IB
107TH CONGRESS
2D SESSION
H. R. 4954
[Report No. 107–539, Part I]
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 and reform payments and the regulatory structure of the
Medicare Program, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
JUNE 18, 2002
Mrs. JOHNSON of Connecticut (for herself and Mr. BILIRAKIS) introduced the
following bill; which was referred, pursuant to the order of the House of
June 17, 2002, jointly to the Committees on Energy and Commerce and
Ways and Means
JUNE 26, 2002
Additional sponsors: Mr. THOMAS, Mr. TAUZIN, Mr. SHAW, Mr. UPTON, Ms.
DUNN, Mr. GREENWOOD, Mr. PORTMAN, Mr. PICKERING, Mr. ENGLISH,
Mr. BRYANT, Mr. WELLER, Mr. BASS, Mr. MCINNIS, Mr. WALDEN of
Oregon, Mr. RYAN of Wisconsin, Mr. TERRY, Mr. FLETCHER, Mr.
BOOZMAN, Mr. CRENSHAW, Mrs. JO ANN DAVIS of Virginia, Mr. KEL-
LER, Mr. KENNEDY of Minnesota, Mr. GOSS, Mr. SIMMONS, Mr. SUL-
LIVAN, Mr. LEWIS of Kentucky, Mr. VITTER, Mr. HOUGHTON, Mr.
GEKAS, Mr. SHIMKUS, and Mr. MCCRERY
JUNE 26, 2002
Reported from the Committee on Ways and Means with an amendment
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on June 18, 2002]
A BILL
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 and reform
payments and the regulatory structure of the Medicare
Program, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECU-
RITY ACT; REFERENCES TO BIPA AND SEC-
RETARY; TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Medicare Modernization and Prescription Drug Act of
2002’’.
(b) AMENDMENTS TO SOCIAL SECURITY ACT.—Except
as otherwise specifically provided, whenever in this Act an
amendment is expressed in terms of an amendment to or
repeal of a section or other provision, the reference shall
be considered to be made to that section or other provision
of the Social Security Act.
(c) BIPA; SECRETARY.—In this Act:
(1) BIPA.—The term ‘‘BIPA’’ means the Medi-
care, Medicaid, and SCHIP Benefits Improvement
and Protection Act of 2000, as enacted into law by
section 1(a)(6) of Public Law 106–554.
(2) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of Health and Human Services.
(d) TABLE OF CONTENTS.—The table of contents of
this Act is as follows:
Sec. 1. Short title; amendments to Social Security Act; references to BIPA and
Secretary; table of contents.
TITLE I—MEDICARE PRESCRIPTION DRUG BENEFIT
Sec. 101. Establishment of a medicare prescription drug benefit.
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT PROGRAM
‘‘Sec. 1860A. Benefits; eligibility; enrollment; and coverage period.
‘‘Sec. 1860B. Requirements for qualified prescription drug coverage.
‘‘Sec. 1860C. Beneficiary protections for qualified prescription drug cov-
erage.
‘‘Sec. 1860D. Requirements for prescription drug plan (PDP) sponsors; con-
tracts; establishment of standards.
‘‘Sec. 1860E. Process for beneficiaries to select qualified prescription drug
coverage.
‘‘Sec. 1860F. Submission of bids.
‘‘Sec. 1860G. Premium and cost-sharing subsidies for low-income individ-
uals.
‘‘Sec. 1860H. Subsidies for all medicare beneficiaries for qualified prescrip-
tion drug coverage.
‘‘Sec. 1860I. Medicare Prescription Drug Trust Fund.
‘‘Sec. 1860J. Definitions; treatment of references to provisions in part C.
Sec. 102. Offering 
of 
qualified 
prescription 
drug 
coverage 
under 
the
Medicare+Choice program.
Sec. 103. Medicaid amendments.
Sec. 104. Medigap transition.
Sec. 105. Medicare prescription drug discount card endorsement program.
TITLE II—MEDICARE+CHOICE REVITALIZATION AND
MEDICARE+CHOICE COMPETITION PROGRAM
Subtitle A—Medicare+Choice Revitalization
Sec. 201. Medicare+Choice improvements.
Sec. 202. Making permanent change in Medicare+Choice reporting deadlines and
annual, coordinated election period.
Sec. 203. Avoiding duplicative State regulation.
Sec. 204. Specialized Medicare+Choice plans for special needs beneficiaries.
Sec. 205. Medicare MSAs.
Sec. 206. Extension of reasonable cost and SHMO contracts.
Sec. 207. Extension of municipal health service demonstration projects.z
Subtitle B—Medicare+Choice Competition Program
Sec. 211. Medicare+Choice competition program.
Sec. 212. Demonstration program for competitive-demonstration areas.
Sec. 213. Conforming amendments.
TITLE III—RURAL HEALTH CARE IMPROVEMENTS
Sec. 301. Reference to full market basket increase for sole community hospitals.
Sec. 302. Enhanced disproportionate share hospital (DSH) treatment for rural
hospitals and urban hospitals with fewer than 100 beds.
Sec. 303. 2-year phased-in increase in the standardized amount in rural and
small urban areas to achieve a single, uniform standardized
amount.
Sec. 304. More frequent update in weights used in hospital market basket.
Sec. 305. Improvements to critical access hospital program.
Sec. 306. Extension of temporary increase for home health services furnished in
a rural area.
Sec. 307. Reference to 10 percent increase in payment for hospice care furnished
in a frontier area and rural hospice demonstration project.
Sec. 308. Reference to priority for hospitals located in rural or small urban areas
in redistribution of unused graduate medical education
residencies.
Sec. 309. GAO study of geographic differences in payments for physicians’ serv-
ices.
Sec. 310. Providing safe harbor for certain collaborative efforts that benefit medi-
cally underserved populations.
Sec. 311. Relief for certain non-teaching hospitals.
TITLE IV—PROVISIONS RELATING TO PART A
Subtitle A—Inpatient Hospital Services
Sec. 401. Revision of acute care hospital payment updates.
Sec. 402. 2-year increase in level of adjustment for indirect costs of medical edu-
cation (IME).
Sec. 403. Recognition of new medical technologies under inpatient hospital PPS.
Sec. 404. Phase-in of Federal rate for hospitals in Puerto Rico.
Sec. 405. Reference to provision relating to enhanced disproportionate share hos-
pital (DSH) payments for rural hospitals and urban hospitals
with fewer than 100 beds.
Sec. 406. Reference to provision relating to 2-year phased-in increase in the
standardized amount in rural and small urban areas to achieve
a single, uniform standardized amount.
Sec. 407. Reference to provision for more frequent updates in the weights used in
hospital market basket.
Sec. 408. Reference to provision making improvements to critical access hospital
program.
Subtitle B—Skilled Nursing Facility Services
Sec. 411. Payment for covered skilled nursing facility services.
Subtitle C—Hospice
Sec. 421. Coverage of hospice consultation services.
Sec. 422. 10 percent increase in payment for hospice care furnished in a frontier
area.
Sec. 423. Rural hospice demonstration project.
Subtitle D—Other Provisions
Sec. 431. Demonstration project for use of recovery audit contractors for part A
services.
TITLE V—PROVISIONS RELATING TO PART B
Subtitle A—Physicians’ Services
Sec. 501. Revision of updates for physicians’ services.
Sec. 502. Studies on access to physicians’ services.
Sec. 503. MedPAC report on payment for physicians’ services.
Sec. 504. 1-year extension of treatment of certain physician pathology services
under medicare.
Subtitle B—Other Services
Sec. 511. Competitive acquisition of certain items and services.
Sec. 512. Payment for ambulance services.
Sec. 513. 2-year extension of moratorium on therapy caps; provisions relating to
reports.
Sec. 514. Accelerated implementation of 20 percent coinsurance for hospital out-
patient department (OPD) services; other OPD provisions.
Sec. 515. Coverage of an initial preventive physical examination.
Sec. 516. Renal dialysis services.
Sec. 517. Improved payment for certain mammography services.
Sec. 518. Waiver of part B late enrollment penalty for certain military retirees;
special enrollment period.
Sec. 519. Coverage of cholesterol and blood lipid screening.
TITLE VI—PROVISIONS RELATING TO PARTS A AND B
Subtitle A—Home Health Services
Sec. 601. Elimination of 15 percent reduction in payment rates under the pro-
spective payment system.
Sec. 602. Establishment of reduced copayment for a home health service episode
of care for certain beneficiaries.
Sec. 603. Update in home health services.
Sec. 604. OASIS Task Force; suspension of certain OASIS data collection re-
quirements pending Task Force submittal of report.
Sec. 605. MedPAC study on medicare margins of home health agencies.
Subtitle B—Direct Graduate Medical Education
Sec. 611. Extension of update limitation on high cost programs.
Sec. 612. Redistribution of unused resident positions.
Subtitle C—Other Provisions
Sec. 621. Modifications to Medicare Payment Advisory Commission (MedPAC).
Sec. 622. Demonstration project for disease management for certain medicare
beneficiaries with diabetes.
Sec. 623. Demonstration project for medical adult day care services.
TITLE VII—MEDICARE BENEFITS ADMINISTRATION
Sec. 701. Establishment of Medicare Benefits Administration.
TITLE VIII—REGULATORY REDUCTION AND CONTRACTING REFORM
Subtitle A—Regulatory Reform
Sec. 801. Construction; definition of supplier.
Sec. 802. Issuance of regulations.
Sec. 803. Compliance with changes in regulations and policies.
Sec. 804. Reports and studies relating to regulatory reform.
Subtitle B—Contracting Reform
Sec. 811. Increased flexibility in medicare administration.
Sec. 812. Requirements for information security for medicare administrative con-
tractors.
Subtitle C—Education and Outreach
Sec. 821. Provider education and technical assistance.
Sec. 822. Small provider technical assistance demonstration program.
Sec. 823. Medicare provider ombudsman; medicare beneficiary ombudsman.
Sec. 824. Beneficiary outreach demonstration program.
Subtitle D—Appeals and Recovery
Sec. 831. Transfer of responsibility for medicare appeals.
Sec. 832. Process for expedited access to review.
Sec. 833. Revisions to medicare appeals process.
Sec. 834. Prepayment review.
Sec. 835. Recovery of overpayments.
Sec. 836. Provider enrollment process; right of appeal.
Sec. 837. Process for correction of minor errors and omissions on claims without
pursuing appeals process.
Sec. 838. Prior determination process for certain items and services; advance ben-
eficiary notices.
Subtitle E—Miscellaneous Provisions
Sec. 841. Policy development regarding evaluation and management (E & M)
documentation guidelines.
Sec. 842. Improvement in oversight of technology and coverage.
Sec. 843. Treatment of hospitals for certain services under medicare secondary
payor (MSP) provisions.
Sec. 844. EMTALA improvements.
Sec. 845. Emergency Medical Treatment and Labor Act (EMTALA) Technical
Advisory Group.
Sec. 846. Authorizing use of arrangements with other hospice programs to provide
core hospice services in certain circumstances.
Sec. 847. Application of OSHA bloodborne pathogens standard to certain hos-
pitals.
Sec. 848. BIPA-related technical amendments and corrections.
Sec. 849. Conforming authority to waive a program exclusion.
Sec. 850. Treatment of certain dental claims.
Sec. 851. Annual publication of list of national coverage determinations.
TITLE IX—MEDICAID, PUBLIC HEALTH, AND OTHER HEALTH
PROVISIONS
Subtitle A—Medicaid Provisions
Sec. 901. National Bipartisan Commission on the Future of Medicaid.
Sec. 902. GAO study on medicaid drug payment system.
Subtitle B—Internet Pharmacies
Sec. 911. Findings.
Sec. 912. Amendment to Federal Food, Drug, and Cosmetic Act.
Sec. 913. Public education.
Sec. 914. Study regarding coordination of regulatory activities.
Sec. 915. Effective date.
Subtitle C—Promotion of Electronic Prescription
Sec. 921. Program of grants to health care providers to implement electronic pre-
scription drug programs.
Subtitle D—Treatment of Rare Diseases
Sec. 931. NIH Office of Rare Diseases at National Institutes of Health.
Sec. 932. Rare disease regional centers of excellence.
Subtitle E—Other Provisions Relating to Drugs
Sec. 941. GAO study regarding direct-to-consumer advertising of prescription
drugs.
Sec. 942. Certain health professions programs regarding practice of pharmacy.
‘‘SUBPART 3—PHARMACIST WORKFORCE PROGRAMS
‘‘Sec. 771. Public service announcements.
‘‘Sec. 772. Demonstration project.
‘‘Sec. 773. Information technology.
‘‘Sec. 774. Authorization of appropriations.
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 E; and
(2) by inserting after part C the following new
part:
‘‘PART D—VOLUNTARY PRESCRIPTION DRUG BENEFIT
PROGRAM
‘‘SEC. 1860A. BENEFITS; ELIGIBILITY; ENROLLMENT; AND
COVERAGE PERIOD.
‘‘(a) PROVISION OF QUALIFIED PRESCRIPTION DRUG
COVERAGE THROUGH ENROLLMENT IN PLANS.—Subject to
the succeeding provisions of this part, each individual who
is entitled to benefits under part A or is enrolled under part
B is entitled to obtain qualified prescription drug coverage
(described in section 1860B(a)) as follows:
‘‘(1) MEDICARE+CHOICE
PLAN.—If the indi-
vidual is eligible to enroll in a Medicare+Choice plan
that provides qualified prescription drug coverage
under section 1851(j), the individual may enroll in
the plan and obtain coverage through such plan.
‘‘(2) PRESCRIPTION DRUG PLAN.—If the indi-
vidual is not enrolled in a Medicare+Choice plan
that provides qualified prescription drug coverage, the
individual may enroll under this part in a prescrip-
tion drug plan (as defined in section 1860J(a)(5)).
Such individuals shall have a choice of such plans under
section 1860E(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 Medicare+Choice plan under part C,
and to change such election only in such manner and
form as may be prescribed by regulations of the Ad-
ministrator of the Medicare Benefits Administration
(appointed under section 1808(b)) (in this part re-
ferred to as the ‘Medicare Benefits Administrator’)
and only during an election period prescribed in or
under this subsection.
‘‘(2) ELECTION PERIODS.—
‘‘(A) IN GENERAL.—Except as provided in
this paragraph, the election periods under this
subsection shall be the same as the coverage elec-
tion periods under the Medicare+Choice pro-
gram under section 1851(e), including—
‘‘(i) annual coordinated election peri-
ods; and
‘‘(ii) special election periods.
In applying the last sentence of section
1851(e)(4) (relating to discontinuance of a
Medicare+Choice election during the first year
of eligibility) under this subparagraph, in the
case of an election described in such section in
which the individual had elected or is provided
qualified prescription drug coverage at the time
of such first enrollment, the individual shall be
permitted to enroll in a prescription drug plan
under this part at the time of the election of cov-
erage under the original fee-for-service plan.
‘‘(B) INITIAL ELECTION PERIODS.—
‘‘(i) INDIVIDUALS
CURRENTLY
COV-
ERED.—In the case of an individual who is
entitled to benefits under part A or enrolled
under part B as of November 1, 2004, 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 en-
rolled 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 PERI-
ODS.—The Administrator shall establish special
election periods—
‘‘(i) in cases of individuals who have
and involuntarily lose prescription drug
coverage described in subsection (c)(2)(C);
‘‘(ii) in cases described in section
1837(h) (relating to errors in enrollment),
in the same manner as such section applies
to part B;
‘‘(iii) in the case of an individual who
meets such exceptional conditions (including
conditions 
provided 
under 
section
1851(e)(4)(D)) as the Administrator may
provide; and
‘‘(iv) in cases of individuals (as deter-
mined by the Administrator) who become el-
igible for prescription drug assistance under
title XIX under section 1935(d).
‘‘(c) GUARANTEED ISSUE; COMMUNITY RATING; AND
NONDISCRIMINATION.—
‘‘(1) GUARANTEED ISSUE.—
‘‘(A) IN GENERAL.—An eligible individual
who is eligible to elect qualified prescription
drug coverage under a prescription drug plan or
Medicare+Choice plan at a time during which
elections are accepted under this part with re-
spect to the plan shall not be denied enrollment
based on any health status-related factor (de-
scribed in section 2702(a)(1) of the Public
Health Service Act) or any other factor.
‘‘(B) MEDICARE+CHOICE LIMITATIONS PER-
MITTED.—The provisions of paragraphs (2) and
(3) (other than subparagraph (C)(i), relating to
default enrollment) of section 1851(g) (relating
to priority and limitation on termination of
election) shall apply to PDP sponsors under this
subsection.
‘‘(2) COMMUNITY-RATED PREMIUM.—
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who maintains (as determined under sub-
paragraph (C)) continuous prescription drug
coverage since the date the individual first quali-
fies to elect prescription drug coverage under this
part, a PDP sponsor or Medicare+Choice orga-
nization offering a prescription drug plan or
Medicare+Choice plan that provides qualified
prescription drug coverage and in which the in-
dividual is enrolled may not deny, limit, or con-
dition the coverage or provision of covered pre-
scription drug benefits or increase the premium
under the plan based on any health status-re-
lated factor described in section 2702(a)(1) of the
Public Health Service Act or any other 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 Medicare+Choice organization may (notwith-
standing any provision in this title) adjust the
premium otherwise applicable or impose a pre-
existing condition exclusion with respect to
qualified prescription drug coverage in a man-
ner that reflects additional actuarial risk in-
volved. Such a risk shall be established through
an appropriate actuarial opinion of the type de-
scribed in subparagraphs (A) through (C) of sec-
tion 2103(c)(4).
‘‘(C) CONTINUOUS
PRESCRIPTION
DRUG
COVERAGE.—An individual is considered for
purposes of this part to be maintaining contin-
uous prescription drug coverage on and after the
date the individual first qualifies to elect pre-
scription drug coverage under this part if the in-
dividual establishes that as of such date the indi-
vidual is covered under any of the following pre-
scription drug coverage and before the date that
is the last day of the 63-day period that begins
on the date of termination of the particular pre-
scription drug coverage involved (regardless of
whether the individual subsequently obtains any
of the following prescription drug coverage):
‘‘(i) COVERAGE UNDER PRESCRIPTION
DRUG PLAN OR MEDICARE+CHOICE PLAN.—
Qualified prescription drug coverage under
a prescription drug plan or under a
Medicare+Choice plan.
‘‘(ii) MEDICAID
PRESCRIPTION
DRUG
COVERAGE.—Prescription 
drug 
coverage
under a medicaid plan under title XIX, in-
cluding through the Program of All-inclu-
sive Care for the Elderly (PACE) under sec-
tion 1934, through a social health mainte-
nance organization (referred to in section
4104(c) of the Balanced Budget Act of
1997), or through a Medicare+Choice
project that demonstrates the application of
capitation payment rates for frail elderly
medicare beneficiaries through the use of a
interdisciplinary team and through the pro-
vision of primary care services to such bene-
ficiaries by means of such a team at the
nursing facility involved.
‘‘(iii) PRESCRIPTION DRUG COVERAGE
UNDER
GROUP
HEALTH
PLAN.—Any out-
patient prescription drug coverage under a
group health plan, including a health bene-
fits plan under the Federal Employees
Health Benefit Plan under chapter 89 of
title 5, United States Code, and a qualified
retiree prescription drug plan as defined in
section 1860H(f)(1), but only if (subject to
subparagraph (E)(ii)) the coverage provides
benefits at least equivalent to the benefits
under a qualified prescription drug plan.
‘‘(iv) PRESCRIPTION DRUG COVERAGE
UNDER CERTAIN MEDIGAP POLICIES.—Cov-
erage under a medicare supplemental policy
under section 1882 that provides benefits for
prescription drugs (whether or not such cov-
erage conforms to the standards for pack-
ages of benefits under section 1882(p)(1)),
but only if the policy was in effect on Janu-
ary 1, 2005, and if (subject to subpara-
graph (E)(ii)) the coverage provides 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 prescription
drug plan.
‘‘(D) CERTIFICATION.—For purposes of car-
rying out this paragraph, the certifications of the
type described in sections 2701(e) of the Public
Health Service Act and in section 9801(e) of the
Internal Revenue Code shall also include a state-
ment for the period of coverage of whether the in-
dividual involved had prescription 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 sec-
tion shall be construed as preventing the
disenrollment of an individual from a prescrip-
tion drug plan or a Medicare+Choice plan based
on the termination of an election described in
section 1851(g)(3), including for non-payment of
premiums or for other reasons specified in sub-
section (d)(3), which takes into account a grace
period described in section 1851(g)(3)(B)(i).
‘‘(3) NONDISCRIMINATION.—A PDP sponsor of-
fering a prescription drug plan shall not establish a
service area in a manner that would discriminate
based on health or economic status of potential enroll-
ees.
‘‘(d) EFFECTIVE DATE OF ELECTIONS.—
‘‘(1) IN GENERAL.—Except as provided in this
section, the Administrator shall provide that elections
under subsection (b) take effect at the same time as
the Administrator provides that similar elections
under section 1851(e) take effect under section
1851(f).
‘‘(2) NO ELECTION EFFECTIVE BEFORE 2005.—In
no case shall any election take effect before January
1, 2005.
‘‘(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. 1860B. REQUIREMENTS FOR QUALIFIED PRESCRIP-
TION DRUG COVERAGE.
‘‘(a) REQUIREMENTS.—
‘‘(1) IN GENERAL.—For purposes of this part
and part C, the term ‘qualified prescription drug cov-
erage’ means either of the following:
‘‘(A) STANDARD
COVERAGE
WITH
ACCESS
TO NEGOTIATED PRICES.—Standard coverage (as
defined in subsection (b)) and access to nego-
tiated prices under subsection (d).
‘‘(B) ACTUARIALLY EQUIVALENT COVERAGE
WITH
ACCESS
TO
NEGOTIATED
PRICES.—Cov-
erage of covered outpatient drugs which meets the
alternative coverage requirements of subsection
(c) and access to negotiated prices under sub-
section (d), but only if it is approved by the Ad-
ministrator, as provided under subsection (c).
‘‘(2) PERMITTING ADDITIONAL OUTPATIENT PRE-
SCRIPTION 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 out-
patient drugs that exceeds the coverage required
under paragraph (1), but any such additional
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. If the Administrator finds that, in the
case of a qualified prescription drug coverage
under 
a 
prescription 
drug 
plan 
or 
a
Medicare+Choice plan, that the organization or
sponsor offering the coverage is engaged in ac-
tivities intended to discourage enrollment of
classes of eligible medicare beneficiaries obtain-
ing coverage through the plan on the basis of
their higher likelihood of utilizing prescription
drug coverage, the Administrator may terminate
the contract with the sponsor or organization
under this part or part C.
‘‘(3) 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.
‘‘(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 annual
deductible—
‘‘(A) for 2005, 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 percentage
specified in paragraph (5) for the year involved.
Any amount determined under subparagraph (B)
that is not a multiple of $10 shall be rounded to the
nearest multiple of $10.
‘‘(2) LIMITS ON COST-SHARING.—
‘‘(A) IN GENERAL.—The coverage has cost-
sharing (for costs above the annual deductible
specified in paragraph (1) and up to the initial
coverage limit under paragraph (3)) as follows:
‘‘(i) FIRST
COPAYMENT
RANGE.—For
costs above the annual deductible specified
in paragraph (1) and up to amount speci-
fied 
in 
subparagraph 
(C), 
the 
cost-
sharing—
‘‘(I) is equal to 20 percent; or
‘‘(II) is actuarially equivalent
(using processes established under sub-
section (e)) to an average expected pay-
ment of 20 percent of such costs.
‘‘(ii) 
SECONDARY
COPAYMENT
RANGE.—For costs above the amount speci-
fied in subparagraph (C) and up to the ini-
tial coverage limit, the cost-sharing—
‘‘(I) is equal to 50 percent; or
‘‘(II) is actuarially consistent
(using processes established under sub-
section (e)) with an average expected
payment of 50 percent of such costs.
‘‘(B) USE OF TIERED COPAYMENTS.—Noth-
ing in this part shall be construed as preventing
a PDP sponsor from applying tiered copay-
ments, so long as such tiered copayments are
consistent with subparagraph (A).
‘‘(C) INITIAL
COPAYMENT
THRESHOLD.—
The amount specified in this subparagraph—
‘‘(i) for 2005, is equal to $1,000; or
‘‘(ii) for a subsequent year, is equal to
the amount specified in this subparagraph
for the previous year, increased by the an-
nual percentage increase described in para-
graph (5) for the year involved.
Any amount determined under clause (ii) that is
not a multiple of $10 shall be rounded to the
nearest multiple of $10.
‘‘(3) INITIAL COVERAGE LIMIT.—Subject to para-
graph (4), the coverage has an initial coverage limit
on the maximum costs that may be recognized for
payment purposes—
‘‘(A) for 2005, 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 percent-
age increase described in paragraph (5) for the
year involved.
Any amount determined under subparagraph (B)
that is not a multiple of $25 shall be rounded to the
nearest multiple of $25.
‘‘(4) CATASTROPHIC PROTECTION.—
‘‘(A) IN GENERAL.—Notwithstanding para-
graph (3), the coverage provides benefits with no
cost-sharing after the individual has incurred
costs (as described in subparagraph (C)) for cov-
ered outpatient drugs in a year equal to the an-
nual out-of-pocket threshold specified in subpara-
graph (B).
‘‘(B) ANNUAL
OUT-OF-POCKET
THRESH-
OLD.—For purposes of this part, the ‘annual
out-of-pocket 
threshold’ 
specified 
in 
this
subparagraph—
‘‘(i) for 2005, is equal to $3,800; or
‘‘(ii) for a subsequent year, is equal to
the amount specified in this subparagraph
for the previous year, increased by the an-
nual percentage increase described in para-
graph (5) for the year involved.
Any amount determined under clause (ii) that is
not a multiple of $100 shall be rounded to the
nearest multiple of $100.
‘‘(C) APPLICATION.—In applying subpara-
graph (A)—
‘‘(i) incurred costs shall only include
costs incurred for the annual deductible (de-
scribed in paragraph (1)), cost-sharing (de-
scribed in paragraph (2)), and amounts for
which benefits are not provided because of
the application of the initial coverage limit
described in paragraph (3); and
‘‘(ii) such costs shall be treated as in-
curred only if they are paid by the indi-
vidual, under section 1860G, or under title
XIX and the individual is not reimbursed
(through insurance or otherwise) by another
person for such costs.
‘‘(5) ANNUAL PERCENTAGE INCREASE.—For pur-
poses 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 outpatient drugs in
the United States for medicare beneficiaries, as deter-
mined by the Administrator for the 12-month period
ending in July of the previous year.
‘‘(c) ALTERNATIVE COVERAGE REQUIREMENTS.—A
prescription drug plan or Medicare+Choice plan may pro-
vide a different prescription drug benefit design from the
standard coverage described in subsection (b) so long as the
Administrator determines (based on an actuarial analysis
by the Administrator) that the following requirements are
met and the plan applies for, and receives, the approval
of the Administrator for such benefit design:
‘‘(1) ASSURING AT LEAST ACTUARIALLY EQUIVA-
LENT COVERAGE.—
‘‘(A) ASSURING
EQUIVALENT
VALUE
OF
TOTAL COVERAGE.—The actuarial value of the
total coverage (as determined under subsection
(e)) is at least equal to the actuarial value (as
so determined) of standard coverage.
‘‘(B) ASSURING EQUIVALENT UNSUBSIDIZED
VALUE OF COVERAGE.—The unsubsidized value
of the coverage is at least equal to the unsub-
sidized value of standard coverage. For purposes
of this subparagraph, the unsubsidized value of
coverage is the amount by which the actuarial
value of the coverage (as determined under sub-
section (e)) exceeds the actuarial value of the sub-
sidy payments under section 1860H with respect
to such coverage.
‘‘(C) ASSURING
STANDARD
PAYMENT
FOR
COSTS AT INITIAL COVERAGE LIMIT.—The cov-
erage is designed, based upon an actuarially rep-
resentative pattern of utilization (as determined
under subsection (e)), to provide for the pay-
ment, with respect to costs incurred that are
equal to the initial coverage limit under sub-
section (b)(3), of an amount equal to at least the
sum of the following products:
‘‘(i) FIRST
COPAYMENT
RANGE.—The
product of—
‘‘(I) the amount by which the ini-
tial copayment threshold described in
subsection (b)(2)(C) exceeds the deduct-
ible described in subsection (b)(1); and
‘‘(II) 100 percent minus the cost-
sharing percentage specified in sub-
section (b)(2)(A)(i)(I).
‘‘(ii) 
SECONDARY
COPAYMENT
RANGE.—The product of—
‘‘(I) the amount by which the ini-
tial coverage limit described in sub-
section (b)(3) exceeds the initial copay-
ment threshold described in subsection
(b)(2)(C); and
‘‘(II) 100 percent minus the cost-
sharing percentage specified in sub-
section (b)(2)(A)(ii)(I).
‘‘(2) CATASTROPHIC PROTECTION.—The coverage
provides for beneficiaries the catastrophic protection
described in subsection (b)(4).
‘‘(d) ACCESS TO NEGOTIATED PRICES.—
‘‘(1) IN GENERAL.—Under qualified prescription
drug coverage offered by a PDP sponsor or a
Medicare+Choice organization, the sponsor or organi-
zation shall provide beneficiaries with access to nego-
tiated prices (including applicable discounts) used for
payment for covered outpatient drugs, regardless of
the fact that no benefits may be payable under the
coverage with respect to such drugs because of the ap-
plication of cost-sharing or an initial coverage limit
(described in subsection (b)(3)). Insofar as a State
elects to provide medical assistance under title XIX
for a drug based on the prices negotiated by a pre-
scription drug plan under this part, the requirements
of section 1927 shall not apply to such drugs. The
prices negotiated by a prescription drug plan under
this part, by a Medicare+Choice plan with respect to
covered outpatient drugs, or by a qualified retiree
prescription drug plan (as defined in section
1860H(f)(1)) with respect to such drugs on behalf of
individuals entitled to benefits under part A or en-
rolled under part B, 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) 
DISCLOSURE.—The 
PDP 
sponsor 
or
Medicare+Choice organization shall disclose to the
Administrator (in a manner specified by the Admin-
istrator) the extent to which discounts or rebates
made available to the sponsor 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 in-
formation disclosed to the Administrator under this
paragraph in the same manner as such provisions
apply to information disclosed under such section.
‘‘(e) ACTUARIAL VALUATION; DETERMINATION OF AN-
NUAL 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
coverage and of the reinsurance subsidy
payments under section 1860H;
‘‘(ii) the use of generally accepted actu-
arial principles and methodologies; and
‘‘(iii) applying the same methodology
for determinations of alternative coverage
under subsection (c) as is used with respect
to determinations of standard coverage
under subsection (b); and
‘‘(B) for determining annual percentage in-
creases described in subsection (b)(5).
‘‘(2) USE OF OUTSIDE ACTUARIES.—Under the
processes under paragraph (1)(A), PDP sponsors and
Medicare+Choice organizations may use actuarial
opinions certified by independent, qualified actuaries
to establish actuarial values, but the Administrator
shall determine whether such actuarial values meet
the requirements under subsection (c)(1).
‘‘(f) COVERED OUTPATIENT DRUGS DEFINED.—
‘‘(1) IN GENERAL.—Except as provided in this
subsection, for purposes of this part, the term ‘covered
outpatient drug’ means—
‘‘(A) a drug that may be dispensed only
upon a prescription and that is described in sub-
paragraph (A)(i) or (A)(ii) of section 1927(k)(2);
or
‘‘(B) a biological product described in
clauses (i) through (iii) of subparagraph (B) of
such section or insulin described in subpara-
graph (C) of such section,
and such term includes a vaccine licensed under sec-
tion 351 of the Public Health Service Act and any
use of a covered outpatient drug for a medically ac-
cepted indication (as defined in section 1927(k)(6)).
‘‘(2) EXCLUSIONS.—
‘‘(A) IN GENERAL.—Such term does not in-
clude drugs or classes of drugs, or their medical
uses, which may be excluded from coverage or
otherwise restricted under section 1927(d)(2),
other than subparagraph (E) thereof (relating to
smoking cessation agents), or under section
1927(d)(3).
‘‘(B) 
AVOIDANCE
OF
DUPLICATE
COV-
ERAGE.—A drug prescribed for an individual
that would otherwise be a covered outpatient
drug under this part shall not be so considered
if payment for such drug is available under part
A or B for an individual entitled to benefits
under part A and enrolled under part B.
‘‘(3) APPLICATION
OF
FORMULARY
RESTRIC-
TIONS.—A drug prescribed for an individual that
would otherwise be a covered outpatient drug under
this part shall not be so considered under a plan if
the plan excludes the drug under a formulary and
such exclusion is not successfully appealed under sec-
tion 1860C(f)(2).
‘‘(4) APPLICATION OF GENERAL EXCLUSION PRO-
VISIONS.—A 
prescription 
drug 
plan 
or
Medicare+Choice plan may exclude from qualified
prescription drug coverage any covered outpatient
drug—
‘‘(A) for which payment would not be made
if section 1862(a) applied to part D; or
‘‘(B) which are not prescribed in accordance
with the plan or this part.
Such exclusions are determinations subject to recon-
sideration and appeal pursuant to section 1860C(f).
‘‘SEC. 1860C. BENEFICIARY PROTECTIONS FOR QUALIFIED
PRESCRIPTION DRUG COVERAGE.
‘‘(a) GUARANTEED ISSUE, COMMUNITY-RATED PRE-
MIUMS, ACCESS
TO
NEGOTIATED
PRICES, AND
NON-
DISCRIMINATION.—For provisions requiring guaranteed
issue, community-rated premiums, access to negotiated
prices, and nondiscrimination, see sections 1860A(c)(1),
1860A(c)(2), 1860B(d), and 1860F(b), respectively.
‘‘(b) DISSEMINATION OF INFORMATION.—
‘‘(1) GENERAL INFORMATION.—A PDP sponsor
shall disclose, in a clear, accurate, and standardized
form to each enrollee with a prescription drug plan
offered by the sponsor under this part at the time of
enrollment and at least annually thereafter, the infor-
mation described in section 1852(c)(1) relating to
such plan. Such information includes the following:
‘‘(A) Access to covered outpatient drugs, in-
cluding access through pharmacy networks.
‘‘(B) How any formulary used by the spon-
sor functions.
‘‘(C) Co-payments and deductible require-
ments, including the identification of the tiered
or other co-payment level applicable to each drug
(or class of drugs).
‘‘(D) Grievance and appeals procedures.
‘‘(2) DISCLOSURE UPON REQUEST OF GENERAL
COVERAGE, UTILIZATION, AND GRIEVANCE INFORMA-
TION.—Upon request of an individual eligible to en-
roll under a prescription drug plan, the PDP sponsor
shall provide the information described in section
1852(c)(2) (other than subparagraph (D)) to such in-
dividual.
‘‘(3) RESPONSE TO BENEFICIARY QUESTIONS.—
Each PDP sponsor offering a prescription drug plan
shall have a mechanism for providing specific infor-
mation to enrollees upon request. The sponsor shall
make available on a timely basis, through an Internet
website and in writing upon request, information on
specific changes in its formulary.
‘‘(4) CLAIMS INFORMATION.—Each PDP sponsor
offering a prescription drug plan must furnish to en-
rolled individuals in a form easily understandable to
such individuals an explanation of benefits (in ac-
cordance with section 1806(a) or in a comparable
manner) and a notice of the benefits in relation to
initial coverage limit and annual out-of-pocket
threshold for the current year, whenever prescription
drug benefits are provided under this part (except
that such notice need not be provided more often than
monthly).
‘‘(c) ACCESS TO COVERED BENEFITS.—
‘‘(1) ASSURING PHARMACY ACCESS.—
‘‘(A) IN GENERAL.—The PDP sponsor of the
prescription drug plan shall secure the partici-
pation in its network of a sufficient number of
pharmacies that dispense (other than by mail
order) drugs directly to patients to ensure con-
venient access (as determined by the Adminis-
trator and including adequate emergency access)
for enrolled beneficiaries, in accordance with
standards established under section 1860D(e)
that ensure such convenient access.
‘‘(B) USE OF POINT-OF-SERVICE SYSTEM.—
A PDP sponsor shall establish an optional 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 premiums and co-
payments any additional costs associated
with the point-of-service option.
The additional copayments so charged shall not
count 
toward 
the 
application 
of 
section
1860B(b).
‘‘(2) USE OF STANDARDIZED TECHNOLOGY.—
‘‘(A) IN GENERAL.—The PDP sponsor of a
prescription drug plan shall issue (and reissue,
as appropriate) such a card (or other technology)
that may be used by an enrolled beneficiary to
assure access to negotiated prices under section
1860B(d) for the purchase of prescription drugs
for which coverage is not otherwise provided
under the prescription drug plan.
‘‘(B) 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 technology
referred to in subparagraph (A). Such
standards shall be compatible with stand-
ards established under part C of title XI.
‘‘(ii) APPLICATION OF ADVISORY TASK
FORCE.—The advisory task force established
under subsection (d)(3)(B)(ii) shall provide
recommendations 
to 
the 
Administrator
under such subsection regarding the stand-
ards developed under clause (i).
‘‘(3) REQUIREMENTS ON DEVELOPMENT AND AP-
PLICATION OF FORMULARIES.—If a PDP sponsor of a
prescription drug plan uses a formulary, the fol-
lowing requirements must be met:
‘‘(A) PHARMACY AND THERAPEUTIC (P&T)
COMMITTEE.—The sponsor must establish a
pharmacy and therapeutic committee that devel-
ops and reviews the formulary. Such committee
shall include at least one physician and at least
one pharmacist both with expertise in the care of
elderly or disabled persons and a majority of its
members shall consist of individuals who are a
physician or a 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 such other information as the
committee determines to be appropriate.
‘‘(C) INCLUSION OF DRUGS IN ALL THERA-
PEUTIC CATEGORIES.—The formulary must in-
clude drugs within each therapeutic category and
class of covered outpatient drugs (although not
necessarily for all drugs within such categories
and classes).
‘‘(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 appro-
priate notice is made available to beneficiaries
and physicians.
‘‘(F) GRIEVANCES AND APPEALS RELATING
TO APPLICATION OF FORMULARIES.—For provi-
sions relating to grievances and appeals of cov-
erage, see subsections (e) and (f).
‘‘(d) COST AND UTILIZATION MANAGEMENT; QUALITY
ASSURANCE; MEDICATION THERAPY MANAGEMENT PRO-
GRAM.—
‘‘(1) IN GENERAL.—The PDP sponsor shall have
in place with respect to covered outpatient drugs—
‘‘(A) an effective cost and drug utilization
management program, including medically ap-
propriate incentives to use generic drugs and
therapeutic interchange, when appropriate;
‘‘(B) quality assurance measures and sys-
tems to reduce medical errors and adverse drug
interactions, including a medication therapy
management program described in paragraph
(2) and for years beginning with 2006, an elec-
tronic prescription program described in para-
graph (3); and
‘‘(C) a program to control fraud, abuse, and
waste.
Nothing in this section shall be construed as impair-
ing a PDP sponsor from applying cost management
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 management
and medication administration that is designed
to assure, with respect to beneficiaries with
chronic diseases (such as diabetes, asthma, hy-
pertension, and congestive heart failure) or mul-
tiple prescriptions, that covered outpatient drugs
under the prescription drug plan are appro-
priately used to achieve therapeutic goals and re-
duce the risk of adverse events, including adverse
drug interactions.
‘‘(B) 
ELEMENTS.—Such 
program 
may
include—
‘‘(i) 
enhanced 
beneficiary 
under-
standing of such appropriate use through
beneficiary education, counseling, and other
appropriate means;
‘‘(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 pharmacists and physicians.
‘‘(D) 
CONSIDERATIONS
IN
PHARMACY
FEES.—The PDP sponsor of a prescription drug
program shall take into account, in establishing
fees for pharmacists and others providing serv-
ices under the medication therapy management
program, the resources and time used in imple-
menting the program.
‘‘(3) ELECTRONIC PRESCRIPTION PROGRAM.—
‘‘(A) IN GENERAL.—An electronic prescrip-
tion drug program described in this paragraph
is a program that includes at least the following
(2)(B) for a year after 2006 shall be the amounts
(under this paragraph) applied under paragraph
(1)(B) or (2)(B) for the preceding year increased
by the annual percentage increase described in
section 1860B(b)(5) (relating to growth in medi-
care prescription drug costs per beneficiary) for
the year involved.
‘‘(b) PREMIUM SUBSIDY AMOUNT.—
‘‘(1) 
IN
GENERAL.—The 
premium 
subsidy
amount described in this subsection for an individual
residing in an area is the benchmark bid amount (as
defined in paragraph (2)) for qualified prescription
drug coverage offered by the prescription drug plan or
the Medicare+Choice plan in which the individual is
enrolled.
‘‘(2) BENCHMARK BID AMOUNT DEFINED.—For
purposes of this subsection, the term ‘benchmark bid
amount’ means, with respect to qualified prescription
drug coverage offered under—
‘‘(A) a prescription drug plan that—
‘‘(i) provides standard coverage (or al-
ternative prescription drug coverage the ac-
tuarial value is equivalent to that of stand-
ard coverage), the bid amount for enroll-
ment under the plan under this part (deter-