sional that there is a clinical indication with re-
spect to the patient for such a switch. 
‘‘(B) PRICE STABILITY.—Negotiated prices 
charged for prescription drugs covered under a
167
prescription drug discount card program en-
dorsed under this section may not change more 
frequently than once every 60 days. 
‘‘(e) PRESCRIPTION DRUG BENEFITS.—
‘‘(1) IN
GENERAL.—Each prescription drug 
card sponsor may only provide benefits that relate to 
prescription drugs (as defined in subsection (i)(2)) 
under a prescription drug discount card program en-
dorsed under this section. 
‘‘(2) SAVINGS TO ELIGIBLE BENEFICIARIES.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (D), each prescription drug card sponsor 
shall provide eligible beneficiaries who enroll in 
a prescription drug discount card program of-
fered by such sponsor that is endorsed under 
this section with access to negotiated prices 
used by the sponsor with respect to prescription 
drugs dispensed to eligible beneficiaries. 
‘‘(B) INAPPLICABILITY OF MEDICAID BEST 
PRICE
RULES.—The requirements of section 
1927 relating to manufacturer best price shall 
not apply to the negotiated prices for prescrip-
tion drugs made available under a prescription 
drug discount card program endorsed under 
this section.
168
‘‘(C) GUARANTEED
ACCESS
TO
NEGO-
TIATED
PRICES.—The Secretary, in consulta-
tion with the Inspector General of the Depart-
ment of Health and Human Services, shall es-
tablish procedures to ensure that eligible bene-
ficiaries have access to the negotiated prices for 
prescription drugs provided under subparagraph 
(A). 
‘‘(D) APPLICATION
OF
FORMULARY
RE-
STRICTIONS.—A drug prescribed for an eligible 
beneficiary that would otherwise be a covered 
drug under this section shall not be so consid-
ered under a prescription drug discount card 
program if the program excludes the drug 
under a formulary. 
‘‘(3) BENEFICIARY SERVICES.—Each prescrip-
tion drug discount card program endorsed under 
this section shall provide pharmaceutical support 
services, such as education, counseling, and services 
to prevent adverse drug interactions. 
‘‘(4) DISCOUNT
CARDS.—Each prescription 
drug card sponsor shall issue a card to eligible bene-
ficiaries enrolled in a prescription drug discount 
card program offered by such sponsor that the bene-
169
ficiary may use to obtain benefits under the pro-
gram. 
‘‘(f) SUBMISSION OF APPLICATIONS FOR ENDORSE-
MENT AND APPROVAL.—
‘‘(1) SUBMISSION OF APPLICATIONS FOR EN-
DORSEMENT.—Each prescription drug card sponsor
that seeks endorsement of a prescription drug dis-
count card program under this section shall submit 
to the Secretary, at such time and in such manner 
as the Secretary may specify, such information as 
the Secretary may require. 
‘‘(2) APPROVAL.—The Secretary shall review 
the information submitted under paragraph (1) and 
shall determine whether to endorse the prescription 
drug discount card program to which such informa-
tion relates. The Secretary may not approve a pro-
gram unless the program and prescription drug card 
sponsor offering the program comply with the re-
quirements under this section. 
‘‘(g) REQUIREMENTS ON DEVELOPMENT AND APPLI-
CATION OF FORMULARIES.—If a prescription drug card 
sponsor offering a prescription drug discount card pro-
gram uses a formulary, the following requirements must 
be met:
170
‘‘(1) PHARMACY AND THERAPEUTIC (P&T) COM-
MITTEE.—
‘‘(A) IN
GENERAL.—The eligible entity 
must establish a pharmacy and therapeutic 
committee that develops and reviews the for-
mulary. 
‘‘(B) COMPOSITION.—A pharmacy and 
therapeutic committee shall include at least 1 
academic expert, at least 1 practicing physician, 
and at least 1 practicing pharmacist, all of 
whom have expertise in the care of elderly or 
disabled persons, and a majority of the mem-
bers of such committee shall consist of individ-
uals who are a practicing physician or a prac-
ticing pharmacist (or both). 
‘‘(2) FORMULARY
DEVELOPMENT.—In devel-
oping and reviewing the formulary, the committee 
shall base clinical decisions on the strength of sci-
entific evidence and standards of practice, including 
assessing peer-reviewed medical literature, such as 
randomized clinical trials, pharmacoeconomic stud-
ies, outcomes research data, and such other informa-
tion as the committee determines to be appropriate. 
‘‘(3) INCLUSION
OF
DRUGS
IN
ALL
THERA-
PEUTIC CATEGORIES AND CLASSES.—
171
‘‘(A) IN GENERAL.—The formulary must 
include drugs within each therapeutic category 
and class of covered outpatient drugs (as de-
fined by the Secretary), although not nec-
essarily for all drugs within such categories and 
classes. 
‘‘(B) REQUIREMENT.—In defining thera-
peutic categories and classes of covered out-
patient drugs pursuant to subparagraph (A), 
the Secretary shall use the compendia referred 
to section 1927(g)(1)(B)(i) or other recognized 
sources for categorizing drug therapeutic cat-
egories and classes. 
‘‘(4) PROVIDER
EDUCATION.—The committee 
shall establish policies and procedures to educate 
and inform health care providers concerning the for-
mulary. 
‘‘(5) NOTICE BEFORE REMOVING DRUGS FROM 
FORMULARY.—Any removal of a drug from a for-
mulary shall take effect only after appropriate notice 
is made available to beneficiaries and pharmacies. 
‘‘(h) FRAUD AND ABUSE PREVENTION.—
‘‘(1) IN GENERAL.—The Secretary shall provide 
appropriate oversight to ensure compliance of en-
dorsed programs with the requirements of this sec-
172
tion, including verification of the negotiated prices 
and services provided. 
‘‘(2) DISQUALIFICATION
FOR
ABUSIVE
PRAC-
TICES.—The Secretary may implement intermediate 
sanctions and may revoke the endorsement of a pro-
gram that the Secretary determines no longer meets 
the requirements of this section or that has engaged 
in false or misleading marketing practices. 
‘‘(3) AUTHORITY
WITH
RESPECT
TO
CIVIL 
MONEY PENALTIES.—The Secretary may impose a 
civil money penalty in an amount not to exceed 
$10,000 for any violation of this section. The provi-
sions of section 1128A (other than subsections (a) 
and (b)) shall apply to a civil money penalty under 
the previous sentence in the same manner as such 
provisions apply to a penalty or proceeding under 
section 1128A(a).
‘‘(4) REPORTING
TO
SECRETARY.—Each pre-
scription drug card sponsor offering a prescription 
drug discount card program endorsed under this sec-
tion shall report information relating to program 
performance, use of prescription drugs by eligible 
beneficiaries enrolled in the program, financial infor-
mation of the sponsor, and such other information 
as the Secretary may specify. The Secretary may not
173
disclose any proprietary data reported under this 
paragraph. 
‘‘(5) DRUG
UTILIZATION
REVIEW.—The Sec-
retary may use claims data from parts A and B for 
purposes of conducting a drug utilization review pro-
gram. 
‘‘(i) DEFINITIONS.—In this section: 
‘‘(1) ELIGIBLE BENEFICIARY.—
‘‘(A) IN
GENERAL.—The term ‘eligible 
beneficiary’ means an individual who—
‘‘(i) is entitled to, or enrolled for, ben-
efits under part A and enrolled under part 
B; and 
‘‘(ii) is not a dual eligible individual 
(as defined in subparagraph (B)). 
‘‘(B) DUAL ELIGIBLE INDIVIDUAL.—
‘‘(i) IN GENERAL.—The term ‘dual el-
igible individual’ means an individual who 
is—
‘‘(I) enrolled under title XIX or 
under a waiver under section 1115 of 
the requirements of such title for 
medical assistance that includes but is 
limited solely to covered outpatient
174
drugs (as such term is defined for 
purposes of section 1927); and 
‘‘(II) entitled to benefits under 
part A and enrolled under part B. 
‘‘(ii) 
INCLUSION
OF
MEDICALLY 
NEEDY.—Such term includes an individual 
described in section 1902(a)(10)(C). 
‘‘(2) PRESCRIPTION DRUG.—
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the term ‘prescription drug’ 
means—
‘‘(i) a drug that may be dispensed 
only upon a prescription and that is de-
scribed in clause (i) or (ii) of subparagraph 
(A) of section 1927(k)(2); or 
‘‘(ii) a biological product or insulin de-
scribed in subparagraph (B) or (C) of such 
section, 
and such term includes a vaccine licensed under 
section 351 of the Public Health Service Act 
and any use of a covered outpatient drug for a 
medically accepted indication (as defined in sec-
tion 1927(k)(6)). 
‘‘(B) EXCLUSIONS.—The term ‘prescrip-
tion drug’ does not include drugs or classes of
175
drugs, or their medical uses, which may be ex-
cluded from coverage or otherwise restricted 
under section 1927(d)(2), other than subpara-
graph (E) thereof (relating to smoking ces-
sation agents), or under section 1927(d)(3). 
‘‘(3) NEGOTIATED
PRICE.—The term ‘nego-
tiated price’ includes all discounts, direct or indirect 
subsidies, rebates, price concessions, and direct or 
indirect remunerations. 
‘‘(4) PRESCRIPTION
DRUG
CARD
SPONSOR.—
The term ‘prescription drug card sponsor’ means 
any entity with demonstrated experience and exper-
tise in operating a prescription drug discount card 
program, an insurance program that provides cov-
erage for prescription drugs, or a similar program 
that the Secretary determines to be appropriate to 
provide eligible beneficiaries with the benefits under 
a prescription drug discount card program endorsed 
by the Secretary under this section, including—
‘‘(A) a pharmaceutical benefit management 
company; 
‘‘(B) a wholesale or retail pharmacist deliv-
ery system;
176
‘‘(C) an insurer (including an insurer that 
offers medicare supplemental policies under sec-
tion 1882); 
‘‘(D) any other entity; or 
‘‘(E) any combination of the entities de-
scribed in subparagraphs (A) through (D).
‘‘TRANSITIONAL PRESCRIPTION DRUG ASSISTANCE CARD 
PROGRAM FOR ELIGIBLE LOW-INCOME BENEFICIARIES 
‘‘SEC. 1807A. (a) ESTABLISHMENT.—
‘‘(1) IN GENERAL.—There is established a pro-
gram under which the Secretary shall award con-
tracts to prescription drug card sponsors offering a 
prescription drug discount card that has been en-
dorsed by the Secretary under section 1807 under 
which such sponsors shall offer a prescription drug 
assistance card program to eligible low-income bene-
ficiaries in accordance with the requirements of this 
section. 
‘‘(2) APPLICATION OF DISCOUNT CARD PROVI-
SIONS.—Except as otherwise provided in this sec-
tion, the provisions of section 1807 shall apply to 
the program established under this section. 
‘‘(b) ELIGIBILITY, ELECTION OF PROGRAM, AND EN-
ROLLMENT FEES.—
‘‘(1) ELIGIBILITY
AND
ELECTION
OF
PRO-
GRAM.—
177
‘‘(A) IN
GENERAL.—Subject to the suc-
ceeding provisions of this paragraph, the enroll-
ment procedures established under section 
1807(b)(1)(A)(ii) shall apply for purposes of 
this section. 
‘‘(B) ENROLLMENT
OF
ANY
ELIGIBLE 
LOW-INCOME BENEFICIARY.—Each prescription 
drug card sponsor offering a prescription drug 
assistance card program under this section shall 
permit any eligible low-income beneficiary to en-
roll in such program if it serves the geographic 
area in which the beneficiary resides. 
‘‘(C) SIMULTANEOUS
ENROLLMENT
IN 
PRESCRIPTION
DRUG
DISCOUNT
CARD
PRO-
GRAM.—An eligible low-income beneficiary who 
enrolls in a prescription drug assistance card 
program offered by a prescription drug card 
sponsor under this section shall be simulta-
neously enrolled in a prescription drug discount 
card program offered by such sponsor. 
‘‘(2) WAIVER OF ENROLLMENT FEES.—
‘‘(A) IN
GENERAL.—A prescription drug 
card sponsor may not charge an enrollment fee 
to any eligible low-income beneficiary enrolled
178
in a prescription drug discount card program 
offered by such sponsor. 
‘‘(B) PAYMENT BY SECRETARY.—Under a 
contract awarded under subsection (f)(2), the 
Secretary shall pay to each prescription drug 
card sponsor an amount equal to any enroll-
ment fee charged under section 1807(b)(2)(A) 
on behalf of each eligible low-income beneficiary 
enrolled in a prescription drug discount card 
program under paragraph (1)(C) offered by 
such sponsor.
‘‘(c) ADDITIONAL BENEFICIARY PROTECTIONS.—
‘‘(1) PROVIDING
INFORMATION
TO
ELIGIBLE 
LOW-INCOME BENEFICIARIES.—In addition to the in-
formation provided to eligible beneficiaries under 
section 1807(c), the prescription drug card sponsor 
shall—
‘‘(A) periodically notify each eligible low-in-
come beneficiary enrolled in a prescription drug 
assistance card program offered by such spon-
sor of the amount of coverage for prescription 
drugs remaining under subsection (d)(2)(A); 
and 
‘‘(B) notify each eligible low-income bene-
ficiary enrolled in a prescription drug assistance
179
card program offered by such sponsor of the 
grievance and appeals processes under the pro-
gram. 
‘‘(2) CONVENIENT ACCESS IN LONG-TERM CARE 
FACILITIES.—For purposes of determining whether 
convenient access has been provided under section 
1807(d)(2) with respect to eligible low-income bene-
ficiaries enrolled in a prescription drug assistance 
card program, the Secretary may only make a deter-
mination that such access has been provided if an 
appropriate arrangement is in place for eligible low-
income beneficiaries who are in a long-term care fa-
cility (as defined by the Secretary) to receive pre-
scription drug benefits under the program. 
‘‘(3) COORDINATION OF BENEFITS.—
‘‘(A) IN
GENERAL.—The Secretary shall 
establish procedures under which eligible low-in-
come beneficiaries who are enrolled for coverage 
described in subparagraph (B) and enrolled in 
a prescription drug assistance card program 
have access to the prescription drug benefits 
available under such program. 
‘‘(B) COVERAGE
DESCRIBED.—Coverage 
described in this subparagraph is as follows:
181
‘‘(B) REQUEST FOR REVIEW OF TIERED 
FORMULARY DETERMINATIONS.—In the case of 
a prescription drug assistance card program of-
fered by a prescription drug card sponsor that 
provides for tiered pricing for drugs included 
within a formulary and provides lower prices for 
preferred drugs included within the formulary, 
an eligible low-income beneficiary who is en-
rolled in the program may request coverage of 
a nonpreferred drug under the terms applicable 
for preferred drugs if the prescribing physician 
determines that the preferred drug for treat-
ment of the same condition is not as effective 
for the eligible low-income beneficiary or has 
adverse effects for the eligible low-income bene-
ficiary. 
‘‘(C) FORMULARY DETERMINATIONS.—An 
eligible low-income beneficiary who is enrolled 
in a prescription drug assistance card program 
offered by a prescription drug card sponsor may 
appeal to obtain coverage for a covered drug 
that is not on a formulary of the entity if the 
prescribing physician determines that the for-
mulary drug for treatment of the same condi-
tion is not as effective for the eligible low-in-
182
come beneficiary or has adverse effects for the 
eligible low-income beneficiary. 
‘‘(6) APPEALS.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), a prescription drug card sponsor 
shall meet the requirements of paragraphs (4) 
and (5) of section 1852(g) with respect to 
drugs not included on any formulary in a simi-
lar manner (as determined by the Secretary) as 
such requirements apply to a Medicare+Choice 
organization with respect to benefits it offers 
under a Medicare+Choice plan under part C. 
‘‘(B) FORMULARY DETERMINATIONS.—An 
eligible low-income beneficiary who is enrolled 
in a prescription drug assistance card program 
offered by a prescription drug card sponsor may 
appeal to obtain coverage for a covered drug 
that is not on a formulary of the entity if the 
prescribing physician determines that the for-
mulary drug for treatment of the same condi-
tion is not as effective for the eligible low-in-
come beneficiary or has adverse effects for the 
eligible low-income beneficiary. 
‘‘(C) APPEALS AND EXCEPTIONS TO APPLI-
CATION.—The prescription drug card sponsor
183
must have, as part of the appeals process under 
this paragraph, a process for timely appeals for 
denials of coverage based on the application of 
the formulary. 
‘‘(d) PRESCRIPTION DRUG BENEFITS.—
‘‘(1) IN GENERAL.—Subject to paragraph (5), 
all the benefits available under a prescription drug 
discount card program offered by a prescription 
drug card sponsor and endorsed under section 1807 
shall be available to eligible low-income beneficiaries 
enrolled in a prescription drug assistance card pro-
gram offered by such sponsor. 
‘‘(2) ASSISTANCE FOR ELIGIBLE LOW-INCOME 
BENEFICIARIES.—
‘‘(A) $600 ANNUAL ASSISTANCE.—Subject 
to subparagraphs (B) and (C) and paragraph 
(5), each prescription drug card sponsor with a 
contract under this section shall provide cov-
erage for the first $600 of expenses for pre-
scription drugs incurred during each calendar 
year by an eligible low-income beneficiary en-
rolled in a prescription drug assistance card 
program offered by such sponsor. 
‘‘(B) COINSURANCE.—
184
‘‘(i) IN
GENERAL.—The prescription 
drug card sponsor shall determine an 
amount of coinsurance to collect from each 
eligible low-income beneficiary enrolled in a 
prescription drug assistance card program 
offered by such sponsor for which coverage 
is available under subparagraph (A). 
‘‘(ii) AMOUNT.—The amount of coin-
surance collected under clause (i) shall be 
at least 10 percent of the negotiated price 
of each prescription drug dispensed to an 
eligible low-income beneficiary. 
‘‘(iii) CONSTRUCTION.—Amounts col-
lected under clause (i) shall not be counted 
against the total amount of coverage avail-
able under subparagraph (A). 
‘‘(C) REDUCTION
FOR
LATE
ENROLL-
MENT.—For each month during a calendar 
quarter in which an eligible low-income bene-
ficiary is not enrolled in a prescription drug as-
sistance card program offered by a prescription 
drug card sponsor with a contract under this 
section, the amount of assistance available 
under subparagraph (A) shall be reduced by 
$50.
185
‘‘(D) CREDITING
OF
UNUSED
BENEFITS 
TOWARD FUTURE YEARS.—The dollar amount 
of coverage described in subparagraph (A) shall 
be increased by any amount of coverage de-
scribed in such subparagraph that was not used 
during the previous calendar year. 
‘‘(E) WAIVER TO ENSURE PROVISION OF 
BENEFIT.—The Secretary may waive such re-
quirements of this section and section 1807 as 
may be necessary to ensure that each eligible 
low-income beneficiaries has access to the as-
sistance described in subparagraph (A). 
‘‘(3) ADDITIONAL DISCOUNTS.—A prescription 
drug card sponsor with a contract under this section 
shall provide each eligible low-income beneficiary en-
rolled in a prescription drug assistance program of-
fered by the sponsor with access to negotiated prices 
that reflect a minimum average discount of at least 
20 percent of the average wholesale price for pre-
scription drugs covered under that program. 
‘‘(4) ASSISTANCE
CARDS.—Each prescription 
drug card sponsor shall permit eligible low-income 
beneficiaries enrolled in a prescription drug assist-
ance card program offered by such sponsor to use
186
the discount card issued under section 1807(e)(4) to 
obtain benefits under the program. 
‘‘(5) APPLICATION
OF
FORMULARY
RESTRIC-
TIONS.—A drug prescribed for an eligible low-income 
beneficiary that would otherwise be a covered drug 
under this section shall not be so considered under 
a prescription drug assistance card program if the 
program excludes the drug under a formulary and 
such exclusion is not successfully resolved under 
paragraph (4), (5), or (6) of subsection (c).
‘‘(e) REQUIREMENTS
FOR
PRESCRIPTION
DRUG 
CARD SPONSORS THAT OFFER PRESCRIPTION DRUG AS-
SISTANCE CARD PROGRAMS.—
‘‘(1) IN
GENERAL.—Each prescription drug 
card sponsor shall—
‘‘(A) process claims made by eligible low-
income beneficiaries; 
‘‘(B) negotiate with brand name and ge-
neric prescription drug manufacturers and oth-
ers for low prices on prescription drugs; 
‘‘(C) track individual beneficiary expendi-
tures in a format and periodicity specified by 
the Secretary; and 
‘‘(D) perform such other functions as the 
Secretary may assign.
187
‘‘(2) DATA
EXCHANGES.—Each prescription 
drug card sponsor shall receive data exchanges in a 
format specified by the Secretary and shall maintain 
real-time beneficiary files. 
‘‘(3) PUBLIC DISCLOSURE OF PHARMACEUTICAL 
PRICES FOR EQUIVALENT DRUGS.—The prescription 
drug card sponsor offering the prescription drug as-
sistance card program shall provide that each phar-
macy or other dispenser that arranges for the dis-
pensing of a covered drug shall inform the eligible 
low-income beneficiary at the time of purchase of the 
drug of any differential between the price of the pre-
scribed drug to the enrollee and the price of the low-
est priced generic drug covered under the plan that 
is therapeutically equivalent and bioequivalent and 
available at such pharmacy or other dispenser. 
‘‘(f) SUBMISSION OF BIDS AND AWARDING OF CON-
TRACTS.—
‘‘(1) SUBMISSION OF BIDS.—Each prescription 
drug card sponsor that seeks to offer a prescription 
drug assistance card program under this section 
shall submit to the Secretary, at such time and in 
such manner as the Secretary may specify, such in-
formation as the Secretary may require.
188
‘‘(2) AWARDING
OF
CONTRACTS.—The Sec-
retary shall review the information submitted under 
paragraph (1) and shall determine whether to award 
a contract to the prescription drug card sponsor of-
fering the program to which such information re-
lates. The Secretary may not approve a program un-
less the program and prescription drug card sponsor 
offering the program comply with the requirements 
under this section. 
‘‘(3) NUMBER OF CONTRACTS.—There shall be 
no limit on the number of prescription drug card 
sponsors that may be awarded contracts under para-
graph (2). 
‘‘(4) CONTRACT PROVISIONS.—
‘‘(A) DURATION.—A contract awarded 
under paragraph (2) shall be for the lifetime of 
the program under this section. 
‘‘(B) WITHDRAWAL.—A prescription drug 
card sponsor that desires to terminate the con-
tract awarded under paragraph (2) may termi-
nate such contract without penalty if such spon-
sor gives notice—
‘‘(i) to the Secretary 90 days prior to 
the termination of such contract; and
189
‘‘(ii) to each eligible low-income bene-
ficiary that is enrolled in a prescription 
drug assistance card program offered by 
such sponsor 60 days prior to such termi-
nation. 
‘‘(C) SERVICE
AREA.—The service area 
under the contract shall be the same as the 
area served by the prescription drug card spon-
sor under section 1807. 
‘‘(5) SIMULTANEOUS APPROVAL OF DISCOUNT 
CARD AND ASSISTANCE PROGRAMS.—A prescription 
drug card sponsor may submit an application for en-
dorsement under section 1807 as part of the bid 
submitted under paragraph (1) and the Secretary 
may approve such application at the same time as 
the Secretary awards a contract under this section. 
‘‘(g) PAYMENTS
TO PRESCRIPTION DRUG CARD 
SPONSORS.—
‘‘(1) IN GENERAL.—The Secretary shall pay to 
each prescription drug card sponsor offering a pre-
scription drug assistance card program in which an 
eligible low-income beneficiary is enrolled an amount 
equal to the amount agreed to by the Secretary and 
the sponsor in the contract awarded under sub-
section (f)(2).
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‘‘(2) PAYMENT FROM PART B TRUST FUND.—
The costs of providing benefits under this section 
shall be payable from the Federal Supplementary 
Medical Insurance Trust Fund established under 
section 1841. 
‘‘(h) ELIGIBILITY
DETERMINATIONS
MADE
BY 
STATES; PRESUMPTIVE ELIGIBILITY.—States shall per-
form the functions described in section 1935(a)(1). 
‘‘(i) APPROPRIATIONS.—There are appropriated from 
the Federal Supplementary Medical Insurance Trust 
Fund established under section 1841 such sums as may 
be necessary to carry out the program under this section. 
‘‘(j) DEFINITIONS.—In this section: 
‘‘(1) ELIGIBLE
BENEFICIARY; 
NEGOTIATED 
PRICE; PRESCRIPTION
DRUG.—The terms ‘eligible 
beneficiary’, ‘negotiated price’, and ‘prescription 
drug’ have the meanings given those terms in section 
1807(i). 
‘‘(2) ELIGIBLE
LOW-INCOME
BENEFICIARY.—
The term ‘eligible low-income beneficiary’ means an 
individual who—
‘‘(A) is an eligible beneficiary (as defined 
in section 1807(i)); 
‘‘(B) is not a dual eligible beneficiary as 
defined under section 1807(i)(1)(B); and
191
‘‘(C) is described in clause (iii) or (iv) of 
section 
1902(a)(10)(E) 
or 
in 
section 
1905(p)(1). 
‘‘(3) PRESCRIPTION
DRUG
CARD
SPONSOR.—
The term ‘prescription drug card sponsor’ has the 
meaning given that term in section 1807(i), except 
that such sponsor shall also be an entity that the 
Secretary determines—
‘‘(A) is appropriate to provide eligible low-
income beneficiaries with the benefits under a 
prescription drug assistance card program 
under this section; 
‘‘(B) is able to manage the monetary as-
sistance made available under subsection (d)(2); 
‘‘(C) agrees to submit to audits by the Sec-
retary; and 
‘‘(D) provides such other assurances as the 
Secretary may require. 
‘‘(4) STATE.—The term ‘State’ has the mean-
ing given such term for purposes of title XIX.’’. 
(b) EXCLUSION OF PRICES FROM DETERMINATION 
OF BEST PRICE.—Section 1927(c)(1)(C)(i) (42 U.S.C. 
1396r–8(c)(1)(C)(i)) is amended—
(1) by striking ‘‘and’’ at the end of subclause 
(III);
192
(2) by striking the period at the end of sub-
clause (IV) and inserting ‘‘; and’’; and 
(3) by adding at the end the following new sub-
clause: 
‘‘(V) 
any 
negotiated 
prices 
charged under the medicare prescrip-
tion drug discount card endorsement 
program under section 1807 or under 
the transitional prescription drug as-
sistance card program for eligible low-
income beneficiaries under section 
1807A.’’. 
(c) EXCLUSION
OF PRESCRIPTION DRUG ASSIST-
ANCE CARD COSTS FROM DETERMINATION OF PART B 
MONTHLY PREMIUM.—Section 1839(g) of the Social Se-
curity Act (42 U.S.C. 1395r(g)) is amended—
(1) by striking ‘‘attributable to the application 
of section’’ and inserting ‘‘attributable to—
‘‘(1) the application of section’’; 
(2) by striking the period and inserting ‘‘; 
and’’; and 
(3) by adding at the end the following new 
paragraph: 
‘‘(2) the prescription drug assistance card pro-
gram under section 1807A.’’.
193
(d) REGULATIONS.—
(1) AUTHORITY FOR INTERIM FINAL REGULA-
TIONS.—The Secretary may promulgate initial regu-
lations implementing sections 1807 and 1807A of 
the Social Security Act (as added by this section) 
in interim final form without prior opportunity for 
public comment. 
(2) FINAL REGULATIONS.—A final regulation 
reflecting public comments must be published within 
1 year of the interim final regulation promulgated 
under paragraph (1). 
(3) EXEMPTION
FROM
THE
PAPERWORK
RE-
DUCTION ACT.—The promulgation of the regulations 
under this subsection and the administration the 
programs established by sections 1807 and 1807A of 
the Social Security Act (as added by this section) 
shall be made without regard to chapter 35 of title 
44, United States Code (commonly known as the 
‘‘Paperwork Reduction Act’’). 
(e) IMPLEMENTATION; TRANSITION.—
(1) IMPLEMENTATION.—The Secretary shall 
implement the amendments made by this section in 
a manner that discounts are available to eligible 
beneficiaries under section 1807 of the Social Secu-
rity Act and assistance is available to eligible low-in-
194
come beneficiaries under section 1807A of such Act 
not later than January 1, 2004. 
(2) TRANSITION.—The Secretary shall provide 
for an appropriate transition and discontinuation of 
the programs under section 1807 and 1807A of the 
Social Security Act. Such transition and discontinu-
ation shall ensure that such programs continue to 
operate until the date on which the first enrollment 
period under part D ends. 
Subtitle C—Standards for 
Electronic Prescribing 
SEC. 121. STANDARDS FOR ELECTRONIC PRESCRIBING. 
Title XI (42 U.S.C. 1301 et seq.) is amended by add-
ing at the end the following new part: 
‘‘PART D—ELECTRONIC PRESCRIBING 
‘‘STANDARDS FOR ELECTRONIC PRESCRIBING 
‘‘SEC. 1180. (a) STANDARDS.—
‘‘(1) DEVELOPMENT AND ADOPTION.—
‘‘(A) IN
GENERAL.—The Secretary shall 
develop or adopt standards for transactions and 
data elements for such transactions (in this sec-
tion referred to as ‘standards’) to enable the 
electronic transmission of medication history, 
eligibility, benefit, and other prescription infor-
mation.
195
‘‘(B) CONSULTATION.—In developing and 
adopting the standards under subparagraph 
(A), the Secretary shall consult with representa-
tives of physicians, hospitals, pharmacists, 
standard setting organizations, pharmacy ben-
efit managers, beneficiary information exchange 
networks, technology experts, and representa-
tives of the Departments of Veterans Affairs 
and Defense and other interested parties. 
‘‘(2) OBJECTIVE.—Any standards developed or 
adopted under this part shall be consistent with the 
objectives of improving—
‘‘(A) patient safety; and 
‘‘(B) the quality of care provided to pa-
tients. 
‘‘(3) REQUIREMENTS.—Any standards devel-
oped or adopted under this part shall comply with 
the following: 
‘‘(A) ELECTRONIC TRANSMITTAL OF PRE-
SCRIPTIONS.—
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), the standards require 
that prescriptions be written and trans-
mitted electronically.