II 
108TH CONGRESS 
1ST SESSION 
H. R. 1
IN THE SENATE OF THE UNITED STATES 
JULY 7, 2003
Received 
AN ACT 
To amend title XVIII of the Social Security Act to provide 
for a voluntary program for prescription drug coverage 
under the Medicare Program, to modernize the Medicare 
Program, to amend the Internal Revenue Code of 1986 
to allow a deduction to individuals for amounts contrib-
uted to health savings security accounts and health sav-
ings accounts, to provide for the disposition of unused 
health benefits in cafeteria plans and flexible spending 
arrangements, and for other purposes.
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Sec. 221. Competition program beginning in 2006. 
CHAPTER 3—ADDITIONAL REFORMS 
Sec. 231. Making permanent change in medicare advantage reporting deadlines 
and annual, coordinated election period. 
Sec. 232. Avoiding duplicative State regulation. 
Sec. 233. Specialized medicare advantage plans for special needs beneficiaries. 
Sec. 234. Medicare MSAs. 
Sec. 235. Extension of reasonable cost contracts. 
Sec. 236. Extension of municipal health service demonstration projects. 
Sec. 237. Study of performance-based payment systems. 
Subtitle C—Application of FEHBP-Style Competitive Reforms 
Sec. 241. Application of FEHBP-style competitive reform beginning in 2010. 
TITLE III—COMBATTING WASTE, FRAUD, AND ABUSE 
Sec. 301. Medicare secondary payor (MSP) provisions. 
Sec. 302. Competitive acquisition of certain items and services. 
Sec. 303. Competitive acquisition of covered outpatient drugs and biologicals. 
Sec. 304. Demonstration project for use of recovery audit contractors. 
TITLE IV—RURAL HEALTH CARE IMPROVEMENTS 
Sec. 401. Enhanced disproportionate share hospital (DSH) treatment for rural 
hospitals and urban hospitals with fewer than 100 beds. 
Sec. 402. Immediate establishment of uniform standardized amount in rural 
and small urban areas. 
Sec. 403. Establishment of essential rural hospital classification. 
Sec. 404. More frequent update in weights used in hospital market basket. 
Sec. 405. Improvements to critical access hospital program. 
Sec. 406. Redistribution of unused resident positions. 
Sec. 407. Two-year extension of hold harmless provisions for small rural hos-
pitals and sole community hospitals under prospective payment 
system for hospital outpatient department services. 
Sec. 408. Exclusion of certain rural health clinic and federally qualified health 
center services from the prospective payment system for skilled 
nursing facilities. 
Sec. 409. Recognition of attending nurse practitioners as attending physicians 
to serve hospice patients. 
Sec. 410. Improvement in payments to retain emergency capacity for ambu-
lance services in rural areas. 
Sec. 411. Two-year increase for home health services furnished in a rural area. 
Sec. 412. Providing safe harbor for certain collaborative efforts that benefit 
medically underserved populations. 
Sec. 413. GAO study of geographic differences in payments for physicians’ 
services. 
Sec. 414. Treatment of missing cost reporting periods for sole community hos-
pitals. 
Sec. 415. Extension of telemedicine demonstration project. 
Sec. 416. Adjustment to the medicare inpatient hospital PPS wage index to re-
vise the labor-related share of such index. 
Sec. 417. Medicare incentive payment program improvements for physician 
scarcity. 
Sec. 418. Rural hospice demonstration project.
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TITLE V—PROVISIONS RELATING TO PART A 
Subtitle A—Inpatient Hospital Services 
Sec. 501. Revision of acute care hospital payment updates. 
Sec. 502. Recognition of new medical technologies under inpatient hospital 
PPS. 
Sec. 503. Increase in Federal rate for hospitals in Puerto Rico. 
Sec. 504. Wage index adjustment reclassification reform . 
Sec. 505. MedPAC report on specialty hospitals. 
Subtitle B—Other Provisions 
Sec. 511. Payment for covered skilled nursing facility services. 
Sec. 512. Coverage of hospice consultation services. 
Sec. 513. Correction of Trust Fund holdings. 
TITLE VI—PROVISIONS RELATING TO PART B 
Subtitle A—Physicians’ Services 
Sec. 601. Revision of updates for physicians’ services. 
Sec. 602. Studies on access to physicians’ services. 
Sec. 603. MedPAC report on payment for physicians’ services. 
Sec. 604. Inclusion of podiatrists and dentists under private contracting au-
thority. 
Sec. 605. Establishment of floor on work geographic adjustment. 
SUBTITLE B—PREVENTIVE SERVICES 
Sec. 611. Coverage of an initial preventive physical examination. 
Sec. 612. Coverage of cholesterol and blood lipid screening. 
Sec. 613. Waiver of deductible for colorectal cancer screening tests. 
Sec. 614. Improved payment for certain mammography services. 
Subtitle C—Other Services 
Sec. 621. Hospital outpatient department (HOPD) payment reform. 
Sec. 622. Payment for ambulance services. 
Sec. 623. Renal dialysis services. 
Sec. 624. One-year moratorium on therapy caps; provisions relating to reports. 
Sec. 625. Adjustment to payments for services furnished in ambulatory surgical 
centers. 
Sec. 626. Payment for certain shoes and inserts under the fee schedule for 
orthotics and prosthetics. 
Sec. 627. Waiver of part B late enrollment penalty for certain military retirees; 
special enrollment period. 
Sec. 628. Part B deductible. 
Sec. 629. Extension of coverage of intravenous immune globulin (IVIG) for the 
treatment of primary immune deficiency diseases in the home. 
Sec. 630. Medicare coverage of diabetes laboratory diagnostic tests. 
Sec. 631. Demonstration project for coverage of certain prescription drugs and 
biologics. 
TITLE VII—PROVISIONS RELATING TO PARTS A AND B 
Subtitle A—Home Health Services
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Sec. 701. Update in home health services. 
Sec. 702. Establishment of reduced copayment for a home health service epi-
sode of care for certain beneficiaries. 
Sec. 703. MedPAC study on medicare margins of home health agencies. 
Sec. 704. Demonstration project to clarify the definition of homebound. 
Subtitle B—Direct Graduate Medical Education 
Sec. 711. Extension of update limitation on high cost programs. 
Subtitle C—Chronic Care Improvement 
Sec. 721. Voluntary chronic care improvement under traditional fee-for-service. 
Sec. 722. Chronic care improvement under medicare advantage and enhanced 
fee-for-service programs. 
Sec. 723. Institute of Medicine report. 
Sec. 724. MedPAC report. 
Subtitle D—Other Provisions 
Sec. 731. Modifications to medicare payment advisory commission (MedPAC). 
Sec. 732. Demonstration project for medical adult day care services. 
Sec. 733. Improvements in national and local coverage determination process to 
respond to changes in technology. 
Sec. 734. Treatment of certain physician pathology services. 
Sec. 735. Clinical investigation of medicare pancreatic islet cell transplants. 
Sec. 736. Demonstration project for consumer-directed chronic outpatient serv-
ices. 
TITLE VIII—MEDICARE BENEFITS ADMINISTRATION 
Sec. 801. Establishment of Medicare Benefits Administration. 
TITLE IX—REGULATORY REDUCTION AND CONTRACTING 
REFORM 
Subtitle A—Regulatory Reform 
Sec. 901. Construction; definition of supplier. 
Sec. 902. Issuance of regulations. 
Sec. 903. Compliance with changes in regulations and policies. 
Sec. 904. Reports and studies relating to regulatory reform. 
Subtitle B—Contracting Reform 
Sec. 911. Increased flexibility in medicare administration. 
Sec. 912. Requirements for information security for medicare administrative 
contractors. 
Subtitle C—Education and Outreach 
Sec. 921. Provider education and technical assistance. 
Sec. 922. Small provider technical assistance demonstration program. 
Sec. 923. Medicare Provider Ombudsman; Medicare Beneficiary Ombudsman. 
Sec. 924. Beneficiary outreach demonstration program. 
Sec. 925. Inclusion of additional information in notices to beneficiaries about 
skilled nursing facility benefits. 
Sec. 926. Information on medicare-certified skilled nursing facilities in hospital 
discharge plans.
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Subtitle D—Appeals and Recovery 
Sec. 931. Transfer of responsibility for medicare appeals. 
Sec. 932. Process for expedited access to review. 
Sec. 933. Revisions to medicare appeals process. 
Sec. 934. Prepayment review. 
Sec. 935. Recovery of overpayments. 
Sec. 936. Provider enrollment process; right of appeal. 
Sec. 937. Process for correction of minor errors and omissions without pur-
suing appeals process. 
Sec. 938. Prior determination process for certain items and services; advance 
beneficiary notices. 
Subtitle V—Miscellaneous Provisions 
Sec. 941. Policy development regarding evaluation and management (E & M) 
documentation guidelines. 
Sec. 942. Improvement in oversight of technology and coverage. 
Sec. 943. Treatment of hospitals for certain services under medicare secondary 
payor (MSP) provisions. 
Sec. 944. EMTALA improvements. 
Sec. 945. Emergency Medical Treatment and Active Labor Act (EMTALA) 
technical advisory group. 
Sec. 946. Authorizing use of arrangements to provide core hospice services in 
certain circumstances. 
Sec. 947. Application of OSHA bloodborne pathogens standard to certain hos-
pitals. 
Sec. 948. BIPA-related technical amendments and corrections. 
Sec. 949. Conforming authority to waive a program exclusion. 
Sec. 950. Treatment of certain dental claims. 
Sec. 951. Furnishing hospitals with information to compute dsh formula. 
Sec. 952. Revisions to reassignment provisions. 
Sec. 953. Other provisions. 
Sec. 954. Temporary suspension of OASIS requirement for collection of data 
on non-medicare and non-medicaid patients. 
TITLE X—MEDICAID 
Sec. 1001. Medicaid disproportionate share hospital (DSH) payments. 
Sec. 1002. Clarification of inclusion of inpatient drug prices charged to certain 
public hospitals in the best price exemptions for the medicaid 
drug rebate program. 
TITLE XI—ACCESS TO AFFORDABLE PHARMACEUTICALS 
Subtitle A—Access to Affordable Pharmaceuticals 
Sec. 1101. 30-month stay-of-effectiveness period. 
Sec. 1102. Forfeiture of 180-day exclusivity period. 
Sec. 1103. Bioavailability and bioequivalence. 
Sec. 1104. Conforming amendments. 
Subtitle B—Federal Trade Commission Review 
Sec. 1111. Definitions. 
Sec. 1112. Notification of agreements. 
Sec. 1113. Filing deadlines.
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Sec. 1114. Disclosure exemption. 
Sec. 1115. Enforcement. 
Sec. 1116. Rulemaking. 
Sec. 1117. Savings clause. 
Sec. 1118. Effective date. 
Subtitle C—Importation of Prescription Drugs 
Sec. 1121. Importation of prescription drugs. 
DIVISION B—HEALTH SAVINGS AND AFFORDABILITY ACT 
OF 2003
TITLE XII—HEALTH SAVINGS SECURITY ACCOUNTS AND HEALTH 
SAVINGS ACCOUNTS 
Sec. 1201. Short title. 
Sec. 1202. Health savings security accounts and health savings accounts. 
Sec. 1203. Disposition of unused health benefits in cafeteria plans and flexible 
spending arrangements. 
Sec. 1204. Exception to information reporting requirements related to certain 
health arrangements.
DIVISION 
A—MEDICARE 
PRE-
SCRIPTION DRUG AND MOD-
ERNIZATION ACT OF 2003
TITLE I—MEDICARE 
PRESCRIPTION DRUG BENEFIT 
SEC. 101. ESTABLISHMENT OF A MEDICARE PRESCRIPTION 
DRUG BENEFIT. 
(a) IN GENERAL.—Title XVIII is amended—
(1) by redesignating part D as part F; and 
(2) by inserting after part C the following new 
part:
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‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT 
PROGRAM 
‘‘SEC. 1860D–1. BENEFITS; ELIGIBILITY; ENROLLMENT; AND 
COVERAGE PERIOD. 
‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG 
COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject 
to the succeeding provisions of this part, each individual 
who is entitled to benefits under part A or is enrolled 
under part B is entitled to obtain qualified prescription 
drug coverage (described in section 1860D–2(a)) as fol-
lows:
‘‘(1) MEDICARE-RELATED PLANS.—
‘‘(A) MEDICARE ADVANTAGE.—If the indi-
vidual is eligible to enroll in a Medicare Advan-
tage plan that provides qualified prescription 
drug coverage under section 1851(j), the indi-
vidual may enroll in such plan and obtain cov-
erage through such plan. 
‘‘(B) EFFS PLANS.—If the individual is 
eligible to enroll in an EFFS plan that provides 
qualified prescription drug coverage under part 
E under section 1860E–2(d), the individual 
may enroll in such plan and obtain coverage 
through such plan.
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‘‘(C) MA-EFFS 
PLAN; MA-EFFS RX 
PLAN.—For purposes of this part, the term 
‘MA-EFFS plan’ means a Medicare Advantage 
plan under part C and an EFFS plan under 
part E and the term ‘MA-EFFS Rx plan’ 
means a MA-EFFS plan insofar as such plan 
provides qualified prescription drug coverage. 
‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi-
vidual is not enrolled in a MA-EFFS plan, the indi-
vidual may enroll under this part in a prescription 
drug plan (as defined in section 1860D–10(a)(5)). 
Such individuals shall have a choice of such plans under 
section 1860D–5(d). 
‘‘(b) GENERAL ELECTION PROCEDURES.—
‘‘(1) IN
GENERAL.—An individual eligible to 
make an election under subsection (a) may elect to 
enroll in a prescription drug plan under this part, or 
elect the option of qualified prescription drug cov-
erage under a MA-EFFS Rx plan under part C or 
part E, and to change such election only in such 
manner and form as may be prescribed by regula-
tions of the Administrator of the Medicare Benefits 
Administration (appointed under section 1809(b)) 
(in this part referred to as the ‘Medicare Benefits
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Administrator’) and only during an election period 
prescribed in or under this subsection. 
‘‘(2) ELECTION PERIODS.—
‘‘(A) IN GENERAL.—Except as provided in 
this paragraph, the election periods under this 
subsection shall be the same as the coverage 
election periods under the Medicare Advantage 
and EFFS programs under section 1851(e), in-
cluding—
‘‘(i) annual coordinated election peri-
ods; and 
‘‘(ii) special election periods. 
In applying the last sentence of section 
1851(e)(4) (relating to discontinuance of an 
election during the first year of eligibility) 
under this subparagraph, in the case of an elec-
tion described in such section in which the indi-
vidual had elected or is provided qualified pre-
scription drug coverage at the time of such first 
enrollment, the individual shall be permitted to 
enroll in a prescription drug plan under this 
part at the time of the election of coverage 
under the original fee-for-service plan. 
‘‘(B) INITIAL ELECTION PERIODS.—
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‘‘(i) INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who is 
entitled to benefits under part A or en-
rolled under part B as of October 1, 2005, 
there shall be an initial election period of 
6 months beginning on that date. 
‘‘(ii) INDIVIDUAL
COVERED
IN
FU-
TURE.—In the case of an individual who is 
first entitled to benefits under part A or 
enrolled under part B after such date, 
there shall be an initial election period 
which is the same as the initial enrollment 
period under section 1837(d). 
‘‘(C) ADDITIONAL SPECIAL ELECTION PE-
RIODS.—The Administrator shall establish spe-
cial election periods—
‘‘(i) in cases of individuals who have 
and involuntarily lose prescription drug 
coverage described in subsection (c)(2)(C); 
‘‘(ii) in cases described in section 
1837(h) (relating to errors in enrollment), 
in the same manner as such section applies 
to part B; 
‘‘(iii) in the case of an individual who 
meets such exceptional conditions (includ-
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to the plan shall not be denied enrollment based 
on any health status-related factor (described in 
section 2702(a)(1) of the Public Health Service 
Act) or any other factor. 
‘‘(B) MEDICARE ADVANTAGE LIMITATIONS 
PERMITTED.—The provisions of paragraphs (2) 
and (3) (other than subparagraph (C)(i), relat-
ing to default enrollment) of section 1851(g) 
(relating to priority and limitation on termi-
nation of election) shall apply to PDP sponsors 
under this subsection. 
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who enrolls under a prescription drug 
plan or in a MA-EFFS Rx plan during the in-
dividual’s initial enrollment period under this 
part or maintains (as determined under sub-
paragraph (C)) continuous prescription drug 
coverage since the date the individual first 
qualifies to elect prescription drug coverage 
under this part, a PDP sponsor or entity offer-
ing a prescription drug plan or MA-EFFS Rx 
plan and in which the individual is enrolled may 
not deny, limit, or condition the coverage or 
provision of covered prescription drug benefits
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or vary or increase the premium under the plan 
based on any health status-related factor de-
scribed in section 2702(a)(1) of the Public 
Health Service Act or any other factor. 
‘‘(B) LATE
ENROLLMENT
PENALTY.—In 
the case of an individual who does not maintain 
such continuous prescription drug coverage (as 
described in subparagraph (C)), a PDP sponsor 
or an entity offering a MA-EFFS Rx plan may 
(notwithstanding any provision in this title) ad-
just the premium otherwise applicable with re-
spect to qualified prescription drug coverage in 
a manner that reflects additional actuarial risk 
involved. Such a risk shall be established 
through an appropriate actuarial opinion of the 
type described in subparagraphs (A) through 
(C) of section 2103(c)(4). The Administrator 
shall provide a mechanism for assisting such 
sponsors and entities in identifying eligible indi-
viduals who have (or have not) maintained such 
continuous prescription drug coverage. 
‘‘(C) CONTINUOUS
PRESCRIPTION
DRUG 
COVERAGE.—An individual is considered for 
purposes of this part to be maintaining contin-
uous prescription drug coverage on and after
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the date the individual first qualifies to elect 
prescription drug coverage under this part if 
the individual establishes that as of such date 
the individual is covered under any of the fol-
lowing prescription drug coverage and before 
the date that is the last day of the 63-day pe-
riod that begins on the date of termination of 
the particular prescription drug coverage in-
volved (regardless of whether the individual 
subsequently obtains any of the following pre-
scription drug coverage): 
‘‘(i) COVERAGE UNDER PRESCRIPTION 
DRUG PLAN OR MA-EFFS RX PLAN.—Quali-
fied prescription drug coverage under a 
prescription drug plan or under a MA-
EFFS Rx plan. 
‘‘(ii) MEDICAID PRESCRIPTION DRUG 
COVERAGE.—Prescription drug coverage 
under a medicaid plan under title XIX, in-
cluding through the Program of All-inclu-
sive Care for the Elderly (PACE) under 
section 1934, or through a demonstration 
project under part C that demonstrates the 
application of capitation payment rates for 
frail elderly medicare beneficiaries through
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the use of an interdisciplinary team and 
through the provision of primary care serv-
ices to such beneficiaries by means of such 
a team at the nursing facility involved. 
‘‘(iii) PRESCRIPTION DRUG COVERAGE 
UNDER GROUP HEALTH PLAN.—Any out-
patient prescription drug coverage under a 
group health plan, including a health bene-
fits plan under the Federal Employees 
Health Benefit Plan under chapter 89 of 
title 5, United States Code, and a qualified 
retiree prescription drug plan as defined in 
section 1860D–8(f)(1), but only if (subject 
to subparagraph (E)(ii)) the coverage pro-
vides benefits at least equivalent to the 
benefits under a qualified prescription drug 
plan. 
‘‘(iv) PRESCRIPTION DRUG COVERAGE 
UNDER
CERTAIN
MEDIGAP
POLICIES.—
Coverage under a medicare supplemental 
policy under section 1882 that provides 
benefits for prescription drugs (whether or 
not such coverage conforms to the stand-
ards for packages of benefits under section 
1882(p)(1)), but only if the policy was in
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effect on January 1, 2006, and if (subject 
to subparagraph (E)(ii)) the coverage pro-
vides benefits at least equivalent to the 
benefits under a qualified prescription drug 
plan. 
‘‘(v) STATE PHARMACEUTICAL ASSIST-
ANCE PROGRAM.—Coverage of prescription 
drugs under a State pharmaceutical assist-
ance program, but only if (subject to sub-
paragraph (E)(ii)) the coverage provides 
benefits at least equivalent to the benefits 
under a qualified prescription drug plan. 
‘‘(vi) VETERANS’ COVERAGE OF PRE-
SCRIPTION DRUGS.—Coverage of prescrip-
tion drugs for veterans under chapter 17 
of title 38, United States Code, but only if 
(subject to subparagraph (E)(ii)) the cov-
erage provides benefits at least equivalent 
to the benefits under a qualified prescrip-
tion drug plan. 
‘‘(D) CERTIFICATION.—For purposes of 
carrying out this paragraph, the certifications 
of the type described in sections 2701(e) of the 
Public Health Service Act and in section 
9801(e) of the Internal Revenue Code shall also
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include a statement for the period of coverage 
of whether the individual involved had prescrip-
tion drug coverage described in subparagraph 
(C). 
‘‘(E) DISCLOSURE.—
‘‘(i) IN GENERAL.—Each entity that 
offers coverage of the type described in 
clause (iii), (iv), (v), or (vi) of subpara-
graph (C) shall provide for disclosure, con-
sistent with standards established by the 
Administrator, of whether such coverage 
provides benefits at least equivalent to the 
benefits under a qualified prescription drug 
plan. 
‘‘(ii) WAIVER
OF
LIMITATIONS.—An 
individual may apply to the Administrator 
to waive the requirement that coverage of 
such type provide benefits at least equiva-
lent to the benefits under a qualified pre-
scription drug plan, if the individual estab-
lishes that the individual was not ade-
quately informed that such coverage did 
not provide such level of benefits. 
‘‘(F) CONSTRUCTION.—Nothing in this 
section shall be construed as preventing the
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disenrollment of an individual from a prescrip-
tion drug plan or a MA-EFFS Rx plan based 
on the termination of an election described in 
section 1851(g)(3), including for non-payment 
of premiums or for other reasons specified in 
subsection (d)(3), which takes into account a 
grace 
period 
described 
in 
section 
1851(g)(3)(B)(i). 
‘‘(3) NONDISCRIMINATION.—A PDP sponsor 
that offers a prescription drug plan in an area des-
ignated under section 1860D–4(b)(5) shall make 
such plan available to all eligible individuals residing 
in the area without regard to their health or eco-
nomic status or their place of residence within the 
area. 
‘‘(d) EFFECTIVE DATE OF ELECTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this 
section, the Administrator shall provide that elec-
tions under subsection (b) take effect at the same 
time as the Administrator provides that similar elec-
tions under section 1851(e) take effect under section 
1851(f). 
‘‘(2) NO ELECTION EFFECTIVE BEFORE 2006.—
In no case shall any election take effect before Janu-
ary 1, 2006.
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‘‘(3) TERMINATION.—The Administrator shall 
provide for the termination of an election in the case 
of—
‘‘(A) termination of coverage under both 
part A and part B; and 
‘‘(B) termination of elections described in 
section 1851(g)(3) (including failure to pay re-
quired premiums). 
‘‘SEC. 1860D–2. REQUIREMENTS FOR QUALIFIED PRESCRIP-
TION DRUG COVERAGE. 
‘‘(a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part 
and part C and part E, the term ‘qualified prescrip-
tion drug coverage’ means either of the following: 
‘‘(A) STANDARD COVERAGE WITH ACCESS 
TO
NEGOTIATED
PRICES.—Standard coverage 
(as defined in subsection (b)) and access to ne-
gotiated prices under subsection (d). 
‘‘(B) ACTUARIALLY
EQUIVALENT
COV-
ERAGE
WITH
ACCESS
TO
NEGOTIATED 
PRICES.—Coverage of covered outpatient drugs 
which meets the alternative coverage require-
ments of subsection (c) and access to negotiated 
prices under subsection (d), but only if it is ap-
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proved by the Administrator, as provided under 
subsection (c). 
‘‘(2) PERMITTING
ADDITIONAL
OUTPATIENT 
PRESCRIPTION DRUG COVERAGE.—
‘‘(A) IN
GENERAL.—Subject to subpara-
graph (B), nothing in this part shall be con-
strued as preventing qualified prescription drug 
coverage from including coverage of covered 
outpatient drugs that exceeds the coverage re-
quired under paragraph (1), but any such addi-
tional coverage shall be limited to coverage of 
covered outpatient drugs. 
‘‘(B) DISAPPROVAL AUTHORITY.—The Ad-
ministrator shall review the offering of qualified 
prescription drug coverage under this part or 
part C or E. If the Administrator finds, in the 
case of a qualified prescription drug coverage 
under a prescription drug plan or a MA-EFFS 
Rx plan, that the organization or sponsor offer-
ing the coverage is engaged in activities in-
tended to discourage enrollment of classes of el-
igible medicare beneficiaries obtaining coverage 
through the plan on the basis of their higher 
likelihood of utilizing prescription drug cov-
erage, the Administrator may terminate the
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contract with the sponsor or organization under 
this part or part C or E. 
‘‘(3) APPLICATION OF SECONDARY PAYOR PRO-
VISIONS.—The provisions of section 1852(a)(4) shall 
apply under this part in the same manner as they 
apply under part C. 
‘‘(b) STANDARD COVERAGE.—For purposes of this 
part, the ‘standard coverage’ is coverage of covered out-
patient drugs (as defined in subsection (f)) that meets the 
following requirements: 
‘‘(1) DEDUCTIBLE.—The coverage has an an-
nual deductible—
‘‘(A) for 2006, that is equal to $250; or 
‘‘(B) for a subsequent year, that is equal 
to the amount specified under this paragraph 
for the previous year increased by the percent-
age specified in paragraph (5) for the year in-
volved. 
Any amount determined under subparagraph (B) 
that is not a multiple of $10 shall be rounded to the 
nearest multiple of $10. 
‘‘(2) 80:20 BENEFIT STRUCTURE.—
‘‘(A) 20 PERCENT
COINSURANCE.—The 
coverage has cost-sharing (for costs above the 
annual deductible specified in paragraph (1)
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and up to the initial coverage limit under para-
graph (3)) that is—
‘‘(i) equal to 20 percent; or 
‘‘(ii) is actuarially equivalent (using 
processes established under subsection (e)) 
to an average expected payment of 20 per-
cent of such costs. 
‘‘(B) USE OF TIERS.—Nothing in this part 
shall be construed as preventing a PDP sponsor 
from applying tiered copayments, so long as 
such tiered copayments are consistent with sub-
paragraph (A).
‘‘(3) INITIAL
COVERAGE
LIMIT.—Subject to 
paragraph (4), the coverage has an initial coverage 
limit on the maximum costs that may be recognized 
for payment purposes—
‘‘(A) for 2006, that is equal to $2,000; or 
‘‘(B) for a subsequent year, that is equal 
to the amount specified in this paragraph for 
the previous year, increased by the annual per-
centage increase described in paragraph (5) for 
the year involved. 
Any amount determined under subparagraph (B) 
that is not a multiple of $25 shall be rounded to the 
nearest multiple of $25.
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‘‘(4) CATASTROPHIC PROTECTION.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (3), the coverage provides benefits with 
no cost-sharing after the individual has in-
curred costs (as described in subparagraph (C)) 
for covered outpatient drugs in a year equal to 
the annual out-of-pocket threshold specified in 
subparagraph (B). 
‘‘(B) ANNUAL
OUT-OF-POCKET
THRESH-
OLD.—
‘‘(i) IN
GENERAL.—For purposes of 
this part, the ‘annual out-of-pocket thresh-
old’ specified in this subparagraph is equal 
to $3,500 (subject to adjustment under 
clause (ii) and subparagraph (D)). 
‘‘(ii) INFLATION
INCREASE.—For a 
year after 2006, the dollar amount speci-
fied in clause (i) shall be increased by the 
annual percentage increase described in 
paragraph (5) for the year involved. Any 
amount determined under the previous 
sentence that is not a multiple of $100 
shall be rounded to the nearest multiple of 
$100.